2. Chapter One What is Business? © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin Introduction to Business

3. 1 - 3 What is Business? Business -goal-directed behavior aimed at getting and using productive resources to buy, make, trade, and sell goods and services that can be sold at a profit

4. 1 - 4 Productive Resources and Operating Costs Figure 1.1

5. 1 - 5 Key Business Terms Business Model -a company’s plan of action to use resources to create a product that will give it a competitive advantage Competitive advantage -a company’s ability to offer customers a product that has more value to them than similar products offered by other companies

6. 1 - 6 Key Business Terms Sales revenue -the amount of money or income that a company generates from the sale of the product Profit -the total amount of money left over after operating costs have been deducted from sales revenues

7. 1 - 7 Key Business Terms Capital -profit that is kept in a company and invested in its business Wealth -the sum total of the resources, assets, riches, and material possessions owned by people and groups in society

8. 1 - 8 Profit and Profitability Profitability -a measurement of how well a company is making use of its resources relative to its competitors Profit -the difference between sales revenues and operating costs

9. 1 - 9 Business as Commerce Trade -the exchange of products through the use of money Barter -the exchange of one product for another product

10. 1 - 10 Transaction Costs Related to Business Transaction Costs -the costs of bargaining, negotiating, monitoring, and regulating exchanges between people in business

11. 1 - 11 Demand, Supply, and the Market Price Diminishing marginal utility -the principle that the value people receive from an additional unit of a product declines as they obtain more of a product

12. 1 - 12 Demand, Supply, and the Market Price Law of demand -the principle that states as the price of a product rises, consumers will buy less of it, and as the price of it falls, consumers will buy more of it

13. 1 - 13 Demand, Supply, and the Market Price Law of supply -the principle that states that as the price of a product rises, producers will supply more of it, and that as the price of it falls, producers will supply less of it

14. 1 - 14 Demand, Supply, and the Market Price Figure 1.3

15. 1 - 15 Determining the Market Price Market -buyers and sellers for a particular product

16. 1 - 16 The Business Model and Profitability Industry -a group of companies that makes similar products and competes for the same customers

17. 1 - 17 The Invisible Hand of the Market Invisible hand -the principle that the pursuit of self-interest in the marketplace naturally leads to the improved well-being of society in general

18. 1 - 18 The Invisible Hand of the Market Monopoly -a situation in which one company controls the supply of a product and can charge an artificially high price for it Human capital -a person’s stock of knowledge, skills, experience, judgment, personality, and abilities

19. 1 - 19 Business Organizations Organizational structure -the framework of task and authority relationships that coordinates people so they work towards a common goal Functional activities -the task-specific operations needed to convert resources into finished goods and services sold to customers