Chapter 1. Exploring the World of Business and Economics
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1 Chapter 1 Exploring the World of Business and Economics
2 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. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 2
3 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 Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 3
4 Cultural (Workplace) Diversity differences among people in a workforce owing to race, ethnicity, and gender. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 4
5 Business the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society s needs. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 5
6 Figure 1.1: Combining Resources A business must combine all four resources effectively to be successful. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 6
7 Ultimate Objective of Every Firm to satisfy the needs of its customers. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 7
8 Business Profit Sales Revenue - Business Expenses Profit (Loss)* *Profit becomes property of its owners Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 8
9 Stakeholders all the different people or groups of people who are affected by the policies, decisions, and activities made by an organization. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 9
10 Business Ownership Risks Not being paid Loss of whatever is invested in the business Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 10
11 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 Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 11
12 Economy the way in which people deal with the creation and distribution of wealth. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 12
13 Economic Perspectives Microeconomics The study of decisions made by Individuals Businesses Macroeconomics The study of National economy Global economy Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 13
14 Factors of Production resources used to produce goods and services. Land/natural resources Labor Capital Entrepreneurship Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 14
15 Types of Economic Systems Capitalistic Economy Command Economy Mixed Economy Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 15
16 To figure out which system you have, ask these 4 questions: 1. What and how much will be produced? 2. How will it be produced? 3. For whom will it be produced? 4. Who owns/controls factors of production? Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 16
17 Capitalism Free Enterprise Adam Smith (Wealth of Nations) The Invisible Hand Laissez-Faire Capitalism-it s French for, Let them do. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 17
18 Capitalism individuals own and operate the majority of businesses that provide goods and services. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 18
19 Adam Smith Wealth of Nations (1776) Things work best if: Society pursues self-interest People will work hard if Earn more pay Earn more profit Capitalism promotes good of community (the invisible hand ) Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 19
20 Figure 1.3: Assumptions for Laissez-Faire Capitalism Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 20
21 Invisible Hand...describes how an individual s own personal gain benefits others and a nation s economy. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 21
22 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. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 22
23 U.S. = Mixed Economy an economy that exhibits elements of both capitalism and socialism. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 23
24 Figure 1.6: Supply Curve and Demand Curve Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 24
25 Measuring Economic Performance Economic Indicators Balance of Trade Corporate Profits Inflation Rate National Income New Housing Starts Prime Interest Rate Productivity Rate Unemployment Rate Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 25
26 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.) Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 26
27 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.) Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 27
28 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 Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 28
29 Productivity the average level of output per worker per hour. We always want this to go up! Because it shows how efficient we are. But does that efficiency always benefit everyone? Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 29
30 Results of Increased Productivity 1. Owners make more profit and/or sell products for less 2. Can lead to higher unemployment Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 30
31 Gross Domestic Product (GDP) Source: U.S. Bureau of Economic Analysis website at accessed September 14, 2008 Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 31
32 Federal Deficit a shortfall created when the federal government spends more in a fiscal year than it receives. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 32
33 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 Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 33
34 Business Cycle the recurrence of periods of growth and recession in a nation s economic activity. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 34
35 States of Business Cycle Peak Dow Jones Peak Recovery Recession Recession Depression Depression Trough Quarters Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 35
36 Table 1.3: Four Different Types of Competition The number of firms determines the degree of competition within an industry. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 36
37 Product Differentiation the process of developing and promoting differences between one s products and all similar products. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 37
38 Figure 1.7: Time Line of American Business Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 38
39 Environments of Business Competitive Technological Business Global Economic Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 39
40 Chapter Quiz 1. General Motors and Toyota are both examples of a) marketing intermediaries. b) manufacturers. c) wholesalers. d) international agents. e) service businesses. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 40
41 Chapter Quiz (cont.) 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. c) real gross national product. d) economic product. e) national production report. Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 41
42 Chapter Quiz (cont.) 5. is a loose subjective measure of how well off an individual or society is. a) Standard of living b) Consumer price index c) Personal economic index d) Individual consumption standard e) Employee producer index Copyright Cengage Learning. All rights reserved. Chapter 1 Slide 42
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