Transcript Unit A: BUSINESS IN A CHANGING WORLD

Unit A: BUSINESS IN A
CHANGING WORLD
1.01 - Analyze the impact scarcity has on
various economic systems
Scarcity
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A society might not have enough oil, doctors, or
technology to satisfy the wants and needs of its
people. The shortage is called scarcity.
Definition: The shortage of economic
resources.
A basic economic problem for any society is
how to manage its resources.
Figure 2.1 illustrates how your choices between
wants and needs influence your economic
situation.
Natural Resources
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Natural resources are raw materials supplied by nature
that come from the earth, the water, or the air and are
used to produce goods.
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Renewable resources are resources that can be replaced
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Nonrenewable resources are resources that cannot be
replaced
Human Resources
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The people who contribute physical and mental energy
to the production process.
Capital Resources
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The tools, equipment, and buildings that are used to
produce goods and services.
Buildings
Equipment
Tools
Entrepreneurial Resources
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The initiative to combine natural, human and capital
resources to produce goods or services.
Opportunity Cost
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What you give up when you make one choice over another
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Example: Spending $1.00 on a candy bar or spending that $1.00
on a can of soda.
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Something to think about
Attending College vs. Not Attending College
Lifetime earnings of a college graduate
vs.
High School Graduate
Six Step Decision Making Process
1. Define the problem.
2. Identify the alternatives.
3. List all the advantages and
disadvantages.
4. Choose among alternatives.
5. Act on your choice.
6. Evaluate your decision.
Values
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The beliefs and principles you consider important,
correct, and desirable; the ideals in life that are
important to you; principles by which a person lives
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Each decision made is affected by the values and goals
an individual possesses.
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Questions for you: What are your values? What are
your goals?
Goals
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Short term goals are goals you expect to reach
within a few days or a week.
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Intermediate goals are goals you expect to reach in
the next few months or years.
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Examples: pass a quiz, paint a room
Examples: HS graduation, summer internship
Long-term goals are goals you expect to reach over
a period of several years.
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Examples: career, marriage
Traditionalism
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An economy in which people do things the way they
have always been done.
Advantages:
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Disadvantages:
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Everyone has a role in the economy.
Economic life is stable and community life continuous.
Discourages new ideas and ways of doing things.
Growth is limited, so this economy falls behind other kinds of
economies.
Main Countries:
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Societies living in rain forests of Latin America, parts of Africa, and
the Middle East.
Communism
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An economy in which the government makes ALL decisions
concerning the three important economic questions.
Advantages:
Can make a dramatic change in a short time on production of goods.
 Each person is provided with a job with certain medical and social
services.
 Disadvantages:
 Consumer goods and services rank low on the list of priorities for
that country. Few consumer wants are met.
 A lack of incentive to work hard. (No competition among
businesses.)
 Limits and individual’s choice to make his or her own economic
decisions.
 Main Countries:
 North Korea, China, and Cuba
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Socialism
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An economic system in which the government owns
major industries (like railroad systems, steel, and iron),
but allows for private ownership of other businesses.
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Advantages:
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Government and private business work together. Ownership of
resources is shared. Government representatives become members
of management committees for private business. These committees
decide what and how to produce. The government decides who
should receive the goods and services.
Individuals are provided with medical services, lifelong welfare
services, and social security benefits to everyone.
Socialism
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Disadvantages:
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Workers are taxed at an extremely high rate to pay for all that the
government provides.
This high tax rate discourages private business.
The high tax rate also lessens consumers’ spendable income to make
for fewer choices in the marketplace.
Main Countries:
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Sweden and France
Capitalism
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An economic system where the basic economic
decisions are based on the actions of individual people
and businesses participating in many different markets.
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Advantages:
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This economic system produces goods and services that people want
or need and that will bring a profit to the sellers.
Freedom of choice.
Those who get more income for their input in the market can have
more of the resources.
Price plays an important role in the market place. Competition
ensures that prices stay low.
Government does not dictate what, how or for whom to produce.
Capitalism
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Disadvantages:
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Citizens who are productive are the only ones who are rewarded.
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The wealth of the economy is not evenly distributed.
Main Countries:
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The United States, Japan, Canada, and Great Britain
Unit A: BUSINESS IN A
CHANGING WORLD
1.02 Evaluate the role of an individual
within the free enterprise
system as a producer, a consumer,
and a citizen
ROLE OF THE INDIVIDUAL AS A PRODUCER
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The importance of worker productivity
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can reduce consumption of resources
increase business profits
enable the business to pay it’s employees a higher wage
reduce prices on it’s goods and services
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may enhance the business’s competitive edge
ROLE OF THE INDIVIDUAL AS A PRODUCER
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Standard of Living
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A measure of how well people in a country live
the quality and quantity of wants and needs that are satisfied
the way you live as measured by what you can afford
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determined by your choice of career
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ROLE OF THE INDIVIDUAL AS A PRODUCER
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Ask yourself:
How might your career choice affect your future standard
of living?
What kinds of cars represent different standards of living
among people?
The car I desire will represent what kind of standard of
living?
