bus 1000 - exam 1 study notes

Business 1000 – Exam 1 Review – Chapters 1-4 (Understanding Business, Nickels)Prof Lee – Fall 2011

Chapter 1

Business – any activity that seeks to provide goods and services to others while operating at a profit.

Profit – the amount of money a business earns above and beyond what it spends for salaries and other expensesProfit = Net Income = Revenue – Expenses

Entrepreneur – a person who risks time and money to start and manage a business

Revenue – the total amount of money a business takes in during a given period by selling goods and services

Loss – when a business’s expenses are more than its revenue

Risk – The chance an entrepreneur takes of losing time and money on a business that may not prove profitable

Standard of Living – the amount of goods and services people can buy with the money they have.

Quality of Life – the general well-being of a society on terms of political freedom, a clean natural environment, education, healthcare, safety, free time, and everything else that leads to satisfaction and joy.

Stakeholders – all the people who stand to gain or lose by the policies and activities of a business.

Outsourcing – assigning various functions, such as accounting, production, security, maintenance, and legal work, to outside organizations.

Nonprofit Organization – an organization whose goals do not include making a personal profit for its owners or organizers.

Five Factors of Production – the resources used to create wealth: 1. Land – land and other natural resources are used to make homes, cares, and

other products 2. Labor – people have always been an important resource in producing goods

and services, but many are now being replaced by technology3. Capital – capital includes machines, tools, buildings, and other means of

manufacturing4. Entrepreneurship – all the resources in the world have little value unless

entrepreneurs are willing to take the risk of starting businesses to use those resources


5. Knowledge – information technology has revolutionized business, making it possible to quickly determine wants and needs and to respond with desired goods and services.

Business Environment – the surrounding factors that either help or hinder the development of businesses.

Business Growth and Job Creation:1) The economic and legal environment

a) Freedom of ownershipb) Contract lawsc) Elimination of corruptiond) Tradable currencye) Minimum taxes and regulation

2) The technological environmenta) Information technologyb) Databasesc) Bar codesd) The internet

3) The competitive environmenta) Customer serviceb) Stakeholder recognitionc) Employee serviced) Concern for the environment

4) The social environmenta) Diversityb) Demographic changesc) Family changes

Technology – everything from phones and copiers to computers, medical imaging devices, personal digital assistants, and the various software programs that make business processes more efficient and productive.

Productivity – the amount of output you generate given the amount of input

E-Commerce – the buying and selling of goods and services of goods and services over the internet

Databases - an electronic storage file where information is kept; one use of databases is to store vast amounts of information about consumers

Identity Theft – the obtaining of private information about a person, such as Social Security number and/or credit card number, and using that information for illegal purposes, such as buying things with it.

Empowerment – giving frontline workers the responsibility, authority, and freedom to respond quickly to consumer requests


Demography – the statistical study of the human population with regard to its size, density, and other characteristics such as age, race, gender, and income.

Goods – tangible products such as computers, food, clothing, cars, and appliances.

Services – intangible products such as education, health care, insurance, recreation, and travel and tourism.

Review Chapter 1 Questions on http://highered.mcgraw-hill.com/sites/0073511706/student_view0/chapter1/chapter_quiz.html

http://highered.mcgraw-hill.com/sites/0073511706/student_view0/chapter1/chapter_quiz.html


Chapter 2

Economics – the study of how society chooses to employ resources to produce goods and services and distribute them for consumption among various competing groups and individuals. Known as the “dismal science”.

Macroeconomics – the part of economics that looks at the operation of a nation’s economy as a whole.

Microeconomics – the part of economics that looks at the behavior of people and organizations in particular markets.

Resource Development – the study of how to increase resources and to create the conditions that will make better use of those resources.

Invisible Hand – a phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic benefits for all.

Capitalism – an economic system in which all or most of the factors of production and distribution are privately owned and operated for profit.

Foundations of Capitalism: the right to …1. … private property2. … own a business and to keep all of that business’s profits3. … freedom of competition4. … freedom of choice

Supply – the quantity of products that manufacturers or owners are willing to sell at a specific time.

Demand – the quantity of products that people are willing to buy at different prices at a specific time.

Equilibrium Point/Price – where the supply and demand curves meet on the graph in terms of quantity and price.

Market Price – the price determined by supply and demand. Another term for Equilibrium Point.

Perfect Competition – the market situation in which there are many sellers in a market and no seller is large enough to dictate the price of a product.

Monopolistic Competition – the market situation in which a large number of sellers produce products that are very similar but that are perceived by buyers as different.

Oligopoly – a form of competition in which just a few sellers dominate the market.


Monopoly – a market in which there is only one seller for a product or service.

Socialism – an economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be evenly distributed among the people.

Brain Drain – the loss of the best and brightest people to other countries.

Communism – an economic and political system in which the state (the government) makes almost all economic decisions and owns almost all the major factors of production.

Free-Market Economics – economic systems in which the market largely determines what goods and services get produced, who gets them, and how an economy grows.

Command Economies – economic systems in which the government largely decides what goods and services will be produced, who will get them, and how the economy will grow.

Mixed Economies – economic systems in which some allocation of resources is made by the market and some by the government. This is where US lies.

Gross Domestic Product (GDP) – the total value of final goods and services produced in a country in a given year.

Unemployment Rate – the number of civilians at least 16 years of age who are unemployed and tried to find a employment within the prior four weeks.

