Transcript Chapter 1

Part 1
Business in a
Changing
World
© 2015 McGraw-Hill Education.
1-2
CHAPTER 1
The Dynamics of Business and Economics
CHAPTER 2
Business Ethics and Social Responsibility
CHAPTER 2
APPENDIX
The Legal and Regulatory Environment
CHAPTER 3
Business in a Borderless World
1-3
Learning Objectives
LO 1-1
Define basic concepts such as business, product, and
profit.
LO 1-2
Identify the main participants and activities of business
and explain why studying business is important.
LO 1-3
Define economics and compare the four types of
economic systems.
LO 1-4
Describe the role of supply, demand, and competition in
a free enterprise system.
LO 1-5
Specify why and how the health of the economy is
measured.
LO 1-6
Trace the evolution of the American economy and
discuss the role of the entrepreneur in the economy.
1-4
The Nature of Business
Business
• Individuals or organizations trying to earn a
profit by providing products that satisfy people’s
needs
Products
• Goods or services with tangible and intangible
characteristics that provide satisfaction and
benefits
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A Product Can Be…
Tangible
Goods
•
•
•
•
Automobile
Computer
Phone
Coat
Services
Ideas
• Dry cleaning
• Doctor’s
checkup
• Basketball
game
• Concert
• Professionals
generate
ideas for
solving
problems
1-6
The Goal of Business
The goal of business is to earn a profit
$ The difference between what it costs to make and
sell a product and what a customer pays for it
$10 sale – $8 to make = $2 profit
$ Earning profits contributes to society by providing
employment, which in turn provides money that is
reinvested in the economy
$ Profits must be earned in a responsible manner
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To Earn
a Profit
Management
Skills
Acting
Ethically
Marketing
Expertise
Profit
Adapting to
Change
Financial
Resources
Abiding by
the Law
Product
and Staff
1-8
Nonprofit Organizations
Provide
goods and
services
Engage in
Do not share
management,
the purpose
marketing and
of earning
finance to
profits
reach goals
1-9
Stakeholders
~
Groups that have a stake in the
success and outcome of a business
~
Customers, employees, investors,
government regulators, community,
and society
~
To achieve and maintain profitability,
businesses must produce quality
products, operate efficiently, and be
socially responsible and ethical in
dealing with stakeholders
1-10
People and Activities of Business
1-11
People and Activities of Business
Plan
Management is
concerned with:
o Acquiring
o Developing
o Using
resources (including
people) effectively and
efficiently
Control
Tasks
Managers
Staff
Organize
1-12
People and Activities of Business
The focus of
all marketing
activities is
satisfying
customers
Determine
customer
needs
Plan and
develop
product
Determine
place
Determine
distribution
Determine
promotion
Determine
price
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People and Activities of Business
The owner is primarily
responsible for obtaining
financial resources for the
operation of the business,
including:
 Obtaining money
 Using money effectively
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Why Study Business?
• Develop skills
for career
success
• Become a
well-informed
consumer and
member of
society
Business career opportunities:
 Marketing
 Human resources
management
 Information technology
 Finance
 Production and operations
 Wholesaling and retailing
 And more
1-15
Economic Foundations of Business
Economics
• The study of how
resources are distributed
for the production of
goods and services within
a social system
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Economic Foundations of Business
•
•
•
•
Natural Resources
Land, forests, mineral, water, and other things not made by
people
Human Resources – also called Labor
The physical and mental abilities people use to produce
goods and services
Financial Resources – also called Capital
The funds used to acquire the natural and human
resources needed to provide products
Intangible Resources
Such as a good reputation for quality products or being
socially responsible
1-17
Economic Systems
Economic System
• A description of how a particular society distributes
its resources to produce goods and services
All economic systems must address these 3 important issues:
1. What goods and services, and how much of each, will
satisfy consumers’ needs?
2. How will goods and services be produced, who will
produce them, and with what resources will they be
produced?
3. How are the goods and services to be distributed to
consumers?
1-18
Economic Systems
• First described by Karl Marx as a society in
which the people, without regard to class, own all
the nation’s resources
• On paper it appears efficient, but in practice,
these economies suffer from:
• low standards of living
• critical shortages of consumer goods
• high prices
• corruption and little freedom
Communism
N
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1-19
Economic Systems
Socialism
• An economic system in which the government owns
and operates basic industries but individuals own
most businesses
• Most socialist countries are democratic and
recognize individual freedoms
• The socialist system may allow a higher standard of
living and is more stable; but taxes and
unemployment are generally higher in socialist
countries
S
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1-20
Economic Systems
Capitalism,
or Free
Enterprise
• An economic system in which individuals own and
operate the majority of businesses that provide goods
and services
• Pure capitalism or free-market system happens when
all economic decisions are made without government
intervention; also called laissez-faire capitalism
• Modified capitalism differs from pure capitalism as the
government intervenes and regulates business to
some extent
C
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Economic Systems
No country practices pure capitalism, socialism, or
communism
Mixed
Economies
• Economies made up of elements
from more than one economic
system
• No country practices a pure form of
any economic system, although
most favor one system over others
China and Russia have used state capitalism to
advance the economy, integrating the powers of the
state with the advantages of capitalism
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Free-Enterprise System
Many large economies are
free-enterprise – including
the U.S., Canada and Japan
Many communist and
socialist countries apply freeenterprise principles –
including China and Russia
Free enterprise allows a
company to succeed or fail
on the basis of market
demand
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Free-Enterprise System
Basic individual and business rights which must
exist in order to motivate companies to succeed
► Right to own property
► Right to earn profits and use them as one wishes
► Right to determine business operations
► Right to choose
 Career to pursue
 Where to live or where to locate a business
 What goods/services to purchase and more
1-24
Forces of Supply and Demand
Supply
The number of
products businesses
are willing to sell at
different prices at a
specific time
The number of
products consumers
are willing to buy at
different prices at a
specific time
Demand
1-25
Equilibrium Price
Equilibrium
price is the
price at which
the number of
products
supplied equals
the amount of
products
consumers are
willing to buy at
a specific time
1-26
The Nature of Competition
Competition is the rivalry among businesses for consumer’s dollars
Pure
Competition
Monopolistic
Competition
• The market
structure that
exists when
there are
many small
businesses
selling one
standardized
product
• Fewer
businesses
than in a
pure
competition
and the
differences
among the
goods they
sell are small
Oligopoly
Monopoly
• The market
structure that
exists when
there are
very few
businesses
selling a
product
• The market
structure that
exists when
there is only
one business
providing a
product in a
given market
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Economic Cycles and Productivity
May lead to
inflation – a
continuing rise
in prices
May lead to
recession – a
decline in
production,
employment
and income
Economic expansion occurs then an
economy is growing and people are
spending more money; their
purchases stimulate the production
of goods and services, which in turn
stimulates employment
Economic contraction is a
slowdown of the economy
characterized by a decline in
spending and during which
businesses cut back on
production and lay off workers
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Economic Cycles and Productivity
Recessions are often characterized by rising levels of
 Unemployment – the condition in which a percentage of
the population wants to work but is unable to find jobs
Deflation occurs when rising unemployment stifles demand,
forcing prices down
Severe recession may turn into a
 Depression – a condition of the
economy in which unemployment is
very high, consumer spending is low,
and business output is sharply
reduced
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Economic Cycles and Entrepreneurship
Many companies begin in times of economic recession
due to high unemployment and the tendency for people to
become less risk averse


