Revenue > cost => ?

Revenue < cost => ?

What if revenue = cost? => ?

CHECK 5 factors of the production?

APTER 1

Who allow the freedom of ownership?

Who establish the contract laws,
tradable currencies, taxes and
regulations?
 Chapter 2

UNDERSTANDING
ECONOMICS
AND
HOW IT AFFECTS
BUSINESS

Introduction to Business Administration – Instructor: Phuoc Van Hanh

LEARNING OBJECTIVES

LO 2-1 Explain basic economics.

LO 2-2 Explain what capitalism is and how free markets work.
LO 2-3 Compare socialism and communism.
LO 2-4 Analyze the trend toward mixed economies.
GETTING TO KNOW
Mariana Mazzucato, Economist
LEARNING OBJECTIVES

LO 2-1 Explain basic economics.

LO 2-2 Explain what capitalism is and how free markets work.
LO 2-3 Compare socialism and communism.
LO 2-4 Analyze the trend toward mixed economies.
 How Economic Conditions Affect Businesses

Economics is the study of how society chooses to employ

resources to produce goods and services and distribute them for
consumption among various competing groups and individuals.

What is economic value, and who creates it? | Mariana Mazzucato

Business owners provide jobs and economic growth for their

employees and communities as well as for themselves.
 How Economic Conditions Affect Businesses

There are two major branches of economics:

Macroeconomics looks at the operation of a nation’s economy

as a whole.
Microeconomics looks at the behaviour of people and
organizations in markets for particular products or services.
1. Macroeconomics looks at the operation of a nation’s economy as
a whole. Macroeconomic topics in this chapter include gross domestic
product (GDP), the unemployment rate, and price indexes.

The challenge for macroeconomists is to determine what makes

some countries relatively wealthy and other countries relatively poor,
and then to implement policies and programs that lead to increased
prosperity for everyone in all countries.
2. Microeconomics looks at the behaviour of people and
organizations in markets for particular products or services.

Example: Which model do people buy when gas prices go up?

 Photo: wind farm in Bac Lieu

Resource development is the study of how to increase resources (say, by

getting energy from solar and wind), and create conditions that will make
better use of them (like recycling and conservation).

Vietnam wind power sector

Discovering the wind farm in Bac Lieu
 Adam Smith and the Creation of Wealth

Smith believed freedom was vital to the survival of

any economy, especially the freedom to own land
or property and to keep the profits from working the
land or running a business.

He believed people will work long and hard if they

have incentives for doing so - that is, if they know
they’ll be rewarded.

As a result of those efforts, the economy will

prosper, with plenty of food and all kinds of
Adam Smith (1723 – products available to everyone.
 How Businesses Benefit the Community

Businesspeople don’t necessarily deliberately set out

to help others. They work primarily for their own
prosperity and growth.
Yet as people try to improve their own situation in life,
Smith said, their efforts serve as an “invisible hand”
that helps the economy grow and prosper through the
production of needed goods, services, and ideas.

Invisible hand is used to describe the process that

turns self-directed gain into social and economic
benefits for all.
Adam Smith (1723 –
LEARNING OBJECTIVES

LO 2-1 Explain basic economics.

LO 2-2 Explain what capitalism is and how free markets work.
LO 2-3 Compare socialism and communism.
LO 2-4 Analyze the trend toward mixed economies.
 Understanding Free-Market Capitalism

Capitalism (chủ nghĩa tư bản)

An economic system in which all or most of the factors of production
and distribution are privately owned and operated for profit.

What does capitalism value? | Mariana Mazzucato

State capitalism (chủ nghĩa tư bản nhà nước)

A combination of freer markets and some government control.
 Understanding Free-Market Capitalism

Under free-market capitalism, people have four basic rights:

1. The right to own private property.

Private ownership means that individuals can buy, sell, and use land, buildings,
machinery, inventions, and other forms of property.
2. The right to own a business and keep all that business’s profits.
Profits act as important incentives for business owners.
3. The right to freedom of competition.
Within certain guidelines established by the government, individuals are free to compete
with other individuals or businesses in selling and promoting goods and services.
4. The right to freedom of choice.
People are free to choose where they want to work and what career they want to follow.
 Understanding Free-Market Capitalism

A free market is one in which decisions about what and how

much to produce are made by the market - by buyers and sellers
negotiating prices for goods and services.

