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Part 1 Business in a

Changing World

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any

manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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Chapter Titles

CHAPTER 1 The Dynamics of Business and Economics

APPENDIX A Guidelines for the Development of the Business Plan

CHAPTER 2 Business Ethics and Social Responsibility

APPENDIX B The Legal and Regulatory Environment

CHAPTER 3 Business in a Borderless World

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.

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Learning Objectives LO 1-1 Define basic concepts such as business, product, and profit. LO 1-2 Identify the main participants and activities of business and

explain why studying business is important. LO 1-3 Define economics and compare the four types of economic

systems. LO 1-4 Describe the role of supply, demand, and competition in a

free enterprise system. LO 1-5 Specify why and how the health of the economy is

measured. LO 1-6 Trace the evolution of the American economy and discuss

the role of the entrepreneur in the economy. LO 1-7 Evaluate a small-business owner’s situation and propose a

course of action. © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,

duplicated, forwarded, distributed, or posted on a website, in whole or part.

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The Nature of Business

Business • Individuals or organizations who try to earn a

profit by providing products that satisfy people’s needs

Products • Goods or services with tangible and intangible

characteristics that provide satisfaction and benefits


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A Product Can Be…

Tangible Goods

• Automobile • Computer • Phone • Coat

Services

• Dry cleaning • Doctor’s

checkup • Basketball

game • Concert

Ideas

• Professionals generate ideas for solving problems


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The Goal of Business

The goal of business is to earn a profit $ The difference between what it costs to make and

sell a product and what a customer pays for it $10 sale – $8 to make = $2 profit

$ Earning profits contributes to society by providing employment, which in turn provides money that is reinvested in the economy

$ Profits must be earned in a responsible manner


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Nonprofit Organizations

Nonprofit Organizations

Provide goods and services

Do not share the purpose of earning

profits

Engage in management, marketing and

finance to reach goals


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To Earn a Profit

Profit

Management Skills

Marketing Expertise

Financial Resources

Abiding by the Law

Adapting to Change

Acting Ethically


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Stakeholders

~ Groups that have a stake in the success and outcomes of a business

~ Customers, employees, investors, government regulators, and community.

~ To achieve and maintain profitability, businesses must produce quality products, operate efficiently, and be socially responsible and ethical in dealing with stakeholders

Consumers are often willing to pay more for products

they perceive as environmentally-friendly


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Sprint’s Buyback Program

Concerns about landfills becoming high-tech graveyards plague many electronics firms

Sprint was the first wireless company to have a buyback program for customers to turn in their used mobile devices in exchange for up to $300 in credit Cleans and updates the device Sells them as refurbished phones at a lower cost

Reached developing markets because these devices are in high demand for an affordable price Unusable devices are sent to a 3rd party for recycling

The EPA has recognized the program as one of the best


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Overview of the Business World


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Management

Management is concerned with: o Acquiring o Developing o Using resources (including people) effectively and efficiently Managers

Plan

Organize

Staff

Control Tasks


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Marketing

The focus of all marketing activities is satisfying customers

Determine customer

needs

Plan and develop product

Determine distribution

Determine place

Determine promotion

Determine price


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Finance

The owner is primarily responsible for obtaining financial resources for the operation of the business, including: Obtaining money Using money effectively


Why Study Business?

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• Develop skills for career success

• Become a well-informed consumer and member of society

Business career opportunities: Marketing Human resources

management Information technology Finance Production and operations Wholesaling and retailing And more


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Bill Daniels

Bill Daniels founded Cablevision, building his first cable TV system in 1953 and is considered “the

father of cable television” He established a foundation that currently has funding

of $1.1 billion Supports diversity of causes from education to business

ethics Created Young Americans Bank for children to learn

about financial responsibility Remains the world’s only carter bank for young people

Created Daniels College of Business through donation of $20 million to University of Denver


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Economics

Economics

• The study of how resources are distributed for the production of goods and services within a social system

The Young Americans Bank in Denver is the only bank

in the world that lends money to individuals under

the age of 22 © 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,


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Economic Foundations of Business

Natural Resources • Land, forests, mineral, water, and other things not made by

people Human Resources – also called Labor

• The physical and mental abilities people use to produce goods and services

Financial Resources – also called Capital • The funds used to acquire the natural and human

resources needed to provide products Intangible Resources

• Such as a good reputation for quality products or being socially responsible


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Economic Systems

Economic System • A description of how a particular society distributes

its resources to produce goods and services

All economic systems must address these 3 important issues:

