1 chapter business essentials, 6 th canadian edition ebert chapter 1, understanding the bus. system...

1chapter

Business Essentials, 6th Canadian EditionEbert

Chapter 1, Understanding the Bus. System

PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College

economic systems chapter1 2012 canadian ed.

After reading this chapter, you should be able to:1. Define the nature of business and Identify Its main

goals.2. Describe different types of global economic systems

according to the means by which they control the factors of production through input and output markets.

3. Show how demand and supply affect resource distribution .

4. Identify the elements of private enterprise .

L E A R N I N G O B J E C T I V E SL E A R N I N G O B J E C T I V E S

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Exercise

A. Write four things do you know about business. Write 4 things you would like to know?

B. Try to know your neighbor and brake the ice.


The Concept of Business and Profit

• Business–An organization that provides goods or

services that are then sold to earn profits.

• Profits–The positive difference between a

business’s revenues and its expenses. The rewards owners get for risking their money and time.

© 2009 Pearson Education, Inc.4economic systems chapter1 2012 canadian

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The Benefits of Business1. Provision of goods and services

2. Employment of workers

3. Innovation and opportunities

4. Increased quality of life and standard of living

5. Enhanced personal incomes of owners and stockholders

6. Tax payments support government

7. Support for charities and community leadership


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Physical Resources

Labor Capital

Entrepreneurs

Factors of Production

InformationResources


Factors of productionA. Labor: The people who work for

businesses. Labor includes both physical and mental contributions. A country with a highly educated workforce is considered rich in this resource.

B. Capital: The funds needed to create and operate a business. Sources include personal investment by owners, loans, sale of stock and bonds, and revenue from the sale of product.


Factors of productionA. Entrepreneurs: People who are willing to accept

the risks that are part of creating and operating businesses, in return for the potential profits.

B. Physical resources: Tangible things organizations use in the conduct of their business. Possibilities include natural resources, raw materials, office equipment and facilities, computers, transportation and communication infrastructure, etc.

C. Information resources: Data and other information used by business. This factor has become increasingly important in the last decade.


Information Resources

Information resources include: the specialized knowledge and expertise of people who work in businesses, as well as information that is found in market forecasts and various other forms of economic data.


Exercise: group Discussion

1. In your faculty of business, list the factors of production that were used to provide higher education service.

2. What are the factors of production used to produce clothes?

3. Factors of production in a supermarket.


Economic Environment–The relevant conditions that exist in

the economic system in which a company operates

–Examples: recession and growth.


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Recessions & Depressions

Recession:

Aggregate output declines, unemployment increases. A recession is usually measured by two consecutive quarters of decline in real GDP.

Depression:

Severe and long-lasting recession

Economic Environment– Examples:

• If an economy is doing well enough that most people have jobs, a growing company may find it necessary to pay higher wages and offer more benefits in order to attract workers from other companies.

• If many people in an economy are looking for jobs, a firm may be able to pay less and offer fewer benefits.


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Economic Systems• Economic System

– A nation’s system/methods for allocating its resources among its citizens, both individuals and organizations

• Factors of Production are the resources.


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Types of Economic Systems• Planned Economy (command)

–A centralized government controls all or most factors of production and makes all or most production and allocation decisions for the economy. Planned Economy (command) includes: communism and socialism.

–With communism—as currently operating in North Korea—all sources of production are owned and operated by the government.© 2009 Pearson Education, Inc.


Planned Economies• Communism

– A system Karl Marx envisioned in which individuals would contribute according to their abilities and receive benefits according to their needs.

• The government owns and operates all factors of production.

• The government assigns people to jobs and owns all businesses and controls business decisions.


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Socialism In the partially planned system called

socialism, the government owns and operates selected major industries.

Smaller businesses such as clothing storesand restaurants may be privately owned.

Although workers in socialist countries are usually allowed to choose their occupations or professions, a large proportion generally work for the government. 17economic systems chapter1 2012 canadian

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Types of Economic Systems• Market Economy

–Individual producers and consumers control production and allocation by creating combinations of supply and demand.

• Market–A mechanism of exchange between

buyers and sellers of a good or service.


