1 1 the scope of business. 2 what is business? an organization that provides goods and/or services...
TRANSCRIPT
11 The Scope of Business
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What Is Business? An organization that
provides goods and/or services to earn profitsProfits:The positive difference between revenues and expenses
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The Nature of Business
To earn profits by providing products: Tangible
Cars, food, clothing Intangible
A service An idea
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Business vs. NonprofitOrganization
Nonprofit Organization Provides products,
especially services, for some purpose other than profits, ex. The Salvation Army, 4300 American colleges & universities.
Business An individual or
organization that tries to earn a profit by providing products that satisfy people’s needs, ex. IBM, Coca-Cola.
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The Goals of Business
For-Profit Sector: Profit
The difference between what it costs to make and sell a product and what the customer pays for it.
Nonprofit Sector: Goals
May provide goods or services but not for the purpose of earning profits.
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Overview of the Business World
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The People andActivities of Business
Activities: Management Marketing Finance
People: Owners Employees Customers Other
stakeholders: Investors Regulatory
Agencies
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Why Study Business? To develop skills and acquire knowledge
to prepare for your future career
To help you better understand the many business activities that are necessary to provide satisfying goods and services
To help you become a well-informed consumer and member of society
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Physical Resources
Labor Capital
Entrepreneurs
Factors of Production
InformationResources
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Types of Resources Used by Business
Natural Land, forests, etc. (not made by people)
Human Physical/mental abilities used by people
to produce goods and services Financial
Funds necessary to acquire needed natural and human resources
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What Is An Economic System?
The way a society distributes its resources to produce goods and services
Addresses the issue of how to fulfill unlimited demand with limited supply of resources
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What is anEconomic System?
A nation’s system for allocating resources among citizens.
Assumes resources are scarce thus requiring allocation.
Market is mechanism for exchange between Buyer/Seller
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Types ofEconomic Systems
CommunismCommunism SocialismSocialism(Mixed(Mixed Market)Market)
Planned Planned EconomiesEconomies
Capitalism vs. Capitalism vs. MarketMarket
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Circular Flow of Economics
OutputOutput((Goods & Services)Goods & Services)
InputInput(Factors of Production(Factors of Production))
SupplySupply Dem
and
Dem
and
SupplySupplyDemandDemand
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Basic Questions to Be Asked of Economic Systems
1. What goods and services and what quantity will satisfy the needs of the consumer?
2. How will the goods and services be produced?
a. Who will produce them and with what resources?
3. How are the goods and services to be distributed to the consumer?
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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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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Types of Economic Systems Capitalism Communism Socialism
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Capitalism:A Fundamentally Market-Based Economy
Individuals Choose:
Where to work What to buy How much to pay
Producers Choose: Who to hire What to produce How much to
chargeGovernment supports private ownership
and encourages entrepreneurship
Government supports private ownership and encourages entrepreneurship
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Capitalism Private Ownership of
Factors of Production
Economic Decisions
Made by Owners
Freedom of
Decisions/Choices
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Mixed Economies: Planned and Market
The economies of most countries include both planned and market elements.
Worldwide trend is toward more market elements.
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Communism Planned Economic System Government Owns
All Production Facilities All Citizens Are Employees of
Government All Capital
All Economic Decisions Controlled By Government
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Mixed Market Economies
““Pure” Pure” PlannedPlanned
““Pure” Pure” MarketMarket
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Socialism: Mixed Economy
Socialism A planned economic system in which
the government owns and operates selected sources of production
Privatization: The process of converting government
enterprises into privately owned companies
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Privatization vs. Socialism
Privatization
Socialism
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Comparison of Communism, Socialism, and Capitalism
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Economic Systems and Where They Occur
CommunisCommunismm
SocialismSocialism CapitalismCapitalism
China SwedenUnited States
North Korea India Canada
Cuba Israel Japan
AustraliaCopyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Mixed Economies Most countries of the
world have elements of more than one economic system.
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Supply & Demand
Demand- Comes From Buyers As Price Drops Buyers Purchase More
Supply- Producers’ Willingness As Price Increase Producers Offer More
Buyers & Suppliers Work Towards Equilibrium = Profit Maximization Surplus vs. Shortage
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Supply and Demand Drive the U.S. Economic System
Supply: The willingness and ability
of producers to offer a good or service for sale
Law of Supply: Producers will supply
(offer) more of a product for sale as its price rises and less as its price drops.
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Supply and Demand Drive the U.S. Economic System (cont’d)
Demand: The willingness and ability
of buyers to purchase a good or service
Law of Demand: Buyers will demand
(purchase) more of a product as its price drops and less as its price increases.
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U.S. Hot Dog Consumption Hot dogs consumed between Memorial
Day & Labor: 7 billion
Average number of hot dogs eaten/person from Memorial Day to Labor Day: 24
Rate of consumption during this time: 818 hot dogs/second
Source: National Hot Dog and Sausage Council, as reported in American Demographics, July/August 2004, p. 48.
