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The Dynamics of Business and Economics
McGraw-Hill/Irwin
© 2008 The McGraw-Hill Companies, Inc. All rights reserved.
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The Nature of Business
• To earn profits by providing products:
– Tangible
• Cars, food, clothing
– Intangible
• A service
• An idea
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Business vs. Nonprofit
Organization
• Business
– An individual or
organization that
tries to earn a
profit by providing
products that
satisfy people’s
needs, ex. IBM,
Coca-Cola.
• Nonprofit Organization
– Provides products,
especially services, for
some purpose other
than profits, ex. The
Salvation Army, 4300
American colleges &
universities.
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The Goals of Business
• For-Profit Sector:
– Profit
• The difference
between what it
costs to make and
sell a product and
what the customer
pays for it.
• Nonprofit Sector:
– Goals
• May provide goods
or services but not
for the purpose of
earning profits.
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Overview of the Business World
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The People and
Activities of Business
• Activities:
– Management
– Marketing
– Finance
• People:
–
–
–
–
Owners
Employees
Customers
Other stakeholders:
• Investors
• Regulatory Agencies
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Why Study Business?
• To develop skills and acquire knowledge to
prepare for your future career
• To help you better understand the many
business activities that are necessary to provide
satisfying goods and services
• To help you become a well-informed consumer
and member of society
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Types of Resources Used by
Business
• Natural
– Land, forests, etc. (not made by people)
• Human
– Physical/mental abilities used by people
to produce goods and services
• Financial
– Funds necessary to acquire needed
natural and human resources
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What Is An Economic System?
• The way a society distributes its resources
to produce goods and services
• Addresses the issue of how to fulfill
unlimited demand with limited supply of
resources
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Basic Questions to Be Asked of
Economic Systems
1. What goods and services and what quantity
will satisfy the needs of the consumer?
2. How will the goods and services be produced?
a. Who will produce them and with what resources?
3. How are the goods and services to be
distributed to the consumer?
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Types of Economic Systems
• Communism
• Socialism
• Capitalism
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Comparison of Communism,
Socialism, and Capitalism
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Economic Systems and
Where They Occur
Communism
Socialism
Capitalism
China
Sweden
United States
North Korea
Cuba
India
Israel
Canada
Japan
Australia
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Mixed Economies
• Most countries of the
world have elements of
more than one economic
system.
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The Free-Enterprise System
• Individuals must have the right to own property
and pass it on to their heirs.
• People and businesses must have the right to
earn profits and use them as they wish.
• Individuals and businesses must have the right
to determine how their businesses operate.
• Individuals must have the right to choose their
career, where to live, and what to buy.
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The Forces of Supply and Demand
Supply
Demand
• The number of products
that businesses are
willing to sell at different
prices at a specific time
• The number of goods and
services that consumers
are willing to buy at
different prices at a
specific time.
– Consumers are usually
willing to buy more of an
item as its price falls
because they want to save
money.
– Businesses are willing to
supply more of a good or
service at higher prices
because the potential for
profits is higher.
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U.S. Hot Dog Consumption
• Hot dogs consumed between Memorial
Day & Labor:
– 7 billion
• Average number of hot dogs eaten/person
from Memorial Day to Labor Day:
– 24
• Rate of consumption during this time:
– 818 hot dogs/second
Source: National Hot Dog and Sausage Council, as reported in American Demographics, July/August 2004, p. 48.
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Top Major League Ball Parks for
Hot Dog Consumption
1. Dodger Stadium
1.6 million
2. Coors Field
1.5 million
3. Wrigley Field
1.5 million
4. Yankee Stadium
1.3 million
5. Minute Maid Park
1.2 million
Source: National Hot Dog and Sausage Council, as reported in American
Demographics, July/August 2004, p. 48.
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Equilibrium Price of Handmade
Rugs
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The Nature of Competition
Four Competitive Environments
Pure Competition
Many small businesses sell one
standardized product.
Monopolistic
Competition
There are fewer businesses than in a pure
competition system, and the differences
between the goods they sell are small.
Oligopoly
Very few businesses sell a product; each
business supplies a large portion of the
products sold in the marketplace.
Monopoly
There is only one producer of a product in a
given market.
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Economic Cycles and Productivity
• Economic expansion occurs when an
economy is growing and people are
spending more money.
• Economic contraction occurs when
spending declines.
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Overall Unemployment Rate in the
U.S. Civilian Labor Force
Source: “Overall Unemployment Rate in the Civilian Labor Force, 1920–2002,” InfoPlease (n.d.), www.infoplease.com/ipa/
A0104719.html (accessed October 30, 2006).
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Measuring the Economy
• One commonly used measure is gross
domestic product.
– GDP is the sum of all goods and services
produced in a country during a year.
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Growth in U.S. Gross
Domestic Product Dollars
Source: “Gross Domestic Product or Expenditure, 1930–2002,” InfoPlease (n.d.), www.infoplease.com/ipa/
A0104575.html (accessed October 30, 2006).
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Growth of The American
Economy
• The Early Economy
– Primarily agricultural; the use of natural resources
• The Industrial Revolution
– The development of new technology and factories
• The Manufacturing and Marketing Economies
– Devoted to manufacturing goods and providing services rather
than producing agricultural products
• The Service and Internet-based Economy
– Devoted to the production of services that make life easier for
busy consumers
Did You Know? 60 percent of adult women work.
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The Role of the Entrepreneur
• An entrepreneur is an individual who risks
his or her wealth, time, and effort to
develop for profit an innovative product or
way of doing something.
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The Role of Government in the
American Economy
• Federal, state, and local governments
intervene in the economy with laws and
regulations designed to:
– Promote competition
– Protect consumers, employees, and the
environment
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The Role of Ethics and Social
Responsibility in Business
• To set standards and principles used by
society to define appropriate and
inappropriate conduct
• To prohibit actions deemed unacceptable
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Solve the Dilemma
1. Explain and demonstrate the relationship
between supply and demand for Mrs.
Acres Homemade Pies.
2. What challenges does Shelly face as she
considers the three options?
3. What would you do in Shelly’s position?
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Explore Your Career Options
• What are some of the
changes in the work
environment that contribute
to the transformation of the
traditional career track?
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Additional Discussion Questions
and Exercises
1. Which economic system provides for central
government planning to determine what goods
and services will satisfy needs of citizens?
2. How did the Industrial Revolution affect the
agricultural economy in the United States?
3. What characteristics of modern American
entrepreneurs are similar to those of early
American entrepreneurs?
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Multiple Choice Questions About
the Video
1.
Wal-Mart saves the average family ________.
a.
b.
c.
d.
e.
2.
$150
$10,250
$2,329
$1,500
$233
Which of the following is NOT something Wal-Mart
has done to improve its image according to the case?
a. Set up a website for customers to hear the unfiltered truth
about Wal-Mart
b. Built two environmentally friendly stores
c. Donated $17 million to hurricane Katrina relief
d. Hired a public relations firm
e. Wal-Mart decreased its imports from China
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