In a free market, prices are determined by buyers and sellers

negotiating in the marketplace.
Þ How is a price determined that is acceptable to both buyers
and sellers?
Þ The answer is found in the microeconomic concepts of supply
and demand.
Supply refers to the
quantities of products
manufacturers or
owners are willing to
sell at different prices
at a specific time.

Figure 2.1 The Supply Curve At Various Prices

Demand refers to the
quantity of products that
people are willing to buy
at different prices at a
specific time.

Figure 2.2 The Demand Curve At Various Prices

The place where quantity demanded
and quantity supplied meet is called
the equilibrium point.

In the long run, that price will become

the market price.
Figure 2.3 The Equilibrium
 Competition within Free Markets

Economists generally agree there are 4 different degrees of competition:

(1) Perfect competition: There are many sellers in a market and none
is large enough to dictate the price of a product.
(2) Monopolistic competition: A large number of sellers produce very
similar products that buyers nevertheless perceive as different.
(3) Oligopoly: A degree of competition in which just a few sellers
dominate a market.
(4) Monopoly: A degree of competition in which only one seller controls
the total supply of a product or service, and sets the price.
LEARNING OBJECTIVES

LO 2-1 Explain basic economics.

LO 2-2 Explain what capitalism is and how free markets work.
LO 2-3 Compare socialism and communism.
LO 2-4 Analyze the trend toward mixed economies.
 Understanding Socialism & Communism

Socialism (chủ nghĩa xã hội)

An economic system based on the premise that some, if not
most, basic businesses (e.g., steel mills, coal mines, and utilities)
should be owned by the government so that profits can be more
evenly distributed among the people.

Communism (chủ nghĩa cộng sản)

An economic and political system in which the government
makes almost all economic decisions and owns almost all the
major factors of production.
LEARNING OBJECTIVES

LO 2-1 Explain basic economics.

LO 2-2 Explain what capitalism is and how free markets work.
LO 2-3 Compare socialism and communism.
LO 2-4 Analyze the trend toward mixed economies.
 The Trend Toward Mixed Economies

Free-market economies exist when the market largely

determines what goods and services get produced, who gets
them, and how the economy grows. Capitalism is the popular
term for this economic system.

Command economies exist when the government largely

decides what goods and services will be produced, who gets
them, and how the economy will grow. Socialism and
communism are variations on this economic system.
 The Trend Toward Mixed Economies

Mixed economies exist where some allocation of resources is

made by the market and some by the government.

Most countries don’t have a name for such a system.

If free-market mechanisms allocate most resources, the leaders

call their system capitalism. If the government allocates most
resources, the leaders call it socialism.
 Figure 2.4 Comparisons Of Key Economic
Systems
CAPITALISM SOCIALISM COMMUNISM MIXED ECONOMY
(the US) (Sweden) (North Korea) (Germany)
Social and Private ownership Public ownership of Public ownership Private ownership of
Economic of land and major businesses. of all businesses. land and business
Goals business. Liberty Some private Government- with government
and the pursuit of ownership of smaller run education regulation.
happiness. Free businesses and and health care. Government control
trade. Emphasis shops. Government Emphasis on of some institutions
on freedom and control of education, equality. Many (e.g., mail). High
the profit motive health care, utilities, limitations on taxation for defense
for economic mining, transporta- freedom, including and the common
growth. tion, and media. freedom to own welfare. Emphasis on
Very high taxation. businesses and to a balance between
Emphasis on assemble to protest freedom and equality.
equality. government actions.
 Key Economic Indicators

Gross domestic product (GDP) is the total value of final goods

and services produced in a country in a given year.
Gross output (GO) is a measure of total sales volume at all stages
of production.
The unemployment rate refers to the percentage of civilians at
least 16 years old who are unemployed and tried to find a job
within the prior four weeks.

Inflation: A general rise in the prices of goods and services over

time.
 The Business Cycle

Economist Joseph Schumpeter identified the four phases of long-term

business cycles as boom–recession–depression–recovery:

1. An economic boom is just what it sounds like—business is booming.

2. Recession is two or more consecutive quarters of decline in the GDP.
In a recession prices fall, people purchase fewer products, and businesses fail. A recession
brings high unemployment, increased business failures, and an overall drop in living
standards.
3. A depression is a severe recession, usually accompanied by deflation.
Business cycles rarely go through a depression phase. In fact, while there were many
business cycles during the 20th century, there was only one severe depression (1930s).
4. A recovery occurs when the economy stabilizes and starts to grow.