1. Business Essentials, 7th Edition Ebert/Griffin
CHAPTER-1
Business Essentials, 7th Edition Ebert/Griffin

2. Instructor Lecture PowerPoints
Understanding the Business Environment
Instructor Lecture PowerPoints
PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College
© 2009 Pearson Education, Inc.

3. The Concept of Business and Profit
An organization that provides goods or services that are then sold to earn profits.
Profits
The difference between a business’s revenues and its expenses. The rewards owners get for risking their money and time.
Consumer Choice and Demand
The freedom of consumers to choose how to satisfy their wants and needs.
The freedom of business owners to decide how to meet those wants and needs.
Opportunity and Enterprise
Success in business requires spotting a promising opportunity and then developing a good plan for capitalizing on it.
When we explore the concepts of business and profit, we need to examine four different areas:
These include the business or organization that produces and/or provides goods or services that are sold to make a profit.
Profit is the difference between the revenues received from the sale of its goods or services less its expenses.
Why do business owners want to make a profit? They need to be rewarded for risking their time and money!
Consumers make choices about products that satisfy their wants and needs. By doing this they create demand for a product or service. Business owners decide how they will meet those consumer wants and needs through product or service development and delivery. In order to succeed in business, the business owner needs to identify a promising opportunity and then develop a good business plan to capitalize on the idea and thus make a profit.
Teaching Tips:
Please write down an example of a new product or service you have seen on TV, heard about on the radio, or read about in the newspaper, a magazine or on the Internet. Next to your example, please describe the consumer need or want this new product or service satisfies. Now let’s hear some of your examples.
Answers will vary.
© 2009 Pearson Education, Inc.

4. The Concept of Business and Profit (cont.)
The Benefits of Business
Provision of goods and services
Employment of workers
Innovation and opportunities
Increased quality of life and standard of living
Enhanced personal incomes of owners and stockholders
Tax payments support government
Support for charities and community leadership
How does a business benefit the U.S. or a foreign economy?
Here are some answers:
First, the business creates innovations and opportunities for new products or services.
It then employs workers to produce or deliver these services or products.
Then it provides those goods or services to customers who need or want them.
This increases the standard of living and quality of life of the people.
The business owners enhance their own incomes, as well as those of their stockholders, with the profits from the sales.
They pay taxes to support the government.
They also support charities and provide community leadership through acting in a socially responsible manner.
Teaching Tips:
Using your example from our last exercise, please write down how the new product or service you named earlier achieves one of the benefits of business we have just reviewed.
Answers will vary.
© 2009 Pearson Education, Inc.

5. Economic Systems Economic System
A nation’s system for allocating its resources among its citizens, both individuals and organizations
Factors of Production
Labor: Human resources
Capital: Financial resources
Entrepreneurs: Persons who risk starting a business
Physical resources: Tangible things used to conduct business
Information resources: Data and other information used by businesses
Economic Systems include a nation’s method for allocating its resources among its citizens, which includes both individuals and organizations. In order to make these allocations, the nation and its organizations need to address factors of production. These include:
Labor, which is called “human resources” in many organizations. This includes the number of people who are employed to perform specific functions.
Capital, or the financial resources that are needed to produce goods and services.
Entrepreneurs are the people who take risks by starting a new business that provides goods or services to the citizens of the nation.
Physical resources, which include actual, tangible things used to conduct business by an organization. These could include construction of factories, office buildings or raw materials like steel, bricks or roads.
Information resources, including data and any other information that is used by businesses.
Teaching Tips:
In your teams of two, please choose one of the five factors of production. Discuss and write down two examples of your factor of production. After your team discussion, you will share your examples with the class.
Answers will vary but could include the following for each factor of production:
Labor: People who are hired by a government, company or organization to provide goods or services.
Capital: Money that is loaned to a business by a bank or the government for production of goods or services, or money invested by shareholders in a business.
Entrepreneurs: People who start small businesses to provide goods and services to people in the society. Examples could include florists, funeral parlors, ice cream shops, small grocery stores, computer consulting firms, etc.
Physical resources: Factories, office furniture, office supplies, desks, chairs, machinery to produce products, iron to produce steel to build buildings, etc.
Information resources: Databases of people, places or things needed to conduct business.
© 2009 Pearson Education, Inc.

