What are the 6 basic economic principles

Framework conditions & basic principles of economic activity


1 M1: Orientation module lecture series: General introduction to business administration framework conditions & basic principles of economic activity Endowed chair for business administration with a focus on corporate succession University of Siegen winter semester 2014/15,, Audimax 1

2 General information There is no control of attendance. It is imperative that students register for the event in the HIS-LSF. The event number is: Registration should be made before or immediately at the start of the event. Late registrations will be accepted through the secretariat of Mr. Eigler (Ms. Sanchez), but no later than by => Only students who are registered will receive a task for the acquisition of their academic performance at the end of the event (on) To acquire the credit points, the students work on a question on a topic from one of the sessions (approx. 5 pages); this elaboration then represents a course achievement in the module. On the Friday of the last week of the lecture, the chair Eigler (Ms. Sanchez) will send the tasks or questions to the students registered for the event by email. In this e-mail, the students are informed of the supervising professor of the task at the same time. 2

3 General information The assigned lecturer is the contact person for his assignment. Questions that arise with the students in connection with the preparation of the coursework are asked directly to the supervisor (e.g. content-related questions, format requirements). After the assignment has been sent, the student must register for the exam in the HIS-POS! The exam number is: Only students who are registered in the same way as an exam will receive the credit points (3 CP) booked on their study account after successfully completing the course. The date for the submission of the draft is (at the latest) The submission of the draft is made by the student to his supervisor. The elaboration is not graded, but only has to be passed. This information can be found in the HIS-LSF under the event number. Furthermore, all files for the event are placed online in the HIS-LSF under the event number (external documents). 3

4 A Framework conditions B Basic principles of economic activity 4

5 learning objectives: - Classification of business administration in an overall economic system - Identification of the aspects that make up our framework system - Identification of the basic economic principles - Recognize the connection between basic principles and framework 5

6 A General conditions 6

7 A distinction is made between economic framework conditions and political framework conditions or these are summarized as economic policy framework conditions (economic policy). These determine our society and the possibilities of economic activity for economic subjects (private households / individuals; companies; state / institutions). In the context of economics, framework conditions are understood to mean parameters that affect demand or supply or how they can interact with one another. 7th

8 Economic policy can be divided into the following areas: The regulatory policy forms the regulatory framework within which the economic processes take place. The process policy intervenes directly in the economic processes. Tasks Regulatory policy creates a framework in which market forces can act and aims to prevent economic concentrations of power. Regulatory policy is in particular: - the design of the property system - the regulations to ensure economic competition (competition law in particular the ban on cartels, the prohibition of agreements, etc., control of advertising and sales practices, etc.) - the design of contract and liability law 8

9 Regulatory Policy as an Economic Policy Strategy? => Ordoliberalism: regulatory policy = most important task of economic policy! The state should limit itself to shaping the economic order, the economic processes are controlled by the market mechanism. The economic system of the social market economy includes an economic policy in the form of regulatory policy and process policy. The economic policy concept z. B. Keynesianism also includes a far-reaching litigation policy by the state. Economic policy measures such as supply policy and demand policy are forms of process policy. 9

10 Economic systems Market economy is a collective term for different economic systems In all of these economic systems supply and demand for goods and / or services come together in the market and a more or less free price is formed.There are two forms of the market economy, the free market economy and the social one Market economy Delimited from this is subsistence economy (production only for own needs, consumption of self-produced products) and central administration or planned economy (production and consumption are planned centrally) 10

11 Eucken, Walter 1952/90: Principles of economic policy, 6th edition, Tübingen. XVI. Chapter: The Constituent Principles, S and XVII. Chapter: The regulating principles, p

12 B Basic principles Source: Butz 12

13 Economy and the economic principle The common object of study in economics (VWL + BWL) is the economy Economy comprises: 1. Institutions / facilities that do business 2. Processes, i.e. economic activity, between the institutions 13

