Transcript Understanding the US Business System

Fourth Edition
PART 1 . . . . . . . . . . . . . . . . . . . . . . . .
Understanding the Contemporary
Business Environment
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Chapter 1
Understanding the U.S.
Business System
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1-2
“In business you get what
you want by giving other
people what they want.”
~ Alice Foote MacDougall
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Key Topics
Nature and goals of US business
Global economic systems
Supply and demand
Private enterprise and competition
Evaluating economic performance
Status and outlook for the US economy
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What Is Business?
An organization that
provides goods and
services to earn profits
Profits:
The positive difference
between revenues and
expenses
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Factors of Production
Labor
Capital
Information
Resources
Entrepreneurs
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Physical
Resources
1-6
How Are Factors of Production Allocated?
Planned Economy:
An economic system in which the government
owns and operates all sources of production
Market Economy:
An economic system in which buyers and
sellers interact based on freedom of choice
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“Circular Flow in Market Economy”
SUPPLY
OUTPUT MARKETS
DEMAND
Goods
Services
FIRMS
• Supply products in
output markets
• Demand resources
in input markets
DEMAND
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HOUSEHOLDS
INPUT MARKETS
Labor
Capital
Entrepreneurs
Physical Resources
Information Resources
• Demand products
in output markets
• Supply resources in
input markets
SUPPLY
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Capitalism
A Fundamentally Market-Based Economy
Individuals Choose:
Producers Choose:
Where to work
Who to hire
What to buy
What to produce
How much to pay
How much to charge
Government supports private ownership
and encourages entrepreneurship
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Mixed Economies
Planned and Market
The economies of most countries include
both planned and market elements
Worldwide trend toward more market
elements
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Socialism
A Mixed Economy
Socialism is a planned economic system in
which the government owns and operates
selected sources of production
Privatization:
Process of converting government enterprises
into privately owned companies
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Supply & Demand
Drive the US Economic System
Supply:
The willingness and ability
of producers to offer a
good or service for sale
Law of Supply:
Producers will supply (offer) more of a product for
sale as its price rises and less as its price drops
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Supply & Demand
Drive the US Economic System
Demand:
The willingness
and ability of
buyers to
purchase a good
or service
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Law of Demand:
Buyers will demand
(purchase) more of a
product as its price
drops and less as its
price increases
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Demand & Supply
Demand and Supply Schedules
Price
Quantity of
Pizzas Demanded
$2
$4
$6
$8
$10
$12
$14
$16
$18
$20
2000
1900
1600
1200
1000
800
600
400
200
100
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Quantity of
Pizzas Supplied
100
400
600
800
1000
1200
1300
1600
1800
2000
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Demand & Supply
$20 -

Demand Curve
16 14 12 10 -
864-
1600 -
1400 -
1200 -
1000 -
800 -
600 -
400 -
200 -
2000 -

2-
1800 -
Price of Pizzas
18 -
Quantity of Pizzas Demanded
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Demand & Supply

$20 -
Supply Curve
16 14 12 10 -
86-
2000 -
1800 -
1600 -
1400 -
1200 -
1000 -
800 -

200 -
2-
600 -
4-
400 -
Price of Pizzas
18 -
Quantity of Pizzas Supplied
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Demand & Supply
$20 -
Price of Pizzas
18 -
Demand Curve
Supply Curve
16 14 12 -

10 -
Equilibrium Price
864-
2000 -
1800 -
1600 -
1400 -
1200 -
1000 -
800 -
600 -
400 -
200 -
2-
Quantity of Pizzas per Week
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The US Economy is a
Private Enterprise System
Individuals are free to pursue their own
interests without government restriction
Four Key Elements:
1.
2.
3.
4.
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Private Property Rights
Freedom of Choice
Profits
Competition
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Competition
Competition motivates
businesses to produce
their products better or
cheaper
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Degrees of Competition
Perfect
Monopolistic
Characteristic Competition Competition
Sample
Local farmer
Oligopoly
Monopoly
Stationery store Steel industry Public utility
Number of
competitors
Many
Many, but fewer
than in perfect
competition
Few
None
Ease of entry into
industry
Easy
Fairly easy
Difficult
Regulated by
government
Similarity of goods
or services offered
by competing firms
Identical
Similar
Can be
similar or
different
No directly
competing
goods/services
None
Some
Some
Considerable
Level of control
over price by
individual firms
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Understanding Economic Performance
KEY CONCEPTS
Business Cycle
Aggregate Output
Standard of Living
Gross Domestic Product (GDP)
Gross National Product (GNP)
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Understanding Economic Performance
KEY CONCEPTS
Productivity:
The amount a system produces compared to the
resources needed to produce it
Balance
of Trade
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PRODUCTIVITY
is impacted by:
National
Debt
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Economic Stability
Balanced Growth of Money & Goods
Two related factors threaten
stability:
INFLATION
UNEMPLOYMENT
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The CPI is a Tool to Measure Inflation
House
Car
Hamburger
& Fries
2000
1980
1930
$250,000
$109,000
$25,696
$18,000
$7,871
$1,850
$5.00
$2.19
$.51
Source: Westegg.com/inflation/infl.cgi
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Recessions & Depressions
Recession:
Aggregate output declines,
unemployment increases
Depression:
Severe and long-lasting
recession
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Managing the US Economy
Stabilization Policy:
Government policy designed to smooth out
fluctuations in the economy
Fiscal Policies
Monetary Policies
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Looking to the Future
Three Major Forces:
1. The information revolution
will continue to boost
productivity
2. Technological breakthroughs
will create new industries
3. Increasing globalization will
create larger markets and
tougher competition
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Projections and Implications
for the US Economy
Opportunities…
Steady economic growth
Fewer inflationary surges and lower budget
deficits
Countries with free trade, innovation, and
open financial systems will thrive
Successful businesses will be those that
quickly master new technology
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Projections and Implications
for the US Economy
Challenges…
Growing US trade deficit
Disturbing income inequality
Steadily increasing consumer debt
Limited health insurance
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Chapter Review
Describe the nature and goals of US business
Define the key global economic systems and
describe how they control the factors of production
Show how demand and supply affect the
distribution of resources in the US
Identify the elements of private enterprise and the
various degrees of competition
Explain how to evaluate an economic system
Describe the key projections for the US economy
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