the scope of business - · pdf file01/08/2014 · 1 the scope of business 1. 2 ......

11 The Scope of Business

2

What Is Business?

An organization that provides goods and/or services to earn profits

Profits:The positive difference between revenues and expenses

3

The Nature of Business

To earn profits by providing products:

Tangible

Cars, food, clothing

Intangible

A service

An idea

Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved

Go to16

4

Business vs. NonprofitOrganization

Nonprofit Organization

Provides products, especially services, for some purpose other than profits, ex. The Salvation Army, 4300 American colleges & universities.

Business

An individual or organization that tries to earn a profit by providing products that satisfy people’s needs, ex. IBM, Coca-Cola.


5

The Goals of Business

For-Profit Sector:

Profit

The difference between what it costs to make and sell a product and what the customer pays for it.

Nonprofit Sector:

Goals

May provide goods or services but not for the purpose of earning profits.


6

Overview of the Business World


7

The People andActivities of Business

Activities:

Management

Marketing

Finance

People:

Owners

Employees

Customers

Other stakeholders:

Investors

Regulatory Agencies


9

Why Study Business?

To develop skills and acquire knowledge to prepare for your future career

To help you better understand the many business activities that are necessary to provide satisfying goods and services

To help you become a well-informed consumer and member of society


11

Physical

Resources

Labor Capital

Entrepreneurs

Factors of Production

Information

Resources

Go to16

12

Types of Resources Used by Business

Natural

Land, forests, etc. (not made by people)

Human

Physical/mental abilities used by people to produce goods and services

Financial

Funds necessary to acquire needed natural and human resources


13

What Is An Economic System?

The way a society distributes its resources to produce goods and services

Addresses the issue of how to fulfill unlimited demand with limited supply of resources


14

What is anEconomic System?

A nation’s system for allocating resources among citizens.

Assumes resources are scarce thus requiring allocation.

Market is mechanism for exchange between Buyer/Seller

15

Types ofEconomic Systems

Communism Socialism(Mixed Market)

Planned Economies

Capitalism vs. Market

16

Circular Flow of Economics

Output(Goods & Services)

Input(Factors of Production)

17

Basic Questions to Be Asked of Economic Systems

1. What goods and services and what quantity will satisfy the needs of the consumer?

2. How will the goods and services be produced?

a. Who will produce them and with what resources?

3. How are the goods and services to be distributed to the consumer?


18

How Are Factors of Production Allocated?

Planned Economy:

An economic system in which the government owns and operates all sources of production

Market Economy:

An economic system in which buyers and sellers interact based on freedom of choice

19

Types of Economic Systems

Capitalism

Communism

Socialism


20

Capitalism:A Fundamentally Market-Based Economy

Individuals Choose:

Where to work

What to buy

How much to pay

Producers Choose:

Who to hire

What to produce

How much to charge

Government supports private ownership

and encourages entrepreneurship

21

Capitalism

Private Ownership of

Factors of Production

Economic Decisions

Made by Owners

Freedom of Decisions/Choices

22

Mixed Economies: Planned and Market

The economies of most countries include both planned and market elements.

Worldwide trend is toward more market elements.

23

Communism

Planned Economic System

Government Owns All Production Facilities All Citizens Are Employees of Government All Capital

All Economic Decisions Controlled By Government

24

Mixed Market Economies

“Pure” Planned

“Pure” Market

25

Socialism: Mixed Economy

Socialism

A planned economic system in which the government owns and operates selected sources of production

Privatization:

The process of converting government enterprises into privately owned companies

26

Privatization vs. Socialism

Privatization

Socialism

27

Comparison of Communism, Socialism, and Capitalism


28

Economic Systems and Where They Occur

Communism Socialism Capitalism

China Sweden United States

North Korea India Canada

Cuba Israel Japan

Australia


29

Mixed Economies

Most countries of the world have elements of more than one economic system.


30

Supply & Demand

Demand- Comes From Buyers As Price Drops Buyers Purchase More

Supply- Producers’ Willingness As Price Increase Producers Offer More

Buyers & Suppliers Work Towards Equilibrium = Profit Maximization Surplus vs. Shortage

31

Supply and Demand Drive the U.S. Economic System

Supply:

The willingness and ability of producers to offer a good or service for sale

Law of Supply:

Producers will supply (offer) more of a product for sale as its price rises and less as its price drops.

32

Supply and Demand Drive the U.S. Economic System (cont’d)

Demand:

The willingness and ability of buyers to purchase a good or service

Law of Demand:

Buyers will demand (purchase) more of a product as its price drops and less as its price increases.

33

U.S. Hot Dog Consumption

Hot dogs consumed between Memorial Day & Labor:

7 billion

Average number of hot dogs eaten/person from Memorial Day to Labor Day:

24

Rate of consumption during this time:

818 hot dogs/secondSource: National Hot Dog and Sausage Council, as reported in American Demographics, July/August 2004, p. 48.

