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Part 1 Business in a Changing World © 2015 McGraw-Hill Education. 1-2 CHAPTER 1 The Dynamics of Business and Economics CHAPTER 2 Business Ethics and Social Responsibility CHAPTER 2 APPENDIX The Legal and Regulatory Environment CHAPTER 3 Business in a Borderless World 1-3 Learning Objectives LO 1-1 Define basic concepts such as business, product, and profit. LO 1-2 Identify the main participants and activities of business and explain why studying business is important. LO 1-3 Define economics and compare the four types of economic systems. LO 1-4 Describe the role of supply, demand, and competition in a free enterprise system. LO 1-5 Specify why and how the health of the economy is measured. LO 1-6 Trace the evolution of the American economy and discuss the role of the entrepreneur in the economy. 1-4 The Nature of Business Business • Individuals or organizations trying to earn a profit by providing products that satisfy people’s needs Products • Goods or services with tangible and intangible characteristics that provide satisfaction and benefits 1-5 A Product Can Be… Tangible Goods • • • • Automobile Computer Phone Coat Services Ideas • Dry cleaning • Doctor’s checkup • Basketball game • Concert • Professionals generate ideas for solving problems 1-6 The Goal of Business The goal of business is to earn a profit $ The difference between what it costs to make and sell a product and what a customer pays for it $10 sale – $8 to make = $2 profit $ Earning profits contributes to society by providing employment, which in turn provides money that is reinvested in the economy $ Profits must be earned in a responsible manner 1-7 To Earn a Profit Management Skills Acting Ethically Marketing Expertise Profit Adapting to Change Financial Resources Abiding by the Law Product and Staff 1-8 Nonprofit Organizations Provide goods and services Engage in Do not share management, the purpose marketing and of earning finance to profits reach goals 1-9 Stakeholders ~ Groups that have a stake in the success and outcome of a business ~ Customers, employees, investors, government regulators, community, and society ~ To achieve and maintain profitability, businesses must produce quality products, operate efficiently, and be socially responsible and ethical in dealing with stakeholders 1-10 People and Activities of Business 1-11 People and Activities of Business Plan Management is concerned with: o Acquiring o Developing o Using resources (including people) effectively and efficiently Control Tasks Managers Staff Organize 1-12 People and Activities of Business The focus of all marketing activities is satisfying customers Determine customer needs Plan and develop product Determine place Determine distribution Determine promotion Determine price 1-13 People and Activities of Business The owner is primarily responsible for obtaining financial resources for the operation of the business, including: Obtaining money Using money effectively 1-14 Why Study Business? • Develop skills for career success • Become a well-informed consumer and member of society Business career opportunities: Marketing Human resources management Information technology Finance Production and operations Wholesaling and retailing And more 1-15 Economic Foundations of Business Economics • The study of how resources are distributed for the production of goods and services within a social system 1-16 Economic Foundations of Business • • • • Natural Resources Land, forests, mineral, water, and other things not made by people Human Resources – also called Labor The physical and mental abilities people use to produce goods and services Financial Resources – also called Capital The funds used to acquire the natural and human resources needed to provide products Intangible Resources Such as a good reputation for quality products or being socially responsible 1-17 Economic Systems Economic System • A description of how a particular society distributes its resources to produce goods and services All economic systems must address these 3 important issues: 1. What goods and services, and how much of each, will satisfy consumers’ needs? 2. How will goods and services be produced, who will produce them, and with what resources will they be produced? 3. How are the goods and services to be distributed to consumers? 1-18 Economic Systems • First described by Karl Marx as a society in which the people, without regard to class, own all the nation’s resources • On paper it appears efficient, but in practice, these economies suffer from: • low standards of living • critical shortages of consumer goods • high prices • corruption and little freedom Communism N O R T H K O R E A C H I N A C U B A 1-19 Economic Systems Socialism • An economic system in which the government owns and operates basic industries but individuals own most businesses • Most socialist countries are democratic and recognize individual freedoms • The socialist system may allow a higher standard of living and is more stable; but taxes and unemployment are generally higher in socialist countries S W E D E N I S R A E L I N D I A 1-20 Economic Systems Capitalism, or Free Enterprise • An economic system in which individuals own and operate the majority of businesses that provide goods and services • Pure capitalism or free-market system happens when all economic decisions are made without government intervention; also called laissez-faire capitalism • Modified capitalism differs from pure capitalism as the government intervenes and regulates business to some extent C A N A D A U S A J A P A N 1-21 Economic Systems No country practices pure capitalism, socialism, or communism Mixed Economies • Economies made up of elements from more than one economic system • No country practices a pure form of any economic system, although most favor one system over others China and Russia have used state capitalism to advance the economy, integrating the powers of the state with the advantages of capitalism 1-22 Free-Enterprise System Many large economies are free-enterprise – including the U.S., Canada and Japan Many communist and socialist countries