1. Exploring the World of Business and Economics

2. Introduction
Free enterprise Individuals are free to decide what to produce, how to produce it, and at what price to sell it
© TYLER OLSON/SHUTTERSTOCK

3. Your Future in the Changing World of Business
Know what you want.
Adapt.
One of the few certainties of today’s business environment is that it never stands still. Only one approach to this unsteady state of affairs makes sense: perpetual innovation – the constant shifting of strategies and tactics to reshape the business and take competitors by surprise. The winners will be the companies that find ways to release their innovative potential and apply it to the way they think and the way they work.” 
--Stephen Shapiro
success, /səkˈses/ (n) ?
Additional Resources
A great video to show would be Richard St. John’s Secrets to Success
Ask: What is your definition of success?

4. Why Study Business? 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

5. Tips for Studying Business
Prepare before you go to class.
Read the chapter.
Underline or highlight important concepts.
Take notes.
Apply the concepts.
Practice critical thinking.
Prepare for exams.

6. What Is Business?
The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs

7. Classification of Businesses
Manufacturing Businesses
Goods-producing (keyboards)
Service Businesses
Service-providing (health care)
Additional Resources
Here are links to some great videos you might use to show the differences between types of companies, in this case service businesses.
Working at Google
Working at Beth Israel Deconess Medical Center
© HE YUAN/EPA/LANDOV
© ANTON GVZDOKOV/SHUTTERSTOCK

8. The Importance of Manufacturing
“. . . Not only the wealth, but the independence and security of a country, appear to be materially connected with the prosperity of manufactures. Every nation, with a view to those great objects, ought to endeavor to possess within itself all the essentials of national supply. These comprise the means of subsistence, habitation, clothing, and defence… .”
© PANDAPAW/SHUTTERSTOCK
--Alexander Hamilton, A Report to Congress on the Subject of Manufactures, 1791

9. The Importance of Manufacturing
Is it important to have a strong domestic manufacturing industry? Why?
Is it more important to you to buy products made in America or to get the best deal?
Should we be more concerned with jobs and workers’ wages, or with affordable products for consumers?
NOTE: These are questions to spark debate, not questions for which the text offers answers.

10. Classification of Businesses
Marketing intermediaries Buy products from manufacturers and resell
Manufacturer
Marketing Intermediary
Consumer

11. The Relationship Between Sales Revenue and Profit
Profit is what remains after all business expenses have been deducted from sales revenue. A loss (negative profit) results when a firm’s expenses are greater than its revenues.
Sales Revenue
Expenses
Profit

12. $ The Function of Profit PROFIT
Reward for producing goods and services people want
PROFIT
Compensation for assuming the risks of ownership
Risk of not receiving payment
Risk of losing investment

13. Paths to E-Profits Amazon eBay Google Free shipping
Outside merchants = commission
eBay
Online auction
Commission
Online telephone communications
Google
Search engine
Paid advertising links 13

14. Stakeholders
Stakeholders are all the different people or groups of people who are affected by the policies and decisions made by an organization. Stakeholders include consumers, marketing intermediaries, stockholders, and employees.

15. Economics
Economics is the study of how wealth (anything of value) is created and distributed.
Microeconomics
Macroeconomics
The study of the decisions made by individuals and businesses
The study of the national and global economies
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© KK-ARTWORKS/SHUTTERSTOCK

16. Types of Economic Systems
WHAT goods and services
will be produced?
HOW will they be produced?
FOR WHOM will they be produced?
WHO owns and controls the major factors of production?
Economy
The system through which a society creates and distributes wealth

17. Types of Economic Systems (cont’d)
WHO owns and controls the major factors of production?
Land and natural resources
Labor
Capital
Entrepreneurship

18. Capitalism Individuals:
Own and operate the majority of businesses that provide goods and services.
Privately own resources.
Decide what to buy.
The market drives supply and price.
Role of government is limited.
© NEVENA RADONIA/SHUTTERSTOCK
© KEKO-KA/SHUTTERSTOCK