1. What goods and services, and how much of each, will satisfy consumers’ needs?

2. How will goods and services be produced, who will produce them, and with what resources will they be produced?

3. How are the goods and services to be distributed to consumers?


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Communism

• First described by Karl Marx as a society in which the people, without regard to class, own all the nation’s resources

• On paper it appears efficient, but in practice, these economies suffer from: • low standards of living • critical shortages of consumer goods • high prices • corruption and little freedom

Communism

C H I N A

C U B A


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Socialism

• An economic system in which the government owns and operates basic industries but individuals own most businesses

• Most socialist countries are democratic and recognize individual freedoms

• The socialist system may allow a higher standard of living and is more stable; but taxes and unemployment are generally higher in socialist countries

Socialism

S W E D E N

I S R A E L

I N D I A


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Capitalism

• An economic system in which individuals own and operate the majority of businesses that provide goods and services

• Pure capitalism or free-market system happens when all economic decisions are made without government intervention; also called laissez-faire capitalism

• Modified capitalism differs from pure capitalism in that the government intervenes and regulates business to some extent

Capitalism, or Free

Enterprise

C A N A D A

U S A

J A P A N


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Comparison of Communism, Socialism, and Capitalism


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Mixed Economies No country practices pure capitalism, socialism, or

communism

• Economies made up of elements from more than one economic system

• No country practices a pure form of any economic system, although most favor one system over others

Mixed Economies

China and Russia have used state capitalism to advance the economy, integrating the powers of the

state with the advantages of capitalism


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Modified Capitalism ► Modified capitalism differs from pure capitalism in that

the government intervenes and regulates business to some extent

► One way of regulating business is through laws

► Federal Trade Commission Act created the Federal Trade Commission

► Importance of government’s role in economy


Enforces antitrust laws and monitors businesses to ensure

fair competition

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The Free-Enterprise System

Many large economies are free-enterprise – including the U.S., Canada and Japan

Many communist and socialist countries apply free-enterprise principles – including China and Russia Free enterprise allows a company to succeed or fail on the basis of market demand


An entrepreneur presents his idea for a new product. Entrepreneurs are more productive in free-enterprise systems.

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Individual and Business Rights

Basic individual and business rights which must exist in order to motivate companies to succeed

► Right to own property ► Right to earn profits and use them as one wishes ► Right to determine business operations ► Right to choose Career to pursue Where to live or where to locate a business What goods/services to purchase and more


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The Forces of Supply and Demand

The number of products consumers are willing to buy at different prices at a

specific time

The number of products businesses are willing to sell at different prices at a

specific time Supply

Demand


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Equilibrium Price

Equilibrium price is the

price at which the number of products that

businesses are willing to

supply equals the amount of products that

consumers are willing to buy at a specific point

in time


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Supply and Demand

Critics of supply and demand say the system does not distribute resources equally

The forces prevent sellers who have to sell at higher prices and buyers who cannot afford to buy goods at the equilibrium price from participating in the market


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Marriott International

Competition should improve the quality of the goods and services available or reduce prices

Marriott International went from small root beer stand in 1927 to its current status of 3,900 high-quality hotels in 72 countries If treat employees well then they would provide good

service to customers Competing to attract younger travelers with: Reinvented lobbies with amenities Convenient ways to check in and out

Significantly expanding in Africa and Asia capitalizing on new market opportunities


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The Nature of Competition Competition is the rivalry among businesses for consumer’s dollars

Pure Competition

• The market structure that exists when there are many small businesses selling one standardized product

Monopolistic Competition

• Fewer businesses than in a pure competition and the differences among the goods they sell are small

Oligopoly

• The market structure that exists when there are very few businesses selling a product

Monopoly

• The market structure that exists when there is only one business providing a product in a given market


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Economic Cycles and Productivity

Economic contraction is a slowdown of the economy characterized by a decline in spending and during which businesses cut back on production and lay off workers

Economic expansion occurs then an economy is growing and people are spending more money; their purchases stimulate the production of goods and services, which in turn stimulates employment

May lead to inflation – a

continuing rise in prices

May lead to recession – a

decline in production, employment and income


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Economic Cycles and Productivity (cont.)

