Transcript Business Management

Business Management
Chapter 3
Economic Environment of
Business
• Economics- The body of knowledge
that relates to producing and using
goods and services that satisfy
human wants.
Satisfying Our Economic
Wants
• Economics Wants- the desire for scarce
material goods and services. (food,
clothing, housing, automobiles, hair care,
medical attention, public transportation.
• Noneconomic Wants- those desired wants
that are not scarce. Also, nonmaterial.
(air, sunshine, friendship, happiness)
Utility
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The ability of a good or a service to
satisfy a want.
4 types of utility
Form, Place, Time, and Possession
A producer creates utilities and is
entitled to a reward for their services
Types of Utility
• Form Utility- created by changes in the
form or shape of a product to make it
useful. (jeans you want in the right fabric
and style) Usually only applies to goods and
not to services.
• Place Utility- created by having a good or
service at the place where it is needed or
wanted. (jeans you want are available at
your favorite store in mall).
Types of Utility-cont.
• Time Utility- created when a product or
service is available when it is needed or
wanted. (Store has the jeans and is open
when you want to buy them)
• Possession Utility- Created when
ownership of a good or service is
transferred. (buying, renting, borrowing)
(Jeans are available at a price you can
afford and are willing to pay.)
Factors of Production
• Natural Resources—produced by nature
and affect productivity
– Fertile soil, minerals, water, timber, climate
• Labor—human effort that goes into
producing good or service
– Physical or mental
– Value of education and skills – Human Capital
Factors of Productioncont.
• Capital Goods—necessary to produce goods
and services in large quantities, but do not
directly satisfy human wants
– Buildings, tools, machines, equipment
• Management (Entrepreneurship)-plan and
organize the production of the final
product
– Brings together other factors
MANAGEMENT SKILLS
• Plan
• Organize
• Execute/Implement
• Evaluate
Government
• Sometimes listed as the fifth factor
of production
– Streets and highways
– Police and fire protection
– Courts
Capital Formation
• Capital Goods
– Buildings and equipment
• Consumer Goods and Services
– Directly satisfy economic wants
• When resources are used to produce one, they
are not available to produce the other
• When productive resources are used for capital
formation, it makes it possible to produce more
consumer goods.
Economic Systems
• An organized way for a country to decide
how to use its productive resources. In
other words, to decide what, how, and for
whom goods and services will be produced.
• 3 primary types
-market economy, command economy, and
mixed economy
Market Economy
• Individual buying decisions in the
marketplace determine the economy.
• Example-If consumers decide to buy
more wheat bread than white bread,
bread producers will produce more
wheat than white.
Command Economy
• A central planning authority, under
government control, determines the
economy.
• North Korea, Cambodia, Vietnam, and
Cuba
Mixed Economy
• Aspects of a market and command
determine the economy.
• National government makes
production decisions for certain
goods and services.
3 types of EconomicPolitical Systems
• Socialism-government CONTROLS the use
of the country’s factors of production
• Communism-all or most of the country’s
factors of production are OWNED by the
govt.
• Capitalism-citizens are free to go into
business for themselves and produce and
distribute what they choose
Comparison of Economic-Political Systems
Capitalism
Free Enterprise System
Socialism
Communism
Market/Mixed Economy
Mixed Economy
Command/Mixed Economy
Who May Own Natural
Resources and Capital
Goods?
Business and Individuals
Government for
Some, but Not All
Government for Most
How Are Resources
Allocated?
By Customers Based on
Competition
By Government for
Some and Customers
for Others
By Government Only
To What Extent Does
Government Attempt
to Control Business?
Limited
Extensive Over the
Allocation of Some
Resources, but Little
Over Distribution
Extensive
How Are Marketing
Decisions Made?
By Market Conditions
By Market Conditions
By Government
What One Country is
a Good Example of
This Economic
System?
United States
Sweden
China
Fundamentals of
Capitalism
• Private property
• Profit (avg. is about 5% of total receipts)
• Price Determination
– Demand
– Supply
• Competition
• Income Distribution
Benefits of Competition
• Businesses must
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–
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Keep prices lower
Improve quality
Develop new products
Use scarce productive resources efficiently
• Non-price competition
– Extensive advertising
– Unusual or colorful product packaging
Income Distribution
• Receive money by contributing their labor
• Wages determined by many factors
– Personal trains and abilities
– Supply and demand for type of labor
– Demand is low and supply is high for unskilled
workers—income is low
– Demand is high and supply is low for some
jobs—wages are high
Managing the Economy
• Promoting Economic Growth
-Economic growth occurs when a country’s output exceeds
its population growth.
• Measuring Economic Growth
-CPI (Consumer Price Index), GDP, Employment, Index of
Leading Economic Indicators, Retail Sales, and Personal
Income Consumption
• Identifying Economic Problems
-Recession
-Inflation
-Depression
Recession
• Decline in the GDP that continues for
6 months or more
• Occurs when demand for the total
goods and services is less than supply
• Rate of increase in GDP is reduced
greatly and in some cases prices
decline slightly
Inflation
• Rapid rise in prices caused by
inadequate supply of goods and
services
• Goods not readily available
• Decline in purchasing power of money
• Those on fixed incomes are hurt
because their money buys less
Depression
• A long and severe drop in the GDP
• In global economy affects other
countries as well
Correcting Economic
Problems
• Business Cycles
• Government Involvement
Business Cycles
• Expansion (low inflation)
– Modest rise in GDP, profits, and employment
• Peak (Modest to runaway inflation)
– Growth reaches its highest level, as do profit and
employment
• Contraction (Modest inflation)
– Growth begins to decline, as does employment
• Trough (No growth, recession, or depression)
– Lowest point in the cycle, with increased unemployment
Government Can
• Raise taxes to slow growth
• Lower taxes to encourage growth
• Increase government spending to stimulate a slow economy
• Decrease government spending to slow economic growth
• Lower interest rates to encourage borrowing and spending
• Raise interest rates to discourage borrowing and spending