IBM Foundations of Business and Economics PDF

CHAPTER-01 Foundations of Business and Economics. Learning Objectives: 1 To define the term business and state why the study of business is important. 2 To explain how people form the core of business. 3 To identify four main objectives of business. 4 To explain two views of profit. 5...

CHAPTER-01 Foundations of Business and Economics. Learning Objectives: 1 To define the term business and state why the study of business is important. 2 To explain how people form the core of business. 3 To identify four main objectives of business. 4 To explain two views of profit. 5 To define the term economics and discuss three types of economic resources. 6 To identify the characteristics of a free enterprise system. 7 To distinguish between planned and mixed economic systems. 8 To describe the stages of historical development of the American economy. 9 To identify the challenges facing business in the 1990s. What is Business? Business is an economic activity that involves with exchange, purchase, sale or production of goods and services with a motive to earning profit and satisfy the needs of customers. Why We Should Study Business: Business is an economic activity that involves with exchange, purchase, sale or production of goods and services with a motive to earning profit and satisfy the needs of customers.… 1. Increasing Dependence on Others 2. International opportunities 3. Standard of Living 4. Coping with change 5. Preventing Misconceptions 1.Increasing Dependence on Others: Over the year, people have become more and more dependent on others. Business is the exchange of good and services or money for mutual benefit or profit. Today, the business conducted in and among the united states, Canada ,Great Britain, Germany ,Japan and others countries is more complicated than bartering shoes for corn. Years ago , our ancestors discovered that producing everything one needs occasionally require doing some undesirable work. They also discovered that individual have various traits , needs and skills. If a person specialized in particular job, such as making shoes or growing corn , the surpluses produced could be traded for other desirable goods. This early exchange of goods without using money was called barter. The most famous barter in American history the was purchase of Manhattan Island by Dutch traders for a few dollars worth of colored glass beads. 2.International Opportunities: For individuals educated in business, exciting opportunities will exist around the world as we move toward the first 21st century. The New Era Business performance in an international Marketplace will require business leaders who know how to start, operate and sustain in business. 3.Standard of Living: Another reason to study business is to protect our way of life. Americans take great pride in being free and independent. Because of the independence, hard work and values embodied in business institutions, Americans enjoy a comfortable standard of living. Standard of living describes the amount of goods and services that an average family or individual views as Necessary. 4.Coping with Change : Business is dynamic always changing. Coping with both predictable and unpredictable events can be easier, more efficient, and less traumatic if we understand business. Prices increase or decrease, products are added, needs change, services are created to meet needs, laws are passed and unexpected events occur- for example, the October 19, 1987 (major) and October 13, 1989 (minor), stock market crashes; finding traces of benzene in bottles of Perrier water ; and the war in the Persian Gulf. This all have been a part of the dynamic business system. 5.Preventing Misconceptions: Understanding business also prevents our accepting misconceptions, misinformation and inaccurate data as truth. Many people still believe that Japan has the number one economy, that the average U.S. business earns 15 percent profit, that starting salaries for recent college graduates are usually $50,000 annually and that most people work for large business. Business Enterprise: An organization involved in exchanging goods and services or money to earn a profit. These business enterprises (such as Visible Changes hair salons, Olive Garden restaurants and Fiesta supermarkets) intend to earn a fair or reasonable profit by selling goods and services through business transactions. In the sense that business involves the exchange of goods and services or money for mutual benefit, we are all involved in business. For example, Dana Vance who bought a Macintosh SE computer through a business transaction with Apple Computer, hopes to get benefits by becoming more organized and productive. For most of us, our food, clothing ,automobile ,telephone, airplane trip to Hawaii golf clubs and Spanish audio tapes were purchased, used and enjoyed because we did business with an enterprise. People Form The Core Of Business: The human element is the core of business. Business needs people as owners, managers, employees and consumers. People need business for the production of goods and services and the creation of jobs. 1. Owners 2. Managers 3. Employees 4. Consumers 1.Owners: People who own a business ,as well as those who invest money in one, do so because they expect to earn a profit. 2.Managers: The person responsible for operating the business maybe the owner (an owner manager, also called an entrepreneur) or a professional manager employed by the owner. Both types of managers seek to achieve profit , growth, survival and social responsibility. 3.Employees: Employees supply the skills and abilities needed to provide a product or product or services and to earn a profit. Most employees expect to receive an equitable wage or salary and to be given gradual increases in the amount they are paid for the use of their skills and abilities. To compete with other business. A business enterprise need a committed and effective team of employees. 