Transcript Chapter 1

Chapter 1
Exploring the World
of Business and
Economics
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 the two types of economic
systems: capitalism and command economy.
4. Identify the ways to measure economic performance.
5. Examine the four different phases in the typical business
cycle.
6. Outline the four types of competition.
7. Summarize the factors that affect the business environment
and the challenges American businesses will encounter in
the future.
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Chapter 1 | Slide 2
Free Enterprise
“
…the system of business in which
individuals are free to decide what
to produce, how to produce it,
and at what price to sell it.
“
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Chapter 1 | Slide 3
Your Future in the
Changing 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
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Chapter 1 | Slide 4
Why Study Business?
• To choose a career
• To be a successful employee
• To start your own business
• To become a better-informed consumer
and investor
Here are some
interesting sites:
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www.careerbuilder.com
www.careeronestop.org
www.monster.com
www.hotjobs.yahoo.com
Chapter 1 | Slide 5
Median Yearly Income
Who Makes the Most Money?
Source: 2009 Statistical Abstract of the United States, p. 443
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Chapter 1 | Slide 6
Cultural (Workplace) Diversity
“
“
…differences among people in a workforce
owing to race, ethnicity, and gender.
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Chapter 1 | Slide 7
Text Features
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Learning Objectives
Inside Business
Margin Notes
Boxed Features
Spotlight
End-of-Chapter
Materials
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Chapter 1 | Slide 8
Pathway to Success in This Course
1.
2.
3.
4.
5.
6.
7.
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.
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Chapter 1 | Slide 9
Business
“
…the organized effort of
individuals to produce
and sell, for a profit, the
goods and services that
satisfy society’s needs.
“
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Chapter 1 | Slide 10
Figure 1.1: Combining Resources
A business must combine all four resources effectively to be successful.
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Chapter 1 | Slide 11
Ultimate Objective of Every Firm
“
“
…to satisfy the needs of its customers.
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Chapter 1 | Slide 12
Business Profit
Sales Revenue
- Business Expenses
Profit (Loss)*
*Profit becomes property of its owners
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Chapter 1 | Slide 13
Stakeholders
“
…all the different people or groups
of people who are affected by the
policies, decisions, and activities
made by an organization.
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Chapter 1 | Slide 14
Business Ownership Risks
 Not being paid
 Loss of whatever
is invested in the
business
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Chapter 1 | Slide 15
Paths to E-Profits
$ Amazon
 Free shipping
 Outside merchants =
commission
$ eBay
 Online auction
 Commission
 Online telephone
communications
$ Google
 Search engine
 Paid advertising links
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Chapter 1 | Slide 16
Economics
“
“
…the study of how wealth* is
created and distributed.**
*
wealth is “anything of value, including products
produced and sold by business”
**distribution is “who gets what”
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Chapter 1 | Slide 17
Economy
“
…the way in which
people deal with the creation and
distribution of wealth.
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Chapter 1 | Slide 18
Economic Perspectives

Microeconomics
The study of decisions made by
 Individuals
 Businesses

Macroeconomics
The study of
 National economy
 Global economy
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Chapter 1 | Slide 19
Factors of Production
“
“
…resources used to produce
goods and services.




Land/natural resources
Labor
Capital
Entrepreneurship
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Chapter 1 | Slide 20
Types of Economic Systems
 Capitalism
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


Free Enterprise
Adam Smith (Wealth of Nations)
The Invisible Hand
Laissez-Faire Capitalism
 Command
 Socialism
 Communism (Karl Marx)
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Chapter 1 | Slide 21
Economic Systems Differ
• Economic systems differ depending on the
answers to four basic economic questions
about nation’s economic activity
1.
2.
3.
4.
What and how much will be produced?
How will it be produced?
For whom will it be produced?
Who owns/controls factors of production?
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Chapter 1 | Slide 22
Capitalism
“
…individuals own and operate
the majority of businesses that
provide goods and services.
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Chapter 1 | Slide 23
Adam Smith
Wealth of Nations (1776)
 Society pursues self-interest
 People work hard if
• Earn more pay
• Earn more profit
 Capitalism promotes good of
community
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Chapter 1 | Slide 24
Invisible Hand
“
...describes how an individual’s
own personal gain benefits others
and a nation’s economy.
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Chapter 1 | Slide 25
Figure 1.3: Assumptions for
Laissez-Faire Capitalism
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Chapter 1 | Slide 26
U.S. = Mixed Economy
“
…an economy that exhibits elements
of both capitalism and socialism.
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Chapter 1 | Slide 27
Figure 1.4: Circular Flow
in Mixed Economy
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Chapter 1 | Slide 28
Command Economy
“
…government decides what goods
and services will be produced, how
they will be produced, for whom
available goods and services will be
produced, and who owns and controls
the major factors of production.
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Chapter 1 | Slide 29
Command Economies
Socialism
Communism
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Chapter 1 | Slide 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
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Chapter 1 | Slide 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
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Chapter 1 | Slide 32
Measuring
Economic Performance
Economic Indicators

