Transcript Understanding the US Business System

Fourth Edition
PART 1 . . . . . . . . . . . . . . . . . . . . . . . .
Understanding the Contemporary
Business Environment
Copyright ©2003 Prentice Hall, Inc.
Chapter 1
Understanding the
Business System
Copyright ©2003 Prentice Hall, Inc.
1-2
“In business you get what
you want by giving other
people what they want.”
~ Alice Foote MacDougall
Copyright ©2003 Prentice Hall, Inc.
1-3
Key Topics
Nature and goals of business
Global economic systems
Private enterprise and competition
Evaluating economic performance
Copyright ©2003 Prentice Hall, Inc.
1-4
Exercise
Write four things do you know about
business. Write 4 things you would like to
know?
Copyright ©2003 Prentice Hall, Inc.
1-5
What Is Business?
An organization that
provides goods and
services to earn profits
Profits:
The positive difference
between revenues and
expenses
Copyright ©2003 Prentice Hall, Inc.
1-6
Difference between business and nonprofit organizations?
goals are quite different, the same skills
(management, marketing, finance, etc.) are
needed to be successful in both arenas.
Discussion: What benefits do businesses
offer society?
(goods, services, employment, tax revenue,
technological advances, etc.)
Copyright ©2003 Prentice Hall, Inc.
1-7
Factors of Production
Labor
Capital
Information
Resources
Entrepreneurs
Copyright ©2003 Prentice Hall, Inc.
Physical
Resources
1-8
Factors of production
Labor: The people who work for businesses. Labor includes both
physical and mental contributions. A country with a highly educated
workforce is considered rich in this resource.
Capital: The funds needed to create and operate a business. Sources
include personal investment by owners, loans, sale of stock and bonds,
and revenue from the sale of product.
Entrepreneurs: People who are willing to accept the risks that are part
of creating and operating businesses, in return for the potential profits.
Physical resources: Tangible things organizations use in the conduct of
their business. Possibilities include natural resources, raw materials,
office equipment and facilities, computers, transportation and
communication infrastructure, etc.
Information resources: Data and other information used by business.
This factor has become increasingly important in the last decade.
Copyright ©2003 Prentice Hall, Inc.
1-9
Exercise: group Discusion
Higher Education service.
list the factors of production that were used to
produce it.
Copyright ©2003 Prentice Hall, Inc.
1 - 10
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
Copyright ©2003 Prentice Hall, Inc.
1 - 11
“Circular Flow in Market Economy”
SUPPLY
OUTPUT MARKETS
DEMAND
Goods
Services
FIRMS
• Supply products in
output markets
• Demand resources
in input markets
DEMAND
Copyright ©2003 Prentice Hall, Inc.
HOUSEHOLDS
INPUT MARKETS
Labor
Capital
Entrepreneurs
Physical Resources
Information Resources
• Demand products
in output markets
• Supply resources in
input markets
SUPPLY
1 - 12
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
Copyright ©2003 Prentice Hall, Inc.
1 - 13
Mixed Economies
Planned and Market
The economies of most countries include
both planned and market elements
Worldwide trend toward more market
elements
Copyright ©2003 Prentice Hall, Inc.
1 - 14
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
Copyright ©2003 Prentice Hall, Inc.
1 - 15
exercise
Guess the 4 key elements of free enterprise?
Copyright ©2003 Prentice Hall, Inc.
1 - 16
The Palestinian Economy is a
Private Enterprise System
Individuals are free to pursue their own
interests without government restriction
Four Key Elements:
1.
2.
3.
4.
Copyright ©2003 Prentice Hall, Inc.
Private Property Rights
Freedom of Choice
Profits
Competition
1 - 17
Competition
Competition motivates
businesses to produce their
products better or cheaper.
Companies that don’t compete
effectively will be forced out of
business.
Copyright ©2003 Prentice Hall, Inc.
1 - 18
Exercise
What is the relationship between standard of
living and quality of life? How is quality of
life evaluated in different countries?
Copyright ©2003 Prentice Hall, Inc.
1 - 19
Measuring growth
It requires a clear understanding of basic economic
indicators and terms:
Business Cycle: Pattern of short-term expansions and
contractions in an economy. When the economy is
expanding, we experience growth, and when the economy is
contracting, we experience recession.
Aggregate output: Total quantity of goods and services
produced by an economic system during a given period.
Standard of living: Total quantity and quality of goods and
services that people can purchase within their economic
system. When output increases faster than the population,
we experience growth in our standard of living.
Copyright ©2003 Prentice Hall, Inc.
1 - 20
So how do we measure the
performance of an economic system?
Gross Domestic Product (GDP): Value of all goods and
services produced by an economic system in a year through
domestic factors of production.
Gross National Product (GNP): Value of all goods and
services produced by an economic system in a year
regardless of where factors of production are located. In
other words, when a Japanese automobile produces cars at
its factory in Tennessee, the profits from that factory are
included in the American GDP, and in the Japanese GNP.
Productivity is the amount a system produces compared to
the resources needed to produce it.
Copyright ©2003 Prentice Hall, Inc.
1 - 21
Recessions & Depressions
Recession:
Aggregate output declines,
unemployment increases. A
recession is usually measured
by two consecutive quarters of
decline in real GDP.
Depression:
Severe and long-lasting
recession
Copyright ©2003 Prentice Hall, Inc.
1 - 22
Managing the Economy
Stabilization Policy:
Government policy designed to smooth out
fluctuations in the economy
Fiscal Policies
Monetary Policies
Copyright ©2003 Prentice Hall, Inc.
1 - 23
Types of Policies
Monetary Policy:
Designed to control the amount of money flowing around the economy (the
money supply).
This policy is used to tackle inflation and balance of payments.
Methods under this policy:
1.
Interest rates:
2.
The government may impose restrictions on financial institutions to affect
borrowing.
3.
The central bank can control bank assets and the amount of lending.
Fiscal policy:
Aims to control the total spending in the economy.
1.
Government spending.
2.
Change in direct taxation.
3.
Change in indirect taxation.
Copyright ©2003 Prentice Hall, Inc.
1 - 24
Looking to the Future
Three Major Forces will drive the
global economy for the next
decade what are they?
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
Copyright ©2003 Prentice Hall, Inc.
1 - 25
Review
What are the five factors of production? Is one factor
more important than the others? If so, which one? Why?
The five factors of production are labor, capital,
entrepreneurs, physical resources, and information
resources. All five factors are crucial. However, their
relative importance depends on the product and the
industry. In the software development business, for
example, skilled labor and information resources are
especially important, but the business couldn’t survive
without capital and physical resources (computers), and it
wouldn’t have been launched without an entrepreneur.
Copyright ©2003 Prentice Hall, Inc.
1 - 26
Review
In recent years, many countries have moved from
planned economies to market economies. Why do
you think this has occurred? Can you imagine a
situation that would cause a revival of planned
economies?
The failure of communism—both politically and
economically—has led to an increase in the
number of mixed and market economies. Answers
will vary as to what would cause a resurgence of
planned economies, but the factors might include
a failure of capitalism to effectively distribute
society’s resources, or an unbearable level of
crime and corruption.
Copyright ©2003 Prentice Hall, Inc.
1 - 27