1. Understanding the U.S. Business System
Chapter 1
Understanding the U.S. Business System
PowerPoint Presentation by Charlie Cook
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2. 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:
Define the nature of U.S. business and identify its main goals and functions.
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.
Show how markets, demand, and supply affect resource distribution in the United States.
Identify the elements of private enterprise and explain the various degrees of competition in the U.S. economic system.
Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.
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3. 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
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4. What Is “A Business”?
An organization that provides goods and services to earn profits
Profits: The positive difference between revenues and expenses
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5. Functions of Business: From society’s perspective
Choice
Quality of Life
Opportunity
Enterprise
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6. Goals of Business: From a business perspective
Survival
Social Responsibility
Profit
Growth
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7. Factors of Production used by business
Physical Resources
Information
Resources
Entrepreneurs
The factors formerly known as “Land”
Herb Kelleher funded Southwest airlines at one point by taking his last dollars and betting them on the roulette wheel.
Labor
Capital
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8. Homework: Question #1 What are the factors of production?
Is one most important?
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9. How Are Factors of Production Allocated?
Planned Economy:
An economic system in which the government owns and operates the sources of production
Slicing the pie evenly
Market Economy:
An economic system in which buyers and sellers interact based on freedom of choice
“The Invisible Hand” of self interest
Growing the pie
Karl Marx: Free market forces will collapse the economic system leading to centralized control of production and the end of conflicting market forces.
Adam Smith: The Wealth of Nations: Why are some countries wealthier than other? Economic incentive leads to economic growth.
Thomas Malthus: Economics is about the allocation of scarce resources: “the dismal science”.
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10. Economic Systems control scale
Capitalistic
Socialistic
(Planned Economy)
(Market Economy)
Pure Capitalism
Communism
Question: Where do the people enjoy the highest standard of living with the most equal distribution of wealth?
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11. Socialism Toward Capitalism
A planned economic system in which the government owns and operates selected sources of production
Worldwide trend
Worldwide trend is toward more market elements.
Privatization:
The process of converting government enterprises into privately owned companies
Some notable exceptions are occurring:
Venezuela’s President Hugo Chávez’s nationalization of Venezuela’s oil production is one notable example.
Some notable exceptions are occuring: Nationalizing is the process of taking government control of privately held assets. Hugo Chávez of Venezuela is one recent notable example.
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12. 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 freedoms AND controls support private ownership and encourage entrepreneurship and choice
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13. Circular Flow in a Market Economy
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Figure 1–1

14. 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
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15. Supply and Demand Drive the Capitalistic U.S. Economic System
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.
How much would it take to entice YOU to make cookies for the class?
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16. Supply and Demand Drive the U.S. Economic System (cont’d)
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.
How much would you PAY to buy cookies in class?
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17. Demand and Supply Schedules
Quantity of Quantity of Price Pizzas Demanded Pizzas Supplied $ $ $ $ $ $ $ $ $ $
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18.   Demand and Supply Demand Curve Price of Pizzas
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Demand Curve
Price of Pizzas 
Quantity of Pizzas Demanded
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19. Demand and Supply (cont’d)
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Price of Pizzas
Supply Curve 
Quantity of Pizzas Supplied
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20.  Demand and Supply Price of Pizzas Quantity of Pizzas per Week
200 -
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Price of Pizzas
Demand Curve
Supply Curve
Equilibrium Price 
Quantity of Pizzas per Week
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21. Demand and Supply Figure 1–2a
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Figure 1–2a

22. Demand and Supply (cont’d)
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Figure 1–2b

23. Homework: Question #2 What is a demand curve? What is a supply curve?
What is happening where they intersect?
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24. 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
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25. The U.S. Economy is a Private Enterprise System
Four Key Elements:
Private Property Rights
Freedom of Choice
Profits
Competition
Individuals are free to pursue their own interests without government restriction.
Enough government control is in place to ensure enforcement of individual and business rights
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26. Competition
Competition motivates businesses to produce their products better and/or cheaper
Making our product better
Making ours cheaper
Why does competition do this?
Bonus: Competitive Strategies
Growing the market
Bicycles
Vs. Cannibalistic competition
Politics
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27. Degrees of Competition (p16)
What kind of competitive landscape do I want if:
My firm has been around a long time and I am tired of innovating?
My firm exists in a sea of similar competitors?
I am trying to start a brand new company?
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Table 1–1

28. Understanding Economic Performance Key Concept: The business Cycle
KEY CONCEPTS
Business Cycle
Aggregate Output
Standard of Living
Gross Domestic Product (GDP)
Gross National Product (GNP)
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29. The balance of trade: Each month we import more than we export.
That means we buy more than we sell.
How do we pay the bills?
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30. U.S. GDP and GDP per Capita
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Table 1–2

31. GDP and GDP per Capita (p 20)
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Figure 1–3

32. Understanding Economic Performance
KEY CONCEPTS
Productivity:
The amount a system produces compared to the resources needed to produce it
PRODUCTIVITY is impacted by:
Balance of Trade
National Debt
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33. Economic Stability: Balancing Growth
Two related factors threaten stability:
INFLATION
UNEMPLOYMENT
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34. Hamburger Inflation Table 1–3
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Table 1–3

35. Selected CPI Values Figure 1–4
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Figure 1–4

36. The CPI is a Tool to Measure Inflation
2000
1980
1930
House
$250,000
$109,000
$25,696
Car
$18,000
$7,871
$1,850
Hamburger & Fries
$5.00
$2.19
$.51
Source: Westegg.com/inflation/infl.cgi
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37. Recessions and Depressions
Aggregate output declines, unemployment increases
Depression:
Severe and long-lasting recession
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38. Managing the US Economy
Stabilization Policy:
Government policy designed to smooth out fluctuations in the economy
Fiscal Policies
Monetary Policies
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39. Evolution of American Business
Agricultural
Manufacturing
Service Industries
Future???
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40. Looking to the Future Four Major Forces:
The information revolution continues evolving.
Technological breakthroughs will create new industries.
Increasing globalization will create larger markets and tougher competition.
Increasing instability in energy costs create danger and opportunity
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41. 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
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42. Projections and Implications for the U.S. Economy
Challenges…
Growing US trade deficit
Disturbing income inequality
Steadily increasing consumer debt
Limited health insurance
Increasing worldwide energy demand and energy costs
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43. Group Discussions Review Evaluation Form Our first try!
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44. What’s next? Chapter 1 overview lecture
Chapter 1 teamwork to solve the assigned questions.
Then we will complete a short case study involving supply and demand that will require some knowledge of chapter 1.
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45. 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.
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