1. Chapter 1 Exploring the World of Business and Economics

2. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 2 Learning Objectives 1.Examine the reasons why you would want a career in the world of business. 2.Define business and identify potential risks and rewards. 3.Define economics and describe the two types of economic systems: capitalism and command economy. 4.Examine the importance of productivity in the study of economics and how it relates to the measures of economic performance. 5.Examine the different economic cycles and their management through fiscal and monetary policies. 6.Analyze the economic forces of supply and demand and how they affect the four different types of business competition. 7.Summarize the historical factors that have affected the current business environment and the challenges American businesses will encounter in the future.

3. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 3 Free Enterprise “…the system of business in which individuals are free to decide what to produce, how to produce it, and at what price to sell it.”

4. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 4 Your Future in the Changing World of Business What do you want? Why do you want it? Write it down! ©2007 Digital Vision/Flying Colors Ltd.

5. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 5 Why Study Business? Help in choosing a career –www.careerbuilder.comwww.careerbuilder.com –www.careeronestop.orgwww.careeronestop.org –monster.commonster.com –Yahoo! Hot JobsYahoo! Hot Jobs To be a successful employee To start your own business To become a better informed consumer and investor

6. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 6 Median Yearly Income Source: Statistical Abstract of the United States

7. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 7 Cultural (Workplace) Diversity “…differences among people in a workforce owing to race, ethnicity, and gender.”

8. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 8 Text Features Your Guide to Success in Business Opening Case Margin Notes Boxed Features Spotlight End-Of-Chapter Materials End-Of-Part Case © 2007 Getty Images/Stockbyte

9. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 9 Seven Ways to Use This Text and Its Resources 1.Prepare before you go to class 2.Read the chapter 3.Underline or highlight important concepts 4.Take notes 5.Apply the concepts 6.Practice critical thinking 7.Prepare for exams

10. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 10 Business “…the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs.”

11. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 11 Organized Effort of Individuals- Resources Material Human Financial Informational ©2007 Triangle Images

12. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 12 Figure 1.1: Combining Resources

13. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 13 Ultimate Objective of Every Firm “…to satisfy the needs of its customers.”

14. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 14 Business Profit Sales Revenue -Business Expenses Profit (Loss)* *Profit becomes property of its owners

15. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 15 Stakeholders “…all the different people or groups of people who are affected by the policies, decisions, and activities made by an organization.”

16. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 16 Stakeholders

17. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 17 Business Ownership Risks  Not being paid  Lose whatever invested in business ©2007 Microsoft PowerPoint

18. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 18 Figure 1.2: Relationship Between Sales Revenue and Profit

19. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 19 Paths to E-Profits $ Amazon  Free Shipping  Outside merchants = commission $ eBay  Online auction  Commission  Online telephone communications $ Google  Search engine  Sells advertising links ©2007 Stockbyte/John Foxx

20. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 20 Economics “…the study of how wealth* is created and distributed**.” *“anything of value,” including products produced and sold by business **“who gets what”

21. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 21 Economics Used to Explain Choices made by- individuals, governments, society Choices change in coping with life Scarcity = lack of resources  Money  Time  Natural resources, etc. ©2007 Digital Vision/Triangle Images

22. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 22 Economy “…the way in which people deal with the creation and distribution of wealth that a nation has.”

23. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 23 Economic Perspectives Microeconomics- study of decisions made by:  Individuals  Businesses Macroeconomics- study of:  National economy  Global economy ©2007 Digital Vision//Triangle Images

24. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 24 Economic Systems Differ oOwnership of factors of productionfactors of production oThe answer to four basic economic questions about nation’s economic activity What & how much will be produced? ‚How will it be produced? ƒFor whom will it be produced? „Who owns/controls factors of production?

25. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 25 Factors of Production “…resources used to produce goods and services.” 1.Land/natural resources 2.Labor 3.Capital 4.Entrepreneurship

26. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 26 Types of Economic Systems Capitalism Command ©2007 Microsoft PowerPoint

27. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 27 Capitalism “…individuals own and operate the majority of businesses that provide goods and services.”

28. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 28 Adam Smith Wealth of Nations Society pursues self-interest People work hard if: –Earn more pay –Earn more profit Promotes good of community

29. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 29 “Invisible Hand” “…describe(s) how an individual’s own personal gain benefits others and a nation’s economy.”

30. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 30 Figure 1.3: Assumptions for Laissez-Faire Capitalism

31. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 31 U.S. = Mixed Economy “…an economy that exhibits elements of both capitalism and socialism.”

32. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 32 Figure 1.4: Circular Flow in Mixed Economy

33. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 33 Command Economy “…government decides what goods and services will be produced, how they will be produced, for whom available goods and services will be produced, and who owns and controls the major factors of production.”

34. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 34 Life in a Command Economy Pop Machine Museum Wendy’s Ad

35. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 35 Command Economies  Socialism  Communism ©2007 Stockbyte/John Foxx

36. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 36 Socialism Key industries owned/controlled by government Land, buildings, and raw materials may be property of state Private ownership permitted to varying degrees People chose own occupations National goals determine what/how produced Uses taxes, rents, and wages to control distribution

37. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 37 Communism Karl Marx- Father  Advocated classless society  Citizens own all economic resources  Workers contribute based on ability & received benefits based on need Examples- North Korea & China Centralized planning- sets prices & wages Emphasis on gov’t needs not consumers No job choice- professionals better off than factory workers

38. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 38 Government Actions Monetary Policy- Federal Reserve determines size of money supply & interest rates Controlled by the Federal Reserve (FED) –Seven Member Board –Chairman ©2007 Microsoft PowerPoint

39. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 39 © 2009 South-Western, a division of Cengage Learning MONEY: M1 AND M2 M1 Money Supply - all currency—paper bills and metal coins—plus checking accounts and traveler’s checks. M2 Money Supply - all M1 plus most savings accounts, money market accounts, and certificates of deposit (low risk savings vehicles with a fixed term).

40. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 40 © 2009 South-Western, a division of Cengage Learning BANKS MULTIPLYING MONEY You deposit $5,000 The bank loans Anne $4,500 Anne buys a car from Jake for $4,500 Jake deposits the $4,500 Although you still have $5,000, the money supply has increased to $9,500 The bank must hold 10% of your deposit based on Federal Reserve Requirements.

41. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 41 Fiscal Policy- Influences amount of savings and expenditures by altering tax structure and government spending Controlled by Congress/Budget Process

42. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 42 Federal Deficit “…a shortfall created when the federal government spends more in a fiscal year than it receives.” U.S. National Debt Clock

43. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 43 Measuring Economic Performance  Productivity  Economic Indicators ©2007 Microsoft PowerPoint

44. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 44 Productivity “…the average level of output per worker per hour.”

45. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 45 Index of Output per Worker in Manufacturing in the U.S. Source: Manufacturing Productivity and the Shifting US, China, and Global Scenes- 1990 to 2005, William A. Ward, Clemson University Center for International Trade Working Paper 052507, http://business.clemson.edu/cit/Documents/Mfg%20Employment%20Working%20Paper%20draft%208%202005.pdf#search='labor%20productivity %20index%20%2019902005‘ http://business.clemson.edu/cit/Documents/Mfg%20Employment%20Working%20Paper%20draft%208%202005.pdf#search='labor%20productivity %20index%20%2019902005‘ 1990 = 100

46. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 46 Results of Increased Productivity 1)Owners make more profit and/or sell products for less 2)Can lead to higher unemployment ©2007 Microsoft PowerPoint

47. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 47 Table 1.2: Common Measures Used to Evaluate a Nation’s Economic Health

48. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 48 Consumer Price Index (CPI-U) 1982-1984 = 100 U.S Department of Labor, Bureau of Labor Statistics, “Consumer Price Index- All Urban Consumers”, http://www.bls.gov/cpi/http://www.bls.gov/cpi/

49. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 49 Figure 1.5: GDP in Current Dollars & in Inflation-Adjusted Dollars

50. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 50 Business Cycle “…the recurrence of periods of growth and recession in a nation’s economic activity.”

51. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 51 States of Business Cycle Depression Recession Peak Trough Depression

52. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 52 Table 1.3 Four Different Types of Competition

53. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 53 Figure 1.6: Supply Curve and Demand Curve

54. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 54 Financial Systems: Money & Banking

55. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 55 Standard of Living “…a loose, subjective measure of how well off an individual or a society is mainly in terms of want satisfaction through goods and services.”

56. Copyright © Houghton Mifflin Company. All rights reserved. 1 | 56 Life in a Command Economy http://chnm.gmu.edu/1989/exhibits/everyday- life/introductionhttp://chnm.gmu.edu/1989/exhibits/everyday- life/introduction Toilet Paper http://chnm.gmu.edu/1989/exhibits/everyday- life/introduction http://chnm.gmu.edu/1989/exhibits/everyday- life/introduction http://www.boston.com/news/globe/ideas/articles /2006/09/10/all_that_is_solid/ Museumhttp://www.boston.com/news/globe/ideas/articles /2006/09/10/all_that_is_solid/ Aeroflot http://www.nytimes.com/2003/04/07/world/a- face-lift-for-down-at-heel- aeroflot.html?pagewanted=2 http://www.nytimes.com/2003/04/07/world/a- face-lift-for-down-at-heel- aeroflot.html?pagewanted=2