© Prentice Hall, 2005 Excellence in Business, Revised Edition Chapter 1 - 1 Fundamentals of Fundamentals of Business and Economics Business and Economics
Dec 25, 2015
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 1 - 1
Fundamentals of Fundamentals of Business and Business and
EconomicsEconomics
© Prentice Hall, 2005 Excellence in Business, Revised Edition
Chapter 1 - 2
Why Study Business?Why Study Business?
• Learn what it takes to run a businessLearn what it takes to run a business
• Build business vocabularyBuild business vocabulary
• Develop workplace skillsDevelop workplace skills
• Learn about a various occupationsLearn about a various occupations
• Appreciate today’s business careersAppreciate today’s business careers
© Prentice Hall, 2005 Excellence in Business, Revised Edition
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What is a Business?What is a Business?Knowledge
Entrepreneurs
For-ProfitFor-ProfitFor-ProfitFor-Profit
• GoodsGoods
• ServicesServices
• Job creationJob creation
• Tax-baseTax-base
• InvestmentsInvestments
• GoodsGoods
• ServicesServices
• Job creationJob creation
• Tax-baseTax-base
• InvestmentsInvestments
Non-ProfitNon-ProfitNon-ProfitNon-Profit
• EducationEducation
• LibrariesLibraries
• MuseumsMuseums
• Social servicesSocial services
• CharitiesCharities
• EducationEducation
• LibrariesLibraries
• MuseumsMuseums
• Social servicesSocial services
• CharitiesCharities
Re
sou
rces C
ap
ital
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Factors of ProductionFactors of Production
• Natural resources: commodities that are useful inputs in their natural state (land, forests, minerals, water)
• Human resources: anyone who works to produce goods & services
• Capital: resourcesthat a business needs to produce goods and services (money, computers, machines, buildings…)
• Entrepreneurs: people who are innovative and willing to take the risks
• Knowledge: the combined talents and skills of the workforce
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Categories of BusinessCategories of Business
Providing ServicesProviding ServicesProducing GoodsProducing Goods
Capital IntensiveLabor Intensive
Tangible goods…(Manufacturing, construction, mining, agriculture)
Intangible goods(finance, insurence, transportation, banking…)
BOTH
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Sectors of the U.S. Sectors of the U.S. EconomyEconomy
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Factors Effect the Factors Effect the GrowthGrowth of of Service SectorService Sector
• More disposable incomeMore disposable income
• Lifestyle and demographic changesLifestyle and demographic changes
• Complex goods and technologiesComplex goods and technologies
• Need for professional adviceNeed for professional advice
• Low barriers to entryLow barriers to entry
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What is Economics?What is Economics?
Microeconomics Microeconomics
MacroeconomicsMacroeconomics
Economic SystemEconomic System
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Economics is the study of how a society uses its scarce resources to produce and distribute goods and services.
Microeconomics is the study of economic behaviour among consumers, businesses and industries who collectively determine the quantity of goods and services demanded and supplied at different prices.
Macroeconomics is the study of a country’s larger economic issues, such as how firms compete, the effect of government policies and how an economy maintains and allocates its scarce resources.
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Economic SystemsEconomic Systems
CapitalismMixed
CapitalismSocialism Communism
Privatization
Free-MarketSystem
PlannedSystem
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Free market systemFree market system• Individuals are free to decide what
products to produce, how to produce them, whom to sell them to and what price to sell them.
• Capitalism is the term most often used to describe the free market system, in which individuals own and operate the majority of businesses and where competition, supply and demand determine which goods and services are produced.
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Planned SystemPlanned System
• Governments control all or part of the allocation of resources and limit the freedom of choice in order to accomplish government goals.
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MicroeconomicsMicroeconomicsMicroeconomicsMicroeconomics
The Forces of Supply and Demand
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DemandDemand
• is the quantitiy of a good or service that consumers will buy at a given time at various prices.
