1. Exploring the World of Business and Economics
Chapter 1
Exploring the World of Business and Economics

2. Learning Objectives Discuss your future in the world of business.
Define business and identify potential risks and rewards.
Define economics and describe the two types of economic systems: capitalism and command economy.
Identify the ways to measure economic performance.
Examine the four different phases in the typical business cycle.
Outline the four types of competition.
Summarize the factors that affect the business environment and the challenges American businesses will encounter in the future.

3. 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. “ “

4. Your Future in the Changing World of Business
What do you want?
Why do you want it?
Write it down!
“Success is a journey,
not just a destination.”
Joe Dudley

5. Why Study Business? To choose a career To be a successful employee
To start your own business
To become a better-informed consumer and investor
Here are some
interesting sites:

6. Median Yearly Income Who Makes the Most Money?
Source: 2009 Statistical Abstract of the United States, p. 443

7. Cultural (Workplace) Diversity
…differences among people in a workforce owing to race, ethnicity, and gender. “ “

8. Text Features Learning Objectives Inside Business Margin Notes
Boxed Features
Spotlight
End-of-Chapter Materials

9. Pathway to Success in This Course
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.

10. Business
…the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs. “ “

11. Figure 1.1: Combining Resources
A business must combine all four resources effectively to be successful.

12. Ultimate Objective of Every Firm“
…to satisfy the needs of its customers. “

13. Business Profit Sales Revenue - Business Expenses Profit (Loss)*
*Profit becomes property of its owners

14. Stakeholders
…all the different people or groups of people who are affected by the policies, decisions, and activities made by an organization. “

15. Business Ownership Risks
Not being paid
Loss of whatever is invested in the business

16. 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

17. …the study of how wealth* is created and distributed.**
Economics “
…the study of how wealth* is created and distributed.** “
* wealth is “anything of value, including products produced and sold by business”
**distribution is “who gets what”

18. Economy
…the way in which people deal with the creation and distribution of wealth. “

19. Economic Perspectives
Microeconomics The study of decisions made by
Individuals
Businesses
Macroeconomics The study of
National economy
Global economy

20. …resources used to produce goods and services.
Factors of Production “ “
…resources used to produce goods and services.
Land/natural resources
Labor
Capital
Entrepreneurship

21. Types of Economic Systems
Capitalism
Free Enterprise
Adam Smith (Wealth of Nations)
The Invisible Hand
Laissez-Faire Capitalism
Command
Socialism
Communism (Karl Marx)

22. Economic Systems Differ
Economic systems differ depending on the answers to four basic economic questions about nation’s economic activity
What and how much will be produced?
How will it be produced?
For whom will it be produced?
Who owns/controls factors of production?

23. Capitalism
…individuals own and operate the majority of businesses that provide goods and services. “

24. Adam Smith Wealth of Nations (1776)
Society pursues self-interest
People work hard if
Earn more pay
Earn more profit
Capitalism promotes good of community

25. Invisible Hand
...describes how an individual’s own personal gain benefits others and a nation’s economy. “

26. Figure 1.3: Assumptions for Laissez-Faire Capitalism

27. …an economy that exhibits elements of both capitalism and socialism.
U.S. = Mixed Economy
…an economy that exhibits elements of both capitalism and socialism. “

28. Figure 1.4: Circular Flow in Mixed Economy

29. Command Economy
…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. “

30. Command Economies
Socialism
Communism

31. Socialism Key industries owned/controlled by government
Land, buildings, and raw materials may be property of state
Private ownership permitted to varying degrees
People choose own occupations
National goals determine what/how produced
Uses taxes, rents, and wages to control distribution

32. Communism Karl Marx ─ Father Examples ─ North Korea, China
Advocated classless society
Citizens own all economic resources
Workers contribute based on ability and receive benefits based on need
Examples ─ North Korea, China
Centralized planning ─ sets prices and wages
Emphasis on government needs ─ not consumers
No job choice ─ professionals better off than factory workers

33. Measuring Economic Performance
Economic Indicators
Balance of Trade
Corporate Profits
Inflation Rate
National Income
New Housing Starts
Prime Interest Rate
Productivity Rate
Unemployment Rate

34. Consumer Price Index for All Urban Consumers (CPI-U)
(1982–84=100, unless otherwise noted)
U.S. Department of Labor, Bureau of Labor Statistics, Inflation & Prices, All Urban Consumers, , Table 24. Historical Consumer Price Index for All Urban Consumers (CPI-U): U. S. city average, accessed July 2009.

