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Business
Copyright 2005 Prentice- Hall, Inc.
1-1
Part One: Understanding the
Contemporary Business Environment
Business
1.
2.
3.
4.
5.
Understanding the U.S. Business
System
Understanding the Environments of
Business
Understanding Entrepreneurship and
Business Ownership
Understanding the Global Context of
Business
Conducting Business Ethically and
Responsibly
Copyright 2005 Prentice- Hall, Inc.
1-2
Chapter
1
Understanding the
U.S. Business System
1-3
Business
Chapter Outline
The Meaning of “Business”
The Evolution of Business
in the United States
Economic Systems Around
the World
Economics of a Market
System
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1-4
Rate of U.S. Real Gross
Domestic Product Growth
Business
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
-1.00%
1965
1970
1975
1980
1985
1990
1995
2000
www.people.virginia.edu/~lc7p/Lecture%206%20Handout.pdf
Copyright 2005 Prentice- Hall, Inc.
1-5
U.S. Consumer Price Index
(Dec.- All Urban Consumers)
Business
180
160
1982-1984- = 100
140
120
100
80
60
40
20
0
1965
1970
1975
1980
1985
1990
1995
2000
Source: U.S. Dept. of Labor-Bureau of Labor Statistics
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1-6
The Meaning of “Business”
Business
• Definitions
– Business
– Profits
• Consumer Choice/Demand
• Opportunity & Enterprise
• Quality of Life
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1-7
Business
Evolution of U.S. Business
Production Era
Marketing Era
Laissez-Faire &
Entrepreneurship
Era
Global Era
Industrial Revolution
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Information &
Internet Era
1-8
Factors of Production
Business
Labor
Capital
Entrepreneur
Physical Resources
Information Resources
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1-9
Business
What is an
Economic System?
A nation’s system for
allocating resources
among citizens.
Assumes resources are
scarce thus requiring
allocation.
Market is mechanism for
exchange between
Buyer/Seller
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1-10
Business
Types of
Economic Systems
Planned
Economies
Socialism
Communism
(Mixed Market)
Capitalism vs. Market
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1-11
Circular Flow of Economics
Business
Output
(Goods & Services)
Input
(Factors of Production)
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1-12
Business
Communism
• Planned Economic System
• Government Owns
– All Production Facilities
– All Citizens Are Employees of
Government
– All Capital
• All Economic Decisions
Controlled By Government
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1-13
Business
Mixed Market Economies
“Pure”
Planned
“Pure”
Market
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1-14
Business
Privatization vs.
Socialism
•Privatization
•Socialism
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1-15
Capitalism
Business
• Private Ownership of
Factors of Production
• Economic Decisions
Made by Owners
• Freedom of Decisions/Choices
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1-16
Supply & Demand
Business
• Demand- Comes From Buyers
– As Price Drops Buyers Purchase
More
• Supply- Producers’ Willingness
– As Price Increase Producers Offer
More
• Buyers & Suppliers Work
Towards Equilibrium = Profit
Maximization
– Surplus vs. Shortage
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1-17
Pizza Supply At Given Price
Price of Pizza
Business
High
25
S
20
15
10
5
0
100
Low
400
600
800 1000 1200 1300 1600 1800 2000
Quantity (S)
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High
1-18
Pizza Demand At Given Price
High
D
2000
Pizza Price
Business
2500
1500
1000
500
0
2
Low
4
6
8
10
12
14
Quantity Demanded (D)
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16
18
20
High
1-19
High
2500
Surplus
D
S
2000
Pizza Price
Business
Equilibrium (Market Price)
1500
Market Equilibrium
1000
500
Shortage
0
2
Low
4
6
8
10
12
Quantity
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14
16
18
20
High
1-20
Business
Private Enterprise
Private Property
Freedom of Choice
Profits
Competition
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1-21
Business
Degrees of Competition
Oligopoly
Monopolistic
Competition
One
Many
Perfect
Competition
Monopoly
Sellers
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1-22
Business
Perfect/Pure Competition
• Competition- 2+ Businesses Vie For
Same Resources/Customers
• Condition- No Single Firm Dominant
• Principles
– Buyers View Products As Similar
– Buyers/Sellers Know Each Others’
Prices/Costs
– Easy To Enter/Leave Marketplace
– Prices Set By Supply/Demand & Accepted by
Sellers/Buyers
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1-23
Monopolistic Competition
Business
• Many Buyers
• Fewer Sellers Than
Perfect/Pure Competition
• Buyer Perception of
Product/Brand Differentiation
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1-24
Oligopoly
Business
• Few Large Sellers
• Market Entry
Difficult- High Capital
Investment
• Sellers Control Strategies
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1-25
Monopoly
Business
• Characteristics
– Only One Producer
– Controls Industry
Pricing
• Natural Monopoly
– One Producer
– Can Efficiently Supply All
Goods/Services
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1-26
Business
U.S. Monopoly Laws
• Sherman Antitrust
Act (1890)
• Clayton Act (1914)
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