Economics. Benjamin Maxedon

Transcription

1 Economics Benjamin Maxedon

2 What is Economics? Economics is a discipline that examines historical and present day trends in a variety of different :ields to make predictions concerning the future. That may have sounded like a very vague description, but the economic discipline follows the study of scarcity (supply vs demand), how people use their resources to better their situation, and decision making on a large and small scale to predict future outcomes. Mostly involves using data collected by business and government to test hypotheses about whether a program, activity, event, or operation will result in it s anticipated effect. There are two main branches of Economics; Macro (large scale) and Micro (small scale).

3 Two Branches of Economics Macro-Economics Studies governments, industries, banking, and the ebb and :low of the business cycle. This is the most commonly referred to economic discipline Helps determine why recessions and depressions occur, and the current state of the world s economies. It can also help understand how large trends (rising gas prices, immigration, and rising ages of baby boomer generation) will affect the economy Micro-Economics Studies the choices of individuals Helps to understand the decision making process of people in different class structures, and time periods in life. Research has helped measure the link between health and economic well being, as well as understanding why people retire with less money than they d have hoped to.

4 What is The Economy? The Economy is de:ined as the inter-related production and consumption activities that aid in determining how scarce resources are allocated (Investopedia) This means that all production of goods and services in a country or region, as well as all of the consumption of goods and services in that same country or region all contribute to the state of its economy. The economy is based on the country/region s culture, laws, history, geography, wealth, and availability of natural resources and it evolves due to necessity.

5 Types of Economies There are three main types of Economies: Market-based, Command-based, and Green. Market-based economies allow goods and services to freely through the market based entirely on supply and demand. This method is fairly stable, due to the balancing out of prices when high demand leads to increased money and labor efforts to satisfy it. Command-based economies are dependent on a central government which controls the price, location, and distribution of goods and services. Imbalances are common due to the lack of free-:lowing supply and demand. Green economies operate in reliance upon renewable energies. Their goal is to cut carbon emissions, rely on alternative and sustainable energy, and preserve the environment.

6 MacroEconomic Key Indicators Economists use several key indicators to evaluate the state of an economy, and make predictions regarding its future. Some of the most important key indicators are: Gross Domestic Product (GDP) Purchasing Power Parity (PPP) Gas/Oil prices Unemployment percentage

7 Gross Domestic Product (GDP) GDP is the sum total dollar value of all goods and services produced within a region or country in a speci:ic time period (normally per year). GDP is commonly referred to as the size of an economy. GDP is normally expressed in comparison to a previous time period, for example: if the GDP is up 8%, that means the economy has increased 8% relative to the previous cycle. The Bureau of Economic Analysis estimates that the current US GDP is roughly $18,869.4 billion. There are two basic ways to calculate GDP: the income approach, and the expenditure approach. Negative GDP growth is normally a sign for economists of a triggering recession.

8 Calculating GDP Income Approach Fundamentally, the income approach adds up what everyone earned in a year. Sometimes referred to as GDP(I) Adds up total employee compensation, gross pro:its for incorporated and nonincorporated :irms, and taxes. Subtract all subsidies to reach the total. Expenditure Approach Fundamentally, the expenditure approach adds up what everyone spent in a year. This is the most common approach Adds up total consumption, investment, government spending, and net exports.

9 Purchasing Power Parity (PPP) PPP is an economic theory used to compare two countries currencies via a market basket of goods approach. According to the PPP theory, two currencies are at equilibrium when a basket of goods (chosen products) are priced the same in both countries, while taking into account the exchange rate. One very common example is the Big Mac Index. The Big Mac Index uses the price of a McDonald s Big Mac as it s benchmark, and compares its relative price across countries to determine each countries Purchasing Power.

10 Oil Prices & Unemployment Oil prices are an important economic indicator due to the enormous size of the industry. When oil prices drop, it shows a decrease in demand, and can indicating a negative growth trend in the economy. The reverse is true as well for when oil prices increase, it shows in increase in demand, and an indication of a positive growth trend in the economy. Unemployment data provides a look into the strength of the labor market in a given region or country. When Unemployment is low, it shows an increase in the need for labor to satisfy the public demand for goods. This is a positive trend in a growing economy.

11 Supply & Demand The theory of Supply & Demand is based on the acceptance of two laws ; the law of Supply, and the Law of Demand. The Law of Supply states that the higher the price of a good, the higher quantity of that good will be made available, due to chances of high revenues. The Law of Demand states that the higher the price of a good, the lower public demand for that good there will be. With high prices, comes high opportunity costs, making people less likely to purchase a good that will cause them to be unable to purchase or consume something they value more. The key of the Supply & Demand model is to :ind equilibrium.

12 Supply & Demand As you can see on the graph, relative to the Price of the good (Y-axis), the Demand curve has a negative slope, while the Supply curve has a positive slope, following the two laws of Supply & Demand. Equilibrium can be found where the Supply & Demand curves meet, marking the highest Price, and the highest Quantity (X-axis) at which a good or service can be sold.

13 Economics in Business Businesses use economics for many reasons including; Deciding what countries to do business in Creating a pricing strategy for their good or service Predicting sales, pro:its, or losses in certain regions or countries Communicating quantity of inventory to be manufactured and distributed to different areas Orchestrating Promotional strategies when trends are negative to increase sales

14 Key Player in Economics Editors Choice: Asli Demirgüç-Kunt She is a Turkish economist who earned her M.A. and Ph.D from Ohio State University. She is currently the Director of Research at the World Bank. Having published over 100 works, she focuses on the link between :inancial development and :irm achievements and economic development. Her main areas of research include banking crises, :inancial regulation, and public access to :inancial services.

15 Economist: Job Outlook The US Bureau of Labor Statistics estimates that jobs for Economists will continue to grow following the national average: 6%. Normally entry-level economists need a Master s degree in educational background. The median pay is just over $100,000/ year, roughly $48.50 an hour. The most successful location for US based economists is in the D.C. area, which employs seven times more economists than any other state in the nation.

16 Conclusion Economics is an important discipline, both in a social sense and business sense. In order to evaluate to state of the domestic, foreign, or global economy, economists use a variety of indicators and data tools. The economy is what keeps a country or region either in prosperity or in decline, and changes to the economy affect everyone. The job outlook for economists follows the national average at 6%, and is a pro:itable employment opportunity.

17 Sources (links) economists.htm#tab-7