Principles of Business, Finance and Marketing

1. Principles of Business, Finance and Marketing Units 1 & 2 Economic Decisions and Systems

2. Unit 1.01 • Satisfying Wants & Needs • Economic Choices • Economic Systems • Supply and Demand

3. Satisfying Wants and Needs • Wants • Not necessary for survival, but add comfort and pleasure to our lives • i.e. video games, designer clothes, • Needs • Things that are necessary for survival • i.e. food, clothing, shelter Question: Is a car a want or a need?

4. Basic Economic Problem Unlimited wants and needs, limited economic resources • Scarcity • Not having enough resources to satisfy every need • Limited supplies of goods and services • Someone’s going to go without

5. Economic Choices • Opportunity Cost • Value of the next best alternative that you were not able to chose • Trade Off – what you make when you give something up to have something else • College vs. Work

6. Decision Making Process • Example • Can’t get to work • Walk, bike, car, mooch ride • Lazy, embarrassing, cool • CAR! • Spend $20K on used car • Can’t afford gas  • 6 Steps • Define the problem • Identify the alternatives • List all pros and cons • Choose among alternatives • Act on your choice • Evaluate your decision

7. Factors that Affect Decision-Making • Values • Things that are important to you in life • Goals • Things a person wants to accomplish • i.e. college degree, starting a business Freedom of Choice – the freedom to make decisions independently while accepting the consequences of those decisions

8. Economic Resources • Factors of Production • Natural Resources: raw materials (water, oil, trees) • Renewable resources can be replaced • Non-renewable resources cannot be replaced • Human Resources: people who contribute physical or mental energy • Capital Resources: tools, equipment, buildings, money, etc. used to produce goods and services

9. Entrepreneurial Resources Initiative to combine natural, human and capital resources to produce goods or services • The 3 economic questions • What to produce? • How to produce? • What needs and wants to satisfy? Who decides this determines a countries economic system

10. Economic systems • Traditionalism or Traditional Economy • Do things the way they’ve always been done • Pros: everyone has a role in the economy; economic life is stable • Cons: discourages new ideas; growth is limited • Examples: parts of Africa, Latin American rain forest

11. Economic systems • Communism or Command Economy • Government owns/controls all resources • Pros: everyone has a job and benefits; can make a dramatic change in a short time on production of goods • Cons: consumer goods rank low on priority list, few consumer wants are met; lack of incentive to work hard • Examples: North Korea, China, Cuba

12. Economic systems • Capitalism or Market Economy • People owns/controls all resources • Pros: produce goods & services people want and need; freedom of choice; income: input ratio; competition keeps prices lower • Cons: wealth of economy not equally distributed • Examples: US, Japan, Canada, Great Britian

13. Economic systems • Socialism or Mixed Economy • Government owns major industries; allows for private ownership of other businesses • Pros: gov’t and private business work together; insurance/social security benefits provided • Cons: high tax rates; smaller spendable income; discourages private business • Examples: Sweden, France

14. The us economic system • Private Property • Business or individual owns their own property, not the government • Freedom of Choice • Freedom to make decisions independently while accepting the consequences of those decisions • Profit • Amount of money available to a business after all costs and expenses have been paid • Competition • Rivalry among businesses to sell their goods and services

15. Economic decision-making The process of choosing which needs and wants will be satisfied • Consumer – person who buys and uses goods & services • Producer – business that makes the goods & services • Demand – the quantity of a good or service that consumers are willing to buy • The cheaper an item is, the more people will want/be able to afford it (and visa versa) • Supply – the quantity of a good or service that businesses are willing and able to provide • The more expensive it is to produce, fewer businesses are willing to make it (and visa versa) Consumers set demand, producers establish supply

16. Supply and demand Price of 3-day Pass Demand Number of Passes Sold

17. Supply and demand Supply Price of 3-day Pass Number of Passes Sold

18. Supply and demand Supply MarketPrice Price of 3-day Pass Demand Number of Passes Sold

19. Unit 1.02key characteristics of the private enterprise system • Private Enterprise System • Role of the Individual as a Producer • Role of the Individual as a Consumer • Role of the Individual as a Citizen

20. Private enterprise system An economic system that rewards firms for their ability to perceive the needs and demands of consumers • Capitalism • 20 million US businesses in operation • 3 main types of business • Sole Proprietors • Partnerships • Corporations • Fortune 500

21. How do businesses and consumers interact? • Role of the Individual as a Producer • Role of the Individual as a Consumer • Role of the Individual as a Citizen

