part 1 FHF Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

FHF What is a business? Individuals or organizations trying to earn a profit by providing products that satisfy people's needs. The Nature of Business 1-3

FHF What is a product? A good or service with tangible and intangible characteristics that provide satisfaction and benefits. The Nature of Business 1-4

FHF The Primary Goal of Business Earn a profit  The difference between what it costs to make and sell a product and what a customer pays for it. 1-5

[] FHF Profit Is: The difference between what it costs to make and sell a product and what a customer pays for it 1-6

FHF Non-Profit Organizations Not all organizations are for-profit businesses Nonprofit organizations  Provide goods and services but  Do not have the fundamental purpose of earning profits 1-7

[] FHF Stakeholders Customers, employees, investors, government regulators, community and society. Those that have a stake in the success and outcomes of a business are considered stakeholders 1-8

FHF The People and Activities of Business 1-9

FHF The Activities of Business Management – Focus on employees  Motivating employees toward business goals  Coordinating employee’s actions  Organizing people for efficiency 1-10

FHF Management: Production and Manufacturing Another element of management Plan activities Organize staff Control tasks of the organization 1-11

FHF Marketing Focus on satisfying customers o Determine what products customers want o Plan and develop products o Determine:  Distribution  Place  Promotion  Price 1-12

FHF Finance Finance is the primary responsibility of owners  Obtaining money  Using money effectively  Accountants, stockbrokers, bankers 1-13

FHF The Economic Foundations of Business Economics Distribution of resources for the production of goods and services within a social system Resources (sometimes called factors of production ) Natural resources (land, forests, minerals, water) Human resources (labor) Financial resources (capital) Intangible (good reputation, quality products) 1-16

FHF Economic Systems How a society distributes its resources to produce goods and services  Central issue of economics  How to fulfill an unlimited demand for goods and services with a limited supply of resources 1-17

FHF Communism A society in which the people, without regard to class, own all the nation’s resources.  China  North Korea  Cuba 1-18

FHF Socialism System in which the government owns and operates basic industries but individuals own most businesses.  Sweden  Israel  India 1-19

FHF Capitalism Free Enterprise  Individuals own and operate majority of businesses providing goods and services United StatesJapan Australia 1-20

FHF Pure Capitalism vs Modified Capitalism Pure Capitalism  Free Market  All economic decisions made without government intervention Modified Capitalism  Government intervenes and regulates business to some extent 1-21

[] FHF Mixed Economies No country practices pure capitalism, socialism, or communism. Economic systems can be mixtures and often contain various elements of government intervention 1-22

FHF The Free-Enterprise System o Basic individual and business rights  Right to own property  Right to earn profits and use them as one wishes (within constraints of law)  Right to make business decisions  Right to choose (careers, what goods/services to purchase, etc.) 1-23

FHF Supply and Demand Distribution of resources and products is determined by supply and demand Demand  Number of goods/services consumers buy at a given price at a specific time Supply  Number of products businesses will sell at different prices at a specific time 1-24

FHF Forces of Supply & Demand Equilibrium Price = Price at which number of products supplied equal amount of products consumers are willing to buy at a specific time 1-29

FHF Nature of Competition Competition  Rivalry among businesses for consumers’ dollars Pure Competition  Many small businesses in same product market Monopolistic Competition  Small number of businesses  Little difference in products Oligopoly  Very few businesses selling a product 1-25

FHF Economic Cycles & Productivity Economic Expansion Economy is growing and consumers are spending money Economic Contraction Spending declines, layoffs, economy slows down 1-26

FHF Economic Cycles Inflation  Condition characterized by continuing rise in prices Recession  Decline in production, employment, and income Depression  Unemployment very high; consumer spending low; business output sharply reduced Unemployment  % of population that wants to work but unable to find jobs 1-27

FHF The Recession The worst recession since the Great Depression  Collapse of many financial institutions AIG Bear Stearns Washington Mutual Merrill Lynch  Stock market dropped 50%  Highest mortgage default rate in history  Unemployment exceeded10%  Personal savings rates increased  Government spent $750 billion on financial institutions, and $789 billion on an economic stimulus package 1-34