exploring business © 2009 flatworld knowledge 1-1 the foundations of business

Exploring Business © 2009 FlatWorld Knowledge

1-1The FoundationsThe FoundationsOf BusinessOf Business


1-2

Chapter ObjectivesChapter Objectives

1.1. Identify participants, functions and Identify participants, functions and external forces of businessexternal forces of business

2.2. Define Define economicseconomics & explain key & explain key questions of economicsquestions of economics

3.3. Describe perfect competition & explain Describe perfect competition & explain supply/demand interaction with pricesupply/demand interaction with price

4.4. Describe monopolistic competition, Describe monopolistic competition, oligopoly, and monopolyoligopoly, and monopoly

5.5. Understand criteria to assess economyUnderstand criteria to assess economy6.6. Discuss government’s role in Discuss government’s role in

economyeconomy


1-3BusinessBusiness

•“…“…any activity that provides any activity that provides goods or services for the goods or services for the

purpose of making a profit.”purpose of making a profit.”


1-4

For ProfitFor Profit

Vs.Vs.

Not-for-profitNot-for-profit


1-5

Business ParticipantsBusiness Participants

OwnersOwners

EmployeesEmployees

CustomersCustomers


1-6Functional AreasFunctional Areasof Businessof Business

ManagementManagementOperationsOperationsMarketingMarketingAccountingAccountingFinanceFinance


1-7ManagementManagement

•“…“…planning, organizing, planning, organizing, staffing, directing, and staffing, directing, and

controlling a company’s controlling a company’s resources so it can achieve resources so it can achieve

its goals.”its goals.”


1-8

OperationsOperations• “…“…convert(s) convert(s)

resources…into goods or resources…into goods or services…to services…to

ensur(e)...products ensur(e)...products are...high quality.”are...high quality.”


1-9MarketingMarketing

•““...everything that a ...everything that a company does to identify company does to identify

customers’ needs and customers’ needs and design products to meet design products to meet

those needs.” those needs.”


1-10

AccountingAccounting

“…“…measure(s), measure(s), summarize(s), and summarize(s), and

communicate(s) financial communicate(s) financial and managerial and managerial

information...and advise information...and advise other managers on other managers on financial matters.”financial matters.”


1-11

Fields of AccountingFields of Accounting

Financial AccountantsFinancial Accountants1)1) Prepare financial statementsPrepare financial statements

2)2) Assess financial strengthAssess financial strength Managerial Accountants-Managerial Accountants-

Prepare internal reportsPrepare internal reports


1-12

FinanceFinance

•“…“…planning for, planning for, obtaining, and managing obtaining, and managing

a company’s funds.”a company’s funds.”


1-13Business andBusiness andIts EnvironmentIts Environment


1-14

EconomicsEconomics

“…“…study of how scarce study of how scarce resources are used to resources are used to

produce outputs...to be produce outputs...to be distributed among distributed among

people.”people.”


1-15Resources orResources orInputs and OutputsInputs and Outputs

LandLand

LaborLabor CapitalCapital

EntrepreneurshipEntrepreneurship

BusinessBusiness

OutputsOutputs

GoodsGoods ServicesServices


1-16Circular FlowCircular FlowOf Inputs & OutputsOf Inputs & Outputs


1-17

Economists’ QuestionsEconomists’ Questions

1)1) Goods & Services Should Be Goods & Services Should Be Produced...?Produced...?

2)2) How Goods & Services Produced?How Goods & Services Produced?

3)3) Who...Receive(s) The Goods & Who...Receive(s) The Goods & Services Produced?Services Produced?


1-18Spectrum ofSpectrum ofEconomic SystemsEconomic Systems


1-19

PrivatizationPrivatization

“…“…converting converting previously previously

government-owned government-owned businesses to private businesses to private

ownership...”ownership...”


