BUS101-Exam 1

Business

Business

Organization that provides goods and services to earn a profit

Profit

Money that a business earns in sales WITHOUT expenses

Loss

Expenses > Revenue

Entrepreneurs

People who risk resources, time, money to manage a business

Benefit of Business #1

Improve standard of living and quality of life

Benefit of Business #2

Provides products/services people enjoy or need

Benefit of Business #3

Contributes to society through innovation

Examples of Innovation

Sheets is open 24 hours

Industrial Revolution

Mid 1700s-Mid 1800s, technological advances fueled rapid industrialization in America

Entrepreneurship Era

Second half of 1800s, Entrepreneurs build business empires

Anti-Trust Laws

Ban monopolies

Production Era

Early 1900s, Businesses refined production process and created more efficiency

Marketing Era

After WWII, Brands develop to help consumers understand differences between products

Relationship Era

Today, Firms aim to build relationships with consumers (think of Sherwin Williams)

Nonprofits

Business-like establishments that employ people and produce things that benefit community

4 Factors of Production: Natural Resources

Fertile soil, clean water

4 Factors of Production: Capital

Man-made resources, buildings, houses

4 Factors of Production: Human Resources

Physical, intellectual, and creative contributions from humans

4 Factors of Production: Entrepreneurship

Process of making opportunities by using other factors of production (taking the risk)

Economic Environment

Corruption, ethical lapses

Competitive Environment

Making relationships with customers

Speed to Market

Rate that new product moves from idea to commercial

Workforce Advantage

Finding the best talent

Technological Environment

Impact of tech on business

Business Technology

Tools used to become more efficient

Social Environment

Shared values, attitudes, customs, beliefs, and demographics

Global Environment

Individual economies in the world

Free Trade

Movement to make goods flow across international boundaries

General Agreement on Tariffs and Trade (GATT)

International trade agreement that has taken bold steps to lower tariffs and promote free trade worldwide

Economy

Financial/social system of how resources flow through society

Economics

Study of the choices made by people, companies, and governments to allocate society’s resources

Fiscal Policy

Government efforts to influence the economy through taxation and spending

Debt Ceiling

Maximum amount Congress lets the government borrow

Budget Surplus

Overage that occurs when revenue is higher than expenses over a given period of time

Budget Deficit

Shortfall that occurs when expenses are higher than revenue over a given period of time

Federal Debt

Sum of all the money that the federal government has borrowed over the years and has not repaid

Monetary Policy

Federal Reserve decisions that shape the economy by influencing interest rates and the supply of money

Functions of the Fed

• Providing banking services for member banks and the federal gov

• Bailing out shaky firms during a financial crisis

• Managing monetary policy

Federal Reserve

Purpose is to influence the size of money supply

M1 Money Supply

Includes all currency plus checking accounts and traveler’s checks

M2 Money Supply

Includes all M1 money supply plus most saving accounts, money market accounts, and certificates of deposit

Open Market Operations

Federal Reserve function of buying and selling government securities (buying/selling bonds)

Discount Rate

Rate of interest that the Federal Reserve charges when it loans funds to banks

Reserve Requirement

Rule set by the Federal Reserve that specifies the minimum amount of reserves a bank is required to hold

1st Fundamental Right of Capitalism

Right to own a business and keep after tax profits

2nd Fundamental Right of Capitalism

Right to private property

3rd Fundamental Right of Capitalism

Right to free choice

4th Fundamental Right of Capitalism

Right to fair competition

1st Degree of Competition in Free Markets

Pure: Companies selling almost identical products

2nd Degree of Competition in Free Markets

Monopolistic Competition: Many competitors selling similar things

3rd Degree of Competition in Free Markets

Oligopoly: Handful of competitors selling similar or different products

4th Degree of Competition in Free Markets

Monopoly: Single producer dominating the industry, no room for competition

Natural Monopoly

When a single supplier is more efficient than multiple (ex, electric companies)

Free Market System

The dynamic interaction between buyers and sellers directly affects the range of products and prices

Supply

Quantity of products

Supply Curve

The graphed relationship between price and quantity

Demand

The quantity of products that consumers are willing to buy

Demand Supply

Graphed relationship

Equilibrium price

Where supply meets demand

Socialism

Government owns and operates key enterprises that directly affect public welfare

Communism

Government ownership of all enterprises

Privatization

Process of converting government-owned businesses to private ownership

• Giving back to the public

Gross Domestic Process (GDP)

Total value of all final goods and services produced within a nation’s physical boundaries over a given period of time

• Measure of economic health

Contraction

Period of economic downturn

Recession

Decreasing GDP for 2 quarters

Depression

Long lasting recession

Recovery

Period of rising economic growth and employment

Expansion

Period of strong economic growth and high employment

Unemployment Rate

Percentage of people not working and are seeking employment(not counting retired or children)

Frictional Unemployment

When it is possible to find better jobs, transition from old (worse) jobs to better jobs

Structural Unemployment

Unemployment for a longer term because someone’s skills are no longer relevant to the business

Cyclical Unemployment

Layoffs during recessions

Seasonal Unemployment

Job loss related to time of year

Price Levels

Measure used to evaluate economic well-being

Inflation

Period of rising average prices across the economy

Hyperinflation

Average monthly inflation rate of more than 50%

Disinflation

Period of slowing average price increases

Deflation

Period of falling average prices

Consumer Price Index (CPI)

Evaluates the change in the weighted average price of goods and services that an average consumer buys each month

Producer Price Index (PPI)

Evaluates the change over time in weighted average wholesale prices

Productivity

Relationship between production of goods/services and the resources needed to produce them

What has made countries’ economies interdependent?

Advancement in technology and reduction of barriers to trade

1st Reason for International Trade

Access to factors of production

2nd Reason for International Trade

Reduced risk-reduces dependence on one economy

3rd Reason for International Trade

Inflow of innovation-new ideas for companies

Opportunity Cost

The second-best choice when making a decision

Absolute Advantage

When a country produces more of a product than other nations with the same amount of resources

• Efficiency!!!

Comparative Advantage

When a country makes products at a lower opportunity cost than other countries

Balance of Trade

Basic measure of the difference in value between a nation’s exports and imports

Trade Surplus

Total value of exports > Total value of imports

Trade Deficit

Total value of exports < Total value of imports

Balance of Payment

Measure of the total flow of money going into and out of a country

• Includes balance of trade, foreign borrowing and lending

Balance of Payment Surplus

More money flows into a nation than flows out

Balance of Payment Deficit

More money flows out of a nation than into it

Exchange Rates

Measurement of the value of one nation’s currency relative to the other nation’s currency

Countertrade

International trade that involves barter of products for products rather than currency

Foreign Outsourcing

Contracting with foreign suppliers to product products with the firm’s brand on the product

• Ex) Clothes made in other country, Nike on the clothes

Importing

Buying products domestically that have been produced or grown in foreign nation without firm’s brand on it

• Ex) Toyota cars

Exporting

Selling products in foreign nations that have been produced domestically

Foreign Licensing

Authority granted by a domestic firm to a foreign form for the rights to produce and market its product