Ch01 BE7e Instructor PowerPoint

8/11/2019 Ch01 BE7e Instructor PowerPoint

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1chapter

Business Essentials, 7thEditionEbert/Griffin

The Business Environment

Instructor Lecture PowerPoints


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The Concept of Business and Profit

Business

An organization that provides goods or services that are then sold toearn profits.

Profits

The difference between a businesss revenues and its expenses. Therewards owners get for risking their money and time.

Consumer Choice and Demand

The freedom of consumers to choose how to satisfy their wants andneeds.

The freedom of business owners to decide how to meet those wantsand needs.

Opportunity and Enterprise

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

2009 Pearson Education, Inc.


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The Concept of Business and Profit (cont.)

The Benefits of Business

Provision of goods and services

Employment of workers

Innovation and opportunities

Increased quality of life and standard of living

Enhanced personal incomes of owners and stockholders

Tax payments support government

Support for charities and community leadership



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The External Environments of Business

External Environment

Everything outside an organizations boundaries

that might affect it

The domestic business environment

The global business environment

The technological environment

The political-legal environment The sociocultural environment

The economic environment



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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:

Seeking to be close to its customers

Establishing strong relationships with its suppliers

Distinguishing itself from its competitors



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GlobalBusiness Environment The international forces that affect a business:

International trade agreements

International economic conditions

Political unrest

International market opportunities

Suppliers

Cultures

Competitors

Currency values



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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



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Political-Legal Environment The regulatory relationship between business and the government

(legal system) and its agencies that define what organizations can andcant 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.



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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



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Economic Environment

The relevant conditions that exist in the economic system

in which a company operates

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.



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Economic Systems

Economic System

A nations system for allocating its resources among itscitizens, 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 bybusinesses



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Types of Economic Systems

Planned Economy

A centralized government controls all or most factors ofproduction and makes all or most production andallocation decisions for the economy.

Market Economy

Individual producers and consumers control productionand allocation by creating combinations of supply anddemand.

Market A mechanism of exchange between buyers and sellers of a

good or service.



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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.



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Market Economics

Capitalism

The government supports private ownership and encouragesentrepreneurship.

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

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

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 industriessuch as banking and transportation. Smaller businesses are privatelyowned.



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The Economics of Market Systems

Demand

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

Supply

The willingness and ability of producers to offer a good or service forsale.

The Laws of Demand and Supply in a Market Economy

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

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



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Demand and Supply in a Market Economy

Demand and Supply Schedule

The relationships among different levels of demand and

supply at different price levels as obtained from marketing

research, historical data, and other studies of the market. Demand curve: How much product will be demanded (bought) at

different prices.

Supply curve: How much product will be supplied (offered for

sale) at different prices.

Market price(equilibrium price): The price at which the quantity

of goods demanded and the quantity of goods supplied are equal.



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FIGURE 1.2 Demand and Supply



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FIGURE 1.2 Demand and Supply (Cont.)



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Surpluses and Shortages

Surplus

A situation in which the quantity supplied exceedsthe quantity demanded

Causes losses

Shortage

A situation in which the quantity demanded will

be greater than the quantity supplied Causes lost profits

Invites increased competition



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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



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Degrees of Competition

Perfect Competition

Prices are determined by supply and demand because nosingle firm is powerful enough to influence the price of itsproduct.

All firms in an industry are small. The number of firms in the industry is large.

Principles of perfect competition:

Buyers view all products as identical.

Buyers and sellers know the prices that others are paying andreceiving in the marketplace.

It is easy for firms to enter or leave the market.

Prices are set exclusively by supply and demand and accepted byboth sellers and buyers.



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Degrees of Competition (Cont.)

Monopolistic Competition

There are numerous sellers trying to differentiate theirproducts from those of competitors so as to have somecontrol over price.

There are many sellers, though fewer than in purecompetition.

Sellers can enter or leave the market easily.

The large number of buyers relative to sellers appliespotential limits to prices.



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Oligopoly

An industry with only a few large sellers.

Entry by new competitors is hard because large capital

investment is needed. The actions of one firm can significantly affect the sales of

every other firm in the industry.

The prices of comparable products are usually similar.

As the trend toward globalization continues, most expertsbelieve that oligopolies will become increasingly prevalent.



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Monopoly

An industry or market that has only one producer (or elseis so dominated by one producer that other firms cannotcompete with it).

The sole supplier enjoys complete control over the prices of itsproducts; its only constraint is a decrease in consumer demanddue to increased prices.

Natural monopolies:Industries in which one firm can most

efficiently supply all needed goods or services; typicallyallowed and regulated by legislated acts and governmentalagencies.

