Context of Business
Economic Environment
Factors of production: Resources used to produce goods and services 1) Land (natural resources) 2) Labor (workers) 3) Capital (buildings, equipment) 4) Entrepreneurship 5) Knowledge/Information

World Economic Systems 1) Communism: All factors owned by all people * Big government * No competition * Karl Marx 2) Socialism: Some factors owned by all people * More equal allocation of resources * Government/central planning for basic goods/services * Most basic industries owned by the government 3) Capitalism: Factors are privately held and used to make profit * Promotes competition and freedom. * Driven by self-interest, rewards innovation * Adam Smith: father of free trade and capitalism
Market Economy A) Supply and Demand B) Levels of Competition * Pure: Indistinguishable products, infinite sellers, i.e. Retail gas * Monopolistic: Similar products, many sellers, i.e. Candy, Athletic Shoes, Apparel * Oligopolies: Market is dominated by a few sellers, i.e. Soft drinks, Airplanes * Monopolies: One firm owns majority of market, i.e. Electricity, Gas, Water
Economic Indicators (indicate health and trend of an economy) 1) GDP: Measures the sum of all goods and services produced in a country in a year 2) Unemployment rate: Measures percentage of population 16 and over looking for work but cannot find it. Three types of unemployment * Frictional: in between jobs, best type of unemployment * Cyclical: seasonal jobs/cycles of businesses, i.e. skiing. Second best * Structural: mismatch with jobs available and skills. Worst because most expensive to fix
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Role of Government 1) Channeling Markets Along Competitive Lines * Anti-trust