> > > > > > > > Chapter 3. Economic Challenges Facing Global and Domestic Business. Kamrul Huda Talukdar Lecturer North South University

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1 > > > > > > > > Chapter 3 Economic Challenges Facing Global and Domestic Business Kamrul Huda Talukdar Lecturer North South University

2 Economics: Analysis of the choices people and governments make in allocating resources. Supply: Amount of goods and services for sale at different prices. Demand: Willingness and ability of consumers to purchase goods and services at different prices.

3 The study of small economic units, such as individual consumers, families, and businesses.

4 Demand curve - shows the amount of a product buyers will purchase at different prices. Driven by variety of factors like competition, price, larger economic events, and consumer preferences.

5 A change in overall demand, shifts to a new demand curve.

6 Supply curve - shows the relationship between different prices and the quantities that sellers will offer for sale, regardless of demand.

7 Production plays a central role in determining the overall supply of goods and services.

8 Supply and demand curves meet at the equilibrium price. Buyers and sellers make choices that restore the equilibrium price. Changes affect both supply and demand.

9 Issues For The Entire Society Political, social, and legal environments differ in every country. Economies generally classified in one of three categories: Private enterprise system: capitalism or market economy Planned economies: socialism, communism Mixed economies (combinations of the two)

10 The Private Enterprise System and Competition Businesses meet needs of consumers and are rewarded through profit. Government favors a hands-off approach. Marketplace competition regulates economic life. Four degrees of competition: Pure competition (Agriculture, Fishing) Monopolistic competition (Hotels,Hairdressers, restaurants) Oligopoly(Telecom Operators, Airlines) Monopoly(Microsoft, US Postal,WASA)

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12 Government controls determine business ownership, profits, and resource allocation. Communism Property owned and shared by the community under a strong central government. Adopted in early 20th century by many nations, but governmentowned monopolies often suffered from inefficiency. Former Soviet Union, Communist regime in China, North Korea Socialism Government ownership and operation of major industries, such as healthcare or communications. Some private ownership of industry allowed. Scandinavian countries such as Denmark, Sweden, and Finland

13 Economic systems that combine features of private enterprise and planned economies. Mixture of public and private enterprise can vary widely from country to country. Process of converting a publicly owned company to a private one is called privatization.

14 Economic system should provide stable business environment and sustained growth. Business decisions and consumer behavior differ at various stages of the business cycle: Prosperity High consumer confidence, businesses expanding Recession Cyclical economic contraction lasting for six months or longer Depression Extended recession Recovery Declining unemployment, increasing business activity

15 Productivity: Relationships between the goods and services produced and the inputs needed to produce them. Gross Domestic Product (GDP): Sum of all goods and services produced within a nation s boundaries; a measure of national productivity.

16 Inflation is rising prices caused by a combination of excessive consumer demand and increases in the costs of raw materials. Core inflation rate measures inflation minus energy and food prices. Demand-pull inflation - Excessive consumer demand. Cost-push inflation - Rises in costs of the factors of production. Hyperinflation - Soaring consumer prices. Inflation devalues money - people can purchase less with what they have. Deflation is when prices continue to fall. Deflation can cause a weakened economy.

17 Changing prices are tracked by the Consumer Price Index (CPI). The monthly average change in prices of goods and services. A multitude of items are priced to compile the data included in the CPI Market Basket