Example: Electric company



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Economic Indicators

Economic Indicators

Statistics that show whether an economic system is

strengthening, weakening, or remaining stable

Measure key goals of the U.S. economic system: economicgrowth and economic stability

Economic growth indicators

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

productivity

Economic stability indicators

Inflation and unemployment



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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 totalquantity of goods and services produced by an economicsystem during a given period.

Standard of Living

The total quantity and quality of goods and services thatconsumers can purchase with the currency used in theireconomic system.



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Economic Indicators (cont.)

Gross Domestic Product (GDP)

An aggregate output measure of the total value of allgoods and services produced within a given period by anational economy through domestic factors of production.

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

Gross National Product (GNP)

The total value of all goods and services produced by a

national economy within a given period, regardless ofwhere the factors of production are located.



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Real Growth Rate

The growth rate of GDP adjusted for inflation and

changes in the value of the countrys currency

Growth depends on output increasing at a faster ratethan population.

Real GDP

GDP that has been adjusted to account forchanges in currency values and price changes.



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Nominal GDP

GDP measured in current dollars or with allcomponents valued at current prices.

GDP per Capita A reflection of the standard of living: GDP per

capita means GDP per person.

It is a better measure of the economic well-being

of the average person than GDP itself.



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Purchasing Power Parity

The principle that exchange rates are set so that the prices

of similar products in different countries are about the

same.

Indicates what people can buy with the financial resources

allocated to them by their respective economic systemsa

better sense of standards of living across the globe.



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FIGURE 1.3 Purchasing Power ParityBig Mac

Index



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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 throughincreases in productivity.



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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 othercountries) 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.



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Balance of Trade

How does a trade deficit affect economic growth? The deficit exists because the amount of money spent on

foreign products has not been paid in full. In effect,therefore, it is borrowed money, and borrowed moneycosts more money in the form of interest.

The money that flows out of the country to pay off thedeficit cannot be used to invest in productive enterprises,either at home or overseas.



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FIGURE 1.4 Balance of Trade



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National Debt

The amount of money that the government owes its

creditors.

Financed by borrowing in the form of bonds: Securities throughwhich the government promises to pay buyers certain amounts of

money by specified future dates.

Government competition with potential borrowers for available

loan money reduces private borrowing for investments that would

increase productivity.



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Stability

A condition in which the amount of money available in an

economic system and the quantity of goods and services

produced in it are growing at about the same rate.

Inflation

Inflation occurs when the amount of money injected into

an economy exceeds the increase in actual output,

resulting in price increases exceeding purchasing powerincreases.

Inflation rate: The percentage change in a price index such as the

CPI.



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Economic Indicators

Consumer Price Index (CPI)

A measure of the prices of typical products

purchased by consumers living in urban areas

Compared against base periodan arbitrarily selected

time period against which other time periods are

compared.



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Unemployment

The level of joblessness among people actively seekingwork in an economic system

Low unemploymenta shortage of labor available for businesses

to hire; results in higher wages.

Higher wages reduce hiring, which increases unemployment;results in lower wages.

Cyclical Unemployment

Businesses continuing to eliminate jobs during a businesscycle downturn cause more reduced revenues and further

job losses.



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Recession

A period during which aggregate output, as

measured by real GDP, declines

Depression

A prolonged and deep recession



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Managing the U.S. Economy

Fiscal Policy

The ways in which a government collects and spends revenues.

Tax rates can play an important role in fiscal policy.

Monetary Policy

The manner in which a government controls its money supply. Working mainly through the Federal Reserve System, the government

can influence banks willingness to lend money and prompt interestrates to go up or down.

Stabilization Policy

Coordinating fiscal and monetary policies to smooth fluctuations inoutput and unemployment and to stabilize prices.



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Key Terms

aggregate outputbalance of trade

business

business cycle

capital

capitalismcommunism

competition

consumer price index

demand

demand and supply scheduledemand curve

depression

domestic business environment

economic environmenteconomic indicators

economic system

entrepreneur

external environment

factors of productionfiscal policies

global business environment

gross domestic product (GDP)

gross national product (GNP)

inflationinformation resources

labor (human resources)

law of demand



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Key Terms (cont.)

law of supplymarket

market economy

market price (equilibrium price)

mixed market economy

monetary policiesmonopolistic competition

monopoly

national debt

natural monopoly

nominal GDPoligopoly

perfect competition

physical resources

planned economypolitical-legal environment

private enterprise

privatization

productivity

profitspurchasing power parity

real GDP

recession

shortage

socialismsociological environment

stability

stabilization policy



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Key Terms (cont.)

standard of living

supply

supply curve

surplus

technological

environment

unemployment

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