Chapter 1 Understanding the US Business System Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Economic Systems around the World Different countries run their businesses in different ways. This is because the economic systems (النظم الاقتصادية) in countries are different. A country’s economic system decides how the country’s resources(الموارد) are divided among its citizens (people). Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Factors of Production Resources a country use to produce goods & services There are 5 basic Resources: Labor: The people who work in businesses also called human resources (الموارد). Capital: The money needed to start and operate a business. Entrepreneurs: People who start new businesses. Physical Resources: These are the tangible (ملموس) things businesses need to operate (the things we can see and touch). Information Resources: Information and data used by businesses.

How Are Factors of Production Allocated Economic systems: how the country’s resources are divided among its citizens (المواطنون) / how the factors of production (عوامل الإنتاج)are managed. There are three types: Planned economies (sometimes called command economies) Market economies Mixed economies Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

PLANNED ECONOMIES Planned Economies (sometimes called Command Economies) – these are controlled by the government of the country – the government makes all or most decisions on what goods to produce and where they will be sold (North Korea, Cuba, North Vietnam) Communism and socialism are the two basic forms of planned economies` (4th Page 7; 5th Page 8) Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

PLANNED ECONOMIES SOCIALISM / COMMUNISM In the socialist or communist economic systems, the government of the country owns and operates (تمتلك وتدير) some major industries (الصناعات الرئيسية) and private individuals own and operate other less important industries The government may own and operate banking, communication, and transportation while individuals own and operate clothing stores, restaurants, garages, etc. The main idea of socialism/communism is to have an equal distribution of wealth (الثروة)in society – a decent lifestyle for all citizens Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

MARKET ECONOMIES Market Economies – a way for buyers and sellers to exchange goods or services in which both have freedom of choice (حرية الاختيار) The buyer has freedom to pay the amount of money he or she wishes The seller has freedom to charge the amount of money he or she wishes for a product or service Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

MARKET ECONOMIES - CAPITALISM A free-market economy is called capitalism Capitalism allows private ownership (الملكية الخاصة) of the factors of production Capitalism encourages entrepreneurs (وتشجع منظمى الاعمال) to start small businesses Capitalism follows the rules of “supply and demand” of products and services In capitalist economics, there is inequality (عدم المساواة) of wealth in society – there are both very rich and very poor people. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

3 - MIXED MARKET ECONOMIES The economies of many countries have some of the features of a planned economy and some of the features of a market economy Individuals may own and operate businesses The government owns and operates “essential (الأساسية) services” such as health care, the electricity company, and the postal service – as it is in Bahrain Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

PRIVATIZATION In some countries, “essential services” such as the electricity company have gone through a process called “privatization” Privatization allows a government service to be purchased and operated by a private company (e.g. Telecommunications in Bahrain) Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Economic Systems Planned Economies Market Economies *government controlled economies. *Free market Economies. Mixed Market Economies. Input &output Market communism Socialism Capitalism *Government control all or most factors of production. *Government own and Operate some major industries. *Private Individuals own and operate other less important industries. *Free market economy follows the rules of supply and demand. *Individuals have access or ownership of factors of production. *Not “Pure” planned or “pure” market economies. *Government own and operates essential services. *most countries have this kind of economy. *Only government owned and Operated enterprises. *Government control is limited, most enterprises are private. Businesses and consumers Connected in circular flow. Privatization The process of selling essential government enterprises to the private sector. **Factors of production: 1-Labour. 2-Capital. 3-Entrepreneurs. 4-Physical resources. 5-Information resources. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Supply and Demand Drive the 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. (price =  supply) Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

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. ( Price =  Demand) Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Example: Demand and Supply Schedules Evaluation of the relationships between level of demand and supply at different price levels. Quantity of Quantity of Price Pizzas Demanded Pizzas Supplied $2 2000 100 $4 1900 400 $6 1600 600 $8 1200 800 $10 1000 1000 $12 800 1200 $14 600 1300 $16 400 1600 $18 200 1800 $20 100 2000      

Demand and Supply (1) 200 - 400 - 600 - 800 - 1000 - 1200 - 1400 - 1600 - 1800 - 2000 - $20 - 18 - 16 - 14 - 12 - 10 - 8 - 6 - 4 - 2 -  Demand Curve Demand curve: is graph that shows how many units of a product would be demanded (bought) at different prices. Price of Pizzas  Quantity of Pizzas Demanded

Demand and Supply (2)  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: is graph that shows how many units of a product would be supplied (offered for sale) at different prices. Supply Curve  Quantity of Pizzas Supplied

Demand and Supply  Price of Pizzas 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 Market Price (Equilibrium price) :Profit maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal. Supply = Demand Equilibrium Price  Quantity of Pizzas per Week

Surplus and Shortage Surplus (الفائض): Shortage (النقص): When quantity supplied is greater than quantity demanded. Supply >Demand Shortage (النقص): When quantity demanded is greater than quantity supplied. Supply < Demand Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

The U.S. Economy is a Private Enterprise System Private enterprise-Individuals are free to pursue (متابعة) their own interests without too much government restriction. To succeed (النجاح) private enterprise needs four element: Four Key Elements: Private Property Rights. Freedom of Choice. Profits. Competition. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Four element of private enterprise Private Property Rights (حقوق الملكية الخاصة): Access or ownership of the factors of production must be in the hands of individuals. Individuals must have the right to buy and sell goods and properties when they wish. Freedom of choice (حرية الاختيار): An Individual has the right to work for any employer they choose and to select the products they want to buy. A producer of goods or service can choose what to produce and whom to hire (توظيف)as employees Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Four element of private enterprise Profits (الأرباح): Individuals has the chance make more money working for their company than they would make working for someone else. Individuals can choose to earn a set salary working for others, or start their own business to try make more money. Competition (المنافسة): Many companies offer same or similar products, the customer can choose to buy from any company based on the quality and price of the product. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Types of Competition Even in a free enterprise system, not all industries are equally competitive. There are four degrees of competition: Perfect Competition. Monopolistic Competition. Oligopoly. Monopoly. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Perfect competition This is when all firms in the industry are small . The number of firms in the industry is large. Therefore, no firm is powerful enough to determine price, as price is set by demand and supply. Example: Vegetables market: Products offered are same or similar. Buyers and sellers know the price. Easy to enter or leave the market Prices are set by supply and demand. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Monopolistic Competition A fewer seller of products but still many buyers. Sellers try to make their product different. Example: fast food restaurants, soft drinks. Oligopoly A small number of sellers offer products. They are large companies they can influence the price. The price of similar products offered by different companies are generally the same. Example: Airplanes manufacturers. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Monopoly A Monopoly exists when there is only one producer in a market or industry. A single supplier or producer has complete control over the prices it charges. The customers want the product, they must pay the price asked. Example: Electricity supplier. Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall

Degrees of Competition Characteristic : Perfect Competition Monopolistic Competition Oligopoly Monopoly Example: Fruit & veg. shop Cold Store Airlines Electricity Provider No. of Competitors: Many Many, but fewer than pure competition Few None Ease of entry into the industry: Relatively easy Fairly easy Difficult Regulated by Government Similarity of goods being provided: Identical Similar Can be similar or different Neither Level of controls of price by individual firms: Some Considerable Reference: Ebert & Griffin (2007). "Business Essentials" Pearson, Prentice Hall