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© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 1
Understanding the Understanding the Fundamentals of Fundamentals of
Business and EconomicsBusiness and Economics
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 2
Why Study Business?Why Study Business?
• Learn what it takes to run a businessLearn what it takes to run a business
• Build business vocabularyBuild business vocabulary
• Develop workplace skillsDevelop workplace skills
• Learn about a variety of jobsLearn about a variety of jobs
• Appreciate today’s business careerAppreciate today’s business career
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 3
What Is a Business?What Is a Business?
• For-Profit–Money motive
• Not-for-profit– Social service
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 4
Categories of BusinessCategories of Business
• Producing goods– Capital intensive
• Providing services– Labor intensive
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 5
Growth in Growth in the Service Sectorthe Service Sector
• Manufacturing
• Construction
• Agriculture
• Mining
• Wholesale and retail
• Transportation and
utilities
• Finance and insurance
• Other services
Goods-Producing Sector
Service-Producing Sector
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 6
Why Is the Why Is the Service Sector Service Sector
Growing?Growing?• More disposable income
• Changing demographics and lifestyles
• Complex goods and technologies
• Need for professional advice
• Low barriers to entry
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 7
What Is an Economic What Is an Economic System?System?
• Five production factors– Human resources– Capital– Entrepreneurs– Knowledge– Natural resources
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 8
The New EconomyThe New Economy
GeneralCharacteristics
•Physical Assets•Cost Control
•Intellectual Assets•Adding Value
Technology •Mechanical •Information
Workforce •Job-Specific Skills•Transferable Skills•Lifelong Learning
Geography •Close to Resources•Near to Collaborators •Near to Competitors
Capital •Debt Financing •Venture Capital
New EconomyOld Economy
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 9
Types of Economic Types of Economic SystemsSystems
• Free-market system– Capitalism–Mixed capitalism
• Planned system– Socialism– Communism
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 10
How Does a Free-Market How Does a Free-Market System Work?System Work?
• Supply and demand
• Competition
• Government intervention
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 11
Effects of Higher Airfare on Effects of Higher Airfare on DemandDemand
• Increase use of corporate or chartered aircraft
• Reduce attendance at conventions and conferences
• Use alternative airports
• Reduce number of employees traveling
• Reduce number of domestic trips
• Increase Saturday-night stayovers
• Promote teleconferencing and videoconferencing
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 12
Supply and Demand Supply and Demand RelationshipRelationship
• High price reduces demand
• Low price reduces supply
• Right price balances supply and
demand
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 13
Free-Market CompetitionFree-Market Competition
• Pure competition
• Monopoly
• Oligopoly
• Monopolistic competition
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 14
Competitive AdvantageCompetitive Advantage
• Price
• Speed
• Quality
• Service
• Innovation
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 15
The Role of The Role of GovernmentGovernment
• Foster competitionFoster competition
• Regulate industriesRegulate industries
• Deregulate industriesDeregulate industries
• Protect stakeholder’s rightsProtect stakeholder’s rights
• Contribute to economic stabilityContribute to economic stability
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 16
Fostering CompetitionFostering Competition
• Antitrust legislation
• Mergers and acquisitions
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 17
Regulating and Regulating and Deregulating IndustriesDeregulating Industries
• Fair competition
• Business ethics
• Working conditions
• Public safety
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 18
Protecting StakeholdersProtecting Stakeholders
• Consumer Product Safety Commission (CPSC)
• Environmental Protection Agency (EPA)
• Equal Opportunity Employment Commission
(EEOC)
• Federal Communications Commission (FCC)
• Federal Aviation Administration (FAA)
• Federal Energy Regulation Commission (FERC)
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 19
Protecting StakeholdersProtecting Stakeholders
• Federal Highway Administration (FHA)
• Federal Trade Commission (FTC)
• Food and Drug Administration (FDA)
• Interstate Commerce Commission (ICC)
• Occupational Safety and Health Administration
(OSHA)
• Securities and Exchange Commission (SEC)
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 20
Contributing to Economic Contributing to Economic StabilityStability
• Business cycle– Economic expansion– Economic contraction
• Fiscal policy– Revenue and spending
• Monetary policy– Interest rates
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 21
The FED and Money The FED and Money SupplySupply
• Reserve requirements
• Discount rate
• Open-market operations
• Selective credit controls
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 22
Fiscal Policy: RevenuesFiscal Policy: Revenues
• Income taxes
• Real property taxes
• Sales taxes
• Excise taxes
• Payroll taxes
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 23
Fiscal Policy: Fiscal Policy: ExpendituresExpenditures
• Increasing purchases
• Creating new programs
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 24
Monitoring Economic Monitoring Economic PerformancePerformance
• Interest rates
• Housing starts
• Unemployment statistics
• Durable-goods orders
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 25
Measuring Price ChangesMeasuring Price Changes
• Consumer Price Index
• Purchasing power– Inflation– Deflation
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 26
Measuring National Measuring National OutputOutput
Gross NationalGross NationalProduct (GNP)Product (GNP)
Gross DomesticGross DomesticProduct (GDP)Product (GDP)Dollar ValueDollar Value
YesYesYesYesFinal Goods Final Goods and Servicesand Services
YesYesYesYesDomestic BusinessesDomestic Businesses
NoNoYesYesForeign-Owned Foreign-Owned BusinessesBusinesses
YesYesNoNoOverseas OperationsOverseas Operations
© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 27
Challenges of Challenges of GlobalizationGlobalization
• Products and servicesProducts and services
• Managing a small businessManaging a small business
• Globalization and workforce diversityGlobalization and workforce diversity
• Ethics and social responsibilityEthics and social responsibility
• Technology and electronic commerceTechnology and electronic commerce