Foundations of Business 3e Pride, Hughes, & Kapoor

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 2 Exploring the World of Business and Economics Chapter1

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 3  For help in choosing a career  To be a successful employee  To improve your management skills  To start your own business  To become a better informed consumer and investor Why Study Business?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 4 Free Enterprise …the system of business in which individuals are free to decide what to produce, how to produce it, and at what price to sell it. -pg 4 “ “

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 5 …the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs. -pg 10 Business “ “

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 6 Combining Resources

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 7 Business Profit Sales Revenue - Business Expenses Profit (Loss)* *Profit becomes the property of its owners

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 8 …to satisfy the needs of its customers. Ultimate Objective of Every Firm “ “

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 9 …all the different people or groups of people who are affected by the policies, decisions, and activities made by an organization. -pg 12 Stakeholders “ “ Example: What if NewPage wanted to build a new mill in Wisconsin Rapids? Who would be positively affected? Who might be negatively affected?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 10 …the study of how wealth* is created and distributed**. -pg 12 Economics * “anything of value,” including products produced and sold by business “ “ ** “who gets what”

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 11 …the decisions that individuals, business firms, government, and society make. The way in which people deal with the creation and distribution of wealth determines the kind of economic system, or economy, that a nation has. -pg 12 Economy “ “

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 12  Microeconomics The study of decisions made by: Individuals Businesses  Macroeconomics The study of: National economy Global economy 2 Economic Perspectives

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 13  Capitalism Free enterprise Adam Smith (Wealth of Nations) The invisible hand Laissez-faire capitalism  Command Socialism Communism – Karl Marx 2 Types of Economic Systems

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 14  Society pursues self-interest  People work hard if: Earn more pay Earn more profit  Promotes good of community Adam Smith Wealth of Nations (1776)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 15 Basic Assumptions for Adam Smith’s Laissez-Faire Capitalism

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 16 …describes how an individual’s own personal gain benefits others and a nation’s economy. -pg 13 Example: If a business is successful, who benefits from that? “Invisible Hand” “ “

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 17 Individuals decide who owns and operates the majority of businesses that provide goods and services. -pg 13 Capitalism

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 18 The government decides what goods and services will be produced, how they will be produced, for whom available goods and services will be produced, and who owns and controls the major factors of production. -pg 16 Command Economy

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 19  Socialism  Communism 2 Types of Command Economies

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 20 Key industries are owned/controlled by government. Land, buildings, and raw materials may be property of state. Private ownership is permitted to varying degrees. People choose their own occupations. National goals determine what is produced and how. Uses taxes, rents, and wages to control distribution. Examples: Most of the former USSR, Vietnam, even China Socialism

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 21 Karl Marx: Father Advocated classless society. Citizens own all economic resources. Workers contribute based on their ability and receive benefits based on need. Centralized planning to set prices and wages Emphasis on government’s needs, not consumers’ No job choice; professionals better off than factory workers Examples: North Korea and Cuba Communism

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 22 …an economy that exhibits elements of both capitalism and socialism. -pg 14 Other examples: France, Sweden, India are transitioning to free market U.S. = Mixed Economy “ “

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 23 Circular Flow in Mixed Economy

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 24 Measuring Economic Performance  Economic Indicators Gross domestic product (GDP) – The total value of all goods and services produced by everyone in a country during a 1 year period Inflation- general rise in prices Deflation Unemployment rate Consumer price index (CPI) – Index that measures the change in prices for food, transportation, housing, clothing, medical care, education etc. Producer price index (PPI)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 25  Productivity rate An economic measure that tracks the increase and decrease in the average level of output per worker  Unemployment rate The percentage of a nation’s labor force unemployed at any time Measuring Economic Performance (cont.)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 26 GDP in Current Dollars and in Inflation-Adjusted Dollars

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 27 Measuring Economic Performance (contd)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 28 Fluctuations between periods of growth and recession in a nation’s economic activity. -pg 20 Class Activity: Expert Groups for the 4 Phases of the Business Cycle The Business Cycle

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 29 States of the Business Cycle Depression Recession Peak Trough Depression Quarters Recovery Peak Dow Jones Recession

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 30  Monetary Policy-the Federal Reserve the supply of money interest rates  Fiscal Policy-the Government Taxes Spending Government Actions in Recession/Depression

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 31 …a shortfall created when the federal government spends more in a fiscal year than it receives. -pg 21 Federal Deficit “ “

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 32 Supply Curve and Demand Curve

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 33 Four Different Types of Competition

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide Perfect competition –pretty rare because it’s a theoretical concept. Many buyers and Many sellers. No one seller or buyer can influence market price. All must accept the “going price.”Closest example would be a large auction of identical goods with all potential buyers and sellers present. Stock market is an ok example except that large investors like investment banks could influence market price. 2. Monopolistic competition-many buyers along with a relatively large number of sellers. Products are VERY similar and do the same things. Examples: shoes, soaps, clothing, furniture. Product differentiation The process of developing and promoting differences between one’s products and all competitive products 4 Types of Competition

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide Oligopoly Few sellers but they are big…Example: auto industry, airlines, cereal makers. Actions of one seller could effect price. 4. Monopoly Only one seller, and there are barriers to keep other firms from entering the industry Natural monopoly: an industry that requires a huge investment in capital and within which any duplication of facilities would be wasteful- – Example: Utilities-regulated because that is in the best interest of the public Legal monopoly (limited monopoly): intellectual property that is copyright protected – Example: Microsoft with Microsoft Windows 4 Types of Competition (contd)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 36 Early business development-the family farm and “cottage industries” Business development in the 1900s-the factory and specialization 2000 and beyond-the best of times (technology advancements) and the worst of times (recession and uncertainty) The current business environment- – Competition (including global) Competition (including global) – Technology – The economy – The environment American Business Today

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 37 Chapter Quiz 1. General Motors and Toyota are both examples of A. marketing intermediaries. B. manufacturers. C. wholesalers. D. international agents. E. service businesses.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 38 Chapter Quiz 2. What remains after all business expenses have been deducted from sales revenues is A. cash. B. excess return. C. profit. D. gross return. E. operating revenue.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 39 Chapter Quiz 3. The total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period is called A. gross manufacturing output. B. gross domestic product (GDP). C. real gross national product. D. economic product. E. national production report.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 40 Chapter Quiz 4. __________ is an economic system in which individuals own and operate the majority of businesses that provide goods and services. A. Bureaucratic economy B. Command economy C. Communism D. Capitalism E. Socialism