Understanding Economic Systems and Business

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Oct 28, 2013 (3 years and 7 months ago)

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Understanding

Economic

Systems and

Business



CHAPTER 1

The

Future
of

Business

The Essentials 4
th

Edition

Gitman & McDaniel


Prepared by

Deborah Baker


© Yashuhide Fumoto/Getty Images

Chapter 1

Copyright ©2009 by South
-
Western, a division of Cengage Learning. All rights reserved

2

Learning Goals



CHAPTER 1

1

How do businesses and not
-
for
-
profit organizations
help create our standard of living?


2

What are the sectors of the business environment, and
how do changes in them influence business decisions?


3

What are the primary features of the world’s economic
systems, and how are the three sectors of the U.S.
economy linked?


4

How do economic growth, full employment, price
stability, and inflation indicate a nation’s economic
health?


3

Learning Goals
(continued)



CHAPTER 1

5

How does the government use monetary policy and
fiscal policy to achieve its macroeconomic goals?


6
What are the basic microeconomic concepts of demand
and supply, and how do they establish prices?


7
What are the four types of market structure?


8
Which trends are reshaping the business, micro
-
, and
macroeconomic environments and competitive arena?


4

Goods and services

that are the basis of our

standard of living

Jobs, goods and

services that help

determine our quality of life

The Nature of Business

1

A business is an organization

that strives for a profit by

providing goods and services

desired by its customers.

Businesses provide…


© AP Images / Paul Sakuma

5

The Nature of Business

standard of living


A country’s output of goods and services that
people can buy with the money they have.



1

6

The Nature of Business

quality of life


The general level of human happiness based on
such things as life expectancy, educational
standards, health, sanitation, and leisure time.



1

7

The Nature of Business

Revenue

less

Costs

Profit

equals

The money a company

earns from providing services

or selling goods to customers.

Expenses that a company

incurs from creating and

selling goods and services.

The money left over after

all expenses are paid.

1

8

Not
-
for
-
Profit Organizations


Government

is the largest

not
-
for
-
profit group.

Not
-
for
-
profit

organizations

account for more

than 28% of

economic activity

In the U.S.

A not
-
for
-
profit organization

is an organization

that exists to achieve some

other goal than the

usual business goal of profit.

1

9

Not
-
for
-
Profit Organizations

Develop strategy

Measure performance

Improve productivity

Create budgets

Encourage innovation

Demonstrate accountability

1

10

1

Factors of Production

1.
Natural resources


2.
Labor


3.
Capital


4.
Entrepreneurship


5.
Knowledge

11

CONCEPT check

1

Explain the concepts of revenue, costs,

and profit.


What are the five factors of production?


What is the role of the entrepreneur in society?


12

Understanding the Business Environment

2

What are the sectors of the business

environment, and how do changes in them

influence business decisions?


2

13

External Environment

Economic


Political and legal


Demographic


Social


Competitive


Global


Technological

2

14

Economic Influences

2


Fluctuations in economic activity create
business cycles.



Government can impact the level of
economic activity through taxes and interest
rate levels.



Forces of supply and demand determine
how prices and quantities of goods and
services behave in a free market.


15

Political and Legal Influences

2


Amount of government activity



Types of laws passed



General political stability of government

16

Demographic Factors

demography


The study of people’s vital statistics, such as their
age, race and ethnicity, and location.



2

17

Demographic Factors

Gender

Race

Ethnicity

Location

Age

2

18

Demographic Factors

Generation Y

Generation X


Baby Boomers


Born between 1979
-
1997

Born between 1964
-
1977

Born between 1946
-
1964

2

19

Social Factors

Attitudes

Values

Lifestyles

2

20

Technology

technology


The application of science and engineering skills
and knowledge to solve production and
organizational problems.



2

21

CONCEPT check

Define the components of the internal and
external business environments.


What factors within the economic environment
affect businesses?


Why do demographic shifts and technological
developments create both challenges and new
opportunities for business?


2

22

How Business and Economics Work

3

What are the primary features of the world’s

economic system, and how are the three

sectors of the economy linked?


3

23

economics


Economics is the study of how a society uses
scarce resources to produce and distribute goods
and services.



3

How Business and Economics Work

24

Economic Concerns



What is produced?



How much is produced?



How is it produced?



For whom is it produced?

3

25

3

Global Economic Systems

Free Market / Capitalism

Mixed Economies

Planned Economies


Communism

Socialism

26


Differentiation among Economic Systems


Allocating limited resources


Choosing goods and services to produce


Determining how and by whom to produce goods


Distributing goods and services

Global Economic Systems

3

27

capitalism


An economic system based on competition in the
marketplace and private ownership of the factors
of production; also known as the private
enterprise system.





3

Global Economic Systems

28

communism


An economic system characterized by
government ownership of virtually all resources,
government control of all markets, and economic
decision
-
making by central
-
government planning.





3

Global Economic Systems

29

socialism


An economic system in which the basic industries
are owned either by the government itself or by
the private sector under strong government
control.




3

Global Economic Systems

30

mixed economies


Economies that combine several systems; for
example, an economy where the government
owns certain industries but others are owned by
the private sector.




3

Global Economic Systems

31

Macroeconomics and Microeconomics

macroeconomics

The subarea of economics that focuses on the
economy as a whole by looking at
aggregate

data for
large groups of people, companies or products.


microeconomics


The subarea of economics that focuses on individual
parts of the economy, such as households or firms.


3

32

CONCEPT check

What is economics, and how can you benefit from

Understanding basic economic concepts?