1-20

Adam SmithAdam Smith

Wealth of Nations (1776)Wealth of Nations (1776) ““Invisible Hand”Invisible Hand” Laissez-faireLaissez-faire


1-21Perfect Competition Perfect Competition ExistsExists

Standardized ProductStandardized Product

Numerous SellersNumerous Sellers

Many ConsumersMany Consumers


1-22Supply & Supply & DemandDemand

Supplied

Demanded

Pri

ceP

rice

UnitsUnits

00 1010 2020 3030 4040 5050

$0.00$0.00

$0.10$0.10

$0.20$0.20

$0.30$0.30

$0.40$0.40

$0.50$0.50

$0.60$0.60

$0.70$0.70

EquilibriumEquilibrium

PointPoint


1-23Monopolistic Monopolistic CompetitionCompetition

Differentiated ProductDifferentiated Product

Many SellersMany Sellers

Consumers Consumers Group AGroup A Consumers Consumers

Group BGroup B

Consumers Consumers Group CGroup C


1-24OligopolyOligopoly

Similar ProductSimilar Product

Seller ASeller A

Consumer Consumer Group AGroup A Consumer Consumer

Group BGroup B

Consumer Consumer Group CGroup C

Seller BSeller B


1-25

MonopolyMonopolySellerSeller

Consumer Consumer AA

Consumer Consumer DD

Consumer Consumer BB

Consumer Consumer EE

Consumer Consumer CC


1-26World’s MainWorld’s MainEconomic Goals & MeasuresEconomic Goals & Measures

1)1) Growth- Gross Growth- Gross Domestic Domestic ProductProduct

2)2) High Employment- High Employment- Unemployment Unemployment RateRate

3)3) Price Stability- Price Stability- Consumer Price Consumer Price IndexIndex


1-27

Gross Domestic ProductGross Domestic Product

• “…“…market value of all goods and market value of all goods and services produced by...economy services produced by...economy

in a given year…includes in a given year…includes only...goods and services only...goods and services produced domestically.”produced domestically.”


1-28

Business CycleBusiness Cycle

-15

-10

-5

0

5

10

15

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Years

GD

P

% C

han

ge

ProsperityProsperity

DepressionDepressionRecessionRecession

RecoveryRecovery


1-29

U.S. Unemployment RateU.S. Unemployment Rate


1-30Price StabilityPrice Stability

InflationInflationDeflationDeflationConsumer Price Index Consumer Price Index

(CPI)(CPI)


1-31

U.S. Inflation RateU.S. Inflation Rate


1-32

Economic IndicatorsEconomic Indicators

•“…“…statistic(s) that statistic(s) that provide valuable provide valuable

information about the information about the economy.”economy.”


1-33LaggingLaggingEconomic IndicatorsEconomic Indicators

•““Statistics that report Statistics that report the status of the the status of the

economy a few months economy a few months in the past....”in the past....”


1-34LeadingLeadingEconomic IndicatorsEconomic Indicators

• ““...predict the status of the economy ...predict the status of the economy three to twelve months in the future....”three to twelve months in the future....”

1)1) Unemployment ClaimsUnemployment Claims

2)2) Average Weekly Manufacturing HoursAverage Weekly Manufacturing Hours

3)3) Building PermitsBuilding Permits

4)4) U.S. Leading IndexU.S. Leading Index

5)5) Consumer Confidence IndexConsumer Confidence Index


1-35Government &Government &Economic ManagementEconomic Management

Monetary PolicyMonetary Policy Control = Federal ReserveControl = Federal Reserve ContractionaryContractionary ExpansionaryExpansionary

Fiscal PolicyFiscal PolicyControl = governmentControl = governmentTaxationTaxationSpendingSpendingNational DebtNational Debt


1-36National DebtNational Debt


1-37

Areas of EconomicsAreas of Economics

• MacroeconomicMacroeconomics- Study of the s- Study of the economy as a wholeeconomy as a whole

MicroeconomicMicroeconomics- Study of the s- Study of the economic choices of economic choices of

individual consumers & individual consumers & businessesbusinesses

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