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2-2 Economics — A Primer [CH 2

Chapter Overview
Everyday, everywhere each of us are affected by economics in the decisions that
we make. Those decisions revolve around choices of inclusion and exclusion. Whether
you purchase a pair of brown shoes or black shoes are dependent upon the availability
of the item (supply) and the extent of your financial recourses (demand), and each
party (supplier and demander) have additional limitations that they deal with. This
chapter discusses the major divisions of economic theory, then examines three major
challenges facing American business; (1) the federal budget deficit, (2) the shift to a
service economy, and (3) global competitiveness, or how to keep American business
number one in the world marketplace.
We will explore how technology is used to develop new products and increase
productivity, why it is important to improve job skills of the workforce, and how
improved quality and customer service can improve American business
competitiveness. Finally, we will explore the changes management needs to help
America prosper in the global economy.

In the beginning: Economics, a foundation for business

economics Economics has a Greek root meaning which refers to home management. The
A Greek word that means Greeks understood that the smallest unit required to make the state economically sound
home management. Today was the family unit. The family unit might be engaged in olive production, or wheat
the field of economics refers farming, have sheep flocks, be a butcher, shop keeper or fisherman. Each of these
to evaluating the allocation
scarce resources. enterprises were typically held within a family unit that provided the family with the
resources to make it successful within its society. In turn the family, when combined
with all other families and their businesses aggregated a community. That community
Replenishable Resources banded together providing strength to the state.
(i) These resources are
capable of being used over Today our economists still look at those family business units and how they fit
and over, again and/or are within a community. In their work, the economists look at choice, the choices that
capable of regeneration. individuals make against available alternatives. Going to the market to purchase meat
the consumer is faced with choices: beef, lamb, pork or poultry. If the consumer

already has a plan, like a recipe that they will prepare, then many of the alternatives are
eliminated. The consumer is then faced with the choice of how much to pay for the
meat, and compares price against grade of meat, and cut of meat, and weight of the
meat which all ends in how much they will spend. The choice on price is measured

against the consumer’s scarce resource of available cash. The economist evaluates the
consumer choices and decisions they make regarding their scarce resource of cash;
once the choice is made the alternatives disappear for the consumer.
Entrepreneurs also have choices on the allocation of their resources, and for this

discussion those scarce resources are land, labor, capital and management to yield a
profitable outcome; economists will measure the allocation of scare resources. Thus.
economists are concerned with how resources are used to produce and market goods in
both the private and public sectors. Scarce resources to the economist do not mean

finitely limited, but rather those resources currently owned and available for use, like
Macroeconomics is the your paycheck, which is limited until you receive the next one, and they are renewable
study of an overall economy and replenishable.
and its various parts. It Understanding economics is essential to understanding the American business
concerns itself with inflation,
unemployment, business structure regardless of location: rural or city. There are divisions to the study of
cycles, and business growth economics: macroeconomics and microeconomics. Macroeconomics is the study of an
in relation to its societal overall economy and its various parts. It concerns itself with inflation, unemployment,
confinements. business cycles, and the growth of firms in relation to their social confinements. When

Microeconomics is the you study macroeconomics, this study generally centers on the economic
study of individual choice— considerations of states and nations over a period of time. Macro used here as a prefix
for a business or person, it to economics is also of Greek origin meaning large or extended with a reference to
studies the economic
choices we make. time. Microeconomics is the study of individual choice—for the firm or individual
consumer; it studies the individual economic choices we make. Micro, a Greek word
for small; as used here to make a small portion of a large or particular segment. Both

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