LEARNING OUTCOMES: - (Australian Edition) N. Gregory Mankiw, Mark P....

Business Economics, 3e (Australian Edition) N.Gregory Mankiw, Mark

• Taylor, Andrew

Ashwin

(Solutions Manual All Chapter)

For Complete File Download Link at the end of this File

• / 3

For use with Mankiw, Taylor and Ashwin, Business Economics, 3rd edition, 9781473762770 © Cengage Learning EMEA Ltd, 2019

Chapter 1: What is Business Economics?

LEARNING OUTCOMES:

After reading the chapter, students should be able to:

• Explain what businesses do and what economics studies.• Provide a definition and example of business activity in the public and private sector.• Define scarcity.• Explain the idea of a trade-of and provide at least one example.• Give a definition of opportunity cost and provide at least three examples relating to individual and business decision making.• Explain the difference between capitalist and communist economic systems in how they answer the fundamental questions of society.• Outline how prices direct resources to different economic activities.• Explain why specialization and trade improve people’s choices

CONTEXT AND PURPOSE:

Chapter 1 is the first chapter in a three-chapter section that serves as the introduction to the textbook.Chapter 1 introduces ten key ideas on which the study of economics is based. Chapter 2 will look at decision making by consumers and producers influencing the allocation of scarce resources while Chapter

• outlines what business is and how it has to operate in an environment.

The purpose of Chapter 1 is to layout ten economic ideas that will serve as building blocks for the rest of the text. The ten ideas can be grouped into three categories: how people make decisions, how people interact, and how the economy works as a whole. Throughout the text, references will be made repeatedly to these ten ideas.

KEY POINTS:

• The fundamental lessons about individual decision making are that people face trade-offs among

alternative goals, that the cost of any action is measured in terms of forgone opportunities, that rational people make decisions by comparing marginal costs and marginal benefits, and that people change their behaviour in response to the incentives they face.

• The fundamental lessons about interactions among people are that trade can be mutually

beneficial, that markets are usually a good way of coordinating trades among people, and that the government can potentially improve market outcomes if there is some sort of market failure or if the market outcome is inequitable.

• / 3

For use with Mankiw, Taylor and Ashwin, Business Economics, 3rd edition, 9781473762770 © Cengage Learning EMEA Ltd, 2019

• The fundamental lessons about the economy as a whole are that productivity is the ultimate

source of living standards.

CHAPTER OUTLINE:

• What is Business Economics?

• People in businesses have to make decisions every day and the way in which they make

these decisions and the outcome of those decisions can be informed by using the models, methods and tools of economics.

• What is Business?

• Business activity involves the turning of land, labour and capital into a product or

service sold to customers. It is carried out by organizations that set themselves clear aims, one of which, for private organizations, is usually to make a profit.

a. Definition of profit: The reward for taking risk in carrying out business

activity

• One way to classify business is by looking at who owns the business and what its

primary aim is.

a. Definition of private sector business: Business activity which is owned

financed and organized by private individuals.

b. Definition of public sector organization: Business activity owned, financed

and organized by the state on behalf of the population as a whole.

c. Definition of third sector organization: Business activity owned, financed

and organized by private individuals, but with the primary aim of providing needs and not profit making.

• Business organizations have to make many decisions such as how to add value to the

business by investment, recruiting employees, what to do about competitors, when to expand or contract, and how to reduce the negative impact of operations.

• Types of economic systems

Two extremes are:

a. Communist economies: Systems where resource inputs are largely owned

by the state and exchange and trade is based on social, political and economic motives which may be primarily based on a belief of greater equality.

b. Capitalist economies: Systems where resource inputs are largely owned

by private individuals and where the motive for exchange takes place primarily for profit.

• The Fundamental Questions of Society
• / 3