6. Types of Economic Systems
Planned Economy
A centralized government controls all or most factors of production and makes all or most production and allocation decisions for the economy.
Market Economy
Individual producers and consumers control production and allocation by creating combinations of supply and demand.
Market
A mechanism of exchange between buyers and sellers of a good or service.
There are two basic types of economic systems. These include:
Planned Economies: In a planned economy, a centralized government controls all or most factors of production. The central government also makes all or most goods or products and services. The government also decides how those goods and services are allocated within the economy of the country.
Market Economies: In a market economy, individual producers and consumers control production of goods and services as well as delivery and allocation through the creation of supply and demand.
A market is a method used for exchange between buyers and sellers of a good or service.
Teaching Tips:
What is an example of a planned economy?
Communism is an example of a planned economy. We will discuss Communism in more detail in a moment.
What is an example of a market economy?
Answers could include the United States, Capitalism or Free Market economies.
© 2009 Pearson Education, Inc.

7. Planned Economies Communism
A system Karl Marx envisioned in which individuals would contribute according to their abilities and receive benefits according to their needs.
The government owns and operates all factors of production.
The government assigns people to jobs and owns all businesses and controls business decisions.
Communism is an example of a planned economy. Karl Marx is known as the father of communism.
In Communism, individuals contribute according to their abilities and receive benefits according to their needs.
In a Communist economy the government owns and operates all factors of production.
In addition, the government in a Communist economy assigns people to jobs. It also owns all businesses and controls all business decisions.
Teaching Tips:
What countries operate under the Communist economic system?
Answers may include: China, Cuba, Russia and some may say Venezuela is moving that direction.
Are the countries you named really examples of pure Communism? If they are not, why not?
Answers may vary but could include the fact that China has allowed a free market to develop and has allowed certain enterprises to be privatized.
© 2009 Pearson Education, Inc.

8. Market Economics 1-Capitalism
The government supports private ownership and encourages entrepreneurship.
Individuals choose where to work, what to buy, and how much to pay.
Producers choose who to hire, what to produce, and how much to charge.
Two examples of market economies include capitalism and mixed market economies.
1. In a Capitalistic economy, the government supports and encourages private ownership and entrepreneurship. In fact, the government may provide loans to small businesses to support expansion and development.
People in a capitalistic economy are free to choose where they work, what they buy and how much they will pay for goods and services.
Producers choose who they want to hire, what they want to produce and how much they want to charge for their goods and services.
The United States is an example of a capitalistic economy.
2. Mixed market economies include characteristics of both planned and market economies.
In a mixed market economy, the government may decide to privatize business services and companies they own by offering them for sale as privately owned companies. When the Berlin Wall fell, the former East Germany chose to privatize most of its government production. Most Latin American nations have done the same in the last 20 years as they moved from military dictatorships to democracies.
In a mixed market economy, the government may choose to own and operate select major industries, like banking and transportation or even telephone, electric and water services. Smaller businesses are privately owned and operated.
Teaching Tips:
Why do you think the United States has a capitalistic economy?
Answers will vary. Some may include the following: because the founders of the Constitution guaranteed our freedom. The Bill of Rights gave us the rights to be independent. The U.S. is an individualistic society, based on its Protestant beginnings, not collectivistic like other Catholic or Communist systems.
© 2009 Pearson Education, Inc.

9. 2-Mixed Market Economy
Features characteristics of both planned and market economies.
Privatization: The process of converting government enterprises into privately owned companies.
Socialism: The government owns and operates select major industries such as banking and transportation. Smaller businesses are privately owned.

10. The Economics of Market Systems
Demand
The willingness and ability of buyers to purchase a product (a good or a service).
Supply
The willingness and ability of producers to offer a good or service for sale.
Let’s explore supply and demand, which are key to the economics of market systems. Demand can be defined as the willingness and ability of buyers to purchase a good or service. For example, the demand for oil has increased over the past 25 years.
Supply can be defined as the willingness and ability of producers to offer a good or service for sale. Think about the market for gasoline in the United States and China. The U.S. has moved away from its production of domestic oil, so the supply has decreased. The U.S. has had to rely more on foreign oil, and foreign oil producers can offer oil or gas at whatever price they believe the market will bear.
The laws of supply and demand are at play in the market system. Producers will offer, or supply, more of a product for sale as its price increases. They will offer less of the product as its price drops. Buyers will purchase or demand more of a product as its price drops. They will demand less of the product as its price increases. Therefore, demand and supply are interconnected, as we will see from the demand and supply curves.
Teaching Tips:
Please form teams of two students. Each team will write down three examples of a product or service that is in high demand by consumers today. Your team will also write down what would happen if the price 1) increases for that product and 2) decreases for the same product or service. Each team will then share their favorite example with the class.
Answers will vary based on the good or service chosen. Apply the definitions as each team reports to the class on their examples.
© 2009 Pearson Education, Inc.

