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Team Charter & Project Plan

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 What is happening around us (Economic)?
List some business-related events of the recent days and comment on them

https://youtu.be/PVy2xWFpLOM https://youtu.be/7XJXSamXer8

https://youtu.be/9gAST-G1Zzk https://youtu.be/d_bDjDpDCkk

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 LO 2-2

The Equilibrium Point (Market Price*)

The place where quantity

demanded and quantity supplied
meet is called the equilibrium
point. When we put both the
supply and demand curves on the
same graph, we find that they
intersect at a price where the
quantity supplied and the quantity
demanded are equal. In the long
run, the market price will tend
toward the equilibrium point.

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Competition within Free Markets

Large number of sellers

Many sellers but none is
produce similar products
large enough to dictate
that buyers nevertheless
the price of a product.
perceive as different.

A few sellers dominate a One seller controls the

market by making large total supply of a product
initial investments and or service and sets the
pricing at the same level. price.

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 LO 2-2

Benefits and Limitations of Free Markets

Allows for open competition Leads to inequality as business

among companies. owners and managers make more
money and have more wealth than
lower-level workers.
Provides opportunities for
poor people to work their way People may start to let greed drive
out of poverty. them (unethical decisions).

Anything else that comes to your mind?

https://youtu.be/t2woWOb2jd8 Poverty rates worldwide (1 minute)

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 Bad Medicine for Consumers
Your company, a large pharmaceutical
firm, acquired a chemotherapy drug for
liver cancer.
• Your finance committee recommends
increasing the price of the drug from
$300 to $3,000 to help alleviate the
development costs of new drugs.
• The public reacted with rage,
accusing your firm of favoring profits
over patients’ needs.

https://youtu.be/GBg8JbOAf6k Will you follow your committee’s

The most hated man in America recommendation and raise the price?
(1.5 minutes) What are your alternatives? What
might be the consequences of each?
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 LO 2-3

Socialism
An economic system based on the premise that some, if not most, basic businesses (coal mines,
utilities) should be owned by the government so that profits can be more evenly distributed among
the people.

Entrepreneurs run Citizens are Government is involved

smaller businesses highly taxed in the social sphere

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 LO 2-3

Growth in Socialist Countries

Socialism has been more successful in some countries than in others.
This photo shows Denmark’s clean and modern public transportation
system. In Greece, overspending caused a debt crisis that forced the
government to impose austerity measures that many Greeks oppose.
What other factors might lead to slower growth in socialist
countries?

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 LO 2-3
The Benefits and Limitations of Socialism

• Social equality • Few incentives for

• Free education business people to take
• Free health care risks
• Free child care • Brain drain: the loss of the
• Longer vacations best and brightest people
• Shorter work weeks to other countries
• Generous sick leave • Fewer inventions and less
innovation because the
Anything else that reward is not as great as in
comes to your mind? capitalistic countries

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 LO 2-3

Communism
An economic and political system in which the government makes almost all economic decisions
and owns almost all the major factors of production.

Prices don’t reflect demand, which Most communist countries today

may lead to shortages of items, suffer severe economic depression.
including food and clothing.

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 LO 2-3

Communism
Starting in the 1990s, Russia made the major change from
communism toward a viable market economy. Still, there are
few laws in place that help promote small businesses, and an
active black market remains for many goods. This “shadow
economy” represents as much as 20% of the country’s GDP.
Why are black markets bad for economic growth?

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 The March of History

https://youtu.be/QwqnRYPcrl0

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The Trend toward Mixed Economies

Economic systems in which some allocation of resources is made by the market and some by the
government.

Free-market Command
economies economies

The market largely

The government largely
determines what goods
decides what goods and
get produced, who gets
services will be produced,
them, and how the
who will get them, and how
economy grows.
the economy will grow.

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 LO 2-5
Main Indicators of Economic Systems
• Gross domestic product (GDP): The total market value of final goods and services produced
in a country in a given year
• Gross output (GO): A measure of total sales volume at all stages of production
• Unemployment rate: The number of civilians who are unemployed and tried to find a job within
the prior four weeks
• Real unemployment rate: standard unemployment rate plus those who are underemployed,
discouraged, and marginally attached (those who have looked for a job within the last year)

https://www.youtube.com/watch?v=iLom1WlqwS0
GDP explained (4 minutes)

https://www.youtube.com/watch?v=WoYF-ous_mU&t=25s
Steve Forbes in GDP vs GO (3 minutes)
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Four Types of Unemployment

• Frictional unemployment: people who have quit work because they didn’t like the
job, and who haven’t yet found a new job plus people who are entering the labor force
for the first time or are returning to the labor force after significant time away
• Structural unemployment: restructuring of firms or mismatch between the skills (or
location) of job seekers and the requirements (or location) of available jobs
• Cyclical unemployment: caused by a recession or a similar downturn in the business
cycle (the ups and downs of business growth and decline over time)
• Seasonal unemployment: demand for labor varies over the year, as with the
harvesting of crops

https://youtu.be/Ml4pVjoySa4 Types of Unemployment (3 minutes)

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Main Indicators of Economic Systems
• Inflation: A general rise in the prices of goods and services over time
• Disinflation: A situation in which price increases are slowing (the
inflation rate is declining)
• Deflation: A situation in which prices are declining
• Stagflation: A situation when the economy is slowing but prices are
going up
Have you heard of the recent “Shrinkflation”?

• Consumer price index (CPI): Monthly statistics that measure the pace
of inflation or deflation based on a representative basket of goods and
services
• Producer Price Index (PPI): An index that measures the change in
prices producers receive for their output at the wholesale level

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 LO 2-5
How a Stack of Cash Can
Become Worthless
Hyperinflation is when the price
of goods and services rises by
50% a month.
• In Venezuela, the inflation rate went
from 63% in 2014 to 481% in 2016.
• The currency, the Bolivar, was so low
that cash to pay for goods and
services was being weighed instead
of counted.
• The Federal Reserve in the U.S.
maintains the money supply and
carefully sets interest rates so that https://youtu.be/S1gUR8wM5vA
Venezuelan hyperinflation and Maduro (8 minutes)
inflation stays under control.

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 LO 2-5

The Business Cycle

The periodic rises and falls that occur in economies over time.

1. Economic boom: Steady growth path

2. Recession: Two or more consecutive quarters of decline in the GDP
3. Depression: A severe recession, usually accompanied by deflation
4. Recovery: When the economy stabilizes and starts to grow

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Stabilizing the Economy through Fiscal Policy

The federal government might keep the economy stable by increasing or

decreasing taxes or government spending

Keynesian economic theory:

a government policy of
increasing spending and
cutting taxes could stimulate
the economy in a recession

National deficit: amount of money the

federal government spends beyond what
it collects in taxes for a given fiscal year
(vice versa national surplus)
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Using Monetary Policy to Keep the Economy
Growing
Monetary policy refers to the management of the money supply and
interest rates by Central Banks.
When the economy is booming, Central Banks tend to raise interest rates.
When the economy is in a recession, they tend to decrease interest rates.

Yet, the financial crisis beginning in 2008

caused much anguish among Wall Street
workers and people in general.

How effective had governments’

responses been?

https://www.youtube.com/watch?v=T2IaJwkqgPk&t=5144s
Inside Job (1 hour and 45 minutes)
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 Which Country is better off? DIY
Is the standard of living different in capitalist, socialist, and communist economies?
Which economic system provides the highest standard of living?

CAPITALIST SOCIALIST COMMUNIST

COUNTRY COUNTRY COUNTRY
Country

GDP

Consumer Prices

Unemployment Rate

Average Income

Average Education

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