introduction to business
TRANSCRIPT
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Fourth EditionFourth Edition
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PART 1 . . . . . . . . . . . . . . . . . . . . . . . .PART 1 . . . . . . . . . . . . . . . . . . . . . . . .Understanding the Contemporary Understanding the Contemporary Business EnvironmentBusiness Environment
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Chapter 1Chapter 1
Understanding the U.S. Business System
Understanding the U.S. Business System
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“In business you get what
you want by giving other
people what they want.”
~ Alice Foote MacDougall
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Key Topics
Nature and goals of US business
Global economic systems
Supply and demand
Private enterprise and competition
Evaluating economic performance
Status and outlook for the US economy
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What Is Business?
An organization that provides goods and services to earn profits
Profits:
The positive difference between revenues and expenses
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Physical Resources
Labor Capital
Entrepreneurs
Factors of Production
InformationResources
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How Are Factors of Production Allocated?
Planned Economy:
An economic system in which the government owns and operates all sources of production
Market Economy:
An economic system in which buyers and sellers interact based on freedom of choice
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“Circular Flow in Market Economy”
OUTPUT MARKETSGoods
Services
INPUT MARKETSLabor
CapitalEntrepreneurs
Physical ResourcesInformation Resources
HOUSEHOLDS• Demand products
in output markets• Supply resources in
input markets
FIRMS• Supply products in
output markets• Demand resources
in input markets
DEMANDDEMAND
DEMANDDEMAND SUPPLYSUPPLY
SUPPLYSUPPLY
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CapitalismA Fundamentally Market-Based Economy
Individuals Choose:
Where to work
What to buy
How much to pay
Producers Choose:
Who to hire
What to produce
How much to charge
Government supports private ownership and encourages entrepreneurship
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Mixed EconomiesPlanned and Market
The economies of most countries include both planned and market elements
Worldwide trend toward more market elements
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SocialismA Mixed Economy
Socialism is a planned economic system in which the government owns and operates selected sources of production
Privatization:
Process of converting government enterprises into privately owned companies
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Supply & DemandDrive the US Economic System
Supply:
The willingness and ability of producers to offer a good or service for sale
Law of Supply:
Producers will supply (offer) more of a product for sale as its price rises and less as its price drops
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Law of Demand:
Buyers will demand (purchase) more of a product as its price drops and less as its price increases
Supply & DemandDrive the US Economic System
Demand:
The willingness and ability of buyers to purchase a good or service
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Demand and Supply Schedules
Quantity of Quantity ofPrice Pizzas Demanded Pizzas Supplied
$2 2000 100$4 1900 400$6 1600 600$8 1200 800
$10 1000 1000$12 800 1200$14 600 1300$16 400 1600$18 200 1800$20 100 2000
Demand & Supply
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Demand & Supply
200
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Quantity of Pizzas Demanded
Pri
ce o
f P
izza
sDemand Curve
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Demand & Supply
Quantity of Pizzas Supplied
200
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Pri
ce o
f P
izza
sSupply Curve
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Demand & Supply
Quantity of Pizzas per Week
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Pri
ce o
f P
izza
sDemand Curve Supply Curve
Equilibrium Price
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The US Economy is aPrivate Enterprise System
1. Private Property Rights
2. Freedom of Choice
3. Profits
4. Competition
Individuals are free to pursue their own interests without government restriction
Four Key Elements:Four Key Elements:
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Competition
Competition motivates
businesses to produce
their products better or
cheaper
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CharacteristicPerfect
CompetitionMonopolistic Competition Oligopoly Monopoly
Degrees of Competition
Sample Local farmer Stationery store Steel industry Public utility
Number of competitors
Many Many, but fewer than in perfect
competition
Few None
Ease of entry into industry
Easy Fairly easy Difficult Regulated by government
Similarity of goods or services offered by competing firms
Identical Similar Can be similar or different
No directly competing
goods/services
Level of control over price by individual firms
None Some Some Considerable
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Understanding Economic PerformanceKEY CONCEPTS
Business Cycle
Aggregate Output
Standard of Living
Gross Domestic Product (GDP)
Gross National Product (GNP)
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PRODUCTIVITY is impacted by:
National Debt
Understanding Economic PerformanceKEY CONCEPTS
Productivity:
The amount a system produces compared to the resources needed to produce it
Balance of Trade
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Economic StabilityBalanced Growth of Money & Goods
Two related factors threaten stability:Two related factors threaten stability:
INFLATION
UNEMPLOYMENT
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The CPI is a Tool to Measure Inflation
Source: Westegg.com/inflation/infl.cgiSource: Westegg.com/inflation/infl.cgi
2000 1980 1930
House $250,000 $109,000 $25,696
Car $18,000 $7,871 $1,850
Hamburger & Fries
$5.00 $2.19 $.51
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Recessions & Depressions
Recession:
Aggregate output declines, unemployment increases
Depression:
Severe and long-lasting recession
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Managing the US Economy
Stabilization Policy:
Government policy designed to smooth out fluctuations in the economy
Fiscal Policies
Monetary Policies
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Looking to the Future
Three Major Forces:
1. The information revolution will continue to boost productivity
2. Technological breakthroughs will create new industries
3. Increasing globalization will create larger markets and tougher competition
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Projections and Implications for the US Economy
Opportunities…
Steady economic growth
Fewer inflationary surges and lower budget deficits
Countries with free trade, innovation, and open financial systems will thrive
Successful businesses will be those that quickly master new technology
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Projections and Implications for the US Economy
Challenges…
Growing US trade deficit
Disturbing income inequality
Steadily increasing consumer debt
Limited health insurance
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Chapter Review
Describe the nature and goals of US business
Define the key global economic systems and describe how they control the factors of production
Show how demand and supply affect the distribution of resources in the US
Identify the elements of private enterprise and the various degrees of competition
Explain how to evaluate an economic system
Describe the key projections for the US economy