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Questions and Answers
What is the primary goal of economic activities?
Management decisions primarily focus on acquiring, allocating, and integrating financial resources only.
False
What does the pyramid of needs illustrate?
A hierarchy of needs that must be satisfied in order to achieve self-actualization.
Economic activity includes the production, distribution, and consumption of __________.
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Match the economic activities with their definitions:
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Which of the following factors can affect a person's needs?
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Identify two ways in which money flows in economic activity.
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Public goods can only be classified as private goods.
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Which of the following best describes the main areas of business?
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The role of the entrepreneur is solely to generate profits for the company.
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What is one key characteristic of a modern corporation?
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The relationship between business and __________ is essential for understanding corporate responsibilities.
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Match the following case studies with their notable aspects:
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Which of the following is a primary stakeholder in a corporation?
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Corporate governance focuses primarily on the organization's profitability.
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Identify one challenge faced by companies like Enron and Theranos.
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The __________ problem describes the conflict of interest between a company's management and its shareholders.
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What is a significant consequence of failing to address shareholder rights?
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Study Notes
Management
- Management involves making decisions about acquiring, allocating, and integrating resources, including human, physical, and financial, to achieve a specific economic activity.
- Economic activity aims to fulfill people's needs, which stem from their goals and values.
- Needs are influenced by culture, socio-economic conditions, and evolve over time.
- Maslow's Hierarchy of Needs prioritizes needs from basic survival to self-actualization.
- People need to satisfy their needs in a structured way.
Types of Goods
- Goods can be tangible or intangible based on their physical presence.
- They can be consumer or industrial based on their final user.
- They can be durable or non-durable based on their lifespan.
- Goods are intermediate if used to produce other goods and final if consumed directly.
- Goods can be private (exclusive ownership, rivalrous consumption) or public (non-exclusive, non-rivalrous). Public goods are either non-excludable (hard to prevent access) or non-rivalrous (use by one does not decrease availability for others).
Economic Activity
- It includes production, distribution, and consumption of goods and services.
- Money flows through society in two directions: producers to workers as wages, then workers to producers for goods and services.
People in Business
- Entrepreneurs initiate and lead the business, often taking risks.
- Workers are employed to perform tasks within the business.
- Consumers purchase goods or services produced by the business.
- These categories are linked to the main functions of business: R&D/Production, Finance, and Marketing & Sales.
Roles in Business
- Entrepreneurs are crucial for innovation and growth.
- Governments establish rules and regulations for business, and may provide support or intervention.
- Ethics are essential for sustainable and responsible business practices.
The Corporation & Stakeholders
- Valeant is a pharmaceutical company that faced criticism for its pricing practices and use of acquisitions to increase profits.
- The Corporation is a legal entity separate from its owners.
- Business and Society have a complex relationship; businesses benefit from society but also impact it.
- Corporate Social Responsibility is the obligation to act ethically and contribute to society.
- Corporate Social Irresponsibility can harm society and damage a company's reputation.
The Purpose of the Modern Corporation
- It should create value for all stakeholders, not just shareholders.
- Its primary goal is to make a profit, but within a framework of ethical and responsible practices.
- Stakeholders are individuals or groups that have an interest in the corporation's activities.
- Stakeholder Analysis helps understand a stakeholder's interests, power, and potential impact on the business.
Uber Case Study
- Uber faced challenges with its business model, labor practices, and regulatory issues.
- It struggled to comply with regulations in different countries.
SunCal Case Study
- SunCal developed a large-scale real estate project that faced criticism for its environmental impact and lack of public transparency.
Patagonia Study Case
- Patagonia is a clothing company known for its environmental commitment and sustainable practices.
- Its mission is to build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis.
- It engages in activities like fair trade sourcing, recycled materials, and environmental activism.
Patagonia Governance
- Patagonia's governance is unusual; its founder, Yvon Chouinard, transferred ownership to a trust and a non-profit organization.
- Key Stakeholders: employees, customers, suppliers, community, environment, and the planet.