14 Triggers for economic action are human needs, which are objectively existing or subjectively perceived deficiencies. There are three types of needs: 1. Existential needs -> serve self-preservation (food, housing, clothing, ...) 2. Basic needs Requirements -> originate from the standard of living of the social environment (travel, video, cell phones, visits to the theater, PCs ...) 3. Luxury needs -> goods with no livelihood but individual use (jewelry, yacht, holiday home ...) 14

15 Further distinction between needs: - type - material (car) - immaterial (friendship) - urgency - need for existence (food) - need for luxury (TV, radio) - reference group - individual need (car) - collective need (better train connection) - Degree of awareness - latent needs (have to be awakened first) - open needs - time - short term - medium term - long term 15

16 Problem: Gap between our needs and the possibilities of satisfying these needs by means of scarce goods and services. Tension between economic activity / economic activity ... Economic activity means: using scarce resources to meet needs according to plan. The economy comprises the facilities and processes that ensure optimal satisfaction Human needs for economic goods (scarce goods) enable basic problem to find the best possible solution with several possibilities 16

17 Basic assumption: Rational principle (Homo Oeconomicus) An economic subject acts according to the rational principle if it decides between two alternatives for the better solution homo economicus is the concept in many economic theories of humans as rational and narrowly self-interested actors who have the ability to make judgments toward their subjectively defined ends. Using these rational assessments, homo economicus attempts to maximize utility as a consumer and economic profit as a producer. This theory stands in contrast to the concept of homo reciprocans, which states that human beings are primarily motivated by the desire to be cooperative and to improve their environment. (Rittenberg / Trigarthen. Principles of Microeconomics: Chapter 6. pp. 2) 17

18 The basic principle of economic activity is the economic principle in three alternative forms: 1. Minimum principle: To achieve a given goal (output) with the least possible use of resources (input) 18

19 The basic principle of economic action is the economic principle in three alternative forms: 2. Maximum principle: With a given input of resources, the greatest possible (great) success (result / output) should be achieved. 19th

20 The basic principle of economic action is the economic principle in three alternative forms: 3rd optimization principle: The relationship between the use of resources and success should be optimized taking into account existing criteria, e.g. through humanitarian workplace design / compliance with ethical or ecological principles. 20th

21 Basic phenomenon of goods: Goods: all means that create a benefit (needs can be satisfied) Types of goods: Free goods (sun, air), economic goods in abundance (I-Phone), scarce services in kind (pizza), material services (Pizza delivery service), intangible consumer goods (bread) production goods (intended use, machine) consumer goods (furniture, car), durable consumer goods (food, raw material), short-lived substitute goods (which can replace each other, margarine butter) complementary goods (which can add) 21

22 Basic Phenomenon - Exchange: There is no such thing than a free lunch ... (Milton Friedman) 22

23 Basic phenomenon of exchange => MARKET EDUCATION: The overall economic turnover (model of the market) Complexity of economic reality requires modeling, i.e. abstraction / simplification of the conditions and relationships THE MARKET geographical place where demand and supply for (goods) exchange meet, e.g. Weekly market / stock exchange / labor market for day laborers conceptual summary of all business relationships between suppliers and customers (e.g. buyers and sellers) SUBMARKETS: LABOR MARKET, FINANCIAL MARKET, ECOLOGICAL MARKET, etc ...? 23

24 Market and exchange relationships Two partners 24

25 Market and exchange relationships Several partners 25

26 Prerequisites for market activity Perfect market - all market participants act according to the economic principle - homogeneity of goods - lack of spatial, personal and temporal preferences - complete market transparency - infinitely fast reaction of market participants demand dependent on - price of the good - consumption sum (how much money is available?) - Structure of requirements - Price of other goods - Expectations about the future and economic developments Supply depends on - Production costs - Price of the goods - State of technical knowledge 26

27 Function of the market - equilibrium ... 27

28 Influences on market behavior - preferences 28

29 References Griffin, Richie W. (2008): Management, 9th ed. Houghton Mifflin, Boston. Chapter 2. Hungenberg / Wulf (2006): Fundamentals of corporate management. Jumper. Berlin. S Felderer, B .; Homburg, St. (2005): Macroeconomics and New Macroeconomics. 9th edition Berlin 2005 [Chapter 1] 29

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