Chapter 1
Exploring the Worldof Business and
Economics
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 2
Learning Objectives
1. Discuss your future in the world of business.2. Define business and identify potential risks and rewards.3. Define economics and describe the two types of economic
systems: capitalism and command economy.4. Identify the ways to measure economic performance.5. Examine the four different phases in the typical business
cycle.6. Outline the four types of competition.7. Summarize the factors that affect the business environment
and the challenges American businesses will encounter in the future.
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 3
Free Enterprise
…the system of business in which individuals are free to decide what
to produce, how to produce it,and at what price to sell it.
“ “
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 4
Your Future in theChanging World of Business
• What do you want?
• Why do you want it?
• Write it down!
“Success is a journey, not just a destination.”Joe Dudley
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 5
Why Study Business?
• To choose a career
• To be a successful employee
• To start your own business
• To become a better-informed consumerand investor
www.careerbuilder.comwww.careeronestop.orgwww.monster.comwww.hotjobs.yahoo.com
Here are some interesting sites:
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 6
Median Yearly Income
Who Makes the Most Money?
Source: 2009 Statistical Abstract of the United States, p. 443
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 7
Cultural (Workplace) Diversity
…differences among people in a workforce owing to race, ethnicity, and gender.“
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 8
Text Features
Learning Objectives Inside Business Margin Notes Boxed Features Spotlight End-of-Chapter
Materials
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 9
Pathway to Success in This Course
1. Prepare before you go to class. 2. Read the chapter.3. Underline or highlight important concepts.4. Take notes.5. Apply the concepts.6. Practice critical thinking.7. Prepare for exams.
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 10
Business
…the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs.
“ “
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 11
Figure 1.1: Combining Resources
A business must combine all four resources effectively to be successful.
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 12
Ultimate Objective of Every Firm
…to satisfy the needs of its customers.“
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 13
Business Profit
Sales Revenue- Business Expenses
Profit (Loss)*
*Profit becomes property of its owners
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 14
Stakeholders
…all the different people or groupsof people who are affected by thepolicies, decisions, and activities
made by an organization.
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 15
Business Ownership Risks
Not being paid
Loss of whatever is invested in the business
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 16
Paths to E-Profits
$ Amazon Free shipping Outside merchants =
commission
$ eBay Online auction Commission Online telephone
communications
$ Google Search engine Paid advertising links
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 17
Economics
…the study of how wealth* iscreated and distributed.**
* wealth is “anything of value, including products produced and sold by business”
**distribution is “who gets what”
“
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 18
Economy
…the way in whichpeople deal with the creation and
distribution of wealth.“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 19
Economic Perspectives
MicroeconomicsThe study of decisions made by Individuals Businesses
MacroeconomicsThe study of National economy Global economy
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 20
Factors of Production
…resources used to producegoods and services.“
“
Land/natural resources Labor Capital Entrepreneurship
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 21
Types of Economic Systems
Capitalism Free Enterprise Adam Smith (Wealth of Nations) The Invisible Hand Laissez-Faire Capitalism
Command Socialism Communism (Karl Marx)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 22
Economic Systems Differ
• Economic systems differ depending on the answers to four basic economic questions about nation’s economic activity
1. What and how much will be produced?2. How will it be produced?3. For whom will it be produced?4. Who owns/controls factors of production?
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 23
Capitalism
…individuals own and operatethe majority of businesses thatprovide goods and services.
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 24
Adam SmithWealth of Nations (1776)
Society pursues self-interest People work hard if
• Earn more pay• Earn more profit
Capitalism promotes good of community
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 25
Invisible Hand
...describes how an individual’sown personal gain benefits others
and a nation’s economy.“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 26
Figure 1.3: Assumptions forLaissez-Faire Capitalism
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 27
U.S. = Mixed Economy
…an economy that exhibits elementsof both capitalism and socialism.“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 28
Figure 1.4: Circular Flowin Mixed Economy
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 29
Command Economy
…government decides what goodsand services will be produced, how
they will be produced, for whomavailable goods and services will be
produced, and who owns and controlsthe major factors of production.
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 30
Command Economies
Socialism
Communism
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 31
Socialism
Key industries owned/controlled by government Land, buildings, and raw materials may be
property of state Private ownership permitted to varying degrees People choose own occupations National goals determine what/how produced Uses taxes, rents, and wages to control distribution
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 32
Communism
Karl Marx ─ Father Advocated classless society Citizens own all economic resources Workers contribute based on ability and receive
benefits based on needExamples ─ North Korea, ChinaCentralized planning ─ sets prices and wagesEmphasis on government needs ─ not consumersNo job choice ─ professionals better off than
factory workers
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 33
MeasuringEconomic Performance
Economic Indicators Balance of Trade Corporate Profits Inflation Rate National Income New Housing Starts Prime Interest Rate Productivity Rate Unemployment Rate
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 34
Consumer Price Indexfor All Urban Consumers (CPI-U)
U.S. Department of Labor, Bureau of Labor Statistics, Inflation & Prices, All Urban Consumers, http://www.bls.gov/data , Table 24. Historical Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, accessed July 2009.
