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Understanding Economic Systems and Business, How do businesses and not-for…
Understanding Economic Systems and Business
1.1The Nature of Business
BUSINESS: is an organization that strives for a profit by providing goods and services desired by its customers.
GOODS: are tangible items manufactured by businesses, such as laptops
SERVICES: are intangible
offerings of businesses that can’t be held, touched, or stored.
STANDAR OF LIVING: is measured by the output of goods and services people can buy with the money they have.
QUALITY OF LIFE: refers to the general level of human happiness based on such things as life expectancy,
educational standards, health, sanitation, and leisure time
RISK: is the potential to lose time and money or otherwise not be able to accomplish an
organization’s goals
REVENUE: is the money a company receives by providing services or selling
goods to customers.
COSTS: are expenses for rent, salaries, supplies, transportation, and many other items that a company incurs from creating and selling goods and services.
Not-for-Profit Organizations
An organization that exists to
achieve some goal other than the usual business goal of profit.
Over the last 20 years, the last 20 years number of nonprofit organizations and the employees and volunteers who work for them has increased
considerably. Government is our largest and most pervasive not-for-profit group.
Like their for-profit counterparts, these groups set goals and require resources to meet those goals. However,
their goals are not focused on profits.
Factors of Production: The Building Blocks of Business
Four traditional factors of production are common to all productive activity: natural resources, labor (human resources), capital, and
entrepreneurship.
ENTREPRENEURS: are the people who combine the inputs of natural resources, labor, and capital to produce
goods or services with the intention of making a profit or accomplishing a not-for-profit goal.
CAPITAL: the tools, machinery, equipment, and buildings used to produce goods and services and get them to the
consumer
1.2 Understanding the Business Environment
What are the sectors of the business environment, and how do changes in them influence business
decisions?
This external business environment is composed of numerous outside organizations and forces that we can group into seven key subenvironments: economic, political and legal, demographic, social, competitive, global, and technological.
Economic Influences
Fluctuations in the level of
economic activity create business cycles that affect businesses and individuals in many ways
Political and Legal Influences
The political climate of a country is another critical factor for managers to consider in day-to-day business operations. The amount of government activity, the types of laws it passes, and the general political stability of
a government are three components of political climate
Demographic Factors
Demographic factors are an uncontrollable factor in the business environment and extremely important to
managers.
DEMOGRAPHY: is the study of people’s vital statistics, such as their age, gender, race and ethnicity,
and location.
Social Factors
Social factors—our attitudes, values, ethics, and lifestyles—influence what, how, where, and when people
purchase products or services
They are difficult to predict, define, and measure because they can be very
subjective. They also change as people move through different life stages
Technology
Technology is the application of science and engineering skills and knowledge to solve production and organizational problems.
Productivity is the amount of goods and services one worker can
produce.
1.3 How Business and Economics Work
What are the primary features of the world’s economic systems, and how are the three sectors of the U.S.
economy linked?
NATION ECONOMIC SYSTEM: is the combination of policies, laws, and choices made by its government to establish the systems that determine what goods and services are produced and how they are
allocated
. ECONOMICS: is the study of how a society uses scarce resources to produce and distribute goods and
services.
Global Economic Systems
Today
the world’s major economic systems fall into two broad categories: free market, or capitalism;
Capitalism, also known as the private enterprise system, is based on competition in the
marketplace and private ownership of the factors of production
Macroeconomics and Microeconomics
Economics has two main subareas. Macroeconomics is the study of the economy as a whole. It looks aaggregate data for large groups of people, companies, or products considered as a whole. In contrast,
microeconomics focuses on individual parts of the economy, such as households or firms.
1.4 Macroeconomics: The Big Picture
The more the nation produces, the higher its standard of living. An increase in a nation’s output of
goods and services is economic growth.
The most basic measure of economic growth is the gross domestic product (GDP)
The unemployment rate. This
rate indicates the percentage of the total labor force that is not working but is actively looking for work.
Economists classify unemployment into four types: frictional, structural, cyclical, and seasonal
There are two types of inflation. Demand-pull inflation occurs when the demand for goods and services is
greater than the supply.
Cost-push inflation is triggered by increases in production costs, such as expenses for materials and wages.
1.5 Achieving Macroeconomic Goals
Monetary policy refers to a government’s programs for controlling the amount of money circulating in the
economy and interest rates
The other economic tool used by the government is fiscal policy, its program of taxation and spending. By
cutting taxes or by increasing spending, the government can stimulate the economy
1.6 Microeconomics: Zeroing in on Businesses and Consumers
Demand is the quantity of a good or service that people are willing to buy at various prices. The higher the
price, the lower the quantity demanded, and vice versa. A graph of this relationship is called a demand curve.
Demand alone is not enough to explain how the market sets prices. We must also look at supply, the of a good or service that businesses will make available at various prices. The higher the price, the greater the
number of jackets a supplier will supply, and vice versa. A graph of the relationship between various prices and
the quantities a business will supply is a supply curve.
1.7 Competing in a Free Market
What are the four types of market structure?
One of the characteristics of a free-market system is that suppliers have the right to compete with one
another. The number of suppliers in a market defines the market structure
Pure Monopoly
At the other end of the spectrum is pure monopoly, the market structure in which a single firm accounts for all industry sales of a particular good or service
Monopolistic Competition
Three characteristics define the market structure known as monopolistic competition:
• Many firms are in the market.
• The firms offer products that are close substitutes but still differ from one another.
• It is relatively easy to enter the market.
Oligopoly
An oligopoly has two characteristics
• A few firms produce most or all of the output.
• Large capital requirements or other factors limit the number of firms.
1.8 Trends in the Business Environment and Competition
Meeting Competitive Challenges
One of the most important is relationship management, which involves building, maintaining, and enhancing interactions with customers and other parties to develop long-term satisfaction through mutually beneficial
partnerships.
Global Energy Demands
As standards of living improve worldwide, the demand for energy continues to rise. Emerging economies such
as China and India need energy to grow
How do businesses and not-for-profit organizations help create our standard of living?
MIND MAP CHAPTER 1