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Chapter 1

Chapter 1. Exploring the World of Business and Economics. Learning Objectives. Discuss your future in the world of business. Define business and identify potential risks and rewards. Define economics and describe the two types of economic systems: capitalism and command economy.

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Chapter 1

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  1. Chapter 1 Exploring the Worldof Business and Economics

  2. Learning Objectives • Discuss your future in the world of business. • Define business and identify potential risks and rewards. • Define economics and describe the two types of economic systems: capitalism and command economy. • Identify the ways to measure economic performance. • Examine the four different phases in the typical business cycle. • Outline the four types of competition. • Summarize the factors that affect the business environment and the challenges American businesses will encounter in the future.

  3. Free Enterprise “ …the system of business in which individuals are free to decide whatto produce, how to produce it,and at what price to sell it. “

  4. Your Future in theChanging World of Business • What do you want? • Why do you want it? • Write it down! “Success is a journey, not just a destination.” Joe Dudley

  5. Median Yearly Income Who Makes the Most Money? Source: 2009 Statistical Abstract of the United States, p. 443

  6. Cultural (Workplace) Diversity “ “ …differences among people in a workforce owing to race, ethnicity, and gender.

  7. Text Features • Learning Objectives • Inside Business • Margin Notes • Boxed Features • Spotlight • End-of-ChapterMaterials

  8. Pathway to Success in This Course • Prepare before you go to class. • Read the chapter. • Underline or highlight important concepts. • Take notes. • Apply the concepts. • Practice critical thinking. • Prepare for exams.

  9. Business …the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs. “

  10. Figure 1.1: Combining Resources A business must combine all four resources effectively to be successful.

  11. Ultimate Objective of Every Firm “ “ …to satisfy the needs of its customers.

  12. Business Profit Sales Revenue -Business Expenses Profit (Loss)* *Profit becomes property of its owners

  13. Stakeholders …all the different people or groupsof people who are affected by thepolicies, decisions, and activitiesmade by an organization. “ “

  14. Business Ownership Risks • Not being paid • Loss of whatever is invested in the business

  15. Paths to E-Profits • Amazon • Free shipping • Outside merchants = commission • eBay • Online auction • Commission • Online telephone communications • Google • Search engine • Paid advertising links

  16. Economics …the study of how wealth* iscreated and distributed.** “ “ *wealth is “anything of value, including products produced and sold by business” **distribution is “who gets what”

  17. Economy …the way in whichpeople deal with the creation anddistribution of wealth. “

  18. Economic Perspectives • MicroeconomicsThe study of decisions made by • Individuals • Businesses • MacroeconomicsThe study of • National economy • Global economy

  19. Factors of Production …resources used to producegoods and services. “ “ • Land/natural resources • Labor • Capital • Entrepreneurship

  20. Types of Economic Systems • Capitalism • Free Enterprise • Adam Smith (Wealth of Nations) • The Invisible Hand • Laissez-Faire Capitalism • Command • Socialism • Communism (Karl Marx)

  21. Economic Systems Differ • Economic systems differ depending on the answers to four basic economic questions about nation’s economic activity What and how much will be produced? How will it be produced? For whom will it be produced? Who owns/controls factors of production?

  22. Capitalism …individuals own and operatethe majority of businesses thatprovide goods and services. “ “

  23. Adam SmithWealth of Nations (1776) • Society pursues self-interest • People work hard if • Earn more pay • Earn more profit • Capitalism promotes good of community

  24. Invisible Hand ...describes how an individual’sown personal gain benefits othersand a nation’s economy. “

  25. Figure 1.3: Assumptions forLaissez-Faire Capitalism

  26. U.S. = Mixed Economy …an economy that exhibits elementsof both capitalism and socialism. “

  27. Figure 1.4: Circular Flowin Mixed Economy

  28. Command Economy …government decides what goodsand services will be produced, howthey will be produced, for whomavailable goods and services will be produced, and who owns and controlsthe major factors of production. “

  29. Command Economies • Socialism • Communism

  30. Socialism • Key industries owned/controlled by government • Land, buildings, and raw materials may be property of state • Private ownership permitted to varying degrees • People choose own occupations • National goals determine what/how produced • Uses taxes, rents, and wages to control distribution

  31. Communism • Karl Marx ─ Father • Advocated classless society • Citizens own all economic resources • Workers contribute based on ability and receive benefits based on need • Examples ─ North Korea, China • Centralized planning ─ sets prices and wages • Emphasis on government needs ─ not consumers • No job choice ─ professionals better off than factory workers

  32. MeasuringEconomic Performance • Economic Indicators • Balance of Trade • Corporate Profits • Inflation Rate • National Income • New Housing Starts • Prime Interest Rate • Productivity Rate • Unemployment Rate

  33. Productivity …the average level ofoutput per worker per hour. “

  34. Figure 1.5: GDP in Current Dollars andin Inflation-Adjusted Dollars Source: U.S. Bureau of Economic Analysis website at www.bea.gov, accessed September 14, 2008

  35. Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health • Balance of trade • The total value of a nation’s exports minus the total value of its imports over a specific period of time • Corporate profits • The total amount of profits made by corporations over selected time periods • Inflation rate • An economic statistic that tracks the increase in prices of goods and services over a period of time; usually calculated on a monthly or annual basis • (cont.)

  36. Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health (cont.) • National income The total income earned by various segments of the population, including employees, self-employed individuals, corporations, and other types of income • New housing starts The total number of new homes started during a specific time period • Prime interest rate The lowest interest rate that banks charge their most credit-worthy customers (cont.)

  37. Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health (cont.) • Productivity rate An economic measure that tracks the increase and decrease in the average level of output per worker • Unemployment rate The percentage of a nation’s labor force unemployed at any time

  38. Business Cycle …the recurrence of periodsof growth and recession in anation’s economic activity. “

  39. Government Actions in Recession/Depression • Monetary Policy Determines size of money supply and interest rates • Fiscal Policy Influences amount of savings and expenditures by altering tax structure and government spending

  40. Federal Deficit …a shortfall created when thefederal government spends morein a fiscal year than it receives. “

  41. Figure 1.6: Supply Curveand Demand Curve

  42. Table 1.3: Four DifferentTypes of Competition The number of firms determines the degree of competition within an industry.

  43. Product Differentiation …the process of developingand promoting differences betweenone’s products and all similar products. “

  44. Standard of Living …a loose subjective measure ofhow well off an individual or a society is mainly in terms of want satisfactionthrough goods and services. “

  45. Figure 1.7:Time Line ofAmerican Business

  46. The Challenges Ahead How can we create a more stable economy and create new jobs? How can we restore the public’s confidence in the banking and financial industries? How can we regulate banks, savings and loan associations, credit unions, and other financial institutions to prevent the type of abuses that led to an economic crisis? How can we encourage Iraq and Afghanistan to establish a democratic and free society and resolve possible conflict with North Korea and other countries throughout the world? (cont.)

  47. The Challenges Ahead (cont.) How can we meet the challenges of managing culturally diverse workforces to address the needs of a culturally diverse marketplace? How can we make American firms more productive and more competitive with foreign firms that have lower labor costs? How can we preserve the benefits of competition and small businesses in our American economic system? How can we encourage economic growth and at the same time continue to conserve natural resources and sustain our environment? (cont.)

  48. The Challenges Ahead (cont.) How can we meet the needs of two-income families, single parents, older Americans, and the less fortunate who need health care and social programs to exist?

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