1. PowerPoint Presentation by Charlie Cook Copyright © 2005 Prentice Hall, Inc. All rights reserved. Chapter 1 Understanding the U.S. Business System

2. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–2 “In business you get what you want by giving other people what they want.” — Alice Foote MacDougall

3. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–3 L E A R N I N G O U T C O M E S After reading this chapter, you should be able to: 1.Define the nature of U.S. business and identify its main goals and functions. 2.Describe the different types of global economic systems according to the means by which they control the factors of production through input and output markets. 3.Show how markets, demand, and supply affect resource distribution in the United States. 4.Identify the elements of private enterprise and explain the various degrees of competition in the U.S. economic system. 5.Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

4. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–4 Key Topics Nature and goals of US business Global economic systems Supply and demand Private enterprise and competition Evaluating economic performance Status and outlook for the US economy

5. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–5 What Is Business? An organization that provides goods and services to earn profits Profits: The positive difference between revenues and expenses

6. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–6 Physical Resources LaborCapital Entrepreneurs Factors of Production Information Resources

7. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–7 How Are Factors of Production Allocated? Planned Economy:  An economic system in which the government owns and operates all sources of production Market Economy:  An economic system in which buyers and sellers interact based on freedom of choice

8. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–8 Capitalism: A Fundamentally Market-Based Economy Individuals Choose: Where to work What to buy How much to pay Producers Choose: Who to hire What to produce How much to charge Government supports private ownership and encourages entrepreneurship

9. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–9 Mixed Economies: Planned and Market The economies of most countries include both planned and market elements. Worldwide trend is toward more market elements.

10. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–10 Socialism: Mixed Economy Socialism  A planned economic system in which the government owns and operates selected sources of production Privatization:  The process of converting government enterprises into privately owned companies

11. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–11 Supply and Demand Drive the U.S. Economic System Supply:  The willingness and ability of producers to offer a good or service for sale Law of Supply:  Producers will supply (offer) more of a product for sale as its price rises and less as its price drops.

12. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–12 Supply and Demand Drive the U.S. Economic System (cont’d) Demand:  The willingness and ability of buyers to purchase a good or service Law of Demand:  Buyers will demand (purchase) more of a product as its price drops and less as its price increases.

13. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–13 Demand and Supply Schedules Quantity ofQuantity of Price Pizzas DemandedPizzas Supplied $22000100 $41900400 $61600600 $81200800 $1010001000 $128001200 $146001300 $164001600 $182001800 $201002000

14. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–14 Demand and Supply 200 -400 -600 -800 - 1000 -1200 -1400 -1600 -1800 -2000 - $20 - 18 - 16 - 14 - 12 - 10 - 8 - 6 - 4 - 2 - Quantity of Pizzas Demanded Price of Pizzas Demand Curve 

15. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–15 Demand and Supply (cont’d) Quantity of Pizzas Supplied 200 -400 - 600 -800 - 1000 -1200 - 1400 - 1600 -1800 - 2000 - $20 - 18 - 16 - 14 - 12 - 10 - 8 - 6 - 4 - 2 - Price of Pizzas Supply Curve 

16. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–16 Demand and Supply Quantity of Pizzas per Week 200 -400 -600 -800 - 1000 -1200 -1400 -1600 -1800 -2000 - $20 - 18 - 16 - 14 - 12 - 10 - 8 - 6 - 4 - 2 - Price of Pizzas Demand Curve Supply Curve Equilibrium Price

17. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–17 The U.S. Economy is a Private Enterprise System Individuals are free to pursue their own interests without government restriction. Four Key Elements: Private Property Rights Freedom of Choice Profits Competition

18. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–18 Competition Competition motivates businesses to produce their products better or cheaper

19. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–19 Understanding Economic Performance KEY CONCEPTS Business Cycle Aggregate Output Standard of Living Gross Domestic Product (GDP) Gross National Product (GNP)

20. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–20 PRODUCTIVITY is impacted by: National Debt Understanding Economic Performance KEY CONCEPTS  Productivity:  The amount a system produces compared to the resources needed to produce it Balance of Trade

21. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–21 Economic Stability: Balanced Growth of Money and Goods Two related factors threaten stability: INFLATIONINFLATION UNEMPLOYMENTUNEMPLOYMENT

22. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–22 The CPI is a Tool to Measure Inflation Source: Westegg.com/inflation/infl.cgi 200019801930 House $250,000 $109,000 $25,696 Car $18,000 $7,871 $1,850 Hamburger & Fries $5.00 $2.19 $.51 Copyright ©2003 Prentice Hall, Inc. 1 - 22

23. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–23 Recessions and Depressions Recession:  Aggregate output declines, unemployment increases Depression:  Severe and long- lasting recession

24. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–24 Managing the US Economy Stabilization Policy:  Government policy designed to smooth out fluctuations in the economy  Fiscal Policies  Monetary Policies

25. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–25 Looking to the Future Three Major Forces: The information revolution will continue to boost productivity. Technological breakthroughs will create new industries. Increasing globalization will create larger markets and tougher competition.

26. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–26 Projections and Implications for the U.S. Economy Opportunities… Steady economic growth Fewer inflationary surges and lower budget deficits Countries with free trade, innovation, and open financial systems will thrive Successful businesses will be those that quickly master new technology

27. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–27 Projections and Implications for the U.S. Economy Challenges… Growing US trade deficit Disturbing income inequality Steadily increasing consumer debt Limited health insurance

28. Copyright © 2005 Prentice Hall, Inc. All rights reserved.1–28 Chapter Review Describe the nature and goals of US business. Define the key global economic systems and describe how they control the factors of production. Show how demand and supply affect the distribution of resources in the US. Identify the elements of private enterprise and the various degrees of competition. Explain how to evaluate an economic system. Describe the key projections for the US economy.