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

2. L E A R N I N G O B J E C T I V E S
After reading this chapter, you should be able to:
Define the nature of business and identify its main goals and functions.
Describe the external environments of business and discuss how these environments affect the success or failure of any organization.
Describe the different types of global economic systems.

3. L E A R N I N G O B J E C T I V E S (cont’d)
After reading this chapter, you should be able to:
Identify the elements of private enterprise
Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.
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4. Exercise
Write four things do you know about business. Write 4 things you would like to know?

5. 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.
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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.
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7. 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
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8. The External Environments of Business
Everything outside an organization’s boundaries that might affect it
The domestic business environment
The global business environment
The technological environment
The political-legal environment
The sociocultural environment
The economic environment
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9. The External Environments of Business (cont.)
Domestic Business Environment
The environment in which a firm conducts its operations and derives its revenues by:
Seeking to be close to its customers
Establishing strong relationships with its suppliers
Distinguishing itself from its competitors
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10. The External Environments of Business (cont.)
Global Business Environment
The international forces that affect a business:
International trade agreements
International economic conditions
Political unrest
International market opportunities
Suppliers
Cultures
Competitors
Currency values
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11. The External Environments of Business (cont.)
Technological Environment
All the ways by which firms create value for their constituents:
Human knowledge
Work methods
Physical equipment
Electronics and telecommunications
Various business activity processing systems
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12. The External Environments of Business (cont.)
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:
Product identification laws
Local zoning requirements
Advertising practices
Safety and health considerations
Acceptable standards of business conduct
Pro- or anti-business sentiment in government and political stability are also important considerations, especially for international firms.
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13. The External Environments of Business (cont.)
Sociocultural Environment
The customs, mores, values, and demographic characteristics of the society in which an organization functions
Sociocultural processes determine the goods, services, and standards of business conduct a society is likely to accept
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14. The External Environments of Business (cont.)
Economic Environment
The relevant conditions that exist in the economic system in which a company operates
Examples:
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15. The External Environments of Business (cont.)
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.
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16. Factors of Production Capital Labor Information Resources
Entrepreneurs
Physical Resources

17. Factors of production
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.
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
Entrepreneurs: People who are willing to accept the risks that are part of creating and operating businesses, in return for the potential profits.
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.
Information resources: Data and other information used by business. This factor has become increasingly important in the last decade.

19. Exercise: group Discussion
Higher Education service.
list the factors of production that were used to produce it.

20. Economic Systems Economic System Factors of Production
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
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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.
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.
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22. 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.
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23. Individuals choose where to work, what to buy, and how much to pay.
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.
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24. Market Economics 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.
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25. 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.
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26. 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.
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27. 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
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28. Economic Indicators
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
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29. Economic growth indicators
Economic Indicators
Economic growth indicators
Aggregate output, standard of living, gross domestic product, and productivity
Economic stability indicators
Inflation and unemployment
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30. Economic Growth, Aggregate Output, and Standard of Living
Business Cycle
The pattern of short-term ups and downs (or, better, expansions and contractions) in an economy.
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.
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31. Economic Growth, Aggregate Output, and Standard of Living
The total quantity and quality of goods and services that consumers can purchase with the currency used in their economic system.
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32. Economic Indicators (cont.)
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.
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33. Economic Indicators (cont.)
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.
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34. 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.
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35. Economic Growth (cont.)
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.
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36. FIGURE 1.4 Balance of Trade
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37. Economic Growth (cont.)
Recession
A period during which aggregate output, as measured by real GDP, declines
Depression
A prolonged and deep recession
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38. 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:
Interest rates:
The government may impose restrictions on financial institutions to affect borrowing.
The central bank can control bank assets and the amount of lending.

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

40. Managing the U.S. Economy
Stabilization Policy
Coordinating fiscal and monetary policies to smooth fluctuations in output and unemployment and to stabilize prices.
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41. Assignment Interview a Business Owner
Interview a business owner or senior manager and ask them how demand and supply affect their business, what essential factors of production are most central to the firm’s operations, and how fluctuations in economic indicators affect their business.