Business in aChanging WorldChanging World

McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.

Chapter 1 The Dynamics of Business and Economics

Asst. Prof. Dr. Serdar AYAN

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The Nature of Business

What is a business?Individuals or organizations trying to Individuals or organizations trying to earn a profit by providing products that satisfy people's needs.

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The Nature of Business

What is a product?A good or service with tangible and A good or service with tangible and intangible characteristics that provide satisfaction and benefits

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ProductsTangible Goods & Services

Tangible GoodsAutomobile

ServicesDry cleaningAutomobile

ComputerLoaf of breadTelevision

Dry cleaningPhoto processingCheckup at doctor’sMovie star performance

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The Primary Goal of Business

Earn a ProfitThe difference between what it costs The difference between what it costs to make and sell a product and what a customer pays for it.

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The Primary Goal of Business

PROFIT --The reward for the risks that The reward for the risks that businesses take in providing products.

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Non-Profit Organizations

Not all organizations are businesses.

Nonprofit organizations provide goods Nonprofit organizations provide goods and services but do not have the fundamental purpose of earning profits.

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Maintaining Profitability Quality products Efficient operations

Profitability

Management skills•Planning•Organizing•Controlling•Leading

Social responsibility Business ethics

•Leading

Marketing Expertise•Products •Price•Promotion•Distribution

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Stakeholders

Customers, employees, investors, government regulators, community and society. Those that have a stake in the success and outcomes of a business are considered stakeholders.

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Stakeholders & the Environment

Environmentally Friendly Practices•Hewlett-Packard•Cummins, Inc.•Cummins, Inc.•Diversity Pipeline Alliance•Home Depot•U-Haul

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The People & Activities of Business

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The People & Activities of Business

Management – Focus on employees•Coordinating employee’s actions•Organizing people for efficiency•Motivating employees toward business goals

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The People & Activities of Business

Management – Production and Manufacturing•Plan activities•Organize staff•Control tasks

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The People & Activities of Business

Marketing – Focus on satisfying customers•Determine what products customers want•Plan and develop products•Determine distribution•Determine place•Determine promotion

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The People & Activities of Business

Marketing & Promotion•Advertising•Personal selling•Sales promotion•Publicity

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The People & Activities of Business

Finance – Primary responsibility of owners•Obtaining money•Using money effectively•Accountants, stockbrokers, bankers

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Why Study Business

•Develop Skills for career success•Understand business activities•Importance of profitability•Importance of profitability•Individual businesses•Local and regional economic impact •Global economic impact

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Why Study Business

Business impact•Purchase raw materials•Hire employees•Attract capital•Create products•Fuel the global economy•Contribute to society

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The Economic Foundations of Business

Distribution of resources for the production of goods and services within a social system.

Resources --•Natural resources (land, forests, minerals, water)•Human resources (labor)•Financial resources (capital)

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Factors of Production --

Natural, human, and financial resources used to produce goods and services --

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Economic Systems

How a society distributes its resources to produce goods and services

Central issue of economics –

•How to fulfill an unlimited demand for goods and services with a limited supply of resources

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Economic Systems

Three Important questions –

How a society distributes its resources to produce goods and services

Three Important questions –1. What types and quantities of goods/services will

satisfy consumer needs?2. How will goods/services be produced? By whom?

With what resources?3. How are goods/services distributed to consumers?

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Comparison of Communism, Socialism, and Capitalism

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Economic Systems

Communism

A society in which the people without regard to class, own all the nation’s resources.•China•North Korea•Cuba

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Economic Systems

Socialism

System in which the government owns and operates basic industries but individuals own most businesses.

•Sweden•India•Israel

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Economic Systems

Capitalism

Free Enterprise – individuals own and operate majority of businesses providing goods and services

•United States•Japan•Australia•Canada

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Economic Systems

Pure CapitalismModified Capitalism

Free Market -- All economic decisions made without government intervention (pure capitalism)

Government intervenes and regulates business to some extent (modified capitalism)

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Economic Systems

Mixed Economies

No country practices pure capitalism or pure socialism/communism. Economic systems contain various elements of government intervention

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Supply & Demand

Demand -- number of goods/services consumers

Distribution of resources and products determined by supply and demand

Demand -- number of goods/services consumers buy at given price at a specific time

Supply -- number of products businesses will sell at different prices at a specific time

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Forces of Supply & Demand

Price at which number of products supplied equal amount of products consumers are willing to buy at a specific time = equilibrium price

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Nature of Competition

Pure competition – many small businesses in

Rivalry among businesses for consumers’ dollars.

Pure competition – many small businesses in same product marketMonopolistic competition – small number of businesses little difference in productsOligopoly– very few businesses selling a product

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Economic Cycles and Productivity

Economic Expansion – economy is growing and

Expansion and Contraction

Economic Expansion – economy is growing and consumers are spending money

Economic Contraction – spending declines, layoffs, economy slows down

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Economic Cycles•Inflation– condition characterized by continuing rise in prices•Recession– decline in production, employment, and incomeand income•Unemployment– % population wants to work but unable to find jobs•Depression– unemployment very high; consumer spending low; business output sharply reduced

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Overall Unemployment Rate

U.S. Civilian Labor Force 1920 - 2007

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Measuring the Economy•Gross Domestic Product (GDP)

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Evaluating Our Nation’s Economy

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Entrepreneurship

Bill Gates

Risk, innovation, creativity, reward

Bill GatesMichael DellFrederick SmithBen & Jerry’sSam Walton

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Ethics & Social Responsibility

Enron

Business reputation depends on profit AND ethical conduct and responsibility

EnronMCI WorldComEmission StandardsGlobal WarmingGoing “Green”

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