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Lecture Personal financial planning – Chapter 17: Background topics

The goals of this chapter are: Better apply key economic concepts, determine the contribution and regulation of major financial institutions, assess the advantages and disadvantages of alternative forms of business entities, recognize important concepts of business law. | Lecture Personal financial planning Chapter 17 Background topics Chapter 17 Background Topics 1 Chapter Goals Better apply key economic concepts. Determine the contribution and regulation of major financial institutions. Assess the advantages and disadvantages of alternative forms of business entities. Recognize important concepts of business law. 2 Demand and Supply Analysis The amount of output produced for any commodity is a function of the demand and supply for that item. In the simplest form demand comes from the consumer. For example consider the demand for a particular type of personal computer. A plot can demonstrate that demand varies with price the lower the price the greater the quantity demanded. At higher prices consumers will substitute. 3 Demand and Supply Analysis cont. An example of demand and supply curves are as follows 4 Demand and Supply Analysis cont. Supply comes from businesses seeking to make the most money possible. The amount business will supply is a function of price in this case the greater the price the greater the amount supplied. This is true because more profits are possible at least up to the point at which costs per unit rise and ultimately exceed the benefits of higher prices. Equilibrium is set where quantity demanded is equal to quantity supplied. 5 Inflation Inflation The increase in price for a given good or service or the growth of overall costs in the economy over time. Inflation can be caused by any number of factors Excess of demand for a good or goods as compared with the supply. Increases in the cost of items needed to produce a good. Lack of competition arising from few producers for that item and barriers to new companies entering the market. An excess supply of money in the economy. 6 Inflation cont. Inflation has been present in our economy from time to time since our country was first established. It has been omnipresent since World War II as our government has placed more emphasis on limiting weak economic .