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EXPLORING BUSINESS V. 2.1 By Karen Collins

CHAPTER 1 THE FOUNDATIONS OF BUSINESS

CHAPTER OBJECTIVES Identify the main participants of business, the functions that most businesses perform, and the external forces that influence business activities. Define economics and identify factors of production. Explain how economists answer the three key economics questions. Compare and contrast economic systems. Describe perfect competition, and explain how supply and demand interact to set prices in a free market system. Describe monopolistic competition, oligopoly, and monopoly. Understand the criteria used to assess the status of the economy. Discuss the government’s role in managing the economy.

COURSE OBJECTIVES Learn about the functional areas of business See how these areas fit together Explore critical issues affecting businesses Discuss majors and career options

BUSINESS As opposed to not-for-profit organizations, which spend all revenue on operating costs. ANY ACTIVITY THAT PROVIDES GOODS OR SERVICES FOR THE PURPOSE OF MAKING A PROFIT

BUSINESS PARTICIPANTS OWNERSCUSTOMERSEMPLOYEES

BUSINESS TODAY Internet/Social Networks Technology Global Expansion Diverse Workforce Corporate/Management Behavior Overcome financial crisis

DISTINCTIONS BETWEEN GOODS AND SERVICES GOODSSERVICES Athletic shoes Apparel Equipment Banking Legal Medical Travel

FUNCTIONAL AREAS OF BUSINESS MANAGEMENTOPERATIONSMARKETINGACCOUNTINGFINANCE

FUNCTIONAL AREAS OF BUSINESS: MANAGEMENT PLANNING, ORGANIZING, STAFFING, DIRECTING, AND CONTROLLING A COMPANY’S RESOURCES TO ACHIEVE ITS GOALS

FUNCTIONAL AREAS OF BUSINESS: OPERATIONS CONVERTING RESOURCES INTO GOODS OR SERVICES, ENSURING THAT PRODUCTS ARE OF HIGH QUALITY

FUNCTIONAL AREAS OF BUSINESS: MARKETING ALL OF THE ORGANIZATIONAL ACTIVITIES INVOLVED IN IDENTIFYING CUSTOMERS’ NEEDS AND DESIGNING, PRICING, PROMOTING AND DELIVERING PRODUCTS TO MEET THOSE NEEDS

FUNCTIONAL AREAS OF BUSINESS: ACCOUNTANTS MEASURE, SUMMARIZE, AND COMMUNICATE FINANCIAL AND MANAGERIAL INFORMATION

EXTERNAL FORCES ON BUSINESSES BUSINESS ECONOMYGOVERNMENT CONSUMER TRENDS PRESSURE TO BE A GOOD CORPORATE CITIZEN

ECONOMICS STUDY OF THE PRODUCTION, DISTRIBUTION, AND CONSUMPTION OF GOODS AND SERVICES

FACTORS OF PRODUCTION INPUTS Entrepreneurship Land Labor Capital BUSINESS (transforms) OUTPUTS Goods Services

THE CIRCULAR FLOW OF INPUTS AND OUTPUTS BUSINESSES: Produce and sell products to households Buy inputs from households HOUSEHOLDS: Buy products from firms Provide inputs to firms Pay revenue for outputs Pay incomes for inputs Inputs: Labor, Capital, Land, Entrepreneurship Outputs: Goods and Services

ECONOMISTS’ QUESTIONS What goods and services should be produced? How should goods and services be produced? Who receives the goods and services produced?

THE SPECTRUM OF ECONOMIC SYSTEMS CommunismSocialism Capitalism Planned Systems High degree of government control High level of social services Free Market Systems Low degree of government control Low level of social services

PERFECT COMPETITION Standardized Product Many Sellers Many Consumers

SUPPLY AND DEMAND Supply Demand Price Units EQUILIBRIUM POINT

MONOPOLISTIC COMPETITION Differentiated Product Many Sellers Consumers Group B Consumers Group C Consumers Group A

OLIGOPOLY Similar Product Seller A Consumer Group A Consumer Group B Consumer Group C Seller B

MONOPOLY Seller Consumer A Consumer D Consumer B Consumer E Consumer C

MEASURING WORLD ECONOMIC GOALS Growth—Gross Domestic Product High Employment—Unemployment Rate Price Stability—Consumer Price Index

GROSS DOMESTIC PRODUCT THE MARKET VALUE OF ALL GOODS AND SERVICES PRODUCED BY THE ECONOMY IN A GIVEN YEAR INCLUDES ONLY THOSE GOODS AND SERVICES PRODUCED DOMESTICALLY

BUSINESS CYCLE GDP % Change Time DEPRESSIO N RECESSIO N PROSPERIT Y RECOVER Y

U.S. UNEMPLOYMENT RATE

INFLATION RATE

SELECTED CPI VALUES

ECONOMIC INDICATORS Lagging economic indicators: measures that report the status of the economy a few months in the past. Leading economic indicators: predict the status of the economy months into the future (e.g. Consumer Confidence Index, Unemployment Claims). STATISTICS THAT PROVIDE VALUABLE INFORMATION ABOUT THE ECONOMY

GOVERNMENT AND ECONOMIC MANAGEMENT MONETARY POLICYFISCAL POLICY Controlled by the Federal Reserve. Controls the size of the money supply, able to: Shrink it (contractionary policy) to temper economic booms. Expand it (expansionary policy) to alleviate economic slumps. Controlled by the legislative branch and government. Includes taxation, spending, and regulating the national debt.

NATIONAL DEBT

AREAS OF ECONOMICS: MACROECONOMICSMICROECONOMICS Study of the economy as a whole.Study of the economic choices of consumers and businesses.