BUSINESS 7e Copyright 2004 Prentice Hall, Inc. 1 PART 1 UNDERSTANDING THE CONTEMPORARY BUSINESS ENVIRONMENT
1. contemporary business environment (ITB ECO)
May 13, 2015
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PART 1
UNDERSTANDING THE
CONTEMPORARY BUSINESS
ENVIRONMENT
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CHAPTER 1
Understanding the Business System
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Chapter Outline
The Concept of Business and the Concept of Profit
Economic Systems Around the World The Economics of a Market System A Short History of Business in the U.S.
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The Concept of Business and the Concept of Profit
Business is an organization that provides goods or services to earn profits
Profits represent the difference between a business’s revenues and its expenses
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Economic Systems Around the World
An economic system is a nation’s system
for allocating its resources among its
citizens.
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What Are Factors of Production?
Resources used in the production of goods and services—labor, capital, entrepreneurs, physical resources and information resources
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Factors of Production
Labor (or Human resources) are the physical and mental capabilities of people as they contribute to economic production
Capital are the funds needed to create and operate a business enterprise
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Factors of Production
Entrepreneur is an individual who accepts the risks and opportunities involved in creating and operating a new business venture
Physical resources are tangible things organizations use in the conduct of their business
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Factors of Production
Information resources are data and other information used by business
Can you name any others?
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Types of Economic Systems
Planned economy Market economy Mixed market economy
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Types of Economic Systems
Planned economy relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions. The Kremlin is shown above.
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Types of Economic Systems
Market economy relies on individuals to control production and allocation decisions through supply and demand
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Types of Economic Systems
Mixed market economy features characteristics of both planned and market economies
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What Is Communism?
Planned economy in which the government owns and operates all factors of production
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What Is a Market?
Mechanism for exchange between the buyers and sellers of
a particular good or service
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Input and Output Markets
Input market is a market in which firms buy resources from supplier households
Output market is a market in which firms supply goods and services in response to demand on the part of households
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What Is Capitalism?
Market economy that provides for private ownership of
production and encourages entrepreneurship by offering
profits as an incentive
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Circular Flow in a Market Economy
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Mixed Market Economies
Privatization is the process of converting government enterprises into privately owned companies
Socialism is a partially planned system in which the government owns and operates selected major industries
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The Economics of aMarket System
Understanding a country’s complex economic system is essential to understanding the environment in which a country’s businesses operate.
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Demand and Supply in a Market Economy
Demand is the willingness and ability of buyers to purchase a good or service
Supply is the willingness and ability of producers to offer a good or service for sale
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The Laws of Supply and Demand
The law of demand: Buyers will purchase (demand) more of a product as its price drops and less as its price increases.
The law of supply: Producers will offer (supply) more of a product for sale as its price rises and less as its price drops.
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What Is a Demand and Supply Schedule?
Assessment of the relationships among different levels of demand and supply at different price levels
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Demand and Supply Curves A demand curve is a
graph showing how many units of a product will be demanded (bought) at different prices.
A supply curve is a graph showing how many units of a product will be supplied (offered for sale) at different prices.
Price
Quantity
Price
Quantity
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What Is the Market Price(or Equilibrium Price)?
Profit-maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal
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Surpluses and Shortages
Surplus is a situation in which quantity supplied exceeds quantity demanded
Shortage is a situation in which quantity demanded exceeds quantity supplied
Surplus
Shortage
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Private Enterprise and Competition in a Market Economy
Private enterprise is an economic system that allows individuals to pursue their own interests without undue governmental restriction. Four elements: Private Property Rights Freedom of Choice Profits Competition
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Private Enterprise and Competition in a Market Economy
Competition occurs when two or more businesses vie for the same resources or customers. Four degrees: Perfect Competition Monopolistic Competition Oligopoly Monopoly
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Degrees of Competition
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A Short History of Evolution Business in the Western World
The landscape of business in the western world has evolved over the course of many decades.
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The Factory System and the Industrial Revolution
Major mid-18th century change in production characterized by a shift to the factory system, mass production and the specialization of labor
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Laissez-Faire and the Entrepreneurial Era
Period during the 19th century in which improvements in the U.S. banking system and the nation’s infrastructure and the rise of the entrepreneur on a grand scale were hallmarks
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The Production Era
Period during the early 20th century in which U.S. business focused primarily on improving productivity and manufacturing efficiency
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The Marketing EraPost-World War II period in which production continued to increase, technology advanced and the standard of living rose
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What Is the Marketing Concept?
Idea that a business must focus on identifying and
satisfying consumer wants in order to be
profitable
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The Global EraPeriod throughout the 1980s in which the continuation of technological advances in production, computer technology, information systems and communications capabilities was experienced
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The Internet Era
Ways the Internet affects business:
1. The Internet will give a dramatic boost to trade in all sectors of the economy.
2. The Internet will help to level the playing field between larger and smaller enterprises regardless of their products.
3. The Internet holds considerable potential as an effective and efficient networking mechanism.
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