Lakhasly

The Concept of Business and Profit o Business- organization that provides goods or services to earn profits o Profits- difference between a business's revenues and its expenses Copyright (C) 2023 Pearson Education, Ltd 1-6 The External Environment of Business o External Environment- everything outside an organization's boundaries that might affect it Copyright (C) 2023 Pearson Education, Ltd 1-7 Dimensions of the External Environment Copyright (C) 2023 Pearson Education, Ltd 1-8 The External Environments of Business (1 of 2) o Domestic Business Environment - the environment in which a firm conducts operations and derives revenues o Global Business Environment - international forces that affect a business and includes international trade agreements, international economic conditions, and political unrest o Technological Environment - ways by which firms create value for their constituents o Political-Legal Environment - the relationship between business and government o Sociocultural Environment - includes the customs, mores, values, and demographic characteristics of the society and determines the business standards that a society is likely to value and accept o The Economic Environment - includes relevant conditions that exist in the economic system in which a company operates Copyright (C) 2023 Pearson Education, Ltd 1-10 Economic Systems o Economic system- a nation's system for allocating its resources among its citizens, both individuals and organizations Copyright (C) 2023 Pearson Education, Ltd 1-11 Factors of Production (1 of 2) o Labor (Human Resources) includes the physical and intellectual contributions people make while engaged in economic production and is also called human resources or human capital.o An Entrepreneur is a person who accepts the risks and opportunities entailed in creating and operating a new business venture.Both buyers and sellers know the prices that others are paying and receiving in the marketplace.Private enterprise system- ownership of the resources used to create wealth is in the hands of individuals 2.the number of firms in the industry must be large Copyright (C) 2023 Pearson Education, Ltd 1-25 Perfect Competition 1.The products of each firm are so similar that buyers view them as identical to those of other firms.Going prices are set exclusively by supply and demand and accepted by both sellers and buyers.all firms in an industry must be small, and 2.2.3.4.

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
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1-6
The External Environment of Business
• External Environment– everything outside an organization’s boundaries that
might affect it
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1-7
Dimensions of the External Environment
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1-8
The External Environments of Business (1 of 2)
• Domestic Business Environment - the environment in which a firm conducts
operations and derives revenues
• Global Business Environment - international forces that affect a business and includes
international trade agreements, international economic conditions, and political unrest
• Technological Environment - ways by which firms create value for their constituents
• Political-Legal Environment - the relationship between business and government
• Sociocultural Environment - includes the customs, mores, values, and demographic
characteristics of the society and determines the business standards that a society is
likely to value and accept
• The Economic Environment - includes relevant conditions that exist in the economic
system in which a company operates
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1-10
Economic Systems
• Economic system– a nation’s system for allocating its resources among its
citizens, both individuals and organizations
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1-11
Factors of Production (1 of 2)
• Labor (Human Resources) includes the physical and intellectual
contributions people make while engaged in economic production and
is also called human resources or human capital.
• Capital is the term used to describe the financial resources needed to
operate a business.
• An Entrepreneur is a person who accepts the risks and opportunities
entailed in creating and operating a new business venture.
• Physical resources - tangible things that organizations use to conduct
their business and include natural resources and raw materials
• Information resources - data and other information used by
businesses and include market forecasts, the specialized knowledge of
people, and economic data
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Types of Economic Systems (1 of 3)
1-13
• Planned Economy– an 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– a political system in which the government owns and operates all factors of production
• Socialism– a planned economic system in which the government owns and operates only selected major sources of production
• Market economy– individual producers and consumers control production and allocation by creating combinations of supply and demand
• Capitalism– a system that sanctions the private ownership of the factors of production and encourages entrepreneurship by offering
profits as an incentive
• Mixed market economy– features characteristics of both planned and market economies
• Privatization– process of converting government enterprises into privately owned companies
the People’s Republic of China is moving towards a mixed market economy
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1-16
Demand and Supply in a Market Economy
• 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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1-17
Surpluses and Shortages
• Surplus – a situation in which quantity supplied exceeds quantity
demanded
• Shortage – a situation in which quantity demanded exceeds

quantity supplied
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1-18
Demand and Supply (1 of 2)
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1-19
Demand and Supply (2 of 2)
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Private Enterprise and Competition in a
Market Economy (1 of 3)
• Private property rights
1-20– one that allows individuals to pursue their own interests
with minimal government restriction– private property rights, freedom of choice, profits, and
competition
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1-21
Private Enterprise and Competition in a
Market Economy (2 of 3)

1. Private enterprise system– 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


3. Profits– 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
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   Degrees of Competition (1 of 5)
   Table 1.1 Degrees of Competition
   Characteristic
   Perfect
   Competition
   Monopolistic
   Competition Oligopoly Monopoly
   Example Local farmer Stationery store Steel industry Public utility
   Number of competitors Many Many, but fewer
   than in perfect
   competition
   Few None
   Ease of entry into
   industry
   Relatively
   easy
   Fairly easy Difficult Regulated by
   government
   Similarity of goods or
   services offered by
   competing firms
   Identical Similar Can be similar or
   different
   No directly
   competing
   goods or services
   Level of control over
   price by individual firms
   None Some Some Considerable
   1-23
   1-24
   Degrees of Competition (2 of 5)
   For perfect competition to exist, two conditions
   must prevail:


5. all firms in an industry must be small, and


6. the number of firms in the industry must be large
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   1-25
   Perfect Competition


7. The products of each firm are so similar that buyers
   view them as identical to those of other firms.


8. Both buyers and sellers know the prices that others
   are paying and receiving in the marketplace.


9. Because each firm is small, it is easy for firms to
   enter or leave the market.


10. Going prices are set exclusively by supply and
    demand and accepted by both sellers and buyers.
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    1-26
    Degrees of Competition (3 of 5)
    • Monopolistic Competition– market or industry characterized by numerous buyers and relatively numerous
    sellers trying to differentiate their products from those of competitors
    • Oligopoly– market or industry characterized by a handful of (generally large) sellers with the
    power to influence the prices of their products
    • 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
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    1-29
    Economic Indicators
    • Economic indicators– statistics that show whether an economic system is
    strengthening, weakening, or remaining stable– help assess the performance of an economy
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    Economic Growth, Aggregate Output, and
    Standard of Living (1 of 2)
    • Business cycle– the pattern of short-term ups and downs (or expansions and
    contractions) in an economy
    • Aggregate output
    1-30– the total quantity of goods and services produced by an economic
    system during a given period– primary measure of growth in the business cycle
    • Standard of living– the total quantity and quality of goods and services that they can
    purchase with the currency used in their economic system
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    1-32
    Gross Domestic Product (1 of 3)
    • 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
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    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
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    1-35
    GDP and GDP per Capita
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    1-36
    Gross Domestic Product (3 of 3)
    • 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
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    1-37
    World Prices of a Big Mac
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    1-38
    Productivity (1 of 2)
    • Productivity– measure of economic growth that compares how much a system
    produces with the resources needed to produce it
    • 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
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    1-40
    The Balance of Trade
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    Economic Stability (1 of 2)
    1-41
    • 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
    • Consumer Price Index (CPI) – a measure of the prices of typical products purchased by consumers living in urban
    areas
    
    • 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