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Demand and Supply Schedules
Quantity of Quantity ofPrice Pizzas Demanded Pizzas Supplied
$2 2000 100$4 1900 400$6 1600 600$8 1200 800
$10 1000 1000$12 800 1200$14 600 1300$16 400 1600$18 200 1800$20 100 2000
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Pizza Supply At Given Price
0
5
10
15
20
25
100 400 600 800 1000 1200 1300 1600 1800 2000
Quantity (S)
Pri
ce o
f P
izza
SSHighHigh
HighHighLowLow
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Pizza Demand At Given Price
0
500
1000
1500
2000
2500
2 4 6 8 10 12 14 16 18 20
Quantity Demanded (D)
Piz
za P
rice
HighHigh
HighHighLowLow
DD
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Equilibrium (Market Price)
0
500
1000
1500
2000
2500
2 4 6 8 10 12 14 16 18 20
Quantity
Piz
za P
rice
HighHigh
HighHighLowLow
SSDD
Market EquilibriumMarket Equilibrium
SurplusSurplus
ShortageShortage
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The Forces of Supply and Demand
Supply The number of
products that businesses are willing to sell at different prices at a specific time
Consumers are usually willing to buy more of an item as its price falls because they want to save money.
Demand The number of goods
and services that consumers are willing to buy at different prices at a specific time.
Businesses are willing to supply more of a good or service at higher prices because the potential for profits is higher.
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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The U.S. Economy is a Private Enterprise System
Individuals are free to pursue their own interests without government restriction.
Four Key Elements: Private Property
Rights Freedom of Choice Profits Competition
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The Free-Enterprise System Individuals must have the right to own
property and pass it on to their heirs. People and businesses must have the right
to earn profits and use them as they wish. Individuals and businesses must have the
right to determine how their businesses operate.
Individuals must have the right to choose their career, where to live, and what to buy.
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Competition
Competition motivates businesses to produce their products better or cheaper
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The Nature of CompetitionFour Competitive EnvironmentsFour Competitive Environments
Pure Competition
Many small businesses sell one standardized product.
Monopolistic Competition
There are fewer businesses than in a pure competition system, and the differences between the goods they sell are small.
Oligopoly Very few businesses sell a product; each business supplies a large portion of the products sold in the marketplace.
Monopoly There is only one producer of a product in a given market.
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Private Enterprise Private Property
Freedom of Choice
Profits
Competition
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Degrees of Competition
SellersSellers
OneOne ManyMany
MonopolyMonopoly
OligopolyOligopoly
Perfect Perfect CompetitionCompetition
Monopolistic Monopolistic CompetitionCompetition
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Perfect/Pure Competition
Competition- 2+ Businesses Vie For Same Resources/Customers
Condition- No Single Firm Dominant Principles
Buyers View Products As Similar Buyers/Sellers Know Each Others’ Prices/Costs Easy To Enter/Leave Marketplace Prices Set By Supply/Demand & Accepted by
Sellers/Buyers
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Monopolistic Competition
Many Buyers
Fewer Sellers Than Perfect/Pure Competition
Buyer Perception of Product/Brand Differentiation
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Oligopoly Few Large Sellers
Market Entry Difficult- High Capital Investment
Sellers Control Strategies
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Monopoly Characteristics
Only One Producer Controls Industry
Pricing Natural Monopoly
One Producer Can Efficiently Supply All
Goods/Services
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Economic Cycles and Productivity
Economic expansion occurs when an economy is growing and people are spending more money.
Economic contraction occurs when spending declines.
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Measuring the Economy One commonly used measure is gross
domestic product. GDP is the sum of all goods and services
produced by a national economy in a country during a year.
GNP is is the sum of all goods and services produced by a national economy regardless of where the factor of production are located during a year
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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Overall Unemployment Rate in the U.S. Civilian Labor Force
Source: “Overall Unemployment Rate in the Civilian Labor Force, 1920–2002,” InfoPlease (n.d.), www.infoplease.com/ipa/ A0104719.html (accessed February 16, 2004).
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Growth in U.S. GrossDomestic Product Dollars
Source: “Gross Domestic Product or Expenditure, 1930–2002,” InfoPlease (n.d.), www.infoplease.com/ipa/ A0104575.html (accessed February 16, 2004). 8000 10000
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Growth of The American Economy The Early Economy
Primarily agricultural; the use of natural resources The Industrial Revolution
The development of new technology and factories The Manufacturing and Marketing Economies
Devoted to manufacturing goods and providing services rather than producing agricultural products
The Service and Internet-based Economy Devoted to the production of services that make life
easier for busy consumers
Did You Know? 60 percent of adult women work.
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PRODUCTIVITYPRODUCTIVITY
is impacted by:is impacted by:
National National DebtDebt
Understanding Economic Performance
KEY CONCEPTS Productivity:
The amount a system produces compared to the resources needed to produce it
Balance Balance of Tradeof Trade
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Economic Stability:Balanced Growth of Money and Goods
Two related factors Two related factors threaten stability:threaten stability:
INFLATIONINFLATIONINFLATIONINFLATION
UNEMPLOYMENTUNEMPLOYMENTUNEMPLOYMENTUNEMPLOYMENT
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The Role of the Entrepreneur
An entrepreneur is an individual who risks his or her wealth, time, and effort to develop for profit an innovative product or way of doing something.
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved
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The Role of Government in the American Economy
Federal, state, and local governments intervene in the economy with laws and regulations designed to: Promote competition Protect consumers, employees, and
the environment
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Recessions and Depressions Recession:
Aggregate output declines, unemployment increases
Depression: Severe and long-
lasting recession
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Satu