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The Concept of Business and Profit

• Consumer Choice and Demand– The freedom of consumers to choose how

to satisfy their wants and needs.– The freedom of business owners to decide

how to meet those wants and needs.• Opportunity and Enterprise

– Success in business requires spotting a promising opportunity and then developing a good plan for capitalizing on it.


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Market Economics

Capitalism: The political basis for the free market economy, which allows private ownership. The government supports private ownership and encourages entrepreneurship.–Individuals choose where to work,

what to buy, and how much to pay.–Producers choose who to hire, what to

produce, and how much to charge.© 2009 Pearson Education, Inc.


“Circular Flow in Market Economy”

OUTPUT MARKETS

Goods Services

INPUT MARKETS

LaborCapital

EntrepreneursPhysical Resources

Information Resources

HOUSEHOLDS

• Demand products in output markets

• Supply resources in input markets

FIRMS

• Supply products in output markets

• Demand resources in input markets

DEMANDDEMAND

DEMANDDEMAND SUPPLYSUPPLY

SUPPLYSUPPLY

Copyright ©2003 Prentice Hall, Inc.Copyright ©2003 Prentice Hall, Inc. 1 - 1 - 212121economic systems chapter1 2012 canadian

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Mixed Market EconomyA. Mixed Market Economies: mixed of planned

and market economies; many countries are moving from planned systems to mixed market systems through privatization, which involves the transformation of government-controlled businesses into privately owned enterprises.


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Nationalization -converting private firms into government

owned firms. Venezuela, for example, nationalized its telecommunications industry.


DeregulationDeregulation means a reduction in the number of laws

affecting business activity and in the powers of government enforcement agencies.

This trend also developed during the 1990s, and deregulation occurred in many industries, including airlines, pipelines, banking, trucking, and communications.

But this trend has also slowed (and even reversed in some cases) due to the 2008 recession. For example, there have been calls for a dramatic tightening up of the laws regulating business activity, particularly in the financial sector.


Interactions between Business and Government

How Government Influences BusinessA. Government plays several key roles In

the economy, and each of these roles influences business activity in some way. The roles government plays are as follows.



The roles government plays are as follows.A. Government as a Customer Government

buys thousands of different products and services. E.g., PA buys medicines.

B. Government as a Competitor.C. Government as Regulator: Reasons for

regulating business activity include protecting competition, protecting consumers, achieving social goals, and protecting the environment.



The roles government plays are as follows.A. Promoting Competition: Competition is

crucial to a market economy.B. Protecting Consumers.C. Government as a Taxation Agent: Taxes are

Imposed and collected by the federal, and local governments.



The roles government plays are as follows.A. Government as a Provider of Incentives and

Financial Assistance.B. Government as a Provider of Essential

Services. E.g., PA provides health and education services.


The Economics of Market Systems

• Demand

–The willingness and ability of buyers to purchase a product (a good or a service).

• Supply

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


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The Economics of Market Systems• The Laws of Demand and Supply in a

Market Economy

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

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


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Private Enterprise in a Market Economy• Private Enterprise System

– Allows individuals to pursue their own interests with minimal government restriction.

• Elements of a Private Enterprise System– Private property rights– Freedom of choice– Profits– Competition

© 2009 Pearson Education, Inc. 31economic systems chapter1 2012 canadian ed.

Economic Indicators• Economic Indicators

–Statistics that show whether an economic system is strengthening, weakening, or remaining stable

–Measure key goals of the economic system: economic growth and economic stability


Economic Indicators–Economic growth indicators

•Aggregate output, standard of living, gross domestic product, and productivity

–Economic stability indicators

• Inflation and unemployment


Economic Growth: Aggregate Output, and Standard of Living

The elements: • Business Cycle

–The pattern of short-term ups and downs (or, better, expansions and contractions/reductions) in an economy.


Economic Growth: Aggregate Output, and Standard of Living

The elements: • Aggregate Output

–Growth during the business cycle is measured by the total quantity of goods and services produced by an economic system during a given period. It measures the growth during the business cycle


Economic Growth, Aggregate Output, and Standard of Living

• Standard of Living–The total quantity and quality

of goods and services that consumers can purchase with the currency used in their economic system.


