1. 1 chapter Business Essentials, 7 th Edition Ebert/Griffin The U. S. Business Environment PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College

2. After reading this chapter, you should be able to: 1.Define the nature of business and identify its main goals and functions. 2.Describe the external environments of business and discuss how these environments affect the success or failure of any organization. 3.Describe the different types of global economic systems. 2

3. After reading this chapter, you should be able to: 5.Identify the elements of private enterprise 6.Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system. L E A R N I N G O B J E C T I V E S (cont’d) © 2009 Pearson Education, Inc. 3

4. Exercise A.Write four things do you know about business. Write 4 things you would like to know? B.Try to know your neighbor and brake the ice.

5. The Concept of Business and Profit Business – An organization that provides goods or services that are then sold to earn profits. Profits – The positive difference between a business’s revenues and its expenses. The rewards owners get for risking their money and time. © 2009 Pearson Education, Inc. 5

6. The Concept of Business and Profit 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. © 2009 Pearson Education, Inc. 6

7. The Benefits of Business 1.Provision of goods and services 2.Employment of workers 3.Innovation and opportunities 4.Increased quality of life and standard of living 5.Enhanced personal incomes of owners and stockholders 6.Tax payments support government 7.Support for charities and community leadership © 2009 Pearson Education, Inc. 7

8. The External Environments of Business External Environment – Everything outside an organization’s boundaries that might affect it and business cannot control 1.The domestic business environment 2.The global business environment 3.The technological environment 4.The political-legal environment 5.The socio-cultural environment 6.The economic environment © 2009 Pearson Education, Inc. 8

9. Domestic Business Environment – The environment in which a firm conducts its operations and derives its revenues by: 1.Seeking to be close to its customers 2.Establishing strong relationships with its suppliers 3.Distinguishing itself from its competitors 4.Example, lock at the IUG. © 2009 Pearson Education, Inc. 9

10. Global Business Environment – The international forces that affect business: 1.International trade agreements 2.International economic conditions 3.Political unrest 4.International market opportunities 5.Suppliers outsourcing. 6.Cultural differences 7.Competitors, Currency values © 2009 Pearson Education, Inc. 10

11. Technological Environment – All the ways by which firms create value for their constituents: 1.Human knowledge 2.Work methods 3.Physical equipment 4.Electronics and telecommunications 5.Various business activity processing systems © 2009 Pearson Education, Inc. 11

12. Political-Legal Environment – The regulatory relationship between business and the government (legal system) and its agencies that define what organizations can and can’t do: 1.Product identification laws ( ingredients to be listed). 2.Local zoning requirements e.g., obtain a license to operate 3.Advertising practices 4.Safety and health considerations, warnings on cigarette packages. 5.Acceptable standards of business conduct, pollution – Pro- or anti-business sentiment/attitude in government and political stability are also important considerations, especially for international firms. © 2009 Pearson Education, Inc. 12

13. Socio-cultural Environment – The customs (e.g., celebrations), mores/traditions (e.g., beliefs), values (e.g., importance of religion), and demographic characteristics of the society in which an organization functions (e.g., education level). – Socio-cultural processes determine the goods, services, and standards of business conduct a society is likely to accept, e.g., children labor, selling certain food. © 2009 Pearson Education, Inc. 13

14. Economic Environment – The relevant conditions that exist in the economic system in which a company operates – Examples: recession and growth. © 2009 Pearson Education, Inc. 14

15. Economic Environment – Examples: If an economy is doing well enough that most people have jobs, a growing company may find it necessary to pay higher wages and offer more benefits in order to attract workers from other companies. If many people in an economy are looking for jobs, a firm may be able to pay less and offer fewer benefits. © 2009 Pearson Education, Inc. 15

16. Physical Resources LaborCapital Entrepreneurs Factors of Production Information Resources

17. Factors of production A.Labor: The people who work for businesses. Labor includes both physical and mental contributions. A country with a highly educated workforce is considered rich in this resource. B.Capital: The funds needed to create and operate a business. Sources include personal investment by owners, loans, sale of stock and bonds, and revenue from the sale of product.

18. Factors of production A.Entrepreneurs: People who are willing to accept the risks that are part of creating and operating businesses, in return for the potential profits. B.Physical resources: Tangible things organizations use in the conduct of their business. Possibilities include natural resources, raw materials, office equipment and facilities, computers, transportation and communication infrastructure, etc. C.Information resources: Data and other information used by business. This factor has become increasingly important in the last decade.

19. Exercise: group Discussion 1.In your faculty of business, list the factors of production that were used to provide higher education service. 2.What are the factors of production used to produce clothes? 3.Factors of production in a supermarket.

