2Chapter 5.1 ObjectivesExplain the Characteristics of a Free Enterprise SystemDistinguish between price and nonprice competitionExplain the theory of supply and demand
3free enterprise system The basis of this system is for people to have the freedom to:own personal propertycompetetake risksmake a profitThis system encourages individuals to start and operate their own business in a competitive system, without government involvement.
4In general, how are prices determined in this system? How do we classify the U.S. in regards to the free enterprise system?
5Freedom of OwnershipAs an individual, this means you can:buy stuffsell stufflease stuffrent stuffgive stuff awaykeep stuff and use it for yourself...as long as it is allowed by law!
6Business OwnershipEntrepreneurs start and operate businesses they own. Other ways people can own businesses is by investing their money in them, but not working in the business. These people buy shares of stock.A successful company's stock price rises because more people want to buy that stock. What is this another example of?
7Intellectual Property Rights patents trademarks copyrights Define each and explain how long each are good for.How does someone else gain permission to use one of these?What is the difference between these intellectual property rights and a trade secret?patents-a government issues exclusive right to make, use, or sell an invention for up 20 years.trademark-a brand name, brand mark, trade name, trade character, or a combination of these elements that is given legal protection by the federal government. It can renewed forever if used by a business.copyright-the exclusive right to reproduce or sell a work authored by an individual, such as writings, music, and artwork. Usually valid for the life of the author PLUS 70 years.To use any of these you must gain permission from the owner. A fee is usually paid as part of a licensing agreement.The difference between these intellectual property rights and a trade secret is that a trade secret is not protected by a patent but rather is guarded by the company that possesses it.
8Competition-the struggle for customers How does competition benefit consumers? 2. How does competition increase our standardof living?What are TWO basic strategies businesses use to compete?
9price competition - focuses on the sale price of a product. What are some examples of companies that use this strategy?nonprice competition - focuses competition on factors not related to price.Can you think of examples for this strategy? As competition increases, many companies try to compete by using both strategies.
10monopoly- exclusive control over a product or the means of producing it. Why do free enterprise systems outlaw monopolies?Discussion: Microsoft and utility companies
12business risk- the potential for loss or failure risk vs. reward low risk, low reward....high risk, high rewardWhat are some examples of this?
13money in the bank vs. money in the stock market Money starting a business can payoff big time, OR a business can fail. 1/3 of every business in the U.S. fails after ONE year!!Liability, natural disasters, increased competitionYou want to succeed? Make new products!!Not an easy thing...new product introductions are very costly AND as many as 85% of new products fail in the first year!!
14profit - money earned from conducting business after all costs and expenses have been paid. (only 1-5% of sales for most businesses)Profit is the "reward" in the risk vs. reward equation.Profit is the motivation for those who start and operate businesses. That motivation is the key to satisfying customers and running a business efficiently.
15DISCUSSThe economic costs of unprofitable firms:worker layoffsmoney losses for investorsstresses on government
16DISCUSSThe economic benefit of successful firms:higher employment, higher wages, better benefits, higher moraleinvestors gain money, which can spur reinvestmentincreased consumer spending, increaded business opportunitiesgovernment receives more funds, and needs to provide less assistance
17supply-the amount of goods producers are willing to make and sell *the law of supply states that price and quantity supplied move in the same directiondemand-refers to the consumers' willingness and ability to buy products*the law of demand states that price and quantity demanded move in the opposite directionWhat is the relationship between supply and demand?
19Supply and Demand-Discuss and provide examples What is the term used when supply exceeds demand?What is the term used when demand exceeds supply? What is the term used when demand is equal to supply?
20Chapter 5.2 Objectives Compare for-profit and nonprofit organizations Distinguish between public and private sectorsList the major types of businesses in the industrial market
21The Classification of Businesses Size and ScopePurposeIndustry and Markets
22Size and ScopeLarge vs. SmallMore than 1000 employeesLess than 100 employees -about 95% are classified as small businesses - employ > 1/2 of the private sector workforce
23Size & ScopeDomestic vs. GlobalDomestic business- Define it!Global business- Define it
24PurposeFor-profit vs. Nonprofit OrganizationsFor-profit business-Define itNonprofit organization-Define it
25public sector-Define it....Give some examples PurposePublic vs. Privatepublic sector-Define it....Give some examples-purchase 1/3 of all goods and services sold in the U.S. each year.private sector-Define it...Give some examples
26Businesses are classified according to: Industry and MarketsBusinesses are classified according to:the industry they representthe products they sellthe markets they targetNAICS-What does this stand for?Industry-consists of a group of establishments primarily engaged in producing or handling the same product or group of products or in rendering the same services.
27Businesses are classified according to: Industry and MarketsBusinesses are classified according to:the industry they representthe products they sellthe markets they targetConsumer, Industrial, and Service MarketsThe relationship between consumer and industrial markets can best be explained by the concept ofderived demand.What is derived demand?
28Derived demand in the industrial market is based on, (or "derived from") the demand for consumer goods and services
29Types of businesses in the industrial market extractors (agriculture, mining, fishing, forestry)construction (homes, commercial buildings)manufacturing (goods produced and sold to others)wholesalers-obtain goods from manufacturers and resell them to industrial users, other wholesalers, and retailersretailers-buy goods from wholesalers or directly from manufacturers and resell them to the consumerservice related (intangible products-insurance, housekeeping, accounting, marketing, doctors, dentists, lawyers
30The Functions of Business All of these things functions must be looked atas part of a SWOT analysisproduction-the process of creating, expanding, manufacturing, or improving on goods and servicesWhat are some different examples of production?
31The Functions of Business All of these things functions must be looked atas part of a SWOT analysisproduction-the process of creating, expanding, manufacturing, or improving on goods and servicesWhat are some different examples of production?Songwriter creates new musicFarmer grows cropsFord manufactures new carsSoftware developers write new programs
32The Functions of Business All of these things functions must be looked atas part of a SWOT analysisproduction-the process of creating, expanding, manufacturing, or improving on goods and servicesWhat is looked at in evaluating this function?
33The Functions of Business production-the process of creating, expanding, manufacturing, or improving on goods and servicesWhat is looked at in evaluating this function?InnovationSpeed to marketEfficiencyLevel of success with products
34The Functions of Business All of these things functions must be looked atas part of a SWOT analysisprocurement-involves buying and reselling goods that have already been producedSWOT Analysis, Wholesalers, and Retailers-evaluating wholesalers and retailers on their merchandising ability.What are the five "rights" of merchandising?
35Marketing-all the activities that take place from the time a product leaves the manufacturer until it reaches the final consumerThe role of marketing activities-researchpricing promotingsellingEvaluate the four Ps in relation to your target market, company objectives, and sales performance.
36management- the process of achieving company goals by effective use of resources through planning, organizing, and controllingExplain:planningorganizingcontrolling
37A SWOT Analysis of this function focuses management- the process of achieving company goals by effective use of resources through planning, organizing, and controllingA SWOT Analysis of this function focuseson the evaluation of the personnelwho run the company.
38Finance and Accounting Finance-the function of business that involves money management Accounting-the discipline that keeps track of a company's financial situationImportant Documents to AnalyzeBalance sheetP & L Cash flow statement