Download Introduction to Business

Introduction to Business
Concepts Review
Factors of Production
Resources nations need to create wealth
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Land
Labor
Capital
Entrepreneurship
Knowledge
Economic Terms
 Opportunity cost
• The benefit forgone when you choose one
activity over another
 Economic decision rule
• If benefits exceed costs, do it. If costs
exceed benefits, don’t do it.
More Economic Terms
 Output
• A result of an activity
 Input
• What you put in to achieve that output
 Productive efficiency
• Getting as much output for as few inputs
as possible
Economic Systems
 Capitalism (free-market economy)
• All or most factors of production and
distribution privately owned and operated
for profit
Foundations of Capitalism
 Freedom to own private property
 Freedom to own business and keep
profits
 Freedom of competition
 Freedom of choice
Socialism
 Based on premise that government
should own most basic business
 Business profits should be evenly
distributed among the people
Communism
 Government makes almost all
economic decisions
 Government owns almost all factors of
production
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Land
Labor
Capital
Knowledge
Entrepreneurship (not encouraged)
Key Economic Indicators
 Gross Domestic Product (GDP)
• Total value of final goods and services
produced in a given period
 Consumption+investment+net
exports+government spending = GDP
• China 2010 4Q GDP = 9.8%
• U.S. 2010 4Q GDP = 3.2%
Key Economic Indicators
 Consumer Price Index (CPI)
• Monthly statistic measures pace of inflation or
deflation
 Producer Price Index (PPI)
• A/k/a Manufacturers’ Index
• Monthly statistic measures prices at wholesale
level
 Unemployment rate
• Number of civilians at least 16 years old who are
unemployed and tried to find a job within the prior
four weeks
Key Economic Indicators
 Inflation rate
• A general rise in prices of goods and services
over time
 Deflation
• A situation in which price increases are slowing;
inflation rate is declining
 Disinflation
• A situation in which prices are declining
 Stagflation
• A combination of high inflation and high
unemployment
Key Financial Indicators
 Money supply
• Monthly statistic measures amount of money in
circulation
 Fiscal policy
• Federal government efforts to stabilize economy
with taxes and spending
 Monetary policy
• Management of money supply and interest rates
• Controlled by Federal Reserve (the Fed)
 National debt
• The sum of government deficits over time
Business Cycles
 Periodic rises and falls that occur in
economies over time
• Boom—recession—depression—recovery
• Recession
 Two or more consecutive quarters of decline in GDP
• Depression
 A severe recession, usually accompanied by deflation
Rule of 72
 Useful for understanding inflation
 A quick computation of how long it takes
prices to double at various rates of growth
 Example: If houses increase in price at 9% a
year, how long for the price to double?
 Answer: Divide 72 by 9% and you get the
approximate number of years it takes to
double the price, 8 years