Recessions are often characterized by rising levels of Unemployment – the condition in which a percentage of

the population wants to work but is unable to find jobs Deflation occurs when rising unemployment stifles demand, forcing prices down

Severe recession may turn into a Depression – a condition of the

economy in which unemployment is very high, consumer spending is low, and business output is sharply reduced

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,


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Hyperinflation

Inflation can be harmful if individuals’ incomes do not increase at the same pace as rising prices, reducing their buying power The worst case of hyperinflation occurred in Hungary

in 1946 At one point, prices were doubling every 15.6 hours

One of the most recent cases of hyperinflation occurred in Zimbabwe Suffered from hyperinflation so severe that its inflation

percentage rate rose into the hundreds of million

The elimination of the Zimbabwean dollar and certain price controls, the inflation rate began to decrease


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Measuring the Economy

• The sum of all goods and services produced in a country during a year

• Does not include profits from companies’ overseas operations

Gross Domestic Product (GDP)

• The condition in which a nation spends more than it takes in from taxes

• U.S. budget deficit has recently grown to record levels; remedies include raising taxes or reduce spending

Budget Deficit


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Gross Domestic Product (GDP)

In 2008 the System of National Accounts (SNA) serves as a set of standards by which to measure economic activity in every country Overseen by the United Nations (UN)

Broadened the definition of assets to include intellectual property (IP) such as patents

Over the last decade investments in research and development have spurred new products that have contributed to the GDP making them an important asset

While the calculations are still difficult, Canada and the United States have included IP in their GDP Other countries are expected to follow


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Evaluating Our Economy

See the U.S. Public Debt to

the Penny


http://www.treasurydirect.gov/NP/debt/current



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The American Economy

Early Economy

• Agricultural economy

• People produced everything they needed at home

Industrial Revolution

• New technologies and factories

• Factories combined material, machines and workers

Manufacturing and Marketing Economies

• Assembly line production and concern with customer needs

Service and Digital Economy

• The U.S. is a service economy and technology is leading us into a new digital economy

DID YOU KNOW? Approximately 59 percent of adult women are engaged in the workforce


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Mobile Payment Systems

Google Wallet is a mobile payments system Allows users to store their

credit card or debit card information

When checking out at stores, users can bring up the app and use the information to pay for their purchases

Apple Inc. has released its version of a mobile payment system called Apple Pay


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The Role of the Entrepreneur

Entrepreneur • An individual who risks his/her wealth, time and effort

to develop for profit an innovative product or way of doing something.

Entrepreneurship requires: Risk Innovation Creativity Reward


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The Role of Government in the American Economy

The U.S. economy is best described as modified capitalism because:

◄ The government regulates industry to encourage competition and protect stakeholders like consumers, employees, or the environment

◄ Laws force businesses to adhere to government standards

◄ Government agencies like the U.S. Department of Commerce or the Federal Reserve Board occasionally intervene to regulate the economy and spur growth


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The Role of Ethics and Social Responsibility in Business

Business ethics are standards set

by society

Reputation depends on

profit and ethics and social

responsibility

Stakeholders demand ethical

and socially responsible

behavior


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Can You Learn Business in a Classroom?

Absolutely!

To be successful in business, you need: Knowledge

Skills

Experiences and

Good judgment


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Solve the Dilemma Mrs. Acres Homemade Pies

Produces specialty pies and sells them in local supermarkets and family restaurants

► In each of the first six months sold 2,000 pies for $4.50 each netting $1.50 profit/pie

► Had problems keeping up with demand ♦ To meet demand expanded operations, borrowed money,

and increased staff ♦ Production and sales increased to 8,000 pies/month, and

profits soared to $12,000 per month


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Solve the Dilemma Mrs. Acres Homemade Pies (cont.)

Shelly has several options:

• Maintain current production levels and raises prices

• Expand the facility and staff while maintaining the current price

• Contract the production of the pies to a national chain, giving Shelly a percentage of profits with minimal involvement

Discussion Questions

• Explain and demonstrate the relationship between supply and demand for Mrs. Acres Pies.

• What challenges does Shelly face as she considers the 3 options?

• What would you do in Shelly’s position?


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Discussion

? What is the fundamental goal of business? Do all organizations share this goal?

? Who are the main participants of business? What are the main activities? What other factors have an impact on the conduct of business in the United States?

? Explain the terms supply, demand, equilibrium price, and competition. How do these forces interact in the American economy?

? List and define the various measures governments may use to gauge the state of their economies. If unemployment is high, will the growth of GDP be great or small?

© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,


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