Ch. 1. The Business Environment PDF

The Business Environmen t Chapter 1 Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd....

The Business Environmen t Chapter 1 Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-1  Introduction Why have gasoline prices gone up and down so dramatically and why do prices change from one day to the next? – In general, gas prices fluctuate as a result of four forces: supply, demand, global trends, and uncertainty. – After studying this chapter, you should be able to answer the learning objectives listed on the next slides. Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-2  Learning Objectives 1. Define the nature of business, describe the external environments of business, and discuss how these environments affect the success or failure of organizations. 2. Describe the different types of global economic systems according to the means by which they control the factors of production. Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-3  Learning Objectives 3. Show how markets, demand, and supply affect resource distribution, identify the elements of private enterprise, and explain the various degrees of competition in the economic system. 4. Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system. Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-4  The Concept of Business and Profit Business – organization that provides goods or services to earn profits Profits – difference between a business’s revenues and its expenses... – Work: Fair and Livable wage, WLB (Work Life Balance), Burnout Protective Tools (ex. ), Motivation, Status, Dignity, Self-Respect... Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-5  The External Environment of Business External Environment – everything outside an organization’s boundaries that might affect it Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-6 Dimensions of the External Environment Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-7  Economic Systems Economic system – a nation’s system for allocating its resources among its citizens, both individuals and organizations Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-8  Factors of Production Factors of production – the resources that a country’s businesses use to produce goods and services Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-9 Types of Economic Systems Planned Economy – economy that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions – Communism, socialism – Philosophical Difference between Socialism and Capitalism – Sequence of becoming Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-10 Types of Economic Systems (cont.) Market economy – individual producers and consumers control production and allocation by creating combinations of supply and demand Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-11 Types of Economic Systems (cont.) Mixed market economy – features characteristics of both planned and market economies Privatization – process of converting government enterprises into privately owned companies Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-12  Demand and Supply in a Market Economy Demand Supply – the willingness and – the willingness ability of buyers to and ability of purchase a product producers to offer (a good or a service) a good or service for sale Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-13 Demand and Supply Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-14 Demand and Supply (cont.) Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-15  Private Enterprise and Competition in a Market Economy Private enterprise system – one that allows individuals to pursue their own interests with minimal government restriction – private property rights, freedom of choice, profits, and competition Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-16  Private Enterprise and Competition in a Market Economy (cont.) 1. Private property rights – ownership of the resources used to create wealth is in the hands of individuals 2. Freedom of choice – you can sell your labor to any employer you choose Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-17  Private Enterprise and Competition in a Market Economy 3. Profits (cont.) – the lure of profits leads some people to abandon the security of working for someone else and assume the risks of entrepreneurship 4. Competition – occurs when two or more businesses vie for the same resources or customers Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-18 Degrees of Competition Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-19  Degrees of Competition (cont.) For perfect competition to exist, two conditions must prevail: 1.all firms in an industry must be small, and 2.the number of firms in the industry must be large Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-20  Perfect Competition 1. The products of each firm are so similar that buyers view them as identical to those of other firms. 2. Both buyers and sellers know the prices that others are paying and receiving in the marketplace. 3. Because each firm is small, it is easy for firms to enter or leave the market. 4. Going prices are set exclusively by supply and demand and accepted by both sellers and buyers. Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-21  Degrees of Competition (cont.) Monopolistic Competition – market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-22  Degrees of Competition (cont.) Oligopoly – market or industry characterized by a handful of (generally large) sellers with the power to influence the prices of their products Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-23  Degrees of Competition (cont.) Monopoly – market or industry in which there is only one producer that can therefore set the prices of its products Natural Monopoly – industry in which one company can most efficiently supply all needed goods or services Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-24  Economic Indicators Economic indicators – statistics that show whether an economic system is strengthening, weakening, or remaining stable – help assess the performance of an economy Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-25  Economic Growth, Aggregate Output, and Standard of Living Business cycle – the pattern of short-term ups and downs (or expansions and contractions) in an economy Aggregate output – the total quantity of goods and services produced by an economic system during a given period – primary measure of growth in the business cycle Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-26  Economic Growth, Aggregate Output, and Standard of Living (cont.) Standard of living – the total quantity and quality of goods and services that they can purchase with the currency used in their economic system Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-27  Gross Domestic Product Gross domestic product (GDP) refers to the total value of all goods and services produced within a given period by a national economy through domestic factors of production measure of aggregate output Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-28 Gross Domestic Product (cont.) Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-29  Gross National Product Gross national product (GNP) – refers to 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 Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-30 GDP and GDP per Capita Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-31  Gross Domestic Product Nominal GDP – gross domestic product (GDP) measured in current dollars or with all components valued at current prices Purchasing Power Parity – the principle that exchange rates are set so that the prices of similar products in different countries are about the same Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-32 World Prices of a Big Mac Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-33  Productivity Productivity – measure of economic growth that compares how much a system produces with the resources needed to produce it Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-34  Productivity (cont.) Balance of trade – the economic value of all the products that a country exports minus the economic value of its imported products – Positive or negative balance National Debt – the amount of money the government owes its creditors Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-35  Economic Stability Stability – condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate Inflation – occurs when widespread price increases occur throughout an economic system Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-36  Economic Stability (cont.) Unemployment – the level of joblessness among people actively seeking work in an economic system Recession – a period during which aggregate output, as measured by GDP, declines Depression – a prolonged and deep recession Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-37 Managing the U.S. Economy Fiscal Policies – policies used by a government regarding how it collects and spends revenue Monetary Policies – policies used by a government to control the size of its money supply Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-38 Managing the U.S. Economy (cont.) Stabilization Policy – government economic policy intended to smooth out fluctuations in output and unemployment and to stabilize prices Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-39  Applying What You’ve Learned 1. Define the nature of the business, describe the external environments of business, and discuss how these environments affect the success or failure of organizations 2. Describe the different types of global economic systems according to the means by which they control the factors of production. Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-40 Applying What You’ve Learned (cont.) 3. Show how markets, demand, and supply affect resource distribution in the United States, identify the elements of private enterprise, and explain the various degrees of competition in the economic system. 4. Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system. Copyright © 2012 Pearson CopyrightEducation, © 2017 Pearson Education, Inc. Publishing as Ltd. 1-41