Business Management Chapter 1 and 2

Owner

primary role is to invest money
in the business

stakeholders

• those with a legitimate
  interest in the success or failure of the business and the policies it adopts

include customers, vendors, employees, landlords, bankers, and others (see Figure 1.2). All
have a keen interest in how the business operates, in most cases for obvious reasons.

functional areas

Examples include: management, operations, marketing, accounting, and finance

management

involves planning for, organizing, leading, and controlling a company's resources so that it can
achieve its goals

operations manager

The person who designs and oversees the transformation of
resources into goods or services

marketing

consists of everything that a company does to identify customers' needs (i.e.
market research) and design products to meet those needs

accountants

measure, summarize, and communicate financial and managerial
information and advise other managers on financial matters

financial accountant

s prepare financial statements to help users, both inside and
outside the organization, assess the financial strength of the company.

managerial accountants

prepare information, such as reports on the cost of materials used in the production process,
for internal use only

finance

involves planning for, obtaining, and managing a company's funds.

macro environment

essentially
the big picture world outside over which the business exerts very little if any control.

economics

the study of the production, distribution, and consumption of goods and services

resources

he inputs used to produce outputs

includes: land, labor, capital, entrepreneurial ability and knowledge

economic system

the means by which a society (households, businesses, and government) makes decisions about allocating resources to produce products and about distributing those products. The degree to which individuals and business owners, as opposed to the government, enjoy freedom inmaking these decisions varies according to the type

planned system

the government exerts control over the allocation and distribution of all or some goods and services. The system with the highest level of government control is communism

socialism

industries that provide essential services, such as utilities, banking, and health care, may be government owned. Some businesses may also be owned privately. Central planning allocates the goods and services produced by government-run industries and tries to ensure that the resulting wealth is distributed equally

free market system

The economic system in which most businesses are owned and operated by individuals

private property rights

business owners can expect to own their land, buildings, machines, etc., and keep the majority of their profits, except for taxes. The profit incentive is a key driver of any free market system.

mixed market economy

relies on both markets and the government to allocate resources

privatization

adopt more capitalistic characteristics and convert businesses previously owned by the government to private ownership through a process

nationalization

government takes control of more businesses

perfect competition

when there are many consumers buying a standardized product from numerous small businesses.

monopolistic competition

we still have many sellers (as we had under perfect competition). Now, however, they don't sell identical products. Instead, they sell differentiated products—products that differ somewhat, or are perceived to differ, even though they serve a similar purpose

oligopoly

means few sellers. In an__ market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an industry is usually high, the number of firms entering it is low.

monopoly

only one seller in the market. The market could be a geographical area, such as a city or a regional area, and doesn't necessarily have to be an entire country.

natural monopolies

include public utilities, such as electricity and gas suppliers. Such enterprises require huge investments, and it would be inefficient to duplicate the products that they provide. They inhibit competition, but they're legal because they're important to society.

legal monopoly

a company receives a patent giving it exclusive use of an invented product or process. Patents are issued for a limited time, generally twenty years.1 During this period, other companies can't use the invented product or process without permission from the patent holder.

gross domestic product

defined as the market value of all goods and services produced by the economy in a given year. The includes only those goods and services produced domestically; goods produced outside the country are excluded. Thealso includes only those goods and services that are produced for the final user; intermediate products are excluded.

measure of economic growth

business cycle

The economic ups and downs resulting from expansion and contraction - typically 3-5 years

prosperity

the economy expands, unemployment is low, in- comes rise, and consumers buy more products. Businesses respond by increasing production and offering new and better products.

recession

. GDP decreases, unemployment rises, andbecause people have less money to spend, business revenues decline. This slowdown in economic activity is called a

full employment

Everyone who wants to work has a job. In practice, we say that we have_ when about 95 percent of those wanting to work are employed.

u6

is considered to provide a broader picture of unemployment in the United States. It includes two groups of people that U3 doesn't: those who are not actively looking for work but would like a job and have looked for one in the last 12 months; and those who would like to work full-time jobs but have settled for part-time positions because full-time work was not available to them.

always higher than u3

u3

most often used unemployment rate

always less than u6 and paints a more favorable economic picture

price stability

the average of the prices for goods and services either doesn't change or changes very little.

consumer price index

The most widely publicized measure of inflation

measures the rate of inflation by determining price changes of a hypothetical basket of goods, such as food, housing, clothing, medical care, appliances, automobiles, and so forth, bought by a typical household.

economic indicator

a statistic that provides valuable information about the economy.

lagging economic indicators

Statistics that report the status of the economy a few months in the past

One such indicator is average length of unemployment. If unemployed workers have remained out of work for a long time, we may infer that the Figure 2.8: Selected CPI Values, 1950-2014
economy has been slow. I

leading economic indicators

Indicators that predict the status of the economy three to twelve months into the future

If such an indicator rises, the economy is more likely to expand in the coming year. If it falls, the economy is more likely to contract.

monetary policy

exercised by the Federal Reserve System ("the Fed"), which is empowered to take various actions that decrease or increase the money supply and raise or lower short-term interest rates, making it harder or easier to borrow money.

fiscal policy

relies on the government's powers of spending and taxation. Both taxation and government spending can be used to reduce or increase the total supply of money in the economy—the total amount, in other words, that businesses and consumers have to spend.

budget surplus

If, in any given year, the government takes in more money (through taxes) than it spends on goods and services (for things such as defense, transportation, and social services),

budget deficit

the government spends more than it takes in