1. 1 The Scope of Business

2. What Is Business?
An organization that provides goods and/or services to earn profits
Profits: The positive difference between revenues and expenses

3. The Nature of Business To earn profits by providing products: Tangible
Cars, food, clothing
Intangible
A service
An idea
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4. Business vs. Nonprofit Organization
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.
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5. The Goals of Business For-Profit Sector: Nonprofit 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.
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6. Overview of the Business World
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7. The People and Activities of Business
Management
Marketing
Finance
People:
Owners
Employees
Customers
Other stakeholders:
Investors
Regulatory Agencies
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8. Management Hiring Issues
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.

9. Why Study Business?
To develop skills and acquire knowledge to prepare for your future career
To help you better understand the many business activities that are necessary to provide satisfying goods and services
To help you become a well-informed consumer and member of society
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10. Education Pays Average Annual Salary By Education Level
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11. Factors of Production Labor Capital Information Resources
Entrepreneurs
Physical Resources
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12. 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
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13. 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
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14. What is an Economic System?
A nation’s system for allocating resources among citizens.
Assumes resources are scarce thus requiring allocation.
Market is mechanism for exchange between Buyer/Seller

15. Types of Economic Systems
Planned Economies
Socialism
(Mixed Market)
Communism
Capitalism vs. Market

16. Circular Flow of Economics
Supply
Output
(Goods & Services)
Demand
Input
(Factors of Production)
Demand
Supply

17. Basic Questions to Be Asked of Economic Systems
What goods and services and what quantity will satisfy the needs of the consumer?
How will the goods and services be produced?
Who will produce them and with what resources?
How are the goods and services to be distributed to the consumer?
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18. How Are Factors of Production Allocated?
Planned Economy:
An economic system in which the government owns and operates all sources of production
Market Economy:
An economic system in which buyers and sellers interact based on freedom of choice

19. Types of Economic Systems
Capitalism
Communism
Socialism
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20. Capitalism: A Fundamentally Market-Based Economy
Individuals Choose:
Where to work
What to buy
How much to pay
Producers Choose:
Who to hire
What to produce
How much to charge
Government supports private ownership and encourages entrepreneurship

21. Capitalism Private Ownership of Factors of Production
Economic Decisions Made by Owners
Freedom of Decisions/Choices

22. Mixed Economies: Planned and Market
The economies of most countries include both planned and market elements.
Worldwide trend is toward more market elements.

23. Communism Planned Economic System Government Owns
All Production Facilities
All Citizens Are Employees of Government
All Capital
All Economic Decisions Controlled By Government

24. Mixed Market Economies
“Pure” Planned
“Pure” Market

25. Socialism: Mixed Economy
A planned economic system in which the government owns and operates selected sources of production
Privatization:
The process of converting government enterprises into privately owned companies

26. Privatization vs. Socialism

27. Comparison of Communism, Socialism, and Capitalism
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28. Economic Systems and Where They Occur
Communism
Socialism
Capitalism
China
Sweden
United States
North Korea
India
Canada
Cuba
Israel
Japan
Australia
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29. Mixed Economies
Most countries of the world have elements of more than one economic system.
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30. Supply & Demand Demand- Comes From Buyers
As Price Drops Buyers Purchase More
Supply- Producers’ Willingness
As Price Increase Producers Offer More
Buyers & Suppliers Work Towards Equilibrium = Profit Maximization
Surplus vs. Shortage

31. Supply and Demand Drive the U.S. Economic System
The willingness and ability of producers to offer a good or service for sale
Law of Supply:
Producers will supply (offer) more of a product for sale as its price rises and less as its price drops.

32. Supply and Demand Drive the U.S. Economic System (cont’d)
The willingness and ability of buyers to purchase a good or service
Law of Demand:
Buyers will demand (purchase) more of a product as its price drops and less as its price increases.

33. U.S. Hot Dog Consumption
Hot dogs consumed between Memorial Day & Labor:
7 billion
Average number of hot dogs eaten/person from Memorial Day to Labor Day: 24
Rate of consumption during this time:
818 hot dogs/second
Source: National Hot Dog and Sausage Council, as reported in American Demographics, July/August 2004, p. 48.

