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
price
the number of goods that consumers
are willing to BUY at a particular
price
What is it?DEMAND
Law of Supply
As price increases, the amount producers are willing and able to produce will also increase.
P3P2
P1
Q1
Q2
Q3
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.
P3
P2
P1
Q1
Q2
Q3
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
D S
P3
P2
P1
Q1
Q2
Q3
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
1
The Price of Gas (per gallon)
2012 1990 1980 1970 1960 19500
0.51
1.52
2.53
3.54
3.5
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
Cycle
ECONOMICS IN A DAY!