apply freeenterprise principles – including China and Russia Free enterprise allows a company to succeed or fail on the basis of market demand 1-23 Free-Enterprise System Basic individual and business rights which must exist in order to motivate companies to succeed ► Right to own property ► Right to earn profits and use them as one wishes ► Right to determine business operations ► Right to choose Career to pursue Where to live or where to locate a business What goods/services to purchase and more 1-24 Forces of Supply and Demand Supply The number of products businesses are willing to sell at different prices at a specific time The number of products consumers are willing to buy at different prices at a specific time Demand 1-25 Equilibrium Price Equilibrium price is the price at which the number of products supplied equals the amount of products consumers are willing to buy at a specific time 1-26 The Nature of Competition Competition is the rivalry among businesses for consumer’s dollars Pure Competition Monopolistic Competition • The market structure that exists when there are many small businesses selling one standardized product • Fewer businesses than in a pure competition and the differences among the goods they sell are small Oligopoly Monopoly • The market structure that exists when there are very few businesses selling a product • The market structure that exists when there is only one business providing a product in a given market 1-27 Economic Cycles and Productivity May lead to inflation – a continuing rise in prices May lead to recession – a decline in production, employment and income Economic expansion occurs then an economy is growing and people are spending more money; their purchases stimulate the production of goods and services, which in turn stimulates employment Economic contraction is a slowdown of the economy characterized by a decline in spending and during which businesses cut back on production and lay off workers 1-28 Economic Cycles and Productivity Recessions are often characterized by rising levels of Unemployment – the condition in which a percentage of the population wants to work but is unable to find jobs Deflation occurs when rising unemployment stifles demand, forcing prices down Severe recession may turn into a Depression – a condition of the economy in which unemployment is very high, consumer spending is low, and business output is sharply reduced 1-29 Economic Cycles and Entrepreneurship Many companies begin in times of economic recession due to high unemployment and the tendency for people to become less risk averse Hewlett Packard, Revlon, and IHOP are just a few examples of companies that began in suboptimal economic conditions and survived to become large, profitable, and long-lasting The Great Recession of 2008 is no exception: Groupon, founded in 2008, has since become publicly traded and valued at near $10 billion Playdom, a social game developer, was founded in 2008 and sold for $500 million in 2010 SOURCES: Matt Rosoff “Born From the Ashes: Big Tech Companies Founded During Busts and Recessions”. http://www.businessinsider.com/great-tech-companies-that-started-in-terrible-economic-times-2011-8?op=1; gbravo. “Famous Companies Founded During an Economic Recession”. http://www.resourcenation.com/blog/famous-companies-that-were-founded-in-an-economicrecession/3265/. (accessed September 18, 2013). 1-30 Measuring the Economy Gross Domestic Product (GDP) Budget Deficit • The sum of all goods and services produced in a country during a year • Does not include profits from companies’ overseas operations • The condition in which a nation spends more than it takes in from taxes • U.S. budget deficit has recently grown to record levels; remedies include raising taxes or reduce spending 1-31 Gross Domestic Product (GDP) In 2008 the System of National Accounts (SNA), which is overseen by the United Nations (UN) and serves as a set of standards by which to measure economic activity in every country, broadened the definition of assets to include intellectual property (IP) such as patents Over the last decade investments in research and development have spurred new products that have contributed to the GDP making them an important asset While the calculations are still difficult, Canada and the United States have included IP in their GDP and other countries are expected to follow (SOURCE: Free Exchange. “Boundary Problems”. The Economist. August 3, 2013. Page 64.) 1-32 Evaluating Our Economy See the U.S. Public Debit to the Penny 1-33 The American Economy Early Economy • Agricultural economy • People produced everything they needed at home Industrial Revolution • New technologies and factories • Factories combined material, machines and workers Manufacturing and Marketing Economies • Assembly line production and concern with customer needs Service and Digital Economy • The U.S. is a service economy and technology is leading us into a new digital economy 1-34 The Role of the Entrepreneur Entrepreneur • An individual who risks his/her wealth, time and effort to develop for profit an innovative product or way of doing something. Entrepreneurship requires: Risk Innovation Creativity Reward 1-35 Government in the American Economy The U.S. economy is best described as modified capitalism because: ◄ The government regulates industry to encourage competition and protect stakeholders like consumers, employees, or the environment ◄ Laws force businesses to adhere to government standards ◄ Government agencies like the U.S. Federal Reserve Board or the Department of Commerce occasionally intervene to regulate the economy and spur growth 1-36 Ethics and Social Responsibility in Business Business ethics are standards set by society Stakeholders demand ethical and socially responsible behavior Reputation depends on profit and ethics and social responsibility 1-37 Can You Learn Business in a Classroom? Absolutely! To be successful in business, you need: Knowledge Skills Experiences and Good judgment 1-38 Discussion ? ? Why is it important for the government to measure the economy? What kinds of actions might it take to control the economy’s growth?