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Transcript
Week 1 Presentation 1 script
Slide 1
BU106
Introduction to Management Week One – Presentation 1
Business and Economic Systems
Welcome to today’s presentation; we’re going to discuss various
economic systems that businesses operate in and the business cycle.
Slide 2
The first thing we are going to talk about is business and some of the
factors involved in business.
The term business is defined as all of the activities undertaken by
individuals in order to supply goods and services to society to make
business owners a profit. These goods and services are supplied in
accordance with the demand of consumers.
There are different objectives for businesses; as business students we
study businesses that are conceived for profit. There are businesses that
are not-for-profit that provide services for the betterment of society
instead of for profit.
For the sake of our course of study, we will be concentrating on those
businesses that are formed in order to make a profit.
Businesses provide both goods and services to consumers; there are
accounting companies, legal firms, tax preparation, and real estate
companies that provide services while others provide more tangible
goods such as electronics or food.
What the business sells is determined by what owners believe consumers
demand. Business owners have an obligation to meet demand, if there is
no demand for a product, a business won't be profitable because nobody
will buy their product.
Slide 3
One of the most important objectives of a business is to make a profit.
Profit is defined as revenue minus all expenses. Revenue is the money
from the sale of goods and services. Expenses include costs of goods
sold or cost of revenue such as raw material and direct labor,
administrative and selling expenses, and taxes. If a company doesn't
make a profit, it will eventually deplete its resources and go bankrupt.
Profit margin is a bit different, this is the percentage of sales dollar
remaining after all costs and expenses are taken into account. These are
expressed as a percentage. For example the gross profit margin would be
the gross profit divided by sales or revenue expressed as a percentage.
Profit margins may be increased by reducing expenses even if revenues
remain stagnant or even decrease. Profit margins are utilized to
determine the profitability of the company, regardless of profit levels.
Two companies might have very different revenue and profit levels but
if one company has lower profit levels, measured in dollars, but a higher
profit margin, measured as a percentage, it means that they are more
efficient in managing their expenses. Essentially they are keeping more
of the money that they made.
Slide 4
Publicly traded companies are owned by shareholders, and managers are
tasked with maximizing share value and profit for the shareholders. This
means they have an obligation to shareholders, or owners, to maximize
profit. Small privately owned companies don't have to answer to
shareholders, but if they do not make a profit for the owner, they will
eventually go out of business. Share value is a function of profit as well
as all other business decisions. The more profitable the company is, the
more in demand shares for the company will be. This will increase to
share price and value.
Slide 5
Another objective of businesses is to maximize market share. Market
share is measured as the number of customers the company has in
relation to its competitors. In order to win more market share, a firm
may lower its price attracting more customers. But it has to be careful
that in doing so it does not reduce its revenue.
A company may also wish to grow and expand; they can do this by
increasing sales and revenue or expanding into new markets. There are
many ways to increase revenue; prices may be adjusted or the company
may expand into new markets.
Slide 6
Customer satisfaction is yet another objective of business because a
satisfied customer is a repeat customer. Many shoppers will pay more
for a product in order to shop at a business they know will provide them
good customer service.
Slide 7
Economics is a social science and is the study of the behavior of
individuals, households, and businesses when it comes to the
management and distribution of resources. It is how we make decisions
as business owners or managers utilizing the data we have on hand.
Many different economic principles have to be taken into account when
making economic decisions. Price elasticity of demand and the law of
demand dictate how we adjust prices in order to maximize revenue for
example
Slide 8
The science of economics is divided into two fields; microeconomics
and macroeconomics.
Microeconomics emphasizes decision-making by individuals and
businesses. For example, there are several microeconomic laws that
dictate how much a retailer can charge for a good including the law of
demand which tells us that price varies inversely with demand; as the
price increases, demand decreases. Price elasticity of demand tells us
how sensitive demand is to change in price; it compares the percentage
change in demand with the percentage change in price.
Macroeconomics emphasizes factors such as national income,
unemployment, inflation, government spending, and taxes. It is how we
interpret the big picture in making decisions.
Slide 9
There are questions that need to be answered when making economic
decisions. And these questions are utilized in both micro and
macroeconomics.
What goods and services will be produced, and in what quantities?
How will these goods and services be produced; what resources will be
utilized in order to manufacture and distribute these goods and services?
For whom will these goods and services be produced? Who are the
consumers of this output?
Who owns and controls the factors of production?
These are the questions that need to be answered when making
economic decisions.
Slide 10
At the firm level these answers decide what product the firm will
produce. Apple started out making nothing but computers. Shortly
thereafter they started manufacturing music players and soon after that,
smart phones. They are now one of the number one manufacturers of
smart phones. This is an example of the product decision. Who
manufactures this product? This is the human resources utilized to
produce goods. And who is going to buy these products? The is the
market segmentation decision, who the company will target to buy their
products. These are the questions being applied at the microeconomic
level.
Slide 11
At the macroeconomic level we answer these questions to determine our
national output. What goods and services should be produced and how
much? How and for whom should these goods be produced? This is the
“guns and butter question.” Guns refers to investment in the military
while butter refers to investment in the production of goods for the
citizens. These are the questions being applied at the macroeconomic
level.
