Transcript Introduction to Economics

So…What is Business?
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The Scope of US Business
Business-an activity that satisfies
economic needs by planning, organizing,
and controlling resources to produce and
market goods or services
 Free market economy-goal is usually to
earn a profit
 US has some of the most successful
businesses in the world
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The Scope of US Business
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1,000’s of new businesses started each year
Some want to work for themselves
 US economy encourages new businesses
 Most businesses start small
 Some stay small, while others grow
 95% of all US businesses are classified as small
business
 Small businesses employ over ½ of the privatesector work force
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Nonprofit Organizations
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Nonprofit organizations
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Service organizations
Profit is not the goal
Ex: YMCA/YWCA, Leukemia Society, American Cancer
Society
Hire employees/pay costs of business
Must earn income
Any income remaining after expenses goes to charitable
cause
Public schools fall into this category
Public sector vs. Private sector
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Classifying Businesses
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Classified by type of product/service
Bread
 Flour
 Bakery
 Dry cleaner
 Building maintenance
 Cleaning
 Newspapers/Magazines
 Education/training
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The Functions of a Business
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Production-ideas, goods, services
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Creating, growing, manufacturing, or improving on
something produced by someone else.
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Ex: song writer, farmer, Ford, lumber company, home builder
Marketing-ideas, goods, services
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Marketplace- where products are sold
Wherever two or more people agree to buy/sell a
product
Exchange process-when customers exchange their $
(or promise to pay)
Marketing is determining and satisfying the needs and
wants of consumers through the exchange process
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The Functions of Business
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Management
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Brings together land, labor, and capital
Management is the process of achieving
company goals by effective use of resources
Management functions:
 Planning
 Organizing
 Controlling
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The Functions of Business
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Management (cont.)
Managing resources for the purpose of
making a profit
 Requires:
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 Good
financial planning
 Good record keeping
 Knowledge of laws/proper accounting procedures
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Finance- money management
 Analyze
past trends
 Forecasts for the future
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 How
Group Question #1
might this organizational chart be
different if this were a small business?
President
Production Manager
Sales Manager
Treasurer
Manufacturing
Supervisor
Assistant Sales
Manager
Accountant
Bookkeeper
Prod. Dept.
Support
Prod. Dept.
Support
Sales Rep.
Sales Rep.
Sales Rep.
Office Manager
Office Support
Office Support
Office Support
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The Business Utilities
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So…there are two basic business
functions-production & marketing
Each creates different utilities
Utility-economic term that means “value
added”
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Let’s Open a Lemonade Stand!
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Form Utility
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Place Utility
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Raw materials-lemons
Add water & sugar = lemonade
When you create this product, you are adding value
to the raw materials=form utility
You set up a stand in the quad
Convenient place…thirsty people
This adds value to your product=place utility
Time Utility
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Summertime in Sacramento
“This heat makes me thirsty”
Making product available when people need it adds
value to your product=time utility
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Lemonade Stand (cont.)
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Information Utility
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You put up a sign on the corner to tell people about your
lemonade
Informing people about something they might like to have
adds value to your product=
information utility
Possession Utility
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Not all students have change when they pass by your
lemonade stand.
You allow them to pay you (just once) on Friday for all the
lemonade they consumed
This adds value to your product= possession utility
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Production Utility
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Form Utility is created by the production of
your product
 Raw materials  product
Gap T-Shirt
 Big Mac
 Lemonade
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Now, product is worth more (added value)
than the individual raw materials that
went into its production.
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Marketing Utilities
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Marketing Utilities - utilities that add value that also help you
get your product into the hands of the consumer.
