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Understanding
How
Economics
Affects
Business
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Chapter Two
Copyright © 2010 by the McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin
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Profile
MUHAMMAD YUNUS
Grameen Bank
•Offers microcredits
(very small loans) to
the poor to start their
own businesses.
•Won the Nobel Peace
Prize in 2006.
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What Is
Economics?
•Economics — The study of how society employs
resources to produce goods and services for
consumption among various groups and individuals.
•Macroeconomics — Concentrates on the
operation of a nation’s economy as a whole.
•Microeconomics — Concentrates on the behavior
of people and organizations in markets for particular
products or services.
The MAJOR BRANCHES of
ECONOMICS LG1 *
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•Resource Development — The study of how to
increase resources and create conditions that will
make better use of them.
What Is
Economics?
RESOURCE DEVELOPMENT
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•New energy sources
–Hydrogen fuel
•New ways of growing
foods
–Hydroponics
•New ways of creating
goods and services
–Mariculture
–Nanotechnology
What Is
Economics?
EXAMPLES of WAYS to
INCREASE RESOURCES LG1 *
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•The public’s concern with
global warming contributed to
the success of the Toyota
Prius.
•Farmers are growing more corn
and other crops to use for
biofuels.
•What can you do to help lower
carbon emissions?
MORE PROFITS FROM the
GREEN REVOLUTION
(Thinking Green)
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The Secret to
Creating a
Wealthy
Economy
•Malthus believed that if the rich had most of the
wealth and the poor had most of the population,
resources would run out.
•This belief led the writer Thomas Carlyle to call
economics “The Dismal Science.”
•Neo-Malthusians believe there are too many
people in the world and believe the answer is
radical birth control.
THOMAS MALTHUS and
the DISMAL SCIENCE LG1 *
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•Contrary to Malthus, some economists believe a
large population can be a resource.
–An educated population is a highly valuable.
–Business owners provide jobs and economic
growth for their employees and communities as
well as for themselves.
The Secret to
Creating a
Wealthy
Economy
POPULATION as a RESOURCE
LG1
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Adam Smith &
the Creation of
Wealth
Smith believed that:
•Freedom was vital to any
economy’s survival.
•Freedom to own land or
property and the right to
keep the profits of a
business is essential.
•People will work hard if they
believe they will be
rewarded.
ADAM SMITH the
FATHER of ECONOMICS LG1 *
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How Businesses
Benefit the
Community
•As people improve their own situation in life,
they help the economy prosper through the
production of goods, services and ideas.
•Invisible Hand — When self-directed gain leads to
social and economic benefits for the whole
community.
The INVISIBLE HAND THEORY
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•A farmer earns money by
selling his crops.
•To earn more, the farmer hires
farmhands to produce more
crops.
•When the farmer produces
more, there is plenty of food
for the community.
•The farmer helped his
employees and his community
while helping himself.
How Businesses
Benefit the
Community
UNDERSTANDING the
INVISIBLE HAND THEORY LG1 *
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•In many countries, a businessperson must bribe
the government to gain permission to own land,
build and conduct business operations.
•Imagine you are a restaurant owner in need of a
liquor license, but have been unable to get one. You
know people in government. Would you be tempted
to make large contributions to their re-election
campaign to receive that license?
CORRUPTION DESTROYS
ECONOMIES
(Making Ethical Decisions) *
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•What’s the difference between macroeconomics
and microeconomics?
•What’s better for an economy than teaching a
man to fish?
•What does Adam Smith’s term “invisible hand”
mean? How does the invisible hand create wealth
for a country?
Progress
Assessment
PROGRESS ASSESSMENT
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Understanding
Free-Market
Capitalism
•Capitalism — All or most of the land, factories and
stores are owned by individuals, not the
government, and operated for profit.
•Countries with capitalist foundations:
–United States
–England
–Australia
–Canada
CAPITALISM
LG2
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•FINCA lent Pros Magaga, a shop owner in
Uganda, $50 to buy supplies that increased her
store’s profits.
The KEY to CAPITALISM
is CAPITAL
(Spotlight on Small Business)
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The Foundations
of Capitalism
1. The right to own private property.
1. The right to own a business and keep all that
CAPITALISM’S
FOUR BASIC RIGHTS LG2