34. Demand and Supply Schedules
Quantity of Quantity of Price Pizzas Demanded Pizzas Supplied $ $ $ $ $ $ $ $ $ $

35. Pizza Supply At Given Price
High
Low
High

36. Pizza Demand At Given Price
High D
Low
High

37. Equilibrium (Market Price)
High
Surplus D S
Market Equilibrium
Shortage
Low
High

38. The Forces of Supply and Demand
The number of products that businesses are willing to sell at different prices at a specific time
Consumers are usually willing to buy more of an item as its price falls because they want to save money.
Demand
The number of goods and services that consumers are willing to buy at different prices at a specific time.
Businesses are willing to supply more of a good or service at higher prices because the potential for profits is higher.
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39. The U.S. Economy is a Private Enterprise System
Individuals are free to pursue their own interests without government restriction.
Four Key Elements:
Private Property Rights
Freedom of Choice
Profits
Competition

40. The Free-Enterprise System
Individuals must have the right to own property and pass it on to their heirs.
People and businesses must have the right to earn profits and use them as they wish.
Individuals and businesses must have the right to determine how their businesses operate.
Individuals must have the right to choose their career, where to live, and what to buy.
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41. Competition
Competition motivates businesses to produce their products better or cheaper

42. The Nature of Competition
Four Competitive Environments
Pure Competition
Many small businesses sell one standardized product.
Monopolistic Competition
There are fewer businesses than in a pure competition system, and the differences between the goods they sell are small.
Oligopoly
Very few businesses sell a product; each business supplies a large portion of the products sold in the marketplace.
Monopoly
There is only one producer of a product in a given market.
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43. Private Enterprise Private Property Freedom of Choice Profits
Competition

44. Degrees of Competition
Monopolistic Competition
Oligopoly
One
Many
Monopoly
Perfect Competition
Sellers

45. Perfect/Pure Competition
Competition- 2+ Businesses Vie For Same Resources/Customers
Condition- No Single Firm Dominant
Principles
Buyers View Products As Similar
Buyers/Sellers Know Each Others’ Prices/Costs
Easy To Enter/Leave Marketplace
Prices Set By Supply/Demand & Accepted by Sellers/Buyers

46. Monopolistic Competition
Many Buyers
Fewer Sellers Than Perfect/Pure Competition
Buyer Perception of Product/Brand Differentiation

47. Oligopoly Few Large Sellers
Market Entry Difficult- High Capital Investment
Sellers Control Strategies

48. Monopoly Characteristics Natural Monopoly Only One Producer
Controls Industry Pricing
Natural Monopoly
One Producer
Can Efficiently Supply All Goods/Services

49. Economic Cycles and Productivity
Economic expansion occurs when an economy is growing and people are spending more money.
Economic contraction occurs when spending declines.
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50. Measuring the Economy
One commonly used measure is gross domestic product.
GDP is the sum of all goods and services produced by a national economy in a country during a year.
GNP is is the sum of all goods and services produced by a national economy regardless of where the factor of production are located during a year
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51. Overall Unemployment Rate in the U.S. Civilian Labor Force
Source: “Overall Unemployment Rate in the Civilian Labor Force, 1920–2002,” InfoPlease (n.d.), A html (accessed February 16, 2004).

52. Growth in U.S. Gross Domestic Product Dollars
Source: “Gross Domestic Product or Expenditure, 1930–2002,” InfoPlease (n.d.), A html (accessed February 16, 2004)

53. Growth of The American Economy
The Early Economy
Primarily agricultural; the use of natural resources
The Industrial Revolution
The development of new technology and factories
The Manufacturing and Marketing Economies
Devoted to manufacturing goods and providing services rather than producing agricultural products
The Service and Internet-based Economy
Devoted to the production of services that make life easier for busy consumers
Did You Know? 60 percent of adult women work.
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54. Understanding Economic Performance
KEY CONCEPTS
Productivity:
The amount a system produces compared to the resources needed to produce it
PRODUCTIVITY is impacted by:
Balance of Trade
National Debt

55. Economic Stability: Balanced Growth of Money and Goods
Two related factors threaten stability:
INFLATION
UNEMPLOYMENT

56. The Role of the Entrepreneur
An entrepreneur is an individual who risks his or her wealth, time, and effort to develop for profit an innovative product or way of doing something.
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57. The Role of Government in the American Economy
Federal, state, and local governments intervene in the economy with laws and regulations designed to:
Promote competition
Protect consumers, employees, and the environment
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58. Recessions and Depressions
Aggregate output declines, unemployment increases
Depression:
Severe and long-lasting recession

59. Satu