22. Individual as a producer • Contribution to Economy • Goals – Things a person wants to accomplish, such as getting a college education, buying a car, or starting a business • Values – Things that are important to you in life • Standard of Living • Measure of how well people in a country live • Quality and quantity of wants and needs that are satisfied • Often determined by your choice of career • Career Choices • www.careercruising.com

23. entrepreneur Someone who takes a risk in starting a business to earn a profit • The bad news: • Over 1 million businesses start up in America each year • Over 500,000 close each year • Most start ups close within 16 months • The good news: • Average income for small business owner is $233,600

24. profit The amount of money available to the business after all costs and expenses have been paid • How to increase profits? • Increase sales • Increase price • Decrease costs

25. Individual as a Consumer • Consumes goods and services • Vitale role in economic system • Buy/Not-Buy decision effects what goods and services are produced • Heavily targeted by businesses • Pay for Needs First • Food • Clothing • Shelter • Consumer Wants are a Huge Market!

26. Gallup Daily: U.S. Consumer Spending

27. Household Spending by Category

28. Strength of the consumer • Customer Service Key • 70% of Americans are willing to spend 13% more with companies they believe provide excellent customer service • 78% of consumers have bailed on a transaction because of poor customer service • Advocacy Groups • Protect people from corporate abuse (unsafe products, predatory lending, false advertising, etc.) • Prevention & Awareness (anti-smoking groups, parental advisory labels, etc.)

29. Individual as a citizen • Bill of Rights • Freedom of religion, speech, press, assembly, and petition. • Right to keep and bear arms in order to maintain a well regulated militia. • No quartering of soldiers. • Freedom from unreasonable searches and seizures. • Right to due process of law, freedom from self-incrimination, double jeopardy. • Rights of accused persons, e.g., right to a speedy and public trial. • Right of trial by jury in civil cases. • Freedom from excessive bail, cruel and unusual punishments. • Other rights of the people. • Powers reserved to the states.

30. Citizen’s economic responsibility • Vote • Pay Taxes • Obey the Law

31. What happens if economic responsibility ignored?

36. Unit 1.03 • Different Types of Businesses • Forms of Business Ownership • Determining Type of Business Ownership • Other Considerations

37. Types of business • Sole Proprietor • Partnership • Corporation

38. Sole Proprietor • A business owned by one person • Most common legal form of ownership for new businesses • 15-20 Million sole proprietors in United States • Accounts for 75% of businesses in US

39. Sole proprietor • Pros: • Control the entire business • Keep all of the profits • Make decisions quickly • Easy to establish • Pay fewer taxes • Cons • Unlimited liability

40. partnership • A business owned by 2 or more persons who share responsibilities and profits/losses • Partnership Agreement (not filed with the government) • Name of the new business • Amount each person is to invest in the business • Amount each partner is to draw in salary/profit • How profits/losses after salaries are paid will be shared in proportion to each partner’s investment • Responsibilities of the partners in the entity • What will happen in the event of death of a partner(s) • 3 Million business partnerships in United States

41. partnership • Pros: • Combine talents and financial resources • Share in responsibility of running the business and making decisions • Relatively easy to establish • Pays less taxes than a corporation • Cons: • Unlimited liability • Potential for disagreements • Loss of partner could mean end of business

42. corporation • A business organization that operates as a legal entity separate from its owners • Recognized as a person under the law • Articles of Incorporation • Sell Stock • Most revenue generated from this type of business

43. corporation • Key Terms • Stockholders/Shareholders: People who own stock in a corporation • Board of Directors: A group of people elected by shareholders to guide a corporation • Corporate Officers: are the directors and senior level management of a corporation • Charter: a license to operate from that state • Proxy: ability of a shareholder to vote on the affairs of a company

44. Corporation • Pros: • Limited liability • Share of the profits • No management responsibility • Can raise money by selling stock • Easier to get credit • Cons: • Legal red tape • Increased tax burden

45. Business ownership distribution

46. Determining type of business ownership • the potential risks and liabilities of your business • the formalities and expenses involved in establishing and maintaining the various business structures • your income tax situation • your investment needs

47. Other types of businesses • Franchise • Extractor • Producer • Processor • Manufacturer • Distribution • Service Firms

48. franchise • A contractual agreement to sell a company’s products or services in a designated geographic area

49. franchise • Franchisee: the person or group of people who have received permission from a parent company to sell its products or services • Franchisor: the parent company that grants permission to a person or group to sell its products or services • McDonald’s • 75% of restaurants worldwide are owned by franchisees • Minimum $500,000 non-borrowed funds (25% cash) • Monthly Service Fee – 4% of sales

50. franchise • Pros: • Name brand recognition • Established method of doing business • Access to centralized advertising • Professional help in startup/training • Cons: • High startup costs in purchasing rights to use the business name • Must follow corporate standards