1 chapter business essentials, 7 th edition ebert/griffin the u. s. business environment powerpoint...

1chapter

Business Essentials, 7th EditionEbert/Griffin

The U. S. Business Environment

PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College

After reading this chapter, you should be able to:

1. Define the nature of business and identify its main goals and functions.

2. Describe the external environments of business and discuss how these environments affect the success or failure of any organization.

3. Describe the different types of global economic systems.

L E A R N I N G O B J E C T I V E SL E A R N I N G O B J E C T I V E S

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After reading this chapter, you should be able to:

5. Identify the elements of private enterprise

6. Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

L E A R N I N G O B J E C T I V E S (cont’d)L E A R N I N G O B J E C T I V E S (cont’d)

© 2009 Pearson Education, Inc.3

Exercise

A. Write four things do you know about business. Write 4 things you would like to know?

The Concept of Business and Profit

• Business–An organization that provides goods or

services that are then sold to earn profits.

• Profits–The difference between a business’s

revenues and its expenses. The rewards owners get for risking their money and time.


The Concept of Business and Profit

• Consumer Choice and Demand– The freedom of consumers to choose how

to satisfy their wants and needs.– The freedom of business owners to decide

how to meet those wants and needs.• Opportunity and Enterprise

– Success in business requires spotting a promising opportunity and then developing a good plan for capitalizing on it.


The Concept of Business and Profit (cont.)

• The Benefits of Business1. Provision of goods and services

2. Employment of workers

3. Innovation and opportunities

4. Increased quality of life and standard of living

5. Enhanced personal incomes of owners and stockholders

6. Tax payments support government

7. Support for charities and community leadership© 2009 Pearson Education, Inc.

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The External Environments of Business

• External Environment– Everything outside an organization’s boundaries

that might affect it

1. The domestic business environment

2. The global business environment

3. The technological environment

4. The political-legal environment

5. The sociocultural environment

6. The economic environment© 2009 Pearson Education, Inc.

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The External Environments of Business (cont.)

• Domestic Business Environment

– The environment in which a firm conducts its operations and derives its revenues by:

1. Seeking to be close to its customers

2. Establishing strong relationships with its suppliers

3. Distinguishing itself from its competitors

© 2009 Pearson Education, Inc.

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The External Environments of Business (cont.)• Global Business Environment

– The international forces that affect a business:

• International trade agreements

• International economic conditions

• Political unrest

• International market opportunities

• Suppliers

• Cultures

• Competitors

• Currency values© 2009 Pearson Education, Inc.10


• Technological Environment

– All the ways by which firms create value for their constituents:

• Human knowledge

• Work methods

• Physical equipment

• Electronics and telecommunications

• Various business activity processing systems


The External Environments of Business (cont.)• Political-Legal Environment

– The regulatory relationship between business and the government (legal system) and its agencies that define what organizations can and can’t do:• Product identification laws• Local zoning requirements• Advertising practices• Safety and health considerations• Acceptable standards of business conduct

– Pro- or anti-business sentiment in government and political stability are also important considerations, especially for international firms.


The External Environments of Business (cont.)• Sociocultural Environment

– The customs, mores, values, and demographic characteristics of the society in which an organization functions

– Sociocultural processes determine the goods, services, and standards of business conduct a society is likely to accept



• Economic Environment

–The relevant conditions that exist in the economic system in which a company operates

–Examples:



• Economic Environment

– Examples:

• If an economy is doing well enough that most people have jobs, a growing company may find it necessary to pay higher wages and offer more benefits in order to attract workers from other companies.

• If many people in an economy are looking for jobs, a firm may be able to pay less and offer fewer benefits.


Physical Resources

Labor Capital

Entrepreneurs

Factors of Production

InformationResources

Factors of production

A. Labor: The people who work for businesses. Labor includes both physical and mental contributions. A country with a highly educated workforce is considered rich in this resource.

B. Capital: The funds needed to create and operate a business. Sources include personal investment by owners, loans, sale of stock and bonds, and revenue from the sale of product.

Factors of productionA. Entrepreneurs: People who are willing to accept

the risks that are part of creating and operating businesses, in return for the potential profits.

B. Physical resources: Tangible things organizations use in the conduct of their business. Possibilities include natural resources, raw materials, office equipment and facilities, computers, transportation and communication infrastructure, etc.

C. Information resources: Data and other information used by business. This factor has become increasingly important in the last decade.

Exercise: group Discussion

Higher Education service. list the factors of production that were used to

produce it.