Gross Domestic Product (GDP)–An aggregate output measure of the

total value of all goods and services produced within a given period by a national economy through domestic factors of production on the soil of the country. In US $14 trillion, in PA 5.7 billion.• If GDP is going up, aggregate output is

going up; if aggregate output is going up, the nation is experiencing economic growth.

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Gross National Product (GNP)–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.

–E.g., When a Japanese automobile produces cars at its factory in USA, the profits from that factory are included in the American GDP, and in the Japanese GNP.


Economic Growth• Productivity

– A measure of economic growth that compares how much product a system produces with the resources needed to produce that product.

– Productivity: output/input (resources used)

• If more product is produced with fewer factors of production, the price of the product decreases.

• The standard of living in an economy improves through increases in productivity.


Balance of Trade

–The economic value of all the products a country exports minus the economic value of its imported products.

• Positive balance of trade: When a country exports (sells to other countries) more than it imports (buys from other countries).

• Negative balance of trade: When a country imports more than it exports. Commonly called a trade deficit.


FIGURE 1.4 Balance of Trade


A.National debts in USA in 2007 amounted 9.4$ trillion.

B.Trade deficit: in 2007 exceeded $700 billion.


Managing the Economy

• Stabilization Policy–Coordinating fiscal and

monetary policies to smooth fluctuations in output and unemployment and to stabilize prices.


Types of PoliciesMonetary Policy:Designed to control the amount of money

flowing around the economy (the money supply).

This policy is used to tackle inflation and balance of payments.

Methods under this policy:1. Interest rates:2. The government may impose restrictions on

financial institutions to affect borrowing.3. The central bank can control bank assets and

the amount of lending. Level of reserves44economic systems chapter1 2012 canadian

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Types of Policies

Fiscal policy:Aims to control the total spending in

the economy.1. Government spending.2. Change in direct taxation. 3. Change in indirect taxation.


Business Environment

Few things will be mentioned.The following elements are part

of chapter 2.


The External Environments of Business

• External Environment– Everything outside an organization’s boundaries

that might affect it and business cannot control

1. The domestic business environment

2. The global business environment

3. The technological environment

4. The political-legal environment

5. The socio-cultural environment

6. The economic environment© 2009 Pearson Education, Inc.


Domestic Business Environment

– The environment in which a firm conducts its operations and derives its revenues by:

1. Seeking to be close to its customers

2. Establishing strong relationships with its suppliers

3. Distinguishing itself from its competitors

4. Example, lock at the IUG. © 2009 Pearson Education, Inc.

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Global Business Environment– The international forces that affect

business:

1.International trade agreements

2.International economic conditions

3.Political unrest

4.International market opportunities

5.Suppliers outsourcing.

6.Cultural differences

7.Competitors, Currency values© 2009 Pearson Education, Inc.49economic systems chapter1 2012 canadian

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Technological Environment– All the ways by which firms create value for

their constituents:

1. Human knowledge

2. Work methods

3. Physical equipment

4. Electronics and telecommunications

5. Various business activity processing systems


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Political-Legal Environment– The regulatory relationship between business and the

government (legal system) and its agencies that define what organizations can and can’t do:

1. Product identification laws (ingredients to be listed).2. Local zoning requirements e.g., obtain a license to

operate3. Advertising practices

4. Safety and health considerations, warnings on cigarette packages.

5. Acceptable standards of business conduct, pollution– Pro- or anti-business sentiment/attitude in government

and political stability are also important considerations, especially for international firms.


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Socio-cultural Environment– The customs (e.g., celebrations),

mores/traditions (e.g., beliefs), values (e.g., importance of religion), and demographic characteristics of the society in which an organization functions (e.g., education level).

– Socio-cultural processes determine the goods, services, and standards of business conduct a society is likely to accept, e.g., children labor, selling certain food.


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Discussion

Why will customers choose to buy from your business, instead of your competition?

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1 chapter business essentials, 6 th canadian edition ebert chapter 1, understanding the bus. system...

Documents

economic systems chapter1

forms of economic data

faculty of business

concept of business

nature of business

physical resources

factors of productionlabor

natural resources