Exploring the World of Business and Economics

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1 Chapter One Exploring the World of Business and Economics Copyright Cengage Learning. All rights reserved. 1 1 Learning Objectives 1. Discuss your future in the world of business. 2. Define business and identify potential risks and rewards. 3. Define economics and describe two types of economic systems: capitalism and command economy. 4. Identify the ways to measure economic performance. 5. Outline the four types of competition. 6. Summarize the factors that affect the business environment and the challenges that American businesses will encounter in the future. Copyright Cengage Learning. All rights reserved. 1 2

2 Chapter 1 Outline Your Future in the Changing World of Business Why Study Business? Special Note to Students Business: A Definition The Organized Effort of Individuals Satisfying Needs Business Profit Chapter 1 Outline (cont d) Types of Economic Systems Capitalism Capitalism in the United States Command Economies Measuring Economic Performance The Importance of Productivity in the Global Marketplace Important Economic Indicators that Measure a Nation s Economy The Business Cycle

3 Chapter 1 Outline (cont d) Types of Competition Perfect (or Pure) Competition Monopolistic Competition Oligopoly Monopoly American Business Today Early Business Development The Twentieth Century A New Century: 2000 and Beyond The Current Business Environment The Challenges Ahead Your Future in the Changing World of Business Free enterprise What does it take to succeed in business? Copyright Cengage Learning. All rights reserved. 1 6

4 Why Study Business? For help in choosing a career To be a successful employee To start your own business To become a better informed consumer and investor Copyright Cengage Learning. All rights reserved. 1 7 Tips for Studying Business 1. Prepare before you go to class. 2. Read the chapter. 3. Underline or highlight important concepts. 4. Take notes. 5. Apply the concepts. 6. Practice critical thinking. 7. Prepare for exams. Copyright Cengage Learning. All rights reserved. 1 8

5 Business: A Definition The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society s needs Copyright Cengage Learning. All rights reserved. 1 9 Classification of Businesses Manufacturing businesses Service businesses Marketing intermediaries Copyright Cengage Learning. All rights reserved. 1 10

6 Satisfying Needs People buy goods and services not just to own them, but to satisfy yparticular needs Businesses that understand customer needs, and work to satisfy those needs, are usually successful Copyright Cengage Learning. All rights reserved The Relationship Between Sales Revenue and Profit Profit is what remains after all business expenses have been deducted from sales revenue. A loss (negative profit) results when a firm s expenses are greater than its revenues. Copyright Cengage Learning. All rights reserved. 1 12

7 Business Profit The purposes of profit Stakeholders Copyright Cengage Learning. All rights reserved Economic Systems Economics Microeconomics Macroeconomics Economy Copyright Cengage Learning. All rights reserved. 1 14

8 Economic Systems (cont d) Factors of production Entrepreneur Differences in economic systems Copyright Cengage Learning. All rights reserved Types of Economic Systems Capitalism Capitalism in the United States Copyright Cengage Learning. All rights reserved. 1 16

9 Types of Economies (cont d) Command economies Socialism Communism Copyright Cengage Learning. All rights reserved Measuring Economic Performance Productivity Economic indicators Gross domestic product (GDP) Inflation Copyright Cengage Learning. All rights reserved. 1 18

10 Common Measures Used to Evaluate a Nation s Economic Health Balance of trade Bank credit Corporate profits Copyright Cengage Learning. All rights reserved Common Measures Used to Evaluate a Nation s Economic Health (cont d) Inflation rate National income New housing starts Copyright Cengage Learning. All rights reserved. 1 20

11 Common Measures Used to Evaluate a Nation s Economic Health (cont d) Prime interest rate Productivity rate Unemployment rate Copyright Cengage Learning. All rights reserved The Business Cycle The recurrence of periods of growth and recession in a nation s economic activity Recession Depression Monetary policies i Copyright Cengage Learning. All rights reserved. 1 22

12 The Business Cycle (cont d) Fiscal policy Federal deficit National debt Copyright Cengage Learning. All rights reserved Types of Competition Perfect (or pure) competition Supply: Demand: Market Price (Equilibrium): Copyright Cengage Learning. All rights reserved. 1 24

13 Types of Competition (cont d) Monopolistic competition Oligopoly Monopoly Copyright Cengage Learning. All rights reserved American Business Today Standard of living Early business development Barter system Domestic system Copyright Cengage Learning. All rights reserved. 1 26

14 American Business Today (cont d) Early Business Development (cont d) Factory system Specialization Copyright Cengage Learning. All rights reserved American Business Today (cont d) The Twentieth Century The Late Twentieth Century A New Century: 2000 and Beyond Copyright Cengage Learning. All rights reserved. 1 28

15 The Challenges Ahead 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? How can we create a more stable economy and create new jobs? As a nation, how can we develop a disaster crisis management program that will help people in times of peril? How can we meet the challenges of managing culturally diverse work forces to address the needs of a culturally diverse marketplace? How can we make American manufacturers more productive and more competitive with foreign producers who have lower labor costs? Copyright Cengage Learning. All rights reserved The Challenges Ahead (cont d) How can we preserve the benefits of competition in our American economic system? How can we encourage economic growth and at the same time continue to conserve natural resources and protect our environment? How can we best market American-made products in foreign nations? How can we meet the needs of two-income families, single parents, older Americans, and the less fortunate? Copyright Cengage Learning. All rights reserved. 1 30

16 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.1 Combining Resources 1 Human resources Material resources Combining Resources Informational resources BUSINESS Financial resources 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 1 3/6/09 6:23:42 PM

17 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.2 The Relationship Between Sales Revenue and Profit 2 The Relationship Between Sales Revenue and Profit Sales revenue Expenses Profit 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 2 3/6/09 6:23:43 PM

