Exploring Business 2.0 © 2012 Flat World Knowledge 1-1 Chapter 1: The Foundations Of Business

Exploring Business 2.0 © 2012 Flat World Knowledge 1-2 Chapter Objectives 1.Identify the main participants of business, the functions that most businesses perform, and the external forces that influence business activities. 2.Define economics and identify factors of production. 3.Explain how economists answer the three key economics questions. 4.Compare and contrast economic systems.

Exploring Business 2.0 © 2012 Flat World Knowledge Chapter Objectives 5.Describe perfect competition, and explain how supply and demand interact to set prices in a free market system. 6.Describe monopolistic competition, oligopoly, and monopoly. 7.Understand the criteria used to assess the status of the economy 8.Discuss the government’s role in managing the economy.

Exploring Business 2.0 © 2012 Flat World Knowledge 1-4Business “…any activity that provides goods or services for the purpose of making a profit.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-5 For Profit Vs. Not-for-profit

Exploring Business 2.0 © 2012 Flat World Knowledge 1-6 Business Participants Owners Employees Customers

Exploring Business 2.0 © 2012 Flat World Knowledge 1-7 Functional Areas of Business  Management  Operations  Marketing  Accounting  Finance

Exploring Business 2.0 © 2012 Flat World Knowledge 1-8 Management “…planning, organizing, staffing, directing, and controlling a company’s resources so it can achieve its goals.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-9Operations “…convert(s) resources…into goods or services…to ensur(e)...products are...high quality.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-10 Marketing “...everything that a company does to identify customers’ needs and design products to meet those needs.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-11Accounting “…measure(s), summarize(s), and communicate(s) financial and managerial information...and advise other managers on financial matters.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-12 Fields of Accounting  Financial Accountants 1)Prepare financial statements 2)Assess financial strength  Managerial Accountants-Prepare internal reports

Exploring Business 2.0 © 2012 Flat World Knowledge 1-13Finance “…planning for, obtaining, and managing a company’s funds.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-14 Business and Its Environment

Exploring Business 2.0 © 2012 Flat World Knowledge 1-15Economics “…study of the production, distribution, and consumption of goods and services.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-16 Resources or Inputs and Outputs Land Labor Capital Entrepreneurship Business Outputs GoodsServices

Exploring Business 2.0 © 2012 Flat World Knowledge 1-17 The Circular Flow of Inputs and Outputs

Exploring Business 2.0 © 2012 Flat World Knowledge 1-18 Economists’ Questions 1) What Goods & Services Should Be Produced...? 2) How Should Goods & Services Be Produced? 3) Who...Receive(s) The Goods & Services Produced?

Exploring Business 2.0 © 2012 Flat World Knowledge 1-19 The Spectrum of Economic Systems

Exploring Business 2.0 © 2012 Flat World Knowledge Mixed Market Economy “A mixed market economy relies on both markets and the government to allocate resources. “ 1-20

Exploring Business 2.0 © 2012 Flat World Knowledge 1-21Privatization “…converting previously government-owned businesses to private ownership...”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-22 Adam Smith  Wealth of Nations (1776)  “Invisible Hand”  Laissez-faire

Exploring Business 2.0 © 2012 Flat World Knowledge 1-23 Perfect Competition Exists Standardized Product Numerous Sellers Many Consumers

Exploring Business 2.0 © 2012 Flat World Knowledge 1-24 Demand, Supply and Equilibrium The Demand Curve The Supply Curve The Equilibrium Price

Exploring Business 2.0 © 2012 Flat World Knowledge 1-25 Monopolistic Competition Differentiated Product Many Sellers Consumers Group A Consumers Group B Consumers Group C

Exploring Business 2.0 © 2012 Flat World Knowledge 1-26 Oligopoly Similar Product Seller A Consumer Group A Consumer Group B Consumer Group C Seller B

Exploring Business 2.0 © 2012 Flat World Knowledge 1-27 Monopoly Seller Consumer A Consumer D Consumer B Consumer E Consumer C

Exploring Business 2.0 © 2012 Flat World Knowledge 1-28 World’s Main Economic Goals & Measures 1) Growth- Gross Domestic Product 2) High Employment- Unemployment Rate 3) Price Stability- Consumer Price Index

Exploring Business 2.0 © 2012 Flat World Knowledge 1-29 Gross Domestic Product “…market value of all goods and services produced by...economy in a given year…includes only...goods and services produced domestically.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-30 Business Cycle Has four phases: –Prosperity - economy expands, unemployment is low, incomes rise, and consumers buy more products Businesses increase production and offer new, better products –Recession - slowdown in economic activity –Recovery - economy starts growing again –Depression - severe long-lasting recession

Exploring Business 2.0 © 2012 Flat World Knowledge 1-31 U.S. Unemployment Rate

Exploring Business 2.0 © 2012 Flat World Knowledge 1-32 Price Stability Inflation Inflation Deflation Deflation Consumer Price Index (CPI) Consumer Price Index (CPI)

Exploring Business 2.0 © 2012 Flat World Knowledge 1-33 U.S. Inflation Rate

Exploring Business 2.0 © 2012 Flat World Knowledge 1-34 Economic Indicators “…statistic(s) that provide valuable information about the economy.”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-35 Lagging Economic Indicators “Statistics that report the status of the economy a few months in the past....”

Exploring Business 2.0 © 2012 Flat World Knowledge 1-36 Leading Economic Indicators “...predict the status of the economy three to twelve months in the future....” 1)Unemployment Claims 2)Average Weekly Manufacturing Hours 3)Building Permits 4)U.S. Leading Index 5)Consumer Confidence Index

Exploring Business 2.0 © 2012 Flat World Knowledge 1-37 Government & Economic Management Monetary Policy Control = Federal Reserve Contractionary Expansionary Fiscal Policy Control = government Taxation Spending National Debt

Exploring Business 2.0 © 2012 Flat World Knowledge 1-38 National Debt

Exploring Business 2.0 © 2012 Flat World Knowledge 1-39 Areas of Economics Macroeconomics - Study of the economy as a whole Microeconomics - Study of the economic choices of individual consumers & businesses