Fundamentals of business introduction chapter 1

Fundamentals of business

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Part 1
Business in a
Changing World
Chapter 1

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Part 1 Business in a Changing World
CHAPTER 1
The Dynamics of Business and Economics
CHAPTER 2
Business Ethics and Social Responsibility
CHAPTER 3
Business in a Borderless World

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Learning Objectives
LO 1-1Define basic concepts such as business, product, and profit.
LO 1-2Identify the main participants and activities of business and
explain why studying business is important.
LO 1-3Define economics and compare the four types of economic
systems.
LO 1-4Describe the role of supply, demand, and competition in a
free-enterprise system.
LO 1-5Specify why and how the health of the economy is
measured.

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The Nature of Business
Business
–Individuals or organizations who try to earn a profit by
providing products that satisfy people’s needs
The outcomes of its efforts are products.
Products
–Goods or services with tangible and intangible
characteristics that provide satisfaction and benefits

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A Product Can Be…
Tangible goods
–Automobile
–Computer
–Smartphone
–Coat
Services
–Dry cleaning
–Doctor’s checkup
–Movie
–Sports event
Ideas
–Professionals generate ideas for solving problems

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The Goal of Business
The goal of business is to earn a profit.
•The difference between what it costs to make and sell a
product and what a customer pays for it
•$10 sale –$8 to make = $2 profit
•Earning profits contributes to society by creating
resources that support our social institutions and
government. Businesses that create profits, pay taxes,
and create jobs are the foundation of our economy.
•Profits must be earned in a responsible manner

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Nonprofit Organizations
Nonprofit Organizations
–Provide goods and services
–Do not share the purpose of earning profits
–Engage in fund raising
–Engage in management, marketing and finance to
reach goals

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To Earn a Profit
Profit requires:
•To earn a profit, a person or organization needs management skills to plan,
organize, and control the activities of the business and to find and develop
employees so that it can make products consumers will buy.
•A business also needs marketing expertise to learn what products
consumers need and want and to develop, manufacture, price, promote, and
distribute those products.
•Additionally, a business needs financial resources and skills to fund,
maintain, and expand its operations.
•Other challenges for businesspeople include abiding by laws and
government regulations;
•Acting in an ethical and socially responsible manner; and adapting to
economic, technological, political, and social changes.

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Stakeholders
•Groups that have a stake in the success and outcomes of
a business
•Includes customers, employees, investors, government
regulators, and community
•To achieve and maintain profitability, businesses must
produce quality products, operate efficiently, and be
socially responsible and ethical in dealing with
stakeholders

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Overview of the Business World
Jump to Appendix 1 long
image description

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Management
Management is concerned with:
•Developing plans
•Coordinating employees’ actions
•Organizing and motivating people
•Using resources (including people) effectively and
efficiently

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Marketing
The focus of all marketing activities is satisfying
customers.
•Determine customer
needs
•Plan and develop
product
•Determine price
•Determine place
(distribution)
•Determine promotion
The Aflac duck ad uses humor in its
advertising to promote the insurance
company.
© Chance Yeh/Contributor/Getty Images

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Finance
The owner is primarily responsible for obtaining
financial resources for the operation of the
business, including:
✓Obtaining money
✓Using money effectively

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Why Study Business?
▪Develop skills for career success
▪Business career opportunities
▪Marketing
▪Human resources management
▪Information technology
▪Finance
▪Production and operations
▪Wholesaling and retailing
▪Become a well-informed consumer and member
of society

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Economic Foundations of Business
•Economics
•Natural resources
•Human resources (also called labor)
•Financial resources (also called capital)
•Intangible resources

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Economic Systems
Economic system
–A description of how a particular society distributes its
resources to produce goods and services
–All economic systems must address three important
issues:
1.What goods and services, and how much of each, will satisfy
consumers’ needs?
2.How will goods and services be produced, who will produce
them, and with what resources will they be produced?
3.How are the goods and services to be distributed to
consumers?

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Communism 1 of 2
Communism
–First described by Karl Marx as a society in which the
people, without regard to class, own all the nation’s
resources
–On paper it appears efficient, but in practice, these
economies suffer from:
•Low standards of living
•Critical shortages of consumer goods
•High prices
•Corruption and little freedom

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Socialism
Socialism
–An economic system in which the government owns
and operates basic industries, but individuals own
most businesses
–Most socialist countries are democratic and
recognize basic individual freedoms
–The socialist system may allow a higher standard of
living and is more stable; but taxes and
unemployment are generally higher in socialist
countries

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Capitalism
Capitalism, or Free Enterprise
–An economic system in which individuals own and
operate the majority of businesses that provide goods
and services
–Pure capitalismor free-market system happens
when all economic decisions are made without
government intervention; also called laissez-faire
capitalism
–Modified capitalism differs from pure capitalism in
that the government intervenes and regulates
business to some extent

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Mixed Economies
•No country practices pure capitalism, socialism,
or communism
•Mixed Economies
–Economies made up of elements from more than one
economic system
–No country practices a pure form of any economic
system, although most favor one system over others
–China and Russia have used state capitalism to
advance the economy, integrating powers of the state
with advantages of capitalism

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The Free-Enterprise System
•Many large economies are free-enterprise—including
the U.S., Canada and Japan
•Many communist and socialist countries apply free-
enterprise principles—including China and Russia
•Free enterprise allows a company to succeed or fail on
the basis of market demand
An entrepreneur presents her idea for
a new product. Entrepreneurs are more
productive in free-enterprise systems.
© JGI/Jamie Grill/Blend Images LLC

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Individual and Business Rights
Basic individual and business rights which must
exist in order for free enterprise to work
•Right to own property
•Right to earn profits and use them as one wishes
•Right to determine business operations
•Right to choose
✓Career to pursue
✓Where to live or where to locate a business
✓What goods/services to purchase and more

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The Forces of Supply and Demand
Demand
–The number of goods and services consumers are
willing to buy at different prices at a specific time
Supply
–The number of products businesses are willing to sell
at different prices at a specific time

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Equilibrium Price
Equilibrium price -
the price at which
the number of
products that
businesses are
willing to supply
equals the amount
of products that
consumers are
willing to buy at a
specific point in time

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The Nature of Competition 1 of 2
Competitionis the rivalry among businesses for
consumer’s dollars
Pure competition
–The market structure that exists when there are many
small businesses selling one standardized product
Monopolistic competition
–Fewer businesses than in a pure competition
environment and the differences among the goods
they sell are small

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The Nature of Competition 2 of 2
Oligopoly
–The market structure that exists when there are very
few businesses selling a product
Monopoly
–The market structure that exists when there is only
one business providing a product in a given market

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Economic Cycles and Productivity 1 of 3
Economic expansion occurs when an economy is
growing and people are spending more money; their
purchases stimulate the production of goods and
services, which in turn stimulates employment.
–This may lead to inflation –a continuing rise in prices
Economic contraction is a slowdown of the economy
characterized by a decline in spending and during
which businesses cut back on production and lay off
workers.
–This may lead to recession –a decline in production,
employment and income