Economics

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Your One-Day Crash Course!

ECONOMICS

Today’s ObjectiveIdentify basic micro and macro economic concepts.

Supply & Demand Economic Indicators Business Cycle Economic Cycle

SUPPLY & DEMAND

SUPPLYthe number of

goods that producers are willing to SELL at a particular

the number of goods that consumers

are willing to BUY at a particular

What is it?DEMAND

Law of Supply

As price increases, the amount producers are willing and able to produce will also increase.

THINK ABOUT IT…Name something that is currently in high supply & low demand.

Law of Demand

As price increases, the amount that consumers are willing and able to pay will decrease.

THINK ABOUT IT…Name something that is currently in low supply & high demand.

GraphingEquilibrium –

supply and demand are equal** point of max. profit

Shortage – demand exceeds supply

Surplus – supply exceeds demand

Effects on the Economy If there is a shortage, this means

that there is less supply from producers than there is demand from the consumer. Who has more control over the market? The buyer or the seller?

If there is a surplus, this means that there is more supply from producers than there is demand from consumers. Who controls the market?

Seller!

Buyer!

REVIEWDefine supply & demand.Law of SupplyLaw of DemandParts of a Supply & Demand graphSeller’s Market vs. Buyer’s Market

GRAPHING WORKSHEET

ECONOMIC INDICATORS

How do you measure up?Student performance is measured by:GPASATClass Rank

Baseball performance is measured by:Batting

AverageStrikeouts

Economic IndicatorsEconomic indicators are figures used to measure a country’s economic performance.

We measure things like:how much a country produceswhether a country’s economy is

growinghow a country’s economy

compares to others

Gross Domestic ProductGDP is the total market

value of all goods & services produced in a country in a given year.

Released the last day of each quarter (reflects the previous quarter)

Key: look for the growth rate of GDP (typically 2.5 to 3 % each year)

Measuring the GDPOne of the most

important indicators of economy’s status

The U.S. has a very high GDP as compared to other countries.

ExamplesCanada: $1.279

trillionNorth Korea: $40

billionChina: $8.748 trillion

What GDP Tells Us…Changes in GDP

show whether the economy is growing or slowing

Commonly used to gauge a country’s standard of living

Inflation RateInflation is a general

increase in the price of goods & services.

Measured by the Consumer Price Index (CPI)

Released at 8:30 a.m. around the 15th of each month (reflects previous month)

What causes inflation?Supply < Demand

Could result from:WarPrice of

importsToo much

money in circulation

What Inflation Tells Us…Indicates that the cost of living is getting more expensive

Purchasing Power of the Dollar

2011 2010 2005 2000 1990 1980 1970 1950 19140

0.10.20.30.40.50.60.70.80.9

The Price of Gas (per gallon)

2012 1990 1980 1970 1960 19500

1.16 1.25

0.36 0.31 0.23

Unemployment RateUnemployment

measures the number of people who are able & willing to work but cannot find work.

Shows whether the economy is picking up or slowing down

Released on the first Friday of each month

Unemployment

Retail Sales IndexMeasures goods sold

within the retail industry, from huge chains to small local stores

Released around the 12th of the month

Does not include money spent on services

Shows if consumers are spending or saving

In Summary…What is the purpose of economic

indicators?What is GDP? What does it tell us?What is the inflation rate? What does it

tell us?What is the unemployment rate? What

does it tell us?What is the Retail Sales Index?Which indicators are lagging? Which

are leading?

…the economic roller coaster!

THE BUSINESS CYCLE

The Business CycleEconomies naturally go through ups & downs.

The business cycle is the rise and fall of economic activity over time.

In the United States…1930s, 50s, 70s, 2000s characterized by

a drop in economic activity & rise in unemployment

Slumps followed by new waves of increased productivity and increased GDP

STAGES OF THE CYCLE

ProsperityAlso known as the

“peak”Higher wages, more

jobs available, higher demand for goods/services

Unemployment is low, GDP is high

People are spending!

RecessionEconomic activity

slows down – less production of goods, downturns in industry

GDP decreasing, unemployment increasing

People are starting to save!

DepressionAlso known as a

“trough”Deep recession that

lasts for years and affects the entire economy

Unemployment is high, GDP is low

Government starts trying to “stimulate” the economy

People are saving!

RecoveryAlso known as

“expansion”Rise in business

activity after a recession or depression

Innovation occurs – businesses start bringing out new products & services

Unemployment decreasing, GDP increasing

Many of today’s Fortune 500 companies came from recessions or depressions…

ENTREPRENEURS WHO ROSE FROM THE ASHES

General MotorsThe Panic of 1907William C. Durant

High school drop-out working as a manager of Buick in Detroit

Acquired Oldsmobile, Cadillac, Pontiac

Launched Chevrolet (later joined GM in 1917)

Playboy EnterprisesRecession of 1953Hugh Hefner

Former employee of Esquire who quit when his boss refused to give him a $5 raise

Designed his own magazine with the help of his friends

Sirius Satellite RadioEarly 1990s RecessionRobert Briskman

Former NASA engineerCOO at Geostart

(satellite messaging company)

Figured out how to broadcast digital radio signals via satellite

Merged with XM Satellite Radio in 2008 to provide commercial-free radio 24 hrs/day

REVIEWWhat are the four stages of the business cycle?

How is each stage characterized by economic indicators?GDP? Unemployment? Spending or saving?

THE EFFECT OF ECONOMIC CYCLES

Who is Particularly Impacted?While the economy as a whole is negatively

impacted by economic cycles, certain companies and industries are

particularly sensitive to overall changes.

Durable GoodsPeople tend to cut back on the

purchase of durables, as the ones they already have can last through the recession.

Manufacturers of DURABLE GOODS like cars, appliances, and electronics are among the most impacted.

Durables usually benefit the most from booms. As disposable income increases, consumers are likely to go out and buy a new car or iPod.

TransportationGM, Ford, Chrysler and other car

companies are significantly impacted by recessions.Consumers put off buying new cars

or purchase less expensive models.United Airlines & British Airways

are leading airlines that suffer in recessions.

FedEx & UPS experience less volume in mailed packages during recessions.

ManufacturingWhirlpool and Sears

are home appliance manufacturers subject to decline in demand during recessions.

Demand for appliances is tightly linked to new home sales, which slow during recessions.

ConstructionHome Depot &

Lowe’s are home improvement retailers.

Performance is correlated to the house market, which declines during recessions.

Other IndustriesInvestment Services

Merrill LynchMorgan StanleyGoldman Sachs Group JP Morgan Chase

HotelsHome SecurityLuxury Commodities

(jewelry like Zales)Advertising Firms

Who is Less Impacted?Certain goods are relatively protected

from the impact of economic cycles. Goods that have a relatively INELASTIC DEMAND with respect to income are generally shielded.

For example, no matter how bad the economy gets, people have to eat and will continue to purchase food. This is particular true for staple foods like bread.

Who is Less Impacted?Food Manufacturers &

RetailersSafewayWal-MartPepsiKraft

Addictive Substances (tobacco)

Medicine & Medical Equipment

Utilities

REVIEWWhat are durable goods?Which industries are most

significantly impacted by economic downturns?

What is inelastic demand?Which industries are relatively

unaffected by economic rises or falls?

Supply & Demand, Economic Indicators, Business Cycle, Economic

ECONOMICS IN A DAY!

Economics

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