Building a Business

• Economy


  System managing scarce resources for goods and services production and consumption
• Scarce Resources

  Limited land, labor, and capital (machinery)
• Circular Flow Model


  Describes flow of funds, goods, and services between economy sectors
• Basic Economic Questions


  Focus on utilizing scarce resources for needs and wants
• Efficient Production

  Maximizing output with limited resources
• Law of Demand


  Price increase leads to quantity demanded decrease
• Demand Curve


  Shows inverse relationship between price and quantity demanded
• Shift in Demand Curve


  Occurs due to changes in demand, affecting quantity demanded
• Law of Supply


  Price increase leads to quantity supplied increase
• Supply Curve


  Shows direct relationship between price and quantity supplied
• Shift in Supply Curve


  Occurs due to changes in quantity supplied, affecting quantity supplied
• Market Equilibrium


  Point where supply and demand curves intersect
• Unemployment


  Inability to find paid employment, expressed as a percentage
• Cyclical Unemployment


  Occurs due to changes in economic growth
• Structural Unemployment


  Mismatch between job offerings and worker skills
• Inflation


  Average increase in prices of goods and services over time
• Demand Side Inflation


  Result of increased spending, placing upward pressure on prices
• Cost Side Inflation


  Result of changes to supply side conditions, increasing production costs
• Reserve Bank of Australia (RBA)


  Responsible for maintaining inflation at 2-3% through interest rate adjustments
• Market Structures


  Characteristics of buying and selling in an industry
• Monopoly


  Single seller with low competition and high barriers to entry
• Oligopoly


  Small number of sellers with low competition and high barriers to entry
• Monopolistic Competition


  High number of sellers competing on price and quality
• Perfect Competition


  Theoretical market with no barriers to entry and many buyers
• Exchange Rates


  Value of one currency relative to another, impacting trade and investments
• Global Trade

  Exchange of goods and services between countries
• Interest Rates


  Amount charged for borrowing or earned for investing
• Mortgage


  Secured loan for property purchase with low interest rates
• Personal Loans


  Unsecured loans for various purposes with higher interest rates
• Credit Cards


  Unsecured lending with the highest interest rates
• Economic Bubbles


  Occurs when investment prices are unreasonably high
• Dotcom Bubble


  Rapid rise and fall of internet-based companies in the late 1990s
• Causes of the GFC

  Irresponsible lending leading to a housing bubble and economic crisis
• Consequences of the GFC

  Collapse of major banks, increased unemployment, and share market crashes