ROLE OF THE INDIVIDUAL AS A PRODUCER
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Incentive to become an entrepreneur
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Profit
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Subtract costs of running a business from its sales
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Sales minus expenses
Profit motive
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The desire to make more money
Will work harder and longer
How to increase profits
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Increase sales (exposure, advertising)
Increase prices
Lower costs
ROLE OF THE INDIVIDUAL AS A CONSUMER
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Consumer
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A person who selects, purchases, uses, or disposes of goods
or services
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Consumer buying determines what goods and services
are produced
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Pay for needs first
ROLE OF THE INDIVIDUAL AS A CONSUMER
The greatest proportion of consumer income is
spent on:
Food
Clothing
Shelter
ROLE OF THE INDIVIDUAL AS A CITIZEN
Voting
Paying Taxes
Obeying the Law
UNIT A: BUSINESS IN A
CHANGING WORLD
1.03 - Evaluate the role of different types
of business and the various forms of
business ownership in the United States.
Sole Proprietorship
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Business owned by only one person
Advantages
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Easy to start
Your own boss
Get to keep the profits
Low taxes
Disadvantages
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Pay for everything yourself
Lack of business skills
Unlimited liability
Partnership
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Business owned by two or more persons who share the
risks and rewards
Advantages
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Easy to start
Easier to obtain capital
Partners bring different skills to the business
Low taxes
Disadvantages
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Share profits
Share unlimited legal and financial liability
Disagreement between partners
Partnership
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Partnership agreement
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Contract that outlines the rights and responsibilities
of each partner
How much each partner will invest
 How to share profits
 How to divide workload
 How to end partnership
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Corporation
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Business owned by many people, but treated by law as
one person
Stockholders
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Board of Directors
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Owners of a corporation
Get share of the profits (dividend)
Get to vote on how the business is run
Control the corporation
Hire officers who run day-to-day activities
Charter
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License to run a corporation issued in state of HQ
Corporation
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Advantages
Limited liability
 Indefinite lifetime
 Easiest to raise capital (sell stock)
 Low taxes
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Disadvantages
Higher taxes
 Government regulation
 Difficult to start; complicated to run
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Franchise
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Contractual agreement to sell a company’s products or
services in a designated geographic area
Advantages
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Easy to start
Proven methods and product(s) of parent company
Rely on the name of the parent company
Disadvantages
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Strict terms of how the business is run
Limited as to what products and services are offered
Types of Businesses
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Producers
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Businesses that gather raw products in their natural state
Examples: farming, mining, fishing, and forestry
Processors
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Businesses that change natural materials (raw goods) into a
more finished form for manufacturers to process further
Examples: paper mill, oil refinery, steel mill
Types of Businesses
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Manufacturers
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Businesses that make finished products out of processed
goods
Examples: bakery, automotive plant, furniture factory
Intermediaries
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Wholesaler (Distributor)
 Buys goods from manufacturers in large quantities and
sells in smaller quantities to their customers
Retailers
 Buys goods from wholesalers and resells them to
consumers
 Examples: Gas stations, record store, auto dealers
Types of Businesses
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Service Firms
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Provide services rather than goods
Services are the products of a skill or activity
Meet needs or provide conveniences
Employ ¾ of the workforce
Examples: car repair, medical clinic, law firm, taxi company
Unit A: BUSINESS IN A
CHANGING WORLD
1.04 Analyze economic indicators and how
they effect the business cycle
The Business Cycle
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Prosperity
Peak of economic activity
 Low unemployment and inflation
 Production is high
 Higher wages = greater demand for goods and
services
 New business open (Internet companies)
 1990’s
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The Business Cycle
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Recession
Economic activity slows down
 Spending and demand for goods decreases
 Unemployment and inflation rise
 Productivity and GDP decline
 Ripple Effect
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Recession in one industry affects related industries
1970s (oil shortage)
The Business Cycle
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Depression
Deep recession affecting the entire economy and
lasting several years
 High unemployment and inflation
 Low productivity
 Shortages of goods
 Great Depression 1929-1933
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The Business Cycle
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Recovery
Rise in business activity after recession or depression
 Production increases
 Unemployment declines
 Demand for goods and services increases
 GDP rises
 New businesses open
 Innovation and expansion
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Measuring Economic Activity
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Gross Domestic Product (GDP)
Total value of goods and services produced in a
given year
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Consumer goods and services
 Business goods and services
 Government goods and services
 Goods and services sold to other countries
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US has very high GDP (over $10 trillion)
Measuring Economic Activity
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Inflation
General increase in the cost of goods and services
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Economy too productive
 Printing too much money
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Avoided by slow but steady economic growth;
controlling production and maintaining
unemployment levels
Measuring Economic Activity
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Consumer Price Index (CPI)
Tracks the prices of a specified basket of consumer
goods and services
 Provides measure of inflation
 Also considered a cost of living index
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Productivity
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Number of items produced per worker
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Measuring Economic Activity
Unemployment
Number of people able to work, but don’t have jobs
during a given period of time
 Temporary
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Seasonal
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Just quit job or just graduated from school
Harvest crops or work retail during the holidays
Industry Changes
New technology
 Mergers or restructuring and “downsizing”
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Economic Slowdown
 US ~ 4.5%
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