Inflation – a general rise in the prices of goods and services over time.

Disinflation – a situation in which price increases are slowing (the inflation rate is declining).

Deflation – a situation in which prices are declining.

Types of Unemployment:1) Frictional Unemployment - unemployment figures for people who have

finished one job and are waiting to start another2) Structural Unemployment - unemployment that is caused by a broad

restructuring of the division of labor rather than by any seasonal economic fluctuation or cycle

3) Cyclical Unemployment - the fluctuation in the level of unemployment that coincides with a business cycle

4) Seasonal Unemployment - available or employed only during one season or at specific times of the year


Consumer Price Index (CPI) – Monthly statistics that measure the pace of inflation or deflation.

Producer Price Index (PPI) – an index that measures prices at the wholesale level.

Business Cycles – the periodic rises and falls that occur in all economies over time.

Recession – two or more consecutive quarters of decline in the GDP

Depression – a severe recession.

Fiscal Policy – the federal government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending.

National Debt – the sum of government deficits over time.

Monetary Policy – the management of the money supply and interest rates.

Federal Reserve System – is the central banking system of the United States. Its duties today are to:1) conduct the nation's monetary policy 2) supervise and regulate banking institutions 3) maintain the stability of the financial system 4) provide financial services to depository institutions, the U.S. government, and

foreign official institutions.5) as a semi-private organization not under the direct control of the government

Chairman of the Fed:Ben Bernanke

Secretary of the TreasuryTimothy Geithner




Chapter 3

Importing – buying products from another country

Exporting – selling products to another country

Free Trade – the movement of goods and services among nations without political or economic barriers.

Comparative Advantage Theory – theory that states that a country should sell to other countries those products that it produces most effectively, and buy from other countries those products that it cannot produce as effectively or efficiently.

Absolute Advantage – the advantage that exists when a country has a monopoly on producing a specific product or is able to produce it more efficiently than all other countries.

Balance of Trade – the total value of a nation’s exports compared to its imports measured over a period of time.

Trade Deficit – an unfavorable balance of trade; occurs when the value of a country’s imports exceed that of its imports.

Balance of Payments – the difference between money coming into a country (from exports) and money leaving the country (for imports) plus money flows from other factors such as tourism, foreign aid, military expenditures, and foreign investment.

Dumping – Selling products in a foreign country as lower prices than those charged in the producing country.

Top Importing Countries1) US2) China3) Germany4) Japan

Top Exporting Countries1) China2) Germany3) US4) Japan

Licensing – a global strategy in which a firm (the licensor) allows a foreign company (the licensee) to produce its product in exchange for a fee (a royalty).

Contract Manufacturing – a foreign country’s production of private-label goods to which a domestic company than attaches its brand name.

Joint Venture – a partnership in which two or more companies (often from different countries) join to undertake a major project.

Strategic Alliance - a long-term partnership between two or more companies established to help each company build competitive market advantages.

Foreign Direct Investment – the buying or permanent property and businesses in foreign nations.


Foreign Subsidiary – a company owned in a foreign country by another company (called the parent company)

Multinational Corporation – an organization that manufactures and markets products in many different countries and has multinational stock ownership and multinational managements.

Exchange Rate - the value of one nation’s currency relative to the currencies of other countries.

Devaluation – lowering the value of a nation’s currency relative to other countries.

Countertrading – a complex form of bartering in which several countries may be involved, each trading goods for goods or services for services.

Trade Protectionism – the use of government regulations to limit the import of goods and services.

Tariff – a tax imposed on imports.

Import Quota – a limit on the number of products in certain categories that a nation can import.

Embargo – a complete ban on the import or export of a certain product or stopping all trade with a particular country.

General Agreement on Tariffs and Trade (GATT) – a 1948 agreement that established an international forum for negotiating mutual reductions in trade restrictions.

World Trade Organization (WTO) – the international organization that replaced the GATT, and was assigned the duty to mediate trade disputes among nations.

Common Market – a regional group of countries that have a common tariff, no internal tariffs, and a coordination of laws to facilitate exchange; also called a trading bloc. An example is the EU.

North American Free Trade Agreement (NAFTA) – agreement that created a free-trade area among the United States, Canada, and Mexico.




Chapter 4

Ethics – standards of moral behavior; that is, behavior that is accepted by society as right versus wrong.

Compliance-Based Ethics Codes – ethical standards that emphasize preventing unlawful behavior by increasing control and by penalizing wrongdoers.

Integrity-Based Ethics Codes – ethical standards that define the organization’s guiding values, create an environment that supports ethically sound behavior, and stress a shared accountability among employees.

Whistleblowers – people who report illegal or unethical behavior.

Corporate Social Responsibility – a business’s concern for the welfare of society.

Corporate Philanthropy – dimension of social responsibility that includes charitable donations.

Corporate Social Initiatives – enhanced forms of corporate philanthropy that are more directly related to the company’s competencies.

Corporate Responsibility – dimension of social responsibility that includes everything from hiring minority workers to making safe products.

Corporate Policy – dimension of social responsibility that refers to the position a firm takes on social and political issues.

Insider Trading – an unethical activity in which insiders use private company information to further their own fortunes or those of their family and friends.

Social Auditing – a systematic evaluation of an organization’s progress toward implementing programs that are socially responsible and responsive.



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