20. Economic Systems Economic System – A nation’s system/methods 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 © 2009 Pearson Education, Inc. 20

21. 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. With communism—as currently operating in North Korea—all sources of production are owned and operated by the government. © 2009 Pearson Education, Inc. 21

22. Types of Economic Systems 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. © 2009 Pearson Education, Inc. 22

23. 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. © 2009 Pearson Education, Inc. 23

24. Market Economics 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. © 2009 Pearson Education, Inc. 24

25. Mixed Market Economy A.Mixed Market Economies: mixed of planned and market economies; many countries are moving from planned systems to mixed market systems through privatization, which involves the transformation of government- controlled businesses into privately owned enterprises. B.In the partially planned system called socialism, the government owns and operates selected major industries. © 2009 Pearson Education, Inc. 25

26. 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. © 2009 Pearson Education, Inc. 26

27. The Economics of Market Systems 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. © 2009 Pearson Education, Inc. 27

28. Private Enterprise in a Market Economy Private Enterprise System – Allows individuals to pursue their own interests with minimal government restriction. Elements of a Private Enterprise System – Private property rights – Freedom of choice – Profits – Competition © 2009 Pearson Education, Inc. 28

29. Economic Indicators – Statistics that show whether an economic system is strengthening, weakening, or remaining stable – Measure key goals of the economic system: economic growth and economic stability © 2009 Pearson Education, Inc. 29

30. Economic Indicators – Economic growth indicators Aggregate output, standard of living, gross domestic product, and productivity – Economic stability indicators Inflation and unemployment © 2009 Pearson Education, Inc. 30

31. Economic Growth, Aggregate Output, and Standard of Living The elements: Business Cycle – The pattern of short-term ups and downs (or, better, expansions and contractions/reductions) in an economy. © 2009 Pearson Education, Inc. 31

32. Economic Growth, Aggregate Output, and Standard of Living The elements: Aggregate Output – Growth during the business cycle is measured by the total quantity of goods and services produced by an economic system during a given period. It measures the growth during the business cycle © 2009 Pearson Education, Inc. 32

33. Economic Growth, Aggregate Output, and Standard of Living Standard of Living – The total quantity and quality of goods and services that consumers can purchase with the currency used in their economic system. © 2009 Pearson Education, Inc. 33

34. Gross Domestic Product (GDP) – An aggregate output measure of the total value of all goods and services produced within a given period by a national economy through domestic factors of production. In US $14 trillion If GDP is going up, aggregate output is going up; if aggregate output is going up, the nation is experiencing economic growth. 34

35. Gross National Product (GNP) – The total value of all goods and services produced by a national economy within a given period, regardless of where the factors of production are located. – E.g., When a Japanese automobile produces cars at its factory in USA, the profits from that factory are included in the American GDP, and in the Japanese GNP. © 2009 Pearson Education, Inc. 35

36. Economic Growth Productivity – A measure of economic growth that compares how much product a system produces with the resources needed to produce that product. If more product is produced with fewer factors of production, the price of the product decreases. The standard of living in an economy improves through increases in productivity. © 2009 Pearson Education, Inc. 36

37. Balance of Trade – The economic value of all the products a country exports minus the economic value of its imported products. Positive balance of trade: When a country exports (sells to other countries) more than it imports (buys from other countries). Negative balance of trade: When a country imports more than it exports. Commonly called a trade deficit. © 2009 Pearson Education, Inc. 37

38. FIGURE 1.4 Balance of Trade © 2009 Pearson Education, Inc. 38

39. A.National debts in USA in 2007 amounted 9.4$ trillion. B.Trade deficit: in 2007 exceeded $700 billion. 39

40. Recessions & Depressions Recession: Aggregate output declines, unemployment increases. A recession is usually measured by two consecutive quarters of decline in real GDP. Depression: Severe and long-lasting recession

41. Managing the Economy Stabilization Policy – Coordinating fiscal and monetary policies to smooth fluctuations in output and unemployment and to stabilize prices. © 2009 Pearson Education, Inc. 41

42. Types of Policies Monetary Policy: Designed to control the amount of money flowing around the economy (the money supply). This policy is used to tackle inflation and balance of payments. Methods under this policy: 1.Interest rates: 2.The government may impose restrictions on financial institutions to affect borrowing. 3.The central bank can control bank assets and the amount of lending. Level of reserves

43. Types of Policies Fiscal policy: Aims to control the total spending in the economy. 1.Government spending. 2.Change in direct taxation. 3.Change in indirect taxation.

44. Assignment Interview a Business Owner Interview a business owner or senior manager and ask them how government fiscal policy affect their business in terms of sales, competition and profit. 44