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
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Balance of Trade
Corporate Profits
Inflation Rate
National Income
New Housing Starts
Prime Interest Rate
Productivity Rate
Unemployment Rate
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Chapter 1 | Slide 33
Consumer Price Index
for All Urban Consumers (CPI-U)
250
(1982–84=100, unless otherwise noted)
200
150
100
50
0
U.S. Department of Labor, Bureau of Labor Statistics, Inflation & Prices, All Urban Consumers,
http://www.bls.gov/data , Table 24. Historical Consumer Price Index for All Urban Consumers (CPI-U):
U. S. city average, accessed July 2009.
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Chapter 1 | Slide 34
Productivity
…the average level of
“
output per worker per hour.
“
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Chapter 1 | Slide 35
Results of
Increased Productivity
1. Owners make more
profit and/or sell
products for less
2. Can lead to higher
unemployment
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Chapter 1 | Slide 36
Figure 1.5: GDP in Current Dollars and
in Inflation-Adjusted Dollars
Source: U.S. Bureau of Economic Analysis website at www.bea.gov, accessed September 14, 2008
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Chapter 1 | Slide 37
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.)
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Chapter 1 | Slide 38
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.)
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Chapter 1 | Slide 39
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
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Chapter 1 | Slide 40
Business Cycle
“
…the recurrence of periods
of growth and recession in a
nation’s economic activity.
“
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Chapter 1 | Slide 41
States of Business Cycle
Dow Jones
Peak
Peak
Recovery
Recession
Recession
Depression
Depression
1
2
3
Trough
4
5
6
7
8
9
10
11
Quarters
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Chapter 1 | Slide 42
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
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Chapter 1 | Slide 43
Federal Deficit
“
…a shortfall created when the
federal government spends more
in a fiscal year than it receives.
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Chapter 1 | Slide 44
Figure 1.6: Supply Curve
and Demand Curve
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Chapter 1 | Slide 45
Table 1.3: Four Different
Types of Competition
The number of firms determines the degree of competition within an industry.
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Chapter 1 | Slide 46
Product Differentiation
“
…the process of developing
and promoting differences between
one’s products and all similar products.
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Chapter 1 | Slide 47
Standard of Living
“
…a loose subjective measure of
how well off an individual or a society is
mainly in terms of want satisfaction
through goods and services.
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Chapter 1 | Slide 48
Figure 1.7:
Time Line of
American Business
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Chapter 1 | Slide 49
Environments of Business
Competitive
Technological
Business
Global
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Economic
Chapter 1 | Slide 50
The Challenges Ahead
1. How can we create a more stable economy and create
new jobs?
2. How can we restore the public’s confidence in the
banking and financial industries?
3. 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?
4. 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.)
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Chapter 1 | Slide 51
The Challenges Ahead (cont.)
5. How can we meet the challenges of managing culturally
diverse workforces to address the needs of a culturally
diverse marketplace?
6. How can we make American firms more productive and
more competitive with foreign firms that have lower labor
costs?
7. How can we preserve the benefits of competition and
small businesses in our American economic system?
8. How can we encourage economic growth and at the
same time continue to conserve natural resources and
sustain our environment?
(cont.)
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Chapter 1 | Slide 52
The Challenges Ahead (cont.)
9. 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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Chapter 1 | Slide 53
Chapter Quiz
1. General Motors and Toyota are both examples of
a)
b)
c)
d)
e)
marketing intermediaries.
manufacturers.
wholesalers.
international agents.
service businesses.
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Chapter 1 | Slide 54
Chapter Quiz (cont.)
2. What remains after all business expenses have been
deducted from sales revenues is referred to as
a)
b)
c)
d)
e)
cash.
excess return.
profit.
gross return.
operating revenue.
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Chapter 1 | Slide 55
Chapter Quiz (cont.)
3. 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)
b)
c)
d)
e)
gross manufacturing output.
gross domestic product.
real gross national product.
economic product.
national production report.
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Chapter 1 | Slide 56
Chapter Quiz (cont.)
4. __________ is an economic system in which individuals own
and operate the majority of businesses that provide goods
and services.
a)
b)
c)
d)
e)
Bureaucratic economy
Command economy
Communism
Capitalism
Socialism
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Chapter 1 | Slide 57
Chapter Quiz (cont.)
5.
__________ is a loose subjective measure of how well off
an individual or society is.
a)
b)
c)
d)
e)
Standard of living
Consumer price index
Personal economic index
Individual consumption standard
Employee producer index
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Chapter 1 | Slide 58