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Understanding DemandUnderstanding Demand
Advertising andAdvertising andPromotion SpendingPromotion Spending
Consumer IncomeConsumer Income Consumer PreferencesConsumer Preferences
Price ofPrice ofSubstitute ProductsSubstitute Products
Price of Price of Complementary GoodsComplementary Goods
Expectations AboutExpectations AboutFuture PricesFuture Prices
Price
High
erLo
wer
Demand
LowerHigher
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Demand Curve for Airline TicketsDemand Curve for Airline Tickets
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Expected Shifts in Demand CurveExpected Shifts in Demand Curve
Consumer Income
Consumer Preferences
Price of Substitutes
Price of Complementary Goods
Advertising-Promotion
Consumer Expectations
Number of Buyers
Variable Shifts Right When:
Increases
More Favorable
Increases
Decreases
Increases
Optimistic
Increases
Shifts Left When:
Decreases
Less Favorable
Decreases
Increases
Decreases
Pessimistic
Decreases
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Demand Curve for Airline TicketsDemand Curve for Airline Tickets
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SupplySupply
• is the quantity of a good or service that producers will provide ona particular date.
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Understanding SupplyUnderstanding Supply
Goods andServices
Supply
Price
Variables Variables
Higher
MoreLess
Lower
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Supply Curve for Airline TicketsSupply Curve for Airline Tickets
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Expected Shifts in Supply CurveExpected Shifts in Supply Curve
Costs of Inputs
Number of Competitors
New Technology
Suppliers Expect ThatFuture Sales Prices
Variable Shifts Right When:
Decreases
Decreases
Decreases Production Costs
Will Decline
Shifts Left When:
Increases
Increases
Increases Production Costs
Will Increase
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Supply Curve for Airline TicketsSupply Curve for Airline Tickets
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How Demand and Supply InteractHow Demand and Supply Interact
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MacroeconomicsMacroeconomicsMacroeconomicsMacroeconomics
Issues for the Entire Economy
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PurePureCompetitionCompetition
MonopolisticMonopolisticCompetitionCompetitionOligopolyOligopoly
MonopolyMonopoly
Free-Market CompetitionFree-Market Competition
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CompetitionCompetition
• is the situation in which two or more suppliers of a product are rivals in the pursuit of the same customers.
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Pure Competition is Pure Competition is characterized by;characterized by;
• a market place of multiple buyers and sellers
• a product or service with nearly identical features (such as wheat or cotton)
• low barriers to entry
When these 3 conditions exist no single firm or group can influence prices and workings of free market system.
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MonopolyMonopoly
• There is only one producer of a product in a given market, thus the producer is able to determine the price.
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OligopolyOligopoly
• A situation in which an industry is dominated by only a few producers. (e.g. Commercial aircraft manufacturing-Boing and Airbus Industries)
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Monopolistic Monopolistic CompetitionCompetition
• Large number of sellers (none of which dominates the market) offer products that can be distinguished from competing products in at least some small way. (e.g. Toothpaste, soft drinks, cocmetics…etc.)
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Competitive Competitive AdvantageAdvantage
• Price
• Speed
• Quality
• Service
• Innovation
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The Role of The Role of GovernmentGovernment
• Fostering competitionFostering competition
• Regulating industriesRegulating industries
• Deregulating industriesDeregulating industries
• Protecting stakeholders’ rightsProtecting stakeholders’ rights
• Contributing to economic stabilityContributing to economic stability
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Fostering CompetitionFostering Competition
AntitrustLegislation
(huge companies controlled enough of the supply and distribution in their
respective industries to muscle Smaller competitors out of the way.