Economic Systems

• Economic System– A nation’s system for allocating its resources among its

citizens, both individuals and organizations• Factors of Production

– Labor: Human resources– Capital: Financial resources– Entrepreneurs: Persons who risk starting a business– Physical resources: Tangible things used to conduct

business– Information resources: Data and other information used

by businesses


Types of Economic Systems

• Planned Economy – A centralized government controls all or most factors of

production and makes all or most production and allocation decisions for the economy.

• Market Economy – Individual producers and consumers control production

and allocation by creating combinations of supply and demand.

• Market– A mechanism of exchange between buyers and sellers of a

good or service.


Planned Economies

• Communism– A system Karl Marx envisioned in which

individuals would contribute according to their abilities and receive benefits according to their needs.

• The government owns and operates all factors of production.

• The government assigns people to jobs and owns all businesses and controls business decisions.


Market Economics

• Capitalism– The government supports private

ownership and encourages entrepreneurship.

– Individuals choose where to work, what to buy, and how much to pay.

– Producers choose who to hire, what to produce, and how much to charge.


Market Economics

• Mixed Market Economy– Features characteristics of both planned and

market economies.– Privatization: The process of converting

government enterprises into privately owned companies.

– Socialism: The government owns and operates select major industries such as banking and transportation. Smaller businesses are privately owned.


The Economics of Market Systems

• Demand

–The willingness and ability of buyers to purchase a product (a good or a service).

• Supply

–The willingness and ability of producers to offer a good or service for sale.


The Economics of Market Systems

• The Laws of Demand and Supply in a Market Economy

–Demand: Buyers will purchase (demand) more of a product as its price drops and less of a product as its price increases.

–Supply: Producers will offer (supply) more of a product for sale as its price rises and less of a product as its price drops.


Private Enterprise in a Market Economy

• Private Enterprise System– Allows individuals to pursue their own interests

with minimal government restriction.

• Elements of a Private Enterprise System– Private property rights– Freedom of choice– Profits– Competition

© 2009 Pearson Education, Inc. 27

Economic Indicators

• Economic Indicators

–Statistics that show whether an economic system is strengthening, weakening, or remaining stable

–Measure key goals of the economic system: economic growth and economic stability


Economic Indicators

–Economic growth indicators

• Aggregate output, standard of living, gross domestic product, and productivity

–Economic stability indicators

• Inflation and unemployment


Economic Growth, Aggregate Output, and Standard of Living

• Business Cycle– The pattern of short-term ups and downs

(or, better, expansions and contractions) in an economy.

• Aggregate Output– Growth during the business cycle is

measured by the total quantity of goods and services produced by an economic system during a given period.


Economic Growth, Aggregate Output, and Standard of Living

• Standard of Living–The total quantity and quality of goods

and services that consumers can purchase with the currency used in their economic system.


Economic Indicators (cont.)• Gross Domestic Product (GDP)

– An aggregate output measure of the total value of all goods and services produced within a given period by a national economy through domestic factors of production. In US $14 trillion• If GDP is going up, aggregate output is

going up; if aggregate output is going up, the nation is experiencing economic growth.


Economic Indicators (cont.)

• Gross National Product (GNP)–The total value of all goods and

services produced by a national economy within a given period, regardless of where the factors of production are located.


Economic Growth

• Productivity

– A measure of economic growth that compares how much product a system produces with the resources needed to produce that product.

• If more product is produced with fewer factors of production, the price of the product decreases.

• The standard of living in an economy improves through increases in productivity.


Economic Growth (cont.)• Balance of Trade

– The economic value of all the products a country exports minus the economic value of its imported products.

• Positive balance of trade: When a country exports (sells to other countries) more than it imports (buys from other countries).

• Negative balance of trade: When a country imports more than it exports. Commonly called a trade deficit.


FIGURE 1.4 Balance of Trade


Economic Growth (cont.)

• Recession– A period during which aggregate output, as

measured by real GDP, declines

• Depression– A prolonged and deep recession


Types of Policies

Monetary Policy:A. Designed to control the amount of money flowing

around the economy (the money supply). B. 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.

Types of Policies

Fiscal policy:A. Aims to control the total spending in the

economy.1. Government spending.2. Change in direct taxation. 3. Change in indirect taxation.

Managing the U.S. Economy

• Stabilization Policy–Coordinating fiscal and monetary

policies to smooth fluctuations in output and unemployment and to stabilize prices.


Assignment

Interview a Business Owner Interview a business owner or senior manager and ask

them how demand and supply affect their business, what essential factors of production are most central to the firm’s operations, and how fluctuations in economic indicators affect their business.

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