Exploring Business © 2009 FlatWorld Knowledge 1-1 The Foundations Of Business

Exploring Business © 2009 FlatWorld Knowledge 1-2 Chapter Objectives 1.Identify participants, functions and external forces of business 2.Define economics & explain key questions of economics 3.Describe perfect competition & explain supply/demand interaction with price 4.Describe monopolistic competition, oligopoly, and monopoly 5.Understand criteria to assess economy 6.Discuss government’s role in economy

Exploring Business © 2009 FlatWorld Knowledge 1-3Business “…any activity that provides goods or services for the purpose of making a profit.”“…any activity that provides goods or services for the purpose of making a profit.”

Exploring Business © 2009 FlatWorld Knowledge 1-4 For Profit Vs. Not-for-profit

Exploring Business © 2009 FlatWorld Knowledge 1-5 Business Participants Owners Employees Customers

Exploring Business © 2009 FlatWorld Knowledge 1-6 Functional Areas of Business  Management  Operations  Marketing  Accounting  Finance

Exploring Business © 2009 FlatWorld Knowledge 1-7 Management “…planning, organizing, staffing, directing, and controlling a company’s resources so it can achieve its goals.”“…planning, organizing, staffing, directing, and controlling a company’s resources so it can achieve its goals.”

Exploring Business © 2009 FlatWorld Knowledge 1-8Operations “…convert(s) resources…into goods or services…to ensur(e)...products are...high quality.”“…convert(s) resources…into goods or services…to ensur(e)...products are...high quality.”

Exploring Business © 2009 FlatWorld Knowledge 1-9 Marketing “...everything that a company does to identify customers’ needs and design products to meet those needs.”“...everything that a company does to identify customers’ needs and design products to meet those needs.”

Exploring Business © 2009 FlatWorld Knowledge 1-10 Accounting “…measure(s), summarize(s), and communicate(s) financial and managerial information...and advise other managers on financial matters.”

Exploring Business © 2009 FlatWorld Knowledge 1-11 Fields of Accounting  Financial Accountants 1)Prepare financial statements 2)Assess financial strength  Managerial Accountants-Prepare internal reports

Exploring Business © 2009 FlatWorld Knowledge 1-12Finance “…planning for, obtaining, and managing a company’s funds.” “…planning for, obtaining, and managing a company’s funds.”

Exploring Business © 2009 FlatWorld Knowledge 1-13 Business and Its Environment

Exploring Business © 2009 FlatWorld Knowledge 1-14 Economics “…study of how scarce resources are used to produce outputs...to be distributed among people.”

Exploring Business © 2009 FlatWorld Knowledge 1-15 Resources or Inputs and Outputs Land Labor Capital Entrepreneurship Business Outputs GoodsServices

Exploring Business © 2009 FlatWorld Knowledge 1-16 Circular Flow Of Inputs & Outputs

Exploring Business © 2009 FlatWorld Knowledge 1-17 Economists’ Questions 1) Goods & Services Should Be Produced...? 2) How Goods & Services Produced? 3) Who...Receive(s) The Goods & Services Produced?

Exploring Business © 2009 FlatWorld Knowledge 1-18 Spectrum of Economic Systems

Exploring Business © 2009 FlatWorld Knowledge 1-19 Privatization “…converting previously government-owned businesses to private ownership...”

Exploring Business © 2009 FlatWorld Knowledge 1-20 Adam Smith  Wealth of Nations (1776)  “Invisible Hand”  Laissez-faire

Exploring Business © 2009 FlatWorld Knowledge 1-21 Perfect Competition Exists Standardized Product Numerous Sellers Many Consumers

Exploring Business © 2009 FlatWorld Knowledge 1-22 Supply & Demand Price Units $0.00 $0.10 $0.20 $0.30 $0.40 $0.50 $0.60 $0.70 EquilibriumPoint

Exploring Business © 2009 FlatWorld Knowledge 1-23 Monopolistic Competition Differentiated Product Many Sellers Consumers Group A Consumers Group B Consumers Group C

Exploring Business © 2009 FlatWorld Knowledge 1-24 Oligopoly Similar Product Seller A Consumer Group A Consumer Group B Consumer Group C Seller B

Exploring Business © 2009 FlatWorld Knowledge 1-25 Monopoly Seller Consumer A Consumer D Consumer B Consumer E Consumer C

Exploring Business © 2009 FlatWorld Knowledge 1-26 World’s Main Economic Goals & Measures 1) Growth- Gross Domestic Product 2) High Employment- Unemployment Rate 3) Price Stability- Consumer Price Index

Exploring Business © 2009 FlatWorld Knowledge 1-27 Gross Domestic Product “…market value of all goods and services produced by...economy in a given year…includes only...goods and services produced domestically.”“…market value of all goods and services produced by...economy in a given year…includes only...goods and services produced domestically.”

Exploring Business © 2009 FlatWorld Knowledge 1-28 Business Cycle Prosperity Depression Recession Recovery

Exploring Business © 2009 FlatWorld Knowledge 1-29 U.S. Unemployment Rate

Exploring Business © 2009 FlatWorld Knowledge 1-30 Price Stability Inflation Inflation Deflation Deflation Consumer Price Index (CPI) Consumer Price Index (CPI)

Exploring Business © 2009 FlatWorld Knowledge 1-31 U.S. Inflation Rate

Exploring Business © 2009 FlatWorld Knowledge 1-32 Economic Indicators “…statistic(s) that provide valuable information about the economy.”“…statistic(s) that provide valuable information about the economy.”

Exploring Business © 2009 FlatWorld Knowledge 1-33 Lagging Economic Indicators “Statistics that report the status of the economy a few months in the past....”“Statistics that report the status of the economy a few months in the past....”

Exploring Business © 2009 FlatWorld Knowledge 1-34 Leading Economic Indicators “...predict the status of the economy three to twelve months in the future....”“...predict the status of the economy three to twelve months in the future....” 1)Unemployment Claims 2)Average Weekly Manufacturing Hours 3)Building Permits 4)U.S. Leading Index 5)Consumer Confidence Index

Exploring Business © 2009 FlatWorld Knowledge 1-35 Government & Economic Management  Monetary Policy Control = Federal Reserve Control = Federal Reserve Contractionary Contractionary Expansionary Expansionary Fiscal Policy Control = government Control = government Taxation Taxation Spending Spending National Debt National Debt

Exploring Business © 2009 FlatWorld Knowledge 1-36 National Debt

Exploring Business © 2009 FlatWorld Knowledge 1-37 Areas of Economics Macroeconomics- Study of the economy as a wholeMacroeconomics- Study of the economy as a whole Microeconomics- Study of the economic choices of individual consumers & businesses