Notesale: Turn your study into money

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Exploring the
World of
Business and
Economics

Learning Objectives
①  Discuss what you must do to be successful in the world of
business
...

③  Define economics and describe two types of economic
systems: capitalism and command economy
...


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⑤  Examine the different phases in the typical business cycle
⑥  Outline the four types of competition
...


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...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part
...
 All  Rights  Reserved
...
 

Your Future in the Changing
World of Business

Introduction
§  Free enterprise
•  Individuals are free to decide what to
produce, how to produce it, and at what
price to sell it

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Why Study Business? (cont’d)
§ 
§ 
§ 
§ 
§ 

What Is 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

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Types of Economic Systems

§  Profit is what remains after all business
expenses have been deducted from sales
revenue
...

FIGURE 1-3

§  Economics
•  The study of how wealth (anything of value) is
created and distributed

§  Microeconomics
•  The study of the decisions made by individuals
and businesses

§  Macroeconomics
•  The study of the national economy and the
global economy

§  Economy
•  The system through which a society creates
and distributes wealth
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2

Types of Economic Systems (cont’d)

Types of Economic Systems (cont’d)

§  Factors of production
•  Land and natural resources
•  Labor
•  Capital
•  Entrepreneurship

§  Differences in economic systems
•  How they answer the four basic economic
questions
-  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?

§  Entrepreneur
•  A person who risks time, effort, and money
to start and operate a business

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...


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Basic Assumptions for Adam Smith’s
Laissez-Faire Capitalism

Types of Economic Systems (cont’d)
§  Capitalism

FIGURE 1-4

•  An economic system in which individuals own and operate the
majority of businesses that provide goods and services
•  Derived from Adam Smith’s laissez-faire capitalism in which a
society’s best interests are served by individuals pursuing
their own self-interest
-  Creation of wealth is the concern of private individuals
-  Resources used to create wealth must be privately owned
-  Economic freedom ensures the existence of a free market
economy
-  Businesses and individuals decide what to produce and buy; the
market determines quantities sold and prices

-  Limited role of government

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3

Types of Economic Systems (cont’d)

The Circular Flow in Our Mixed Economy
FIGURE 1-5

§  Capitalism in the United States
•  Mixed economy with elements of capitalism and socialism
•  Households
-  Consumers of goods and services
-  Resource owners of some factors of production

•  Businesses
-  Produce goods and services to exchange for revenues (money)
-  Use revenues to purchase factors of production

•  Governments
-  In exchange for taxes, governments provide public services that
would not be provided by business or would be produced only for
those who could afford them

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•  Socialism
-  Key industries (e
...
, transportation, utilities, and banking) are
owned and controlled by the government
-  Small-scale private businesses may be permitted and workers
may choose their own occupations
-  Production is based on national goals, and distribution is
controlled by the state
-  Intent is the equitable distribution of income, elimination of
poverty, social services to all who need them, elimination of the
economic waste of capitalistic competition
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-  A general decrease in the level of prices

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Common Measures Used to Evaluate
a Nation’s Economic Health

Measuring Economic Performance (cont’d)
§  Economic indicators (cont’d)
•  Unemployment rate

§  Balance of trade
•  The total value of a nation’s exports minus
the total value of its imports over a specific
period of time

-  The percentage of a nation’s labor force
unemployed at any time

•  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

§  Bank credit
•  A statistic that measures the lending activity
of commercial financial institutions
§  Corporate profits
•  The total amount of profits made by
corporations over selected time periods

•  Producer price index (PPI)
-  An index that measures prices that producers
receive for their finished goods
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The Business Cycle

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The Business Cycle (cont’d)

§  The recurrence of periods of growth and
recession in a nation’s economic activity
•  Recession

§  Fiscal policy

-  Two or more consecutive three-month periods of
decline in a country’s gross domestic product

•  Government influence on the amount of
savings and expenditures; accomplished by
altering the tax structure and by changing the
levels of government spending

§  Federal deficit

•  Depression

•  A shortfall created when the federal government
spends more in a fiscal year than it receives

-  A severe recession that lasts longer than a
recession

•  Monetary policies

§  National debt

-  Federal Reserve decisions that determine the size
of the supply of money in the nation and the level
of interest rates
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•  The total of all federal deficits

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Types of Competition (cont’d)

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Types of Competition (cont’d)

§  Monopolistic competition
•  A market situation where there are many
buyers along with a relatively larger number
of sellers who differentiate their products
from the products of competitors

§  Oligopoly
•  A market situation (or industry) in which there are
few sellers
-  E
...
, automobile manufacturers, car rental agencies,
and farm implement industries

•  Sizable investments are required to enter into
the market

•  Product differentiation

•  Each seller has considerable control over price

-  The process of developing and promoting
differences between one’s products and all
similar products

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•  The market actions of one seller can have a strong
effect on competitors

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•  A loose, subjective measure of how well off an
individual or a society is mainly in terms of want
satisfaction through goods and services

•  Domestic system
-  A method of manufacturing in which an entrepreneur
distributes raw materials to various homes, where families
process them into finished goods to be offered for sale by
the merchant entrepreneur
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American Business Today (cont’d)

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American Business Today (cont’d)

•  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-became an accepted method of conducting
business
•  In the last part of the 1900s, a large number of
business failures and declining stock values
suggested larger economic problems to come

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Copyright ©2014 Cengage Learning
...
May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part

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