Watch this with a 10-15 minute audiotrack at http://vimeo.com/novusprogram/lesson4 This lesson will explain some of the basic economic concepts that a business owner needs to understand. These concepts apply both to large-scale situations (also known as macroeconomics) and to individual situations (known as microeconomics). While those topics are discussed in more detail in other lessons, this one provides a foundation. The Novus project is a combination of video tutorials designed to be used in conjunction with a free business simulation software program. The Novus Business and IT Program contains 36 business and IT training videos, covering basic finance, accounting, marketing, economics, business strategy, Word, Excel, and PowerPoint. Users will have an opportunity to apply the lessons in the Novus Business Simulator. Over six rounds, the user or teams will have to make decisions on capital purchases, financing, production, financing, and human resources for a microbrewery. This channel has arranged the 36 video lessons into the order in which they are meant to be used with the simulator. To watch this slideshow as a video, please go to our Vimeo page at: https://vimeo.com/novusprogram. To download our free business simulation software, please go to our SourceForge page at: http://sourceforge.net/projects/novus/.

1. Essential Economic Principles
Objective: To understand the basic economic concepts that govern
businesses and how they can influence the behaviors of consumers and
suppliers.
Novus Business and IT Training Program

2. Economic Basics
• Scarcity – What we want is more than what we
have
• Economics – How do we use limited resources?
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3. Types of Economies
• Planned
• Market
• Mixed
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4. Inputs and Outputs
TYPES OF RESOURCES
(Inputs)
LABOR
NATURAL
TOOLS
RESOURCES
GOODS and SERVICES
(Outputs)
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5. Consumers and Suppliers
• Consumers – those who buy
• Suppliers – those who sell
• Businesses can be both
Consumer of Supplier
flour of bread
• Workers are suppliers
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6. The Flow of Income
Outputs of Production
$$$
Consumer Spending
$$$
Salaries, Wages
Inputs for Production

7. Economic Basics
• Supply and Demand
– The most basic economic concept
– Supply = what is available in the market
– Demand = what consumers want
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8. Supply and Demand
Equilibrium
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9. What Determines Demand?
• Income
• Preferences
• Weather
• Time of Year
• Relative Price
• Consumer Expectation
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10. What Changes Market Demand?
• Distribution of Wealth
• Community Habits
• Number of Buyers
• Population Growth
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11. Supply, Demand and Price
• Higher demand+same supply=
higherequilibrium price
• Lower demand+ samesupply=lower equilibrium
price
• Higher supply+ same demand =lower
equilibrium price
• Lower supply + samedemand =higher
equilibrium price
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12. Higher Demand = Higher Price
Normal Winter Colder Winter
Demand Supply
Demand Supply
Price
P-2
P-1
Q-1 Q-2
Quantity
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13. Opportunity Cost
• Relationship between scarcity and choice
• Different than financial cost
• Not having A because you chose B
• Applies to consumers and suppliers
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14. Trade Improves the Quality of Life
• Everyone has different resources, skills, knowledge,
etc.
• If people specialize in what they are best at, they can
trade with others to make better use of everyone’s
resources.
• Example - Time to prepare 1 kg of butter or cheese:
Butter Cheese
You 3 Hours 1 Hour
Your Neighbor 2 Hours 4 Hour

15. Summary
Producers
Supply and Opportunity
and Specialization
Demand Cost
Consumers
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