Mergers andAcquisitions
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Regulating and Regulating and Deregulating IndustriesDeregulating Industries
GovernmentGovernmentRegulationRegulation
FreeFreeCompetitionCompetition
Fair CompetitionFair CompetitionFair CompetitionFair Competition
Business EthicsBusiness EthicsBusiness EthicsBusiness Ethics
Working ConditionsWorking ConditionsWorking ConditionsWorking Conditions
Public SafetyPublic SafetyPublic SafetyPublic Safety
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Protecting StakeholdersProtecting StakeholdersAgency or Commission Areas of Responsibility
Consumer Product Safety Commission (CPSC)
Environmental Protection Agency (EPA)
Equal Employment Opportunity Commission (EEOC)
Federal Communications Commission (FCC)
Federal Energy Regulatory Commission (FERC)
•Safety of consumer products
•Environmental protection
•Employment discrimination
• Telephone, telegraph, radio, television
•Commercial airline industry
•Electric power and natural gas
Federal Aviation Administration (FAA)
© Prentice Hall, 2005 Excellence in Business, Revised Edition
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Protecting StakeholdersProtecting StakeholdersAgency or Commission Areas of Responsibility
Federal Highway Administration (FHA)
Federal Trade Commission (FTC)
Food and Drug Administration (FDA)
Interstate Commerce Commission (ICC)
Securities and Exchange Commission (SEC)
•Vehicle safety requirements
•Business practices and advertising
•Foods, drugs, medical devices, cosmetics
• Interstate transportation
•Safety and health of workers
•Investors and securities markets
Occupational Safety and Health Administration (OSHA)
© Prentice Hall, 2005 Excellence in Business, Revised Edition
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Contributing to Contributing to Economic StabilityEconomic Stability
EconomicEconomicExpansionExpansion
EconomicEconomicContractionContraction
RecoveryRecovery
RecessionRecession
BusinessBusinessCycleCycle
BusinessBusinessCycleCycle
MonetaryMonetaryPolicyPolicy
FiscalFiscalPolicyPolicy
Nations’ money Nations’ money Suppy, iSuppy, interestnterest
rratesates
Revenue andRevenue andSpendingSpending
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Economic expansion occurs when the economy is growing and people are spending more money. Consumer purchases stimulate businesses to produce more goods and services which in turn stimulates employment.
Economic contraction, occurs when such spending declines. Businesses cut back on production employees are laid of and economy as a whole laid off.
If the period of downward swing is severe, the nation may entire into a recession.(2 consecutive quarters of decline in GDP)
When the downward swing or recession is over the economy enters the period of recovery, which companies buy more, factories produce more, employment is high…
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These recurrent up-and down swings are known as the business cycle.
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How a free market system How a free market system monitors its economic monitors its economic
performance???performance???
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Major Economic Major Economic
IndicatorsIndicatorsHousing StartsHousing Starts
Durable-GoodsDurable-GoodsOrdersOrders
Interest RatesInterest Rates
UnemploymentUnemploymentStatisticsStatistics
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Measuring Price ChangesMeasuring Price Changes
InflationInflation DeflationDeflation
Consumer Price Index (CPI)
Purchasing PowerPurchasing Power
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Measuring National Measuring National OutputOutput
Gross NationalGross NationalProduct (GNP)Product (GNP)
Gross DomesticGross DomesticProduct (GDP)Product (GDP)Dollar ValueDollar Value
YesYesYesYesFinal Goods Final Goods and Servicesand Services
YesYesYesYesDomestic BusinessesDomestic Businesses
NoNoYesYesForeign-Owned Foreign-Owned BusinessesBusinesses
YesYesNoNoOverseas OperationsOverseas Operations
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Gross Domestic ProductGross Domestic Product
• measures the country’s output- its production,distribution and use of goods and services- by computing the sum of all goods and services produced for final use in a market during a specified period.
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Gross National ProductGross National Product
• it excludes the value of production from foreign owned within a nation’s boundaries, but it includes receipts from the overseas operations of domestic companies.
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Ten Economic Ten Economic Performance IndicatorsPerformance Indicators
Prime Interest RatePrime Interest Rate
Housing StartsHousing Starts
Labor Productivity RateLabor Productivity Rate
Rate of InflationRate of Inflation
Consumer Price IndexConsumer Price Index
Unemployment RateUnemployment Rate
Durable-Goods OrdersDurable-Goods Orders
Balance of TradeBalance of Trade
Producer Price IndexProducer Price Index
Gross Domestic ProductGross Domestic Product
© Prentice Hall, 2005 Excellence in Business, Revised Edition
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U.S. Economic GrowthU.S. Economic Growth
• Age of Industrialization (1900-1944)
• Postwar Golden Era (1945-1969)
• Turbulent Years (1970-1979)
• Rise of Global Competition (1980-1989)
• New Economy and Beyond (1990 to Today)
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Challenges of Challenges of GlobalizationGlobalization
• Quality products and servicesQuality products and services
• Changing needs of customersChanging needs of customers
• Managing a small businessManaging a small business
• Globalization and workforce diversityGlobalization and workforce diversity
• Ethics and social responsibilityEthics and social responsibility
• Technology and electronic commerceTechnology and electronic commerce