C H A P T E R 1

THE DYNAMICS OFBUSINESS AND ECONOMICS

THE NATURE OF BUSINESS

• To create profits by:• Selling products – Cars, food, clothing• Providing services – Healthcare, insurance• Tell me more services -

BUSINESS VS. NONPROFITORGANIZATION

• Business• An individual or

organization that tries to earn a profit by providing products that satisfy people’s needs, ex. IBM, Coca-Cola

• Nonprofit Organization• Provides products,

especially services, for some purpose other than profits, ex. The Salvation Army, 4300 American colleges & universities.

THE GOALS OF BUSINESS

• For-Profit Sector:• PROFIT – the

difference between what it costs to make and sell a product and what the customer pays for it.

• Nonprofit Sector:• GOALS – may

provide goods or services but not for the purpose of earning profits

THE PEOPLE ANDACTIVITIES OF BUSINESS

People:OwnersEmployeesCustomersOther stakeholders:

InvestorsRegulatory

Agencies

Activities:ManagementMarketingFinance

WHY STUDY BUSINESS?

• It provides employment for most people.• It provides the majority of products needed to

survive and enjoy life.• It will help prepare you for your future career.• It will help you become a better informed

consumer and member of society.• You get to have me as a teacher!

EDUCATION PAYSMEDIAN WEEKLY SALARY & UNEMPLOYMENT RATE BY EDUCATION

LEVEL

ECONOMICS

• Economics is the study of how scarce resources are used to produce outputs—goods and services, in other words the study of how individuals and groups of individuals strive to satisfy their needs and wants by making decisions within a social system

TYPES OF RESOURCESUSED BY BUSINESS

• Natural• land, forests, etc. (not made by people)

• Human• physical/mental abilities used by people to

produce goods and services• Financial• funds necessary to acquire needed

natural and human resources

WHAT IS AN ECONOMIC SYSTEM?

• The way a society distributes its resources to produce goods and services.• Addresses the issue of how to fulfill unlimited

demand with limited supply of resources. (Scarcity)

ECONOMIC SYSTEMS ATTEMPT TO ANSWERS 3 QUESTIONS

• What should be produced?

• How should it be produced?

• Who should share in what is produced?

TYPES OF ECONOMIC SYSTEMS

•Communism•Socialism•Capitalism•Mixed

COMPARISON OF COMMUNISM, SOCIALISM, AND CAPITALISM

Communism Socialism Capitalism

Business Ownership

Most businesses are owned and operated by the government.

The government owns and operates major industries; individuals own small businesses.

Individuals own and operate all businesses.

Competition None. The government owns and operates everything.

Restricted in major industries; encouraged in small business.

Encouraged by market forces and government regulations.

Profits Excess income goes to the government.

Profits earned by small businesses may be reinvested in the business; profits from government-owned industries go to the government.

Individuals are free to keep profits and use them as they wish.

COMPARISON OF COMMUNISM, SOCIALISM, AND CAPITALISM

Communism Socialism Capitalism

Productavailabilityand price

Consumers have alimited choice ofgoods and services;prices are usuallyhigh.

Consumers havesome choice ofgoods andservices; pricesare determined bysupply anddemand.

Consumers have awide choice ofgoods andservices; pricesare determined bysupply anddemand.

Employmentoptions

Little choice inchoosing a career;most people workfor government-owned industries orfarms.

Some choice ofcareers; manypeople work ingovernment jobs.

Unlimited choiceof careers.

ECONOMIC SYSTEMS AND WHERE THEY OCCUR

Communism: Socialism: Capitalism:

China Sweden United States

North Korea Germany Canada

Cuba France Australia

Viet Nam Israel Japan

Laos Denmark Brazil

MIXED ECONOMIES

•Most countries of the world have elements of more than one economic system.

THE FREE-ENTERPRISE SYSTEM

• Individuals can own property and pass it on to their heirs.• People and businesses can earn

profits and use them as they wish.• Individuals and businesses can

determine how their businesses operate.• Individuals can choose their career,

where to live, and what to buy.

SUPPLY AND DEMAND

• Supply:• The number of

products business is willing to sell at different prices at a specific time.

• An upward sloping curve on a graph.

• Demand:• The number of

goods and services that customers are willing to buy at different prices at a specific time.

• A downward sloping curve on a graph.

EQUILIBRIUM PRICEOF HANDMADE RUGS

$800

$650

$500

$350

$200

01 2 3 4 5 6 7

Prices of Rugs (dollars)

Handmade Rugs

EquilibriumPrice

EQUILIBRIUM PRICE

• 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 moment in time

FOUR COMPETITIVE ENVIRONMENTS

Pure Competition Many small businesses sell one standardized product.

Monopolistic There are fewer businesses than in a competition pure-competition system, and the differences between the goods they sell are small.

Oligopoly Very few businesses sell a product; the product they sell can be similar

or different.

Monopoly There is only one producer of a product in a given market.

BUSINESS CYCLE

• The rise and fall of the economic activity over time (Draw)• Prosperity – is a peak of economic activity• Recession – economic activity slows, Decline

in GDP for 2 quarters• Depression – Deep recession that affects the

entire economy & lasts for several years • Recovery – Economic activity picks up and

consumer confidence rises, which leads to more spending

• Contractions vs. Expansions• Inflation – Rise in the price of goods/services

ECONOMIC INDICATORS

• What is an economic indicator?• Why do they matter?• What are some?

GROWTH OF THE AMERICAN ECONOMY

The EarlyEconomy

The IndustrialRevolution

The Manufacturing and

Marketing Economies

The Service &Internet-based

Economy

EXPLORE YOUR CAREER OPTIONS

What are some of the changes in the work environment that contribute to the transformation of the traditional career track?

FAST FACT: Enterprise Leasing is one of the nation’s largest employers of college graduates, hiring over 8000 graduates in 2011