(1982–84=100, unless otherwise noted)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 35
Productivity
…the average level ofoutput per worker per hour.“
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 36
Results ofIncreased Productivity
1. Owners make more profit and/or sell products for less
2. Can lead to higher unemployment
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 37
Figure 1.5: GDP in Current Dollars andin Inflation-Adjusted Dollars
Source: U.S. Bureau of Economic Analysis website at www.bea.gov, accessed September 14, 2008
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 38
Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health
Balance of tradeThe total value of a nation’s exports minus
the total value of its imports over a specific period of time
Corporate profitsThe total amount of profits made by corporations
over selected time periods
Inflation rateAn economic statistic that tracks the increase in
prices of goods and services over a period of time; usually calculated on a monthly or annual basis
(cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 39
Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health (cont.)
National incomeThe total income earned by various segments of the
population, including employees, self-employed individuals, corporations, and other types of income
New housing startsThe total number of new homes started during a
specific time period
Prime interest rateThe lowest interest rate that banks charge their most
credit-worthy customers
(cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 40
Productivity rate
An economic measure that tracks the increase and decrease in the average level of output per worker
Unemployment rate
The percentage of a nation’s labor force unemployed at any time
Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health (cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 41
Business Cycle
…the recurrence of periodsof growth and recession in anation’s economic activity.
“ “
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 42
States of Business Cycle
Depression
Recession
Peak
Trough
Depression
1 2 3 4 5 6 7 8 9 10 11
Quarters
Recovery
Peak
Dow Jones
Recession
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 43
Government Actions in Recession/Depression
Monetary Policy Determines size of money supply and interest rates
Fiscal Policy Influences amount of savings and expenditures by altering tax structure and government spending
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 44
Federal Deficit
…a shortfall created when thefederal government spends morein a fiscal year than it receives.“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 45
Figure 1.6: Supply Curveand Demand Curve
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 46
Table 1.3: Four DifferentTypes of Competition
The number of firms determines the degree of competition within an industry.
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 47
Product Differentiation
…the process of developingand promoting differences between
one’s products and all similar products.
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 48
Standard of Living
…a loose subjective measure ofhow well off an individual or a society is
mainly in terms of want satisfactionthrough goods and services.
“
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 49
Figure 1.7:Time Line of
American Business
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 50
Environments of Business
Business
CompetitiveCompetitive TechnologicalTechnological
EconomicEconomicGlobalGlobal
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 51
The Challenges Ahead
1. How can we create a more stable economy and create new jobs?
2. How can we restore the public’s confidence in the banking and financial industries?
3. How can we regulate banks, savings and loan associations, credit unions, and other financial institutions to prevent the type of abuses that led to an economic crisis?
4. How can we encourage Iraq and Afghanistan to establish a democratic and free society and resolve possible conflict with North Korea and other countries throughout the world?
(cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 52
The Challenges Ahead (cont.)
5. How can we meet the challenges of managing culturally diverse workforces to address the needs of a culturally diverse marketplace?
6. How can we make American firms more productive and more competitive with foreign firms that have lower labor costs?
7. How can we preserve the benefits of competition and small businesses in our American economic system?
8. How can we encourage economic growth and at the same time continue to conserve natural resources and sustain our environment?
(cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 53
9. How can we meet the needs of two-income families, single parents, older Americans, and the less fortunate who need health care and social programs to exist?
The Challenges Ahead (cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 54
1. General Motors and Toyota are both examples of
a) marketing intermediaries. b) manufacturers. c) wholesalers. d) international agents. e) service businesses.
Chapter Quiz
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 55
2. What remains after all business expenses have been deducted from sales revenues is referred to as
a) cash. b) excess return. c) profit. d) gross return. e) operating revenue.
Chapter Quiz (cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 56
3. The total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period is called
a) gross manufacturing output.b) gross domestic product.c) real gross national product.d) economic product.e) national production report.
Chapter Quiz (cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 57
4. __________ is an economic system in which individuals own and operate the majority of businesses that provide goods and services.
a) Bureaucratic economyb) Command economyc) Communismd) Capitalisme) Socialism
Chapter Quiz (cont.)
Copyright © Cengage Learning. All rights reserved. Chapter 1 | Slide 58
5. __________ is a loose subjective measure of how well off an individual or society is.
a) Standard of livingb) Consumer price indexc) Personal economic indexd) Individual consumption standarde) Employee producer index
Chapter Quiz (cont.)