Slide 12
One of the economic questions is who owns and controls the factors of
production.
There are several factors of production, or resources, including land,
labor, capital, and entrepreneurship.
Land is defined as those natural resources such as land but also include
things such as oil, water, and minerals. For example a company might
own a diamond mine and this resource provides raw materials for the
production of diamond jewelry.
Labor is defined as human resources; those employees that are needed to
create, manufacture and distribute goods and services.
Capital refers to money, machinery, and equipment that companies
utilize in their operations.
Finally, entrepreneurship refers to the organization of all of these
resources. Any one of these resources alone is not enough to create or
distribute a product; it takes entrepreneurship to combine these resources
in order to create a product or service.
Slide 13
There are different types of economies.
Capitalism refers to an economy in which individuals own and run
businesses for profit. However in running these businesses, they are not
only benefiting themselves, they're benefiting others. This was what
Adam Smith called the invisible hand in his book Wealth of Nations. As
the business owner increases the size of profits, he or she is also
increasing the size of their operations and this means providing more
jobs to the community which benefits the economy.
Slide 14
In a market economy, the business owner has some power in
determining the price of their products however they do need to defer to
market forces and economic law such as the law of demand and price
elasticity. These laws determine what prices the business owner can
reasonably set and still make a profit. If the price is too high and demand
drops too low, profits will decrease. If the price is too low, demand will
increase but profit may decrease. The market is comprised of consumers
and they too have a hand in the prices the business owner may set; too
high of a price will kill demand for goods and result in a loss of profit
for the seller.
A mixed economy is one that exhibits many of the traits of capitalism but
also some of the traits of socialism. The socialist economy is one in
which many industries are controlled by the government. The United
States is a mixed economy; we have many of the elements of a free
market economy in which consumers decide what products will be sold
only government does have a hand in what businesses provide.
Slide 15
A command economy differs from a capitalist economy in that the
government is who answers the economic questions. They are typically
associated with socialist and communist governments.
Slide 16
In the socialist government, key industries are controlled by the
government and national goals dictate what is produced and how. The
government decides what is produced instead of what consumers
actually want. Unfortunately this may result in shortages of consumer
goods. France and Sweden are examples of socialist countries.
Slide 17
Communist governments were advocated by Karl Marx and is founded
on the principles of communal ownership. Ideally, citizens own all
economic resources and they would both contribute to and benefit from
this economic model. North Korea and Cuba are communist countries
utilizing command economies where the government answers the
economic questions and has control of the economy
Slide 18
The gross domestic product (GDP) is the largest measure of economic
activity. It is defined as the value of all of the goods and services
produced by a country.
Slide 19
The gross domestic product is a simple equation which includes
consumer spending, government spending, investment by businesses,
and the trade balance. The trade balance is simply exports minus
imports. This is something we will talk about later.
One of the biggest factors in the gross domestic product, and thus the
economy, is consumer spending. When spending increases, it increases
demand for goods which means someone has to manufacture, ship, and
sell those goods or provide the services demanded by consumers, and
this creates jobs.
The United States’ Gross Domestic Product for 2013 was $16.72 trillion
making the United States the largest economy in the world except for the
European Union which consists of 28 different countries.
Slide 20
The business cycle refers to fluctuations in the economic activity of the
country; this can be measured by the changes in the Gross Domestic
Product. Growth is defined as an increase in the Gross Domestic
Product, while a recession is represented by two consecutive quarters of
negative growth.
The graph shown is from the Federal Reserve. The vertical axis is
measured in billions of dollars. It starts at $11,000 but since it is
measured in billions, 11,000 billion dollars is actually $11.0 trillion.
You can see how the gross domestic product has grown from 2004 when
it was nearly $12 trillion. The shaded area between 2008 and 2010 is a
picture of the great recession, this is where the gross domestic product
decreased in value. Since 2009, the gross domestic product has steadily
increased to its current level of nearly $17 trillion.
Slide 21
This chart is from the Bureau of Economic analysis and it shows
quarterly growth of the gross domestic product. You can see from the
graph, the second and third quarters of 2008, and the first and second
quarters of 2009 showed negative growth in the gross domestic product.
This is a graphical representation of the recession of 2008.
Our economy did not go into a depression; a depression is more severe
than a recession, and there is a much larger decrease in business activity
for a longer period of time.
Typically when the business cycle recesses there is negative economic
growth. This recession is usually coupled with an increase in
unemployment. While economic growth is characterized by an increase
in jobs, negative growth is characterized by a decrease in jobs. Inflation
is defined as an increase in prices over time, however, during the
recession, unemployment typically increases and the market cannot
tolerate an increase in prices. Therefore, during a recession, there may
even be a period of deflation characterized by prices going down.
Slide 22
We have discussed several important concepts regarding business
including the definition of business, economics, different types of
economies, the gross domestic product, and the business cycle and how
these factors all fit together
This information will provide a foundation to understanding many of the
concepts we will be covering later.
This concludes our presentation, thank you for joining me!
Slide 23
References