Transcript Types of Economic Systems

Chapter 2
Theoretical Foundations:
Prices, Markets, and
Management
UNDERLYING FORCES
Demographics, Beliefs, Values, Cultures, International Events,
Discoveries, Resources, Natural Events
Societal Element Changes
Public Sector Response
 Energy and the Physical
Environment
 Labor & Human Resources
 Technology
 Economic Climate
 Regional & Local Issues
 International Trade




Market
System
Political
System
Social
InvolvementBusiness Social
Responsibility
Regulation
Taxation
Spending
Provision of Services
Political
System
Marketplace Response
Business Response




 Managerial Decision-Making
 Strategy Implementation
Prices
Quantities Produced
Product Quality
Costs of Production
Market
System
Types of Economic Systems

Laissez Faire Capitalism

Modern Mixed Economy

Democratic Socialism

Communism
Laissez Faire Capitalism

Ownership of Resources

Markets

Government Involvement
Modern Mixed Economy

Ownership of Resources

Markets

Government Involvement
Democratic Socialism

Ownership of Resources

Markets

Government Involvement
Communism

Ownership of Resources

Markets

Government Involvement
The Concept of Demand

Demand is a Schedule of the
different quantities of a good or
service that a consumer is
Willing and Able to purchase at
each and every possible price
Determinants of Demand

What are some determinants of the demand
for a good or service?
Determinants of Demand

Income
– Normal Goods and Services
– Inferior Goods and Services

Price
 Price of Substitute Goods and Services
 Price of Complementary Goods and Services
 Attitudes and Tastes
An Individual’s Demand for
Beer
Price/
glass
$ 0.40
$ 0.80
$ 1.20
$ 1.60
$ 2.00
$2.50
Price per Glass
Glasses
8
6
4
2
1
$2.00
$1.50
$1.00
$0.50
$0
2
4
6
Glasses Demanded
8
10
The Law of Demand

The lower the price, the more
of a good or service that will
be purchased, the higher the
price, the less that will be
bought
Market Demand Curve




Summation of all individual demand curves
in the market
Law of Demand
Downward Sloping
Determinants of Demand
Supply

Supply is a schedule of the different
quantities of a good or service that a seller is
ready and willing to sell at each and every
possible price
Price of Product
Hypothetical Firm Supply
Curve
Quantity Supplied
Factors Affecting Supply

What factors affect the supply of a good or
service?
Factors Affecting Supply

Resource Prices
 Labor Costs
 Taxes
 Subsidies
 Technology
Market Supply vs. Firm
P firm 1
P
S firm 1
Q firm 1
S market
Q

Where do we
get “S” curve?
– Summation of supply curves for
each “firm” in “market” or
“industry”
P firm 2
S firm 2
Q firm 2
Marginal Cost

The additional or extra cost incurred in
producing one more unit of a good or
service
MC = TC/ Q
Price, Cost
Hypothetical Firm’s Marginal
Cost Curve
$1.80
$1.60
$1.40
$1.20
$1.00
$0.80
$0.60
$0.40
$0.20
$0.00
MC
480
500
520
Quantity Produced
540
560
S Curve for Firm is MC Curve
D
P1
MC
Q1
Price
Price and Quantity
Determination
in a Competitive Marketplace
D
S
P’
E
PE
P’
S
QE
D
Quantity
Role of Prices
In a Free Enterprise System (I)

Transmits Information ...
– To producers, consumers, resource suppliers,
labor
– Signals to produce more or less, to enter new
markets, produce new products, etc.
Shift in Demand for Shoes
D1
P
S
D0
P1
What happened here?
P0
D1
D0
S
Q0
Q1
Q
Shift in Supply of Shoes
S’
D
P
S
P1
What happened here?
P0
D
S
Q1
Q0
Q
Effect of Price Controls
D
S
P
International
Market
Price
Controlled
Maximum
Price
S
D
QS
Quantity of Oil
QD
Role of Prices (II)

Provides Incentives ... to consumers,
producers, labor and owners of productive
resources
 Allocate Resources ... alternative ways to
provide goods and services
 Affect Distribution of Income
Two Goals of Society

Increase Incomes and Living Standards

Fairness and Equity in Income Distribution

Two Goals in Conflict
Conflict Between Goals

Income Distribution Over Time

Poor Vs. Rich or

Impact on Income over Lifetime
Food Distribution in Chicago

How does it happen?
The Invisible Hand of the
Marketplace
Adam Smith, 1776 ...“Wealth of Nations”
 Individuals pursue their own self interest
... greater good of society is served
 Individuals moved by an “Invisible
Hand” to promote social welfare
 Example: Food distribution

Environmental Analysis and
Forecasting
Environmental Scanning
•Analyzing and Forecasting Environmental
Change
•Describing the Current Environment
•Projecting Future Changes
Step I - Define Areas
Define Areas to Study

Primary Involvement - Exchange
relationships or marketplace relationships

Secondary Involvement -Relationships,
activities and impacts that are ancillary or
consequential to primary involvement
Step II - Delineate Topics

External Topics
 Internal Topics
Step III - Determine Time
Frame and Forecasting
Requirements

Short Range
 Long Range
– Delphi Technique
– Scenario Method
Step IV - Design and
Implement Strategy

External/Short-term
 External/Long-term
 Internal/Short-term
 Internal/Long-term
Step V - Analyze Data

Cross Impact Analysis
T1
T2
T3
Enhanced 50% in 3
years
Enhanced 50% in 3
years
Television
technologies
(probability, year)
T1 interactive
(.9,2010)
T2 digital
(.7, 2010)
-10% in 2 years
T3 HDTV
(.8, 2010)
-10% in 2 years
-60% in 2 years
Enhanced 25% in 2
years
Step VI - Integrate into the
Organization

Short-term
 Long-term
– Organizational Change
– Inform Top Management
Poland Case

Problems of a Socialistic System
 Everybody has money
 Too much money chasing too few goods
 Money becomes worthless
 Resort to barter
 Long lines for food
Poland Case

Why did they have long lines?

How does food distribution under
Communism compare to the system in the
USA?
Poland Case

How well can government controls replace
the free enterprise system?

What is happening in Poland today?