McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter One The Dynamics of Business and Economics

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. The Nature of Business To create profits by: –Selling products – Cars, food, clothing –Providing services – Healthcare, insurance

Business vs. Nonprofit Organization Business An individual or organization that tries to earn a profit by providing products that satisfy people’s needs, ex. IBM, Coca-Cola. Nonprofit Organization Provides products, especially services, for some purpose other than profits, ex. The Salvation Army, 4300 American colleges & universities.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. The Goals of Business For-Profit Sector: –PROFIT – the difference between what it costs to make and sell a product and what the customer pays for it. Nonprofit Sector: –GOALS – may provide goods or services but not for the purpose of earning profits.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. The People and Activities of Business People: Owners Employees Customers Other stakeholders: Investors Regulatory Agencies Activities: Management Marketing Finance

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Management Hiring Issues 32% Salary Location Opportunity for Growth Chance to learn new technology Perks Personal contacts 25% 24% 15% 2% Issues Considered by Job Seekers Before Switching Jobs Source: Survey of 970 job seekers by CareerEngine.com, New York in Kemba J. Dunham, “The Jungle,” Wall Street Journal, July 3, 2001, p. B6.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Why Study Business? It provides employment for most people. It provides the majority of products needed to survive and enjoy life. It will help prepare you for your future career. It will help you become a better informed consumer and member of society.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Education Pays Average Annual Salary By Education Level Advanced Degree Bachelor’s Degree High School Diploma No Diploma $63,229 $40,478 $22,895 $16,124

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Types of Resources Used by Business Natural –land, forests, etc. (not made by people) Human –physical/mental abilities used by people to produce goods and services Financial –funds necessary to acquire needed natural and human resources

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. What Is An Economic System? The way a society distributes its resources to produce goods and services. Addresses the issue of how to fulfill unlimited demand with limited supply of resources.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Basic Questions to Be Asked of Economic Systems 1.What goods and services and what quantity will satisfy the needs of the consumer? 2.How will the goods and services be produced? Who will produce them and with what resources? 3.How are the goods and services to bedistributed to the consumer?

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Types of Economic Systems Communism Socialism Capitalism

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Comparison of Communism, Socialism, and Capitalism

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Comparison of Communism, Socialism, and Capitalism

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Economic Systems and Where They Occur Communism:Socialism:Capitalism: China Sweden United States North Korea India Canada Cuba France Australia Viet Nam Israel Japan

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Mixed Economies Most countries of the world have elements of more than one economic system.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. The Free-Enterprise System Individuals can own property and pass it on to their heirs. People and businesses can earn profits and use them as they wish. Individuals and businesses can determine how their businesses operate. Individuals can choose their career, where to live, and what to buy.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Supply and Demand Supply: –The number of products business is willing to sell at different prices at a specific time. –An upward sloping curve on a graph. Demand: –The number of goods and services that customers are willing to buy at different prices at a specific time. –A downward sloping curve on a graph.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Equilibrium Price of Handmade Rugs $800 $650 $500 $350 $ Prices of Rugs (dollars) Handmade Rugs Equilibrium Price

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Four Competitive Environments Pure CompetitionMany small businesses sell one standardized product. MonopolisticThere are fewer businesses than in a competitionpure-competition system, and the differences between the goods they sell are small. OligopolyVery few businesses sell a product; the product they sell can be similar or different. MonopolyThere is only one producer of a product in a given market.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Economic Cycles Expansion Contraction Time Economy

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Growth of The American Economy The Early Economy The Industrial Revolution The Manufacturing and Marketing Economies The Service & Internet-based Economy

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Explore Your Career Options What are some of the changes in the work environment that contribute to the transformation of the traditional career track? FAST FACT: Enterprise Leasing is one of the nation’s largest employers of college graduates, hiring over 5000 graduates a year.

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Additional Discussion Questions and Exercises 1.Which economic system provides for central government planning to determine what goods and services will satisfy needs of citizens? 2.How did the Industrial Revolution affect the agricultural economy in the United States? 3.What characteristics of modern American entrepreneurs are similar to those of early American entrepreneurs?

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 1 Quiz 1.The activities designed to provide goods and services that satisfy customers are knowm as: a.management. b.marketing. c.finance. d.gross national product. 2.Which of the following best describes inflation? a.a continuing decrease in product prices b.a moderate decrease in demand c.a continuing increase in unemployment d.a continuing increase in prices

McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter 1 Quiz 3.The airline business in the United States is an example of what form of competition? a. pure competition b.monopolistic competition c.oligopoly d.monopoly 4.The quantity of products and services that consumers are willing to buy at different prices at a specific time is a.supply. b.demand. c.competition. d.gross national product.