1 / 30

Chapter 2

Chapter 2. Learning Objectives. Capitalism and free markets Supply, demand and equilibrium Socialism versus communism Canada’s mixed economy Canada’s economic system Economic indicators, productivity & business cycle . Economic Links to Business.

forster
Download Presentation

Chapter 2

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 2

  2. Learning Objectives • Capitalism and free markets • Supply, demand and equilibrium • Socialism versus communism • Canada’s mixed economy • Canada’s economic system • Economic indicators, productivity & business cycle

  3. Economic Links to Business • Economic concepts are the basis for most major business decisions • Both the global economy and the Canadian economy have an effect on Canadian business • Economics is the study of how a country produces and distributes its goods and services

  4. Four “What’s” of an Economic System • What is produced? • What amount is produced? • What is the method of output distribution? • What determines rate of economic growth? Adapted from: Edwin Mansfield Economics (New York: W.W. Norton, 1976), p.8

  5. Economic Theory of Wealth Creation: Adam Smith • The Wealth of Nations in 1776 defined Capitalism as a system of rights and freedoms: • Right to Make a Profit • Right to Private Property • Right to Buy or Sell • Freedom to Compete • Freedom from Government Interference

  6. Keynesian Economics • Oxford economist John Maynard Keynes advocated government spending to stimulate the economy • He proposed that governments should borrow in bad times and spend to help the economy • He stated that governments should pay off debt in good times to reduce inflation and get ready for “bad times”

  7. Three Economic Systems Mixed Socialism (Highly Controlled) (Little Control) Communism Capitalism

  8. Different Economic Systems • Capitalism - individuals seeking profits produce goods and services • Goods and services are sold in a free market to those who can pay for them • Communism - the government decides what will be produced and who will consume that production • Socialism - some free market and some government allocation • Most countries have Mixed Economy

  9. The Foundations of Capitalism • How a free market works - many buyers and sellers trading freely determine prices at which they will exchange goods and services • How prices are determined - the constant interplay between supply and demand determines an equilibrium price at which a transaction will occur

  10. Free-Market Competition Monopolistic Competition Oligopoly One Many Perfect Competition Monopoly Sellers

  11. Supply Curve High Price(P) S High Low Quantity(S)

  12. Demand Curve High Price(P) D Low High Quantity(D)

  13. Equilibrium Point Surplus High Market Equilibrium Price S D Shortage Low Quantity High

  14. Limits of Free-Markets • Inequality of Wealth- Causes National & World Tension • Greed Compromises Ethics • Potential Environmental Damage • Limitations Push Country towards Socialism = Government Regulation

  15. Recent Economic Trends • Canada - we have a mixed economy, as the government has always played a major role in the economy • Communist countries - they have moved to capitalist forms of economies to improve their standards of living • Socialist countries - they have reduced government’s role in their economies

  16. Economics and Business • Strong Economy - Business prospers • Weak Economy - Business declines • Gross Domestic Product (GDP)- this is the total of goods and services produced by the economy. This is how we measure how well the economy is doing!

  17. Canadian Economy • Key Economic Indicators • Productivity • Business Cycles • Recession • Depression • Recovery • Stabilization • Fiscal Policy • Monetary Policy • National Debt

  18. Key Economic Indicators • Gross Domestic Product (GDP) • Unemployment rate • Price Indexes • Consumer Price Index(CPI) • Producer Price Index(PPI) • Housing starts • Commodity prices • Stock markets

  19. U.S. Unemployment (%) Source: U.S. Bureau of Labor Statistics

  20. Industrialized Nations’ Tax Rate Source:Parade Magazine, Apr. 12, 1998.

  21. Number of Workers per Social Security Recipient Source: Investors.com

  22. Change in Labor Productivity- U.S. Source: U.S. Dept. of Commerce, Bureau of Labor Statistics

  23. Distribution of GDP • Employees get their share of GDP via wages • Employers get their share of GDP via profits • Governments get their share of GDP via taxes • What is a fair “share of the pie” is a source for constant debate - it depends on one’s perspective

  24. The Issue of Unemployment • Unemployment in Canada remained stubbornly high during the 1990s • Recession, globalization and technological change have contributed to the unemployment problem • There are different types of unemployment • Cyclical • Seasonal • Structural

  25. Inflation and the CPI • Consumer Price Index (CPI) is the index economists use to measure the effects of inflation. Inflation was high prior to the 1990s, but it has been about 2% per year in recent years • The Rule of 72 means that dividing 72 by the rate of inflation equals the number of years that prices will double due to inflation. Currently, it would take 36 years for prices to double due to inflation

  26. What Makes Up TheConsumer Price Index? SOURCE: U.S. Bureau of Labor Statistics

  27. Consumer Price Index 1982-84 = 100 Source: U.S. Dept. of Labor, Bureau of Labor Statistics

  28. The National Debt • Governments adopted Keynesian economics and deficit spending.Theyforgot the second part of Keynesian economics -- they did not pay down the debt in good times • By the 1990s many governments had accumulated large national debts • Canada has finally balanced its budget after 25 years of deficits and recently we have had budget surpluses. Tax cuts are possible?

  29. Government Intervention • In 1929 the stock market crashed • The crash led to a severe, prolonged Depression • The hardship forced governments to abandon Adam Smith’s “laissez faire” approach to economics • Governments looked for ways to intervene in the economy to alleviate the suffering

  30. The Outlook for our Economy • We are all painfully aware that unemployment has remained stubbornly high in the 1990s • The late 1990s saw improved economic activity and job prospects • Canada is in the early stages of long-term economic growth with excellent job prospects for those entering the workforce • Those with education and the ability to learn new skills will be successful

More Related