Compare and contrast the world’s major economic
systems. Why is capitalism growing, communism
declining, and socialism still popular?


What is the difference between macroeconomics
and microeconomics?



3

33

Understanding the Business Environment

4

How do economic growth, full employment,

and price stability indicate a nation’s

economic health?


4

34

economic growth


An increase in a nation’s output of goods and services.


The more a nation produces, the higher its standard

of living.




Economic Growth

4

35

gross domestic product



The total market value of final goods and services
produced within a nation’s borders each year.




Economic Growth

4

36

recession



A decline in GDP that lasts for at least two
consecutive quarters.




4

Business Cycles

37

full employment



The condition when all people who want to work
and can work have jobs.




4

Keeping People on the Job

38

unemployment rate



The percentage of the total labor force that is not
working but is actively looking for work.




4

Measuring Unemployment

39

4

Types of Unemployment

Frictional

Structural

Cyclical

Seasonal

Short
-
term unemployment that is not

related to the business cycle

Unemployment that is caused by a

mismatch between jobs and workers skills

Unemployment that occurs when a

downturn in the business cycle

reduces demand for labor

Unemployment that occurs during

specific seasons in certain industries

40

inflation



The situation in which the average of all prices of
goods and services is rising.





4

Keeping Prices Steady

41

4

Types of Inflation

Demand
-
Pull

Inflation

Cost
-
Push

Inflation

Demand for goods and services

is greater than the supply

Increases in production costs

push up prices

42

CONCEPT check

What is a business cycle? How do businesses

adapt to periods of contraction and expansion?


Why is full employment usually defined as a target
percentage below 100 percent?


What is the difference between demand
-
pull and

cost
-
push inflation?



4

43

Achieving Macroeconomic Goals

5

How does the government use

monetary policy and fiscal policy

to achieve its macroeconomic goals?


5

44

Federal Reserve System (the Fed)



The central banking system of the United States.





Monetary Policy

5

45

crowding out



The situation that occurs when government
spending replaces spending by the private sector.





Fiscal Policy

5

46

Fiscal Policy

5

Federal Budget

Deficit

National

Debt

The condition that occurs when the

federal government spends more for

programs than it collects in taxes.

The accumulated total of all of the

federal government’s annual budget

deficits.

47

A High National Debt

Cons:



Not everyone
holds the debt


Crowding out
private investment

Pros:


Contributes to:


Economic growth


High employment


Price stability

5

48

CONCEPT check

What are the two kinds of monetary policy?


What fiscal policy tools can the government use to
achieve its macroeconomic goals?


What problems can a large national debt present?



5

49

Microeconomics

6

What are the basic microeconomic concepts

of demand and supply, and how do they

establish prices?


6

50

demand



The quantity of a good or service that people are
willing to buy at various prices.





The Nature of Demand

6

51

supply



The quantity of a good or service that businesses
will make available at various prices.





The Nature of Supply

6

52

Factors Causing Demand and Supply Curve Shifts

6

Buyers’ incomes

Buyers’ preferences/tastes

Prices of substitute products

Expectations about future prices

Number of buyers


Technology

Resource prices

Changes in prices of other
products that can be produced
with the same resources

Number of suppliers

Taxes


Shift Demand

Shift Supply

Exhibit 1.9

53

CONCEPT check

What is the relationship between prices and demand
for a product?


How is market equilibrium achieved? Describe the
circumstances under which the price for gasoline
would have returned to equilibrium in the U.S. after
Hurricane Katrina.


Draw a graph that shows an equilibrium point for
supply and demand.


6

54

Competing in a Free Market

7

What are the four types of

market structure?

7

55

Monopolistic

Competition

Perfect

Competition

Pure

Monopoly

Oligopoly

Four Types of Market Structures

7

56

Perfect Competition

7


A large number of small firms are in the
market


The firms sell similar products


Buyers and sellers have good
information about prices, sources of
supply, etc.


It is easy to open a new business or
close an existing one

57

7

Pure Monopoly


A single firm accounts for all industry
sales


The firm is the industry


Barriers to entry prevent new firms

from competing with the existing firm


58

7

Monopolistic Competition


Many firms are in the market


The firms offer products that are close
substitutes but still differ


It is relatively easy to enter the market

59

7

Oligopoly


A few firms produce most or all of

the output


Large capital requirements or other
factors limit the number of firms

60

CONCEPT check

What is meant by market structure?


Compare and contrast perfect competition and
pure monopoly. Why is it rare to find perfect
competition?


How does an oligopoly differ from monopolistic
competition?



7

61

8

Which trends are reshaping the micro
-

and
macroeconomic environments and the
competitive arena?

8

Trends in the Business Environment and Competition

62

Not Over the Hill Yet


Baby boomers make up 42 percent of the workforce.



By 2010, 25 percent of all employments will be of
retirement age. Many will work beyond the traditional
retirement age of 65.



Today’s workforce spans four generations.



8

63

Not Over the Hill Yet

Challenges from the aging population include:



Health care



Financial services



Government



Society


8

64

relationship management



The practice of building, maintaining, and
enhancing interactions with customers to develop
long
-
term satisfaction through mutually beneficial
partnerships.



Includes:



Supply Chain Management



Relationship Marketing




8

Meeting Competitive Challenges

65

CONCEPT check

What steps can companies take to benefit from the
aging of its workers and to effectively manage a
multigenerational workforce?


Why is the increasing demand for energy worldwide
a cause for concern?


Describe several strategies that companies use to
remain competitive in the global economy.



8