Business Management Agenda:3.26.13

• Tuesday, March 26th – Chapter 6.1 Notes & Activity

• Thursday, March 28th – Chapter 6.2 Notes & Activity

• Tuesday, April 2nd – Chapter 6 Review

• Thursday, April 4th – Chapter 6 Test (Who will ace it?!)

Chapter 7 – The Big One…

• International Business– Your BIG project for this class!– Group project – You pick your group

(teams of 2-3)

ECONOMICS

Chapter 6

Kind of dry…Very black and white...

Very important!!

Objectives

• Explain the concepts of scarcity and opportunity cost.

• Recognize how supply and demand work to determine price.

• Understand why businesses contract and expand during different phases of the business cycle.

Making Decisions in a Market Economy

Section 1

Allocating Resources

• All societies have resources– Try to figure out how best to use them to

produce goods and services

• ECONOMICS – the study of how societies decide what to produce, how to produce it, and how to distribute what they produce.

• SCARCITY – too few resources are available for everyone in the world to consume as much as he or she would like.

Opportunity Cost

• Producing one good means not producing another

• OPPORTUNITY COST – the loss associated with the best opportunity that is passed up– Businesses and individuals need to consider

opportunity cost whenever they choose one option over another

Economic Systems

• COMMAND ECONOMY – government decides what goods and services are produced– Decisions made by command, not consumer

taste

• MARKET ECONOMY – private companies and individuals decide what to produce and what to consume– Government plays minor role in regulating– Based on competition

Law of Supply and Demand

• How do you know what to produce?

• How do you know how much to produce?

• How do you know how much to charge?

• In a market economy, supply and demand determine the prices and quantities of the goods and services that are produced.

Law of Demand

• DEMAND – the quantity of a good or service individuals are willing to purchase at various prices– Depends on individuals’ needs and wants, as

well as their income

• LAW OF DEMAND – as the price of a good increases, the quantity of the good demanded falls

The Demand Curve

The Law of Supply

• SUPPLY – price affects the amount of a good producers produce

• LAW OF SUPPLY – as the price of a good rises, producers are willing to supply more of a good.

The Supply Curve

Determining Price

• The law of supply and demand determines prices in a market economy.– The price of a good or service adjusts until the

amount producers are willing to produce equals the amount consumers are willing to consume

• EQUILIBRIUM PRICE – the price at which supply equals demand.

Supply & Demand

• SURPLUS = Supply > Demand

• SHORTAGE = Demand > Supply

Determining Profits

• Understanding supply and demand is important because it helps managers determine the prices they should charge!

• Setting prices correctly affects how much profit a business earns.

• PROFIT – the difference between what a business earns (revenue) and what it spends (costs).

Estimating Revenue & CostsREVENUE• Forecast how many units of a good they will sell

try to gauge consumer demand– Test the product in small market

COSTS• FIXED COSTS – costs a business absorbs

regardless of the number of units produced• VARIABLE COSTS – costs that rise or fall

depending on how much of a good or service is produced

Breakeven Analysis

• BREAKEVEN ANALYSIS – reveals how many units of a good or service a business needs to sell before it begins earning a profit

• BREAKEVEN POINT – the point at which revenue is sufficient to cover all costs

Take out your homework…

• Check the board to see if your work is correct!

• What questions do you have?

• This handout goes in your Bus. Mgmt. binder.

Opportunity Cost…

• One of the most important lessons we can learn.

• But WHY??

• Delayed Gratification

Defining the Terms…

• Instant Gratification – An unwillingness to give up something now in return for something later

• Delayed Gratification – A willingness to give up something now in return for something later

The Business Cycle

Section 2

Phases of the Business Cycle

• Almost all businesses experience periods during which they grow and periods during which they contract.

• BUSINESS CYCLE – expansion and contraction by many industries at once– Consists of several phases, which occur

every few years– 2 major phases

• EXPANSIONARY PHASE• CONTRACTIONARY PHASE

Expansionary Phase

• Occurs when consumer spending is strong and companies invest in new factories and equipment

• Unemployment usually declines• Wages, prices, and interest rates usually

rise• As expansion continues, prices rise so

much that both businesses and consumers cut back on purchases and companies stop expanding.

Contractionary Phase

• Consumers reduce purchases and business investment slows

• Unemployment rises• Consumer spending falls companies reduce

production and employment even further• Economic growth declines

– RECESSION – growth falls for two three-month periods in a row

– DEPRESSION – business activity remains far below normal for years

Business Cycle

Economic Indicators

• Businesses want to predict then changes in the business cycle might occur.

• No one can predict with certainty, but managers can try to forecast these events.

• ECONOMIC INDICATORS – data that show how the economy is performing– Housing loans, bankruptcies

Economic Indicators

• LEADING ECONOMIC INDICATORS – economic measures that rise or fall before other measures

• COINCIDENT INDICATORS – occur at the same time as changes in the business cycle.

• LAGGING INDICATORS – occur after changes in the business cycle

Independent Practice

• Business Cycle Quick Lesson– Watch the Video– Take the Quiz