18 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.3 Basic Assumptions for Adam Smith s Laissez-Faire Capitalism 3 Laissez-faire capitalism Right to create wealth Right to own private property and resources Right to economic freedom and freedom to compete Right to limited government intervention 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 3 3/6/09 6:23:43 PM

19 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.4 The Circular Flow in Our Mixed Economy 4 The Circular Flow in Our Mixed Economy N atural resources Labor Incom e Capital Resource markets Govt. spending Resources N atural W ages resources Labor Rent Interest Capital Households Tax es Service Governments Tax es Service Businesses G oods Consum er Serv ices sp ending Govt. spending Products Product markets Sales rev enue G oods Serv ices 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 4 3/6/09 6:23:44 PM

20 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.5 GDP in Current Dollars and in Inflation-Adjusted Dollars 5 Year Trillions of dollars 5 4 GDP in current dollars Real GDP in 2000 dollars GDP in Current Dollars and in Inflation- Adjusted Dollars Source: U.S. Bureau of Economic Analysis website at accessed September 14, Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 5 3/6/09 6:23:44 PM

21 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.6 Supply Curve and Demand Curve 6 Quantity in millions of bushels Supply curve 6 Price per unit Market price 7 11 Demand curve 12 $13 Supply Curve and Demand Curve Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 6 3/6/09 6:23:44 PM

22 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.A Chapter Outline 7 Chapter 1 Outline Exploring the World of Business and Economics Your Future in the Changing World of Business Why Study Business? Special Note to Students Business: A Definition The Organized Effort of Individuals Satisfying Needs Business Profit Types of Economic Systems Capitalism Capitalism in the United States Command Economies Measuring Economic Performance The Importance of Productivity in the Global Marketplace Important Economic Indicators that Measure a Nation s Economy The Business Cycle Types of Competition Perfect (or Pure) Competition Monopolistic Competition Oligopoly Monopoly American Business Today Early Business Development The Twentieth Century A New Century: 2000 and Beyond The Current Business Environment The Challenges Ahead 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 7 3/6/09 6:23:45 PM

23 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.B Class Exercise Class Exercise Choose a product that would be sold in each of the four types of competitive situations described in your text. Also, list the name of a specific firm in your area that would sell the product. 8 Competitive Situation Product Specific Firm 1. Perfect competition 2. Monopolistic competition 3. Oligopoly 4. Monopoly 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 8 3/6/09 6:23:45 PM

24 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.C Debate Issue 9 Debate Issue Should there be less government involvement in the United States economic system? YES NO Today, there are too many government controls that inhibit business owners. The added costs of adhering to government regulations are passed on to consumers in the form of higher prices. There is no need for all the government rules and regulations because most business owners are socially responsible. Without adequate government controls, business would take advantage of consumers. While government rules and regulations cost money, the added safety and protection are well worth the money. While the majority of business owners may be socially responsible, there are some that need the encouragement provided by government regulations Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 9 3/6/09 6:23:45 PM

25 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.D Chapter Quiz 10 Chapter Quiz 1. General Motors and Toyota are both examples of a. marketing intermediaries. b. manufacturers. c. wholesalers. d. international agents. e. service businesses. 2. What remains after all business expenses have been deducted from sales revenues is referred to as a. cash. b. excess return. c. profit. d. gross return. e. operating revenue. 3. is an economic system in which individuals own and operate the majority of businesses that provide goods and services. a. Bureaucratic economy b. Command economy c. Communism d. Capitalism e. Socialism 4. The total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period is called a. gross manufacturing output. b. gross domestic product. c. real gross national product. d. economic product. e. national production report. 5. is a loose subjective measure of how well off an individual or society is. a. Standard of living b. Consumer price index c. Personal economic index d. Individual consumption standard e. Employee producer index 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 10 3/6/09 6:23:45 PM

26 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.E Why Study Business? 11 Why Study Business? Most people take our American business system for granted. Yet there are at least four reasons why you should study business: 1. You can choose a rewarding career. 2. You can be a better employee. 3. You can start your own business. 4. You can become a more informed consumer and investor Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 11 3/6/09 6:23:45 PM

27 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.F Seven Ways to Use This Text and Its Resources 12 Seven Ways to Use This Text and Its Resources 1. Prepare before you go to class. 2. Read the chapter. 3. Underline or highlight important concepts. 4. Take notes. 5. Apply the concepts. 6. Practice critical thinking. 7. Prepare for exams Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 12 3/6/09 6:23:45 PM

28 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.G Definition of Business 13 BUSINESS The organized effort of individuals to produce and sell, for profit, products and services that satisfy society s needs 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 13 3/6/09 6:23:45 PM

29 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.H A Comparison of Capitalism, Socialism, and Communism A Comparison of Capitalism, Socialism, and Communism 14 CAPITALISM SOCIALISM COMMUNISM Management Competition decides what and how to produce based on projected demand encouraged, supported by laws makes decisions in free market sector none among governmentowned industries Profit a basic right not an incentive in governmentowned industries Government role Ownership of productive resources Capital limited; protects consumers, regulates unfair practices private from shareholders and private financial institutions develops master economic plan government owns key industries; private ownership allowed from citizens through savings and from the state top party members dictate business activities none not an incentive; public recognition more important plans and implements economic activity government owns almost all resources from state revenues through taxes 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 14 3/6/09 6:23:45 PM

30 Pride/Hughes/Kapoor, BUSINESS, 10th edition Figure 1.I Definitions of Productivity, GDP, and Inflation 15 Key Economic Terms PRODUCTIVITY The average level of output per worker per hour GROSS DOMESTIC PRODUCT The total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period INFLATION A general rise in the level of prices 2010 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 3768X_01_ch01_p indd 15 3/6/09 6:23:45 PM

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