Transcript Understanding the US Business System

Fourth Edition
PART 1 . . . . . . . . . . . . . . . . . . . . . . . .
Understanding the Contemporary
Business Environment
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Chapter 1
Understanding the
Business System
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“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 business
Global economic systems
Private enterprise and competition
Evaluating economic performance
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Exercise
Write four things do you know about
business. Write 4 things you would like to
know?
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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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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.)
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Factors of Production
Labor
Capital
Information
Resources
Entrepreneurs
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Physical
Resources
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Exercise
pick a specific product or service that interests
them, and to list the factors of production
that were used to produce it. (Encourage
them to make imaginative choices,
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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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exercise
Guess the 4 key elements of free enterprise?
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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.
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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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Exercise
What is the relationship between standard of
living and quality of life? How is quality of
life evaluated in different countries
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Recessions & Depressions
Recession:
Aggregate output declines,
unemployment increases
Depression:
Severe and long-lasting
recession
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Managing the Economy
Stabilization Policy:
Government policy designed to smooth out
fluctuations in the economy
Fiscal Policies
Monetary Policies
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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.
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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
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