34

Demand and Supply SchedulesQuantity of Quantity of

Price Pizzas Demanded Pizzas Supplied

$2 2000 100

$4 1900 400

$6 1600 600

$8 1200 800

$10 1000 1000

$12 800 1200

$14 600 1300

$16 400 1600

$18 200 1800

$20 100 2000

35

Pizza Supply At Given Price

0

5

10

15

20

25

100 400 600 800 1000 1200 1300 1600 1800 2000

Quantity (S)

Pri

ce o

f P

izza

SHigh

HighLow

36

Pizza Demand At Given Price

0

500

1000

1500

2000

2500

2 4 6 8 10 12 14 16 18 20

Quantity Demanded (D)

Piz

za P

rice

High

HighLow

D

37

Equilibrium (Market Price)

0

500

1000

1500

2000

2500

2 4 6 8 10 12 14 16 18 20

Quantity

Piz

za P

rice

High

HighLow

SD

Market Equilibrium

Surplus

Shortage

38

The Forces of Supply and Demand

Supply The number of products

that businesses are willing to sell at different prices at a specific time

Consumers are usually willing to buy more of an item as its price falls because they want to save money.

Demand The number of goods

and services that consumers are willing to buy at different prices at a specific time.

Businesses are willing to supply more of a good or service at higher prices because the potential for profits is higher.


39

The U.S. Economy is a Private Enterprise System

Individuals are free to pursue their own interests without government restriction.

Four Key Elements:

Private Property Rights

Freedom of Choice

Profits

Competition

40

The Free-Enterprise System

Individuals must have the right to own property and pass it on to their heirs.

People and businesses must have the right to earn profits and use them as they wish.

Individuals and businesses must have the right to determine how their businesses operate.

Individuals must have the right to choose their career, where to live, and what to buy.


41

Competition

Competition motivates businesses to produce their products better or cheaper

42

The Nature of CompetitionFour Competitive Environments

Pure Competition Many small businesses sell one standardized product.

Monopolistic Competition

There are fewer businesses than in a pure competition system, and the differences between the goods they sell are small.

Oligopoly Very few businesses sell a product; each business supplies a large portion of the products sold in the marketplace.

Monopoly There is only one producer of a product in a given market.


43

Private Enterprise

Private Property

Freedom of Choice

Profits

Competition

44

Degrees of Competition

Sellers

One Many

Monopoly

Oligopoly

Perfect Competition


45

Perfect/Pure Competition

Competition- 2+ Businesses Vie For Same Resources/Customers

Condition- No Single Firm Dominant

Principles Buyers View Products As Similar

Buyers/Sellers Know Each Others’ Prices/Costs

Easy To Enter/Leave Marketplace

Prices Set By Supply/Demand & Accepted by Sellers/Buyers

46


Many Buyers

Fewer Sellers Than Perfect/Pure Competition

Buyer Perception of Product/Brand Differentiation

47

Oligopoly Few Large Sellers

Market Entry Difficult- High Capital Investment

Sellers Control Strategies

48

Monopoly

Characteristics Only One Producer

Controls Industry Pricing

Natural Monopoly One Producer

Can Efficiently Supply All Goods/Services

49

Economic Cycles and Productivity

Economic expansion occurs when an economy is growing and people are spending more money.

Economic contraction occurs when spending declines.


50

Measuring the Economy

One commonly used measure is gross domestic product.

GDP is the sum of all goods and services produced by a national economy in a country during a year.

GNP is is the sum of all goods and services produced by a national economy regardless of where the factor of production are located during a year


51

Overall Unemployment Rate in the U.S. Civilian Labor Force

Source: “Overall Unemployment Rate in the Civilian Labor Force, 1920–2002,” InfoPlease (n.d.), www.infoplease.com/ipa/

A0104719.html (accessed February 16, 2004).

http://www.infoplease.com/ipa/

52

Growth in U.S. GrossDomestic Product Dollars

Source: “Gross Domestic Product or Expenditure, 1930–2002,” InfoPlease (n.d.), www.infoplease.com/ipa/

A0104575.html (accessed February 16, 2004). 8000 10000

http://www.infoplease.com/ipa/

53

Growth of The American Economy

The Early Economy Primarily agricultural; the use of natural resources

The Industrial Revolution The development of new technology and factories

The Manufacturing and Marketing Economies Devoted to manufacturing goods and providing services

rather than producing agricultural products

The Service and Internet-based Economy Devoted to the production of services that make life easier

for busy consumers

Did You Know? 60 percent of adult women work.


54

PRODUCTIVITY

is impacted by:

National

Debt

Understanding Economic Performance

KEY CONCEPTS

Productivity:

The amount a system produces compared to the resources needed to produce it

Balance

of Trade

55

Economic Stability:Balanced Growth of Money and Goods

Two related factors threaten stability:

INFLATION

UNEMPLOYMENT

56

The Role of the Entrepreneur

An entrepreneur is an individual who risks his or her wealth, time, and effort to develop for profit an innovative product or way of doing something.


57

The Role of Government in the American Economy

Federal, state, and local governments intervene in the economy with laws and regulations designed to:

Promote competition

Protect consumers, employees, and the environment


58

Recessions and Depressions

Recession:

Aggregate output declines, unemployment increases

Depression:

Severe and long-lasting recession

59

Satu

the scope of business - · pdf file01/08/2014 · 1 the scope of business 1. 2 ......

Documents