19. Basic Assumptions for Adam Smith’s Laissez-Faire Capitalism
Laissez-faire = “let them do”

20. The U.S. economy is a mixed economy.
Businesses:
Produce goods and services to exchange for revenues (money).
Use revenues to purchase factors of production.
Households:
Consume goods and services.
Own resources of some factors of production.
Government:
Provides public services in exchange for taxes.
© NEVENA RADONIA/SHUTTERSTOCK
© NEVENA RADONIA/SHUTTERSTOCK

21. The Circular Flow in Our Mixed Economy

22. Command Economy: Socialism
Government:
Decides what will be produced, how it will be produced, and who owns and controls the factors of production.
Owns and controls key industries.
Workers may choose their own occupations.
Goal is to equally distribute income, eliminate poverty, provide social services, and eliminate economic waste.
Small-scale private businesses may be permitted.
© NEVENA RADONIA/SHUTTERSTOCK
© KEKO-KA/SHUTTERSTOCK

23. Command Economy: Communism
Government:
Owns and controls all factors of production.
Plans production to meet the needs of the state.
Dictates occupations, wages, and prices.
The goal is to create a classless society where all contribute according to their ability and receive benefits according to their needs.
No private businesses are allowed.
© NEVENA RADONIA/SHUTTERSTOCK

24. Measuring Economic Performance
Productivity: The average level of output per worker per hour
Gross Domestic Product (GDP): The total value of all goods and services produced by all people within the boundaries of a country during a one-year period
© TRIBALIUM/SHUTTERSTOCK
© JELICA VIDENOVIC/SHUTTERSTOCK

25. Measuring Economic Performance (cont’d)
Consumer Price Index CPI
A monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area
Producer Price Index PPI
An index that measures prices that producers receive for their finished goods
Differs from CPI due to:
Government subsidies
Sales and excise taxes
Distribution costs
Additional Resources
CPI FAQ
PPI FAQ
PPI news release 9/13/2012
CPI news release 9/13/2012
Bureau of Labor Statistics: Difference between CPI and PPI
© SUPRISUHARJOTO/SHUTTERSTOCK

26. Measuring Economic Performance (cont’d)

27. Balance of Trade
The total value of a nation’s exports minus the total value of its imports over a specific period of time
Additional Resources
United States Balance of Trade, 1980–2011, based on March 2012 data. Data Source: US Census Bureau Foreign Trade Division: 
Bloomberg TV (1:39)
PBS: the.News
Balance of Trade
The Economist
Topics Index  Balance of Trade
What does trade balance say about the health of an economy?
Is a surplus or a deficit desirable?

28. The value of a dollar goes down.
Inflation
Inflation
The value of a dollar goes down.
Demand rises.
© TIBALIUM/SHUTTERSTOCK
Prices go up.
$$$ $

29. Inflation Rate
An economic statistic that tracks the increase in prices of goods and services over a period of time; usually calculated on a monthly or annual basis
2012: 2.1%
2011: 3.1%
42nd in the world
Additional Resources
Some interesting links about deflation:
PBS: Food prices could signal deflation ahead
2:53
PBS: Japan Deflation
4:12
PBS Blog: The Rundown
Deflation: Inflation’s Evil Twin
©ILDOGESTO/SHUTTERSTOCK
Statistics from the CIA World Factbook

30. Unemployment Rate
The percentage of a nation’s labor force unemployed from January 2002
Additional Resources
Macroeconomics: Unemployment
2:51
Bureau of Labor Statistics, Data extracted on: September 26, 2012

31. Corporate Profits
The total amount of profits made by corporations over selected time periods

32. The Business Cycle Time Output (GDP) Peak Contraction Recovery Trough
Additional Resources
YouTube video
1:08 min
Explains with graph: peak, recession, trough, expansion and ends with the question of whether or not government should be involved in trying to “correct” the economy.
(part of a series on Economics:

33. Monetary Policies
Monetary Policies are Federal Reserve decisions that determine the size of the supply of money in the nation and the level of interest rates.
Should the Fed have the powers it has?
Is it wise to try to manipulate the business cycle?
Additional Resources
PBS: Federal Reserve Launches Aggressive Stimulus Program to Move Economy Forward
Federal Reserve chairman Ben Bernanke announced the Fed's third attempt to stimulate the economy by buying up mortgage-backed securities and bonds and keep borrowing rates low. Judy Woodruff talks to David Wessel, economics editor for The Wall Street Journal, to understand why the Fed chose this course of action.

34. Federal Deficit and National Debt
The Federal Deficit is a shortfall created when the federal government spends more in a fiscal year than it receives.
The National Debt is the total amount the federal government owes.
Federal DEFICIT for FY 2013 (estimated)
$973,000,000,000
National DEBT as of Oct 2013
$16,738,158,460,000
Source of deficit figure:
Source of publicly held debt figure:

35. Competition
Competition is rivalry among businesses for sales to potential customers. In a capitalistic society, competition ensures only businesses that provide consumers with useful products and services at fair prices will survive.

36. Perfect Competition Conditions for Perfect Competition
A single product is involved.
There are no restrictions on firms entering the industry.
All sellers offer basically the same product.
All buyers and sellers know everything there is to know about the market.
The overall market is not affected by the actions of any one buyer or seller. The going price is set by forces of supply and demand.

37. Supply Curve and Demand Curve
FIGURE 1-7

38. Monopolistic Competition
Conditions of Monopolistic Competition
There are many buyers and a large number of sellers.
Products are similar in nature and intended to satisfy the same need.
Sellers try to gain a competitive edge through product differentiation – unique features, attention-getting brand name, unique packaging, special services.

39. Oligopoly Conditions of Oligopoly There are few, large sellers.
Considerable investment is required to enter market.
Market actions of each seller have a considerable effect on competitors’ sales and prices.

40. Monopoly Conditions of Monopoly
One seller and no close substitute for the product or service sold
Barriers to keep others from entering the market
Seller must set its price based on the demand

41. Early Business Development
Barter System
© DIANA TALLIUN/SHUTTERSTOCK
© AFRICA STUDIO/SHUTTERSTOCK
Goods and services are directly exchanged.

42. Early Business Development
Domestic System
© MEXRIX/SHUTTERSTOCK
© LOSEVSKY PHOTO AND VIDEO/SHUTTERSTOCK
© NOPPHARAT/SHUTTERSTOCK
Entrepreneur distributes raw materials to homes.
Families process materials into a finished good.
Entrepreneur sells finished goods.

43. Early Business Development
Factory System
All the materials, machinery, and workers required to manufacture a product are assembled in one place.

44. Early Business Development
Specialization
The separation of a manufacturing process into distinct tasks and the assignment of the different tasks to different individuals

45. Business Development in the 1900s
Rapid growth of industries
1929 Stock Market Crash
Government intervention was necessary to get the economy moving again.
© DENIS BARBULAT/SHUTTERSTOCK
© STEVE BROER/SHUTTERSTOCK

46. Business Development in the 1900s
Prosperity and higher standards of living in the 1950s and 1960s
Oil shortages and higher prices in the 1980s
© JAMES STEIDL/SHUTTERSTOCK
© PATRICIA MARROQUIN/SHUTTERSTOCK
© CHRISTOPHER ELWELL/SHUTTERSTOCK
© RETROCLIPART/SHUTTERSTOCK

47. Business Development in the 1900s
e-Business
The organized effort of individuals to produce and sell through the Internet, for a profit, products and services that satisfy society’s needs

48. American Business Today
A New Century: 2000 and Beyond
Technology becomes more affordable.
Growth of the service economy - economy in which more effort is devoted to the production of services than to the production of goods