 Place-(The Where) getting product to consumer
 Transportation
 Refrigeration
(perishable items)
 Storage-by producer, by wholesaler
 Storage and display by retailer
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Time (The When) having products when consumer
wants them
 Plans
to get product at the right time of year
 Retailers must stay open to make goods
available
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Possession (The What) the actual exchange
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every time the product changes
hands
 Buying on credit, accepting checks,
layaway, installments
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Information (The How)
 Communication
with customer
 Features and benefits, price, packaging,
advertising, ingredients, safety
precautions, the care, use, and
maintenance of the product
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Benefits of Marketing
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1. Lowering prices
Increases demand  more profitable to
manufacture/sell in larger quantities
 Larger quantities  reduced per unit cost
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 Fixed
costs-rent on building, etc
 Variable costs-raw materials
 Producing larger quantities = spending less per unit
on fixed costs
 Lower price to consumers
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Marketing activities can also lower prices by
increasing competition
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Group Question #1
 When
televisions first came out, they were
expensive. Competition and market
activities helped produce better, lowerpriced televisions.
 Name other products that vastly improved
in design and price after the original
models were introduced in the market.
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Benefits of Marketing
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2. Developing new and improved products
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Marketing activities  “new & improved”
Disposable diapers-redesign, redesign, redesign
Businesses have to spend money to learn about customer’s
needs and wants
Businesses also have to make enough profit to allow for
some failures and still stay in business
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Ford Edsel
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Marketing and
Social Responsibility
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Laws
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Encourage fair business practices
Protect consumers, worker, investors, environment
Other social responsibilities
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Environmental Stewardship
Civic Engagement
Social Change - Less fortunate, disabled
Global Impact/Responsibility
Medical research
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Ethical and Legal Concerns
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Ethics-guidelines for good behavior
Doing what is “right”
 Considers well-being of everyone in society
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Some ethical situations addressed by
laws
Bait and switch advertising
 Price fixing
 Selling unsafe products
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Some ethical situations involve debate
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Freedom of speech vs. freedom to compete20
Ethical and Legal Concerns
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3 basic ethical questions:
 Is the practice right? Fair? Honest?
 What would happen if the product was marketed differently?
 What practice will result in the greatest good for the
greatest number of people?
Weighing legal issues and social responsibility
Recalls
 Socially responsible businesses recall products BEFORE gov’t
tells them to.
 Sometimes, they may recall a product even if they are not
responsible for its faulty design or problems it can potentially
cause.
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 Ex: Tylenol
Environmental Stewardship
Consumption of Natural Resources
Oil resources-oil crisis of 1970s
 Conservation depends on business, government,
and consumers
 Recycling programs
 US-”throw away” society
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 5%
of world population
 Produce 50% of world’s trash
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Environmental Issues
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Most are governed by laws
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Ex: Improper disposal of medical, chemical,
and other hazardous wastes
EPA-Environmental Protection Agency
Protects environment from pollution
 Efforts to reduce smog emissions
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 Modification
of automobile engines
 Unleaded gasoline
Fluorocarbons-aerosol cans (hairspray)
 Agricultural Pesticides
 Industrial Waste
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Consumerism
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Involves relationship of marketing with consumers
Consumerism-societal effort to protect consumer
rights by putting legal, moral, and economic
pressure on business.
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1900’s-focused on product purity, product shortages,
antitrust, postal rates, and banking
1930’s-1950’s-product safety, labeling, misrepresentation,
deceptive ads, consumer refunds, and bank failures
1960’s-1980-consumerism grew to involve all areas of
marketing.
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Consumerism (cont.)
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Consumer Bill of Rights
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President Kennedy
Consumers have four basic rights
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To be informed & protected against fraud, deceit,
and misleading statements, and to be educated
in the wise use of financial resources
To be protected from unsafe products
To have a choice of goods and services
To have a voice in product and marketing
decisions made by government and business
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Consumerism (cont.)
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1960’s-1970’sBooks written about consumerism
 Consumer dissatisfaction-demanded action
 Federal Trade Commission expanded it’s role to
include consumer issues
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1980’s-less active
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Business had responded (24-hour service)
1990’s-companies more responsive
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Consider and address customer concerns in
marketing plans
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