4.Consumers: Consumer means a person who purchases a goods or service for personal use. They want to pay a fair price for the goods and services they purchase. They also want the goods and services they purchase to be reliable. Business Objectives: Business objectives are specific, measurable, and time-bound goals that an organization aims to achieve in order to fulfill its mission and strategic priorities. These objectives provide a roadmap for the company, guiding its efforts and resources toward the desired outcomes. Business objectives are crucial for defining the direction of the organization and assessing its overall performance. Survival, Growth, and Social Responsibility: Survival is an obvious objective. Other objectives can be accomplished only if the business enterprise survives. Growth is an objective because business does not stand still. Market share increase, personal and individual development and increased productivity are important growth objectives. Social responsibilities has been recognized as an important objective. Businesses Like each person in society, must accept theft responsibilities in areas such as pollution control. Eliminating discriminatory practices and energy conservation. A picture is worth a thousand words PROFIT: TWO VIEWS Although survival, growth and social responsibility are important objectives. The profit objective plays the major role in business. Profit, however, means different things to different people because of their values, attitudes and perceptions. 1. Business profit 2. Economic profit 1.Business Profit : Typically , a businessperson calculates profit by subtracting all costs , including taxes, from the revenue received for selling a product or service in market. The difference is referred to as business profit. For example , the franchise owner of a Wendy’s fast-food restaurant subtracts all expense (for supplies , staff wages, property, advertising and so on ) from all income to determine the business profit. 2.Economic profit : Economic profit is the total revenue of a business minus both explicit costs (such as wages, rent, and materials) and implicit costs, which include the opportunity cost of the resources used. Unlike accounting profit, economic profit considers the foregone opportunities and is a more comprehensive measure of a firm's overall performance. If economic profit is positive, the business is earning more than its total costs, including the opportunity cost of capital. If it's negative, the business may not be covering all its costs, including the implicit ones. ECONOMICS: THE FOUNDATION OF BUSINESS The study of how a society chooses to use scarce resources to produce goods and services and to distribute them for consumption. Natural Resources: Natural resources are materials or substances that occur in nature and are used by humans for various purposes. These resources can be classified into two main categories: renewable and non-renewable Capital Resources:. Goods produced for the purpose of making other types of goods and services Labor Resources: The human talent, skills and competence available in a nation. Goods and Services : A nation's resources are used to produce goods and services that will meet people's needs and wants. Needs are goods and services people must have simply to exist. Goods and services produced in the United States- each product manufactured, each service offered are designed to meet needs and satisfy wants of consumers. Businesses start and operate hoping to produce some item or service that the public will like well enough or need badly enough to buy. Allocation: Allocation of goods and services (G&S) is the process of distributing and assigning resources and products efficiently within an economy or market. It involves deciding who gets access to what to meet society's needs and wants. Resource allocation: Resource allocation for goods and services refers to the efficient distribution of resources to meet societal or market needs and wants. Product distribution: Product distribution for goods and services involves efficiently delivering and making products available to consumers or end-users in a market or economy. It ensures that products reach their intended destinations to satisfy demand. Economic Systems: Economic systems are frameworks that define how a society organizes, produces and distributes goods and services, such as capitalism, socialism and mixed economies. Organizing production, establishing the accepted process by which labor, capital and natural rights and freedom of ownership using productive resources and governal resources are organized to business transactions in a society. Planned Economic Systems: A planned economy is an economic system in which the government or a central authority makes decisions about production, allocation and distribution of goods and services. It contrasts with market economies that rely on supply and demand without extensive government intervention. Planned economies aim to achieve specific social and economic goals through central planning, but historically, they have faced challenges such as inefficiency and lack of flexibility. The former Soviet Union and China under Mao Zedong are examples of countries that implemented planned economies. Socialism: Socialism in the economy means collective or state ownership and control of key industries and resources with a focus on reducing economic inequality and ensuring social welfare. It's characterized by central planning and public ownership, contrasting with capitalism's private ownership and market-driven approach. There are various forms of socialism, ranging from democratic socialism, which emphasizes a mix of public and private ownership with democratic governance, to more centrally planned socialist models. The implementation and interpretation of socialism can vary widely across different countries and political ideologies. Perestroika: Perestroika was a policy of economic and political restructuring in the Soviet Union during the 1980s, introduced by Mikhail Gorbachev, with the goal of modernizing and revitalizing the country's stagnant socialist system but it ultimately led to the