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CHAPTER 1

Understanding The Contemporary Business Environment

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The Meaning of Business

Business: Organization that provides goods or services that are then sold to earn profits.

Profits: The difference between a business's revenues and expenses – is what encourages people to open and expand businesses.

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The Evolution of Business

Industrial Revolution: in the middle of the eighteenth century - change in production characterized by a shift to the factory system, mass production, and the specialization of labor.- The factory system reduced duplication of equipment and allowed firms to buy raw materials at better prices by buying in large lots.

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The Evolution of Business Entrepreneurial Era: Starting/Opening

up of businesses due to improvements in transportation and the liberalization of markets.

Production Era: Period during the early 20th century in which business focused primarily on improving productivity and manufacturing efficiency.

Marketing Era: After World War II, idea that a business must focus on identifying and satisfying consumer wants in order to be profitable.

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The Evolution of Business

The Global Era: Continuation of technological advances in production, computer technology, information systems, and communications capabilities enable businesses to expand into foreign markets.

The Information Era: Characterized mostly by the internet – expanded rapidly after 2005.

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Factors of Production

Labor: Physical and mental capabilities of people as they contribute to economic production.

Capital: Funds needed to create and operate a business enterprise.

Entrepreneur: is an individual who accepts the risks and opportunities entailed in creating and operating a new business

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Factors of Production

Physical resources: Tangible items organizations use in the conduct of their businesses; include natural resources, raw materials offices, production facilities, computers etc.

Information Resources: Data and other information used by businesses.

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The Economics of a Market System

Market: Mechanism for exchange between buyers and sellers of a particular good or service.

Demand: The willingness and ability of buyers to purchase a good or a service.

Supply: The willingness and ability of producers to offer a good or a service for sale.

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The Economics of a Market System Law of Demand: Principle that buyers will

purchase (demand) more of a product as its price drops and less as its price increases.

Law of Supply: Principle that producers will offer (supply) more of product for sale as its price rises and less as its price drops.

Surplus: Situation in which quantity supplied exceeds quantity demanded.

Shortage: Situation in which quantity demanded exceeds quantity supplied.

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The Economics of a Market System Private Enterprise system: one that

allows individuals to pursue their own interests with minimal government restriction.

Competition: occurs when two or more businesses vie for the same resources or customers.

Perfect Competition: Market or Industry characterized by numerous small firms producing an identical product.

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The Economics of a Market System Monopolistic Competition: Market or

Industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors.

Oligopoly: Market or Industry characterized by a generally large sellers with the power to influence the prices of their products.

Monopoly: Market or Industry, in which there is only one producer, which can therefore set the prices of its products.