35. …the average level of output per worker per hour.
Productivity
…the average level of output per worker per hour. “ “

36. Results of Increased Productivity
Owners make more profit and/or sell products for less
Can lead to higher unemployment

37. Figure 1.5: GDP in Current Dollars and in Inflation-Adjusted Dollars
Source: U.S. Bureau of Economic Analysis website at accessed September 14, 2008

38. Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health
Balance of trade
The total value of a nation’s exports minus the total value of its imports over a specific period of time
Corporate profits
The total amount of profits made by corporations over selected time periods
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
(cont.)

39. Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health (cont.)
National income
The total income earned by various segments of the population, including employees, self-employed individuals, corporations, and other types of income
New housing starts
The total number of new homes started during a specific time period
Prime interest rate
The lowest interest rate that banks charge their most credit-worthy customers
(cont.)

40. Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health (cont.)
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

41. Business Cycle
…the recurrence of periods of growth and recession in a nation’s economic activity. “ “

42. States of Business Cycle
Dow Jones
Peak
Peak
Recovery
Recession
Recession
Depression
Depression
Trough 1 2 3 4 5 6 7 8 9 10 11
Quarters

43. Government Actions in Recession/Depression
Monetary Policy Determines size of money supply and interest rates
Fiscal Policy Influences amount of savings and expenditures by altering tax structure and government spending

44. Federal Deficit
…a shortfall created when the federal government spends more in a fiscal year than it receives. “

45. Figure 1.6: Supply Curve and Demand Curve

46. Table 1.3: Four Different Types of Competition
The number of firms determines the degree of competition within an industry.

47. Product Differentiation
…the process of developing and promoting differences between one’s products and all similar products. “

48. Standard of Living
…a loose subjective measure of how well off an individual or a society is mainly in terms of want satisfaction through goods and services. “

49. Figure 1.7: Time Line of American Business

50. Environments of Business
Competitive
Technological
Business
Global
Economic

51. The Challenges Ahead
How can we create a more stable economy and create new jobs?
How can we restore the public’s confidence in the banking and financial industries?
How can we regulate banks, savings and loan associations, credit unions, and other financial institutions to prevent the type of abuses that led to an economic crisis?
How can we encourage Iraq and Afghanistan to establish a democratic and free society and resolve possible conflict with North Korea and other countries throughout the world?
(cont.)

52. The Challenges Ahead (cont.)
How can we meet the challenges of managing culturally diverse workforces to address the needs of a culturally diverse marketplace?
How can we make American firms more productive and more competitive with foreign firms that have lower labor costs?
How can we preserve the benefits of competition and small businesses in our American economic system?
How can we encourage economic growth and at the same time continue to conserve natural resources and sustain our environment?
(cont.)

53. The Challenges Ahead (cont.)
How can we meet the needs of two-income families, single parents, older Americans, and the less fortunate who need health care and social programs to exist?

54. Chapter Quiz General Motors and Toyota are both examples of
marketing intermediaries.
manufacturers.
wholesalers.
international agents.
service businesses.

55. Chapter Quiz (cont.)
What remains after all business expenses have been deducted from sales revenues is referred to as
cash.
excess return.
profit.
gross return.
operating revenue.

56. Chapter Quiz (cont.)
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
gross manufacturing output.
gross domestic product.
real gross national product.
economic product.
national production report.

57. Chapter Quiz (cont.)
__________ is an economic system in which individuals own and operate the majority of businesses that provide goods and services.
Bureaucratic economy
Command economy
Communism
Capitalism
Socialism

58. Chapter Quiz (cont.)
__________ is a loose subjective measure of how well off an individual or society is.
Standard of living
Consumer price index
Personal economic index
Individual consumption standard
Employee producer index