collapse of the Soviet Union. Mixed Economy: A mixed economy blends elements of both free market capitalism and government intervention. The government and private business enterprises produce and distribute goods and services. The government usually plays a role in supplying defence , roads, education, pensions and some medical care. In the mixed economy ,markets are generally free and competitive. Capitalism: Capitalism is a type of economic system characterized by private ownership of capital and by competition among business seeking a profit. Consumers play much more of a role under capitalism then they do in a planned economy. They have freedom of choice in purchasing goods and services , in selecting an occupation or a school and in deciding how to use money that is earned. They are free to consume what they want and need. Their choices greatly influence decisions about production and use of resources. Mercantilism: A system of State Power, with public authority controlling and directing the Nation’s economic life. According to the basic tenets of mercantilism, a nation should: Be as self-sufficient as possible. Sell more goods to foreigners than are purchased from foreigners, in order to increase the mother country's wealth. Accumulate gold and silver bullion because these serve as a measure of the country's wealth and power. Establish colonies which serve as sources of raw materials or precious metals and as a market for finished goods. Adam Smith: The Wealth of Nations Adam Smith, a professor at the University of Edinburgh in Scotland in the late 1700›, was a prominent critic of mercantilism. Smith wanted to make individuals and their needs the focal point of the economy; he felt that individual’s pursuit of their own best interests would lead a nation to attain it’s goals. His book The Wealth of Nations (published in 1776) presented many of his views. ADAM SMITH The Pre-Depression Years: The period from the end of the 19th century to the Great Depression in 1929 was one of the growth in the oil, steel, and financial industries. Other industries, such as tobacco, meat and copper also grew For example, in the early 19th century meat processing had been quite primitive. Done either at home or by local butchers. The prosperity of the 1920s resulted from a number of factors. One important cause was the profits made in stock market speculation. People were putting money into the stock market, often on credit. They would buy some stock and then use it as a security pledge to obtain a loan to buy even more stock. The Great Depression: A period of drastic decline in a national economy characterized by decreasing business transitions falling prices and high unemployment. The Depression of 1929-40 will be ingrained in the minds of Americans for generations to come. Although the 1929 stock market crash was a major factor leading to the Great Depression , other factors contributed. THE MODERN ERA: 1. Recession: A recession is when the economy slows down, leading to job losses, reduced spending, and financial difficulties for businesses and individuals. It's a period of economic decline. 2. Inflation: Inflation is when the prices of goods and services increase over time, The Actions of the Federal Reserve System: Installment buying. Overproduction, of consumer goods and a decline in investment. Speculation the crash of the stock market came early in the Depression and its effects were less significant than the waves of bank failures that followed.  The Modern Era: 1. 1.Recession: A recession is when the economy slows down, leading to job losses, reduced spending, and financial difficulties for businesses and individuals. It's a period of economic decline. 2. 2.Inflation: Inflation is when the prices of goods and services increasing over time, eroding the purchasing power of a currency and reducing the value of money. It's a general rise in the cost of living. The Modern Era: 3.Stagflation: Stagflation is an economic condition marked by a combination of stagnant economic growth, high unemployment and rising inflation, which is typically a challenging situation for policymakers as it contradicts traditional economic theories. 4.Jobs: In the modern era, a job refers to work or employment that individuals engage in to earn income and support themselves. The Good News About U.S. Business: As of my last knowledge update in September 2021, the U.S. business landscape had seen several positive trends. Some potential positive aspects include- Economic Growth Innovation and Technology Entrepreneurship Trade and International Presence.Investment and Stock Markets Energy Sector Inclusive Practices The Modern Era: In past centuries, heads of state were all-important because the relationships between countries were primarily political. Today a country's business leaders are often as prominent as its political figures. Nations are now linked by telecommunications and trade (economics). Telecommunications will continue to link nations, people and businesses. Just as we are becoming a global marketplace, we are moving toward a single worldwide information network. Another aspect of the global boom is exploding economies. Five hundred years ago, the world's trade center began moving from the Mediterranean to the Atlantic. It is now moving from the Atlantic toward the Pacific. Los Angeles ,Tokyo, Sydney and Hong Kong are becoming centers of business. The Environment: The economically booming world of the 1990s will not be without environmental challenges. Business leaders must help solve the ozone layer depletion, acid rain the greenhouse effect and the destruction of rain forests. As the public becomes more concerned about the environment business leaders take note. If a company's environmental reputation affects people's buying decisions, then business concern maybe tied to survival of the enterprise. The changes in business concerns about the environment appear daily. At Wal-Mart, environmentalism is a cause suppliers are asked to provide recycled or recyclable products.  Thanks! Do you have any questions?