11. The Laws of Demand and Supply in a Market Economy
Demand: Buyers will purchase (demand) more of a product as its price drops and less of a product as its price increases.
Supply: Producers will offer (supply) more of a product for sale as its price rises and less of a product as its price drops.

12. Demand and Supply in a Market Economy
Demand and Supply Schedule
The relationships among different levels of demand and supply at different price levels as obtained from marketing research, historical data, and other studies of the market.
Demand curve: How much product will be demanded (bought) at different prices.
Supply curve: How much product will be supplied (offered for sale) at different prices.
Market price (equilibrium price): The price at which the quantity of goods demanded and the quantity of goods supplied are equal.
The demand and supply schedule explains the relationships among different levels of demand and supply at different price levels. These relationships are obtained from marketing research, historical data and other market studies.
We briefly mentioned earlier that demand and supply intersect in the market.
The demand curve shows graphically how much product will be demanded or purchased at different price levels.
The supply curve depicts how much of the product will be supplied, or offered for sale, at different price levels.
The market price or equilibrium price is the price at which the quantity of good demanded equals the quantity of good supplied. Graphically, we will see how the market price is shown at the intersection of the demand and supply curves.
Let’s see how this looks.
© 2009 Pearson Education, Inc.

13. Demand curve: How much product will be demanded (bought) at different prices.
Supply curve: How much product will be supplied (offered for sale) at different prices.
Market price (equilibrium price): The price at which the quantity of goods demanded and the quantity of goods supplied are equal.

14. FIGURE 1.2 Demand and Supply
Here we can look at the demand curve for pizza.
When the price of pizza is high, fewer people are willing to pay for it. But as the price decreases, more people are willing to buy pizza. Or, in other words, more people “demand” the pizza at a lower price.
This is the demand curve for pizza.
Teaching Tips:
What price would you be willing to pay for the best piece of pizza you have ever eaten?
Listen to the student answers and point out on the graph where their demand fits.
© 2009 Pearson Education, Inc.

15. FIGURE 1.2 Demand and Supply (Cont.)
In the first graph on the left you can see that when the price of pizza is low, more people are willing to buy it. But pizza makers don’t have the money to invest in making pizza, so they make fewer pizzas. When this happens, the supply of pizza is limited and the price of pizza will rise. Only when the price of pizza rises will the pizza makers be willing and able to increase the supply. This is the supply curve for pizza.
The second graph shows the equilibrium price of market price for pizza. The supply curve, or blue line, rises as the price of the pizza rises. The demand curve, or red line, falls as the price of pizza falls. At the point where the two lines cross—at approximately $10 and at a quantity of 1,000 pizzas, the supply and demand curves cross. This is the point at which the price that suppliers can charge is equal to the price that a maximum number of customers are willing to pay. This is the profit maximizing quantity for the pizza makers and it is also the equilibrium price, where demand for pizza and the supply of pizza meet.
Teaching Tips:
Look at the second graph. What is the market price for pizza?
$10
© 2009 Pearson Education, Inc.

16. Surpluses and Shortages
A situation in which the quantity supplied exceeds the quantity demanded
Causes losses
Shortage
A situation in which the quantity demanded will be greater than the quantity supplied
Causes lost profits
Invites increased competition
When we examine supply and demand we also need to consider surplus and shortage.
A surplus exists when the quantity supplied of a product is greater than the quantity demanded by consumers. This situation can cause losses because the business may have to sell its inventory at a lower price than the cost of manufacturing the product.
A shortage exists when the quantity demanded of a product is greater than the quantity supplied by the manufacturer. This situation also causes losses because the opportunity existed for additional sales if production could have been increased. This situation also invited increased competition, since the current manufacturer cannot produce what the consumers have demanded. This leaves a gap in the market that can be filled by a competitor.
Teaching Tips:
Think back to our pizza example. What happens when our pizza maker at a restaurant five miles down the road makes too many pizzas on a snowy Friday night?
He has to throw them away because not enough people come in to eat them. He loses money.
What if our pizza maker only provides pizza by delivery on a snowy Friday night and he makes the normal number of pizzas?
He doesn’t have enough because everyone wants to stay in and have pizza delivered. When the pizza doesn’t arrive within an hour, customers will call the pizza place across the street, which made enough pizzas after listening to the weather forecast!
© 2009 Pearson Education, Inc.