Hewlett Packard, Revlon, and IHOP are just a few
examples of companies that began in suboptimal economic
conditions and survived to become large, profitable, and
long-lasting
The Great Recession of 2008 is no exception:
 Groupon, founded in 2008, has since become publicly traded

and valued at near $10 billion
Playdom, a social game developer, was founded in 2008 and
sold for $500 million in 2010
SOURCES: Matt Rosoff “Born From the Ashes: Big Tech Companies Founded During Busts and Recessions”.
http://www.businessinsider.com/great-tech-companies-that-started-in-terrible-economic-times-2011-8?op=1; gbravo. “Famous Companies
Founded During an Economic Recession”. http://www.resourcenation.com/blog/famous-companies-that-were-founded-in-an-economicrecession/3265/. (accessed September 18, 2013).
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Measuring the Economy
Gross
Domestic
Product
(GDP)
Budget
Deficit
• The sum of all goods and services
produced in a country during a year
• Does not include profits from
companies’ overseas operations
• The condition in which a nation
spends more than it takes in from
taxes
• U.S. budget deficit has recently grown
to record levels; remedies include
raising taxes or reduce spending
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Gross Domestic Product (GDP)

In 2008 the System of National Accounts (SNA), which is
overseen by the United Nations (UN) and serves as a set
of standards by which to measure economic activity in
every country, broadened the definition of assets to
include intellectual property (IP) such as patents

Over the last decade investments in research and
development have spurred new products that have
contributed to the GDP making them an important asset

While the calculations are still difficult, Canada and the
United States have included IP in their GDP and other
countries are expected to follow
(SOURCE: Free Exchange. “Boundary Problems”. The Economist. August 3, 2013. Page 64.)
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Evaluating Our Economy
See the U.S.
Public Debit to
the Penny
1-33
The American Economy
Early
Economy
• Agricultural
economy
• People
produced
everything
they needed
at home
Industrial
Revolution
• New
technologies
and factories
• Factories
combined
material,
machines
and workers
Manufacturing
and Marketing
Economies
• Assembly
line
production
and concern
with
customer
needs
Service and
Digital
Economy
• The U.S. is a
service
economy
and
technology
is leading us
into a new
digital
economy
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The Role of the Entrepreneur
Entrepreneur
• An individual who risks his/her wealth, time and effort
to develop for profit an innovative product or way of
doing something.
Entrepreneurship requires:




Risk
Innovation
Creativity
Reward
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Government in the American Economy
The U.S. economy is best described as modified
capitalism because:
◄ The government regulates industry to encourage
competition and protect stakeholders like
consumers, employees, or the environment
◄ Laws force businesses to adhere to government
standards
◄ Government agencies like the U.S. Federal Reserve
Board or the Department of Commerce occasionally
intervene to regulate the economy and spur growth
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Ethics and Social Responsibility in
Business
Business ethics
are standards set
by society
Stakeholders
demand ethical
and socially
responsible
behavior
Reputation
depends on
profit and ethics
and social
responsibility
1-37
Can You Learn Business in a Classroom?
Absolutely!
To be successful in business, you need:
 Knowledge
 Skills
 Experiences and
 Good judgment
1-38
Discussion
?
?
Why is it important for
the government to
measure the economy?
What kinds of actions
might it take to control
the economy’s growth?