- Patagonia implements its mission through practices like environmental conservation, ethical sourcing, and sustainable production.
Patagonia’s Change in Governance
- Chouinard transferred ownership to a trust and a non-profit to protect the company's mission and ensure long-term sustainability.
- This meant giving up control of the for-profit company, even personal wealth.
Shareholders and Corporate Governance
- Shareholder Objectives include increasing their wealth through dividends and share price appreciation.
- Shareholders Rights are established by law and include voting on matters related to the corporation and receiving information about the company's performance.
- Corporate Governance refers to the rules and procedures that guide a company's operation.
- The Board of Directors is responsible for overseeing the corporation's management.
- Agency Problem: arises when the interests of shareholders and management misalign.
Protection of Shareholder Interests
- Regulations are designed to prevent unethical practices and protect shareholder rights.
- Transparency through financial reporting and information disclosure.
What Do Managers Do?
- Managers perform a variety of activities, including planning, organizing, leading, and controlling resources to achieve organizational goals.
Major Functions of Management
- Planning: Setting goals and developing strategies to achieve them.
- Organizing: Structuring resources and assigning tasks to achieve goals efficiently.
- Leading: Motivating, guiding, and coordinating employees to achieve outcomes.
- Controlling: Monitoring performance, measuring progress, and making adjustments to ensure goals are met.
Levels of Management
- Top Management: Responsible for overall strategy and long-term decisions.
- Middle Management: Implement plans and coordinate department activities.
- Supervisory or Frontline Management: Directly supervise employees and ensure day-to-day operations run smoothly.
Decision Making
- Decision making is a key aspect of management.
- Managers must consider various factors like risk, resources, and stakeholders' interests when making decisions.
- Rational Decision-Making Model: involves defining the problem, identifying options, evaluating alternatives, and making a choice.
Enron Case Study
- Enron was an energy company that collapsed due to accounting fraud and unethical practices.
- Mark-to-Market Accounting: allowed Enron to inflate its profits by recording anticipated future earnings.
Special Purpose Entities (SPEs)
- Were created to hide Enron's debt and inflated profits.
- Key Stakeholders: Shareholders, Employees, Investors, Government regulators.
Enron Collapse
- The fraud became public, investor confidence shattered, and the company went bankrupt.
- It highlighted the importance of ethical business practices, strong corporate governance, and transparency.
How Could Enron's Collapse be Prevented?
- Independent audits and stronger accounting regulations.
- Increased oversight by the Board of Directors.
Theranos Study Case
- Theranos was a healthcare company that claimed to have developed revolutionary blood-testing technology but faced significant challenges due to false claims and misleading information.
Theranos Key Stakeholders
- Investors, Customers, Healthcare professionals, Regulators.
Comparison between Enron and Theranos
- Both involved deceptive practices and ultimately failed due to a lack of transparency and ethical behavior.
Organizational Culture
- It shapes employee values, beliefs, and behaviors.
- It can be strong or weak, based on how widely shared and deeply ingrained it is.
Functional Areas
- Research and Development (R&D): Focuses on innovation and creating new products or processes.
- Production: Manages the creation of goods or services.
- Finance: Deals with financial resources, budgeting, and investment.
- Marketing: Promotes and sells products or services to customers.
- Human Resources (HR): Recruits, trains, and manages employees.
- Information Technology (IT): Manages the company's technology infrastructure and systems.
Organizational Structure
- The framework that defines how jobs and tasks are assigned, coordinated, and reported.
- It determines the lines of authority, communication channels, and workflow within an organization.
- It can be formal (explicitly defined rules and hierarchies) or informal (implied and based on personal relationships).
Forms of Organizational Structure
- Functional Structure: Grouping employees based on their expertise or role.
- Divisional Structure: Dividing the organization into self-contained units based on products, services, or geographic regions.
Freshii Study Case
- Freshii is a fast-casual restaurant chain that focused on healthy and fresh food.
- It successfully implemented a franchise business model and grew quickly.
- It faced some challenges regarding maintaining quality and consistency across franchises.
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