Business Test Chapter 1

business

organization that provides goods or services to earn profits

EX: Smucker's

profits

a business's revenue minus expenses

what is the lure of profits?

the lure of profits leads some people to abandon the security of working for someone else and assume the risks of entrepreneurship

revenue

price x quantity

expenses

bills, cost of materials, wages, and capital

EX: grapes, machinery

STEEPLE analysis

a way to analyze external environmental factors affecting business objectives and strategies

what are the factors of STEEPLE?

Social, Technological, Economic, Environmental, Political, Legal, Ethics

environmental environment

weather, climate, flora & fauna, and pressure from environmental groups & activists

EX: heat wave where grapes are produced

external environment

everything outside an organization's boundaries that might affect it

domestic business environment

the environment in which a firm conducts its operations and derives its revenues

EX: Smucker's store in NYC

global business environment

The international forces that affect a business

EX: political unrest where hazelnuts are produced

technological environment

all the ways by which firms create value for their constituents, including the state of tech advancement & introduction to new technology

EX: new jam-making machines

political environment

government (stability, ideologies, type), attitude to free markets, incentives, and tariffs

EX: new tariff on grapes

legal environment

law influencing business activity (competition, health & safety, employee protection, consumer protection)

EX: animal welfare statement from Smucker's

sociocultural environment

the customs, mores, values, and demographic characteristics of the society in which an organization functions

EX: eating jam becomes frowned upon as unhealthy

economic environment

relevant conditions that exist in the economic system in which a company operates (such as GDP growth, inflation, exchange rates, interest rates, and unemployment rates)

EX: unemployment gets so low that Smucker's raises their wages

ethic environment

a general code of ethics followed by most people in the country & a tendency of people to be ethical

EX: Smucker's unfairly treats its workers so it has to shut down

code of ethics

a company's formal statement of ethical principles and rules of conduct

economic system

a nation's system for allocating its resources among its citizens

factors of production

resources used in the production of goods and services—labor, capital, entrepreneurs, physical resources, and information resources

labor (human resources)

the physical & intellectual contributions people make while engaged in economic production

EX: Smucker's factory workers

capital

financial resources needed to create and operate a business enterprise

EX: funds that Smucker's needed to start operating and manufacturing

entrepreneur

individual who accepts the risks and opportunities involved in creating and operating a new business venture

EX: Jerome Monroe Smucker, who created Smucker's

physical resources

tangible items that organizations use in the conduct of their businesses, including natural resources & raw materials

EX: coal used to power jam-making machines

information resources

data and other information used by businesses, including market forecasts, the specialized knowledge of people, & economic data

EX: Smucker's price forecasts

planned economy

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

EX: communism, socialism

market economy

economy in which individuals control production and allocation decisions through supply and demand

EX: capitalism

communism

political system in which the government owns and operates all factors of production

EX: North Korea

market

mechanism for exchange between buyers and sellers of a particular good or service

supply & demand

free to buy/sell what you want (work wherever you want)

capitalism

system that sanctions the private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive

EX: United States

mixed market economy

economic system featuring characteristics of both planned and market economies

privatization

process of converting government enterprises into privately owned companies

socialism

planned economic system in which the government owns and operates only selected major sources of production

demand

the willingness and ability of buyers to purchase a good or service

supply

the willingness and ability of producers to offer a good or service for sale

law of demand

principle that buyers will purchase (demand) more of a product as its price drops and less as its price increases

EX: Smucker's sees people buying less, so they lower the prices on their jam. Then, people buy more jam

law of supply

principle that producers will offer (supply) more of a product for sale as its price rises and less as its price drops

EX: Smucker's sees people buying more, so they raise the prices on their jam. Then, people buy less jam

demand and supply schedule

assessment of the relationships among different levels of demand and supply at different price levels

demand curve

graph showing how many units of a product will be demanded (bought) at different prices

supply curve

graph showing how many units of a product will be supplied (offered for sale) at different prices

market price (equilibrium price)

profit-maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal

surplus

situation in which quantity supplied exceeds quantity demanded

EX: Smucker's has produced too much jam and cannot sell all of it

shortage

situation in which quantity demanded exceeds quantity supplied

EX: Thanks to a trend, everyone rushes to buy Smucker's but there is not enough

determinants of demand

- Consumer tastes & preferences (EX: Smucker's vs Welch's)

- Consumer expectations (concern = less buying to preserve wealth) (EX: expect reopenings)

- # of buyers (EX: low birth rate)

- Income (EX: lottery)

- Prices of related goods (EX: Jif lowers prices)

complementary/substitute good

two or more products that go very well together

EX: Jam and peanut butter

determinants of supply

- # of sellers (EX: more competitors -> more suppliers)

- Prices of other goods (EX: welch's lowers prices)

- Producer expectations (EX: worried about Covid -> less supply)

- Resource prices (EX: grapes $ go up, less jelly can be made)

- Technology (EX: automatic Jam robot)

- Tax & subsidies (EX: tax lifted from jam -> more supply)

private enterprise

economic system that allows individuals to pursue their own interests without undue governmental restriction

EX: United States

what are the four elements required in a private enterprise?

1) private property rights

2) freedom of choice (supply + demand)

3) profits

4) competition

private property rights

ownership of resources used to create wealth is individually owned

competition

vying among businesses for the same resources or customers

do consumers benefit more from high or low competition?

high competition

perfect competition

market or industry characterized by numerous small firms producing an identical product

EX: wheat farmers

monopolistic competition

market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors

EX: stationery store

oligopoly

market or industry characterized by a handful of (generally large) sellers with the power to influence the prices of their products

EX: car industry

monopoly

market or industry in which there is only one producer that can therefore set the prices of its products

EX: PSE&G

natural monopoly

industry in which one company can most efficiently supply all needed goods or services

EX: PSE&G

economic indicators

statistics in context of time that help assess the performance of an economy (whether an economic system is strengthening, weakening, or remaining stable)

business cycle

short-term pattern of economic expansions and contractions

aggregate output

the total quantity of goods and services produced by an economic system during a given period

what happens when aggregate output increases?

output per capita increases

what is the primary measure of growth in a business cycle?

aggregate output

standard of living

the total quantity and quality of goods and services people can purchase with the currency used in their economic system

gross domestic product (GDP)

total value of all final goods and services produced within a given period by a national economy through domestic factors of productio

(a measure of aggregate output)

(outflow)

what happens if GDP increases?

there is economic growth

gross national product (GNP)

total value of all final goods and services produced by a national economy within a given period regardless of where the factors of production are located (domestic or global)

(inflow)

GDP per capita

gross domestic product divided by total population

real GDP

GDP adjusted to account for changes in currency values and price changes

nominal GDP

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

(stability, quantity able to purchase)

what happens if there is less purchasing power parity?

a lower standard of living

productivity

a measure of economic growth that compares how much a system produces with the resources needed to produce it

how does the standard of living improve?

only through increases in productivity

balance of trade

the economic value of all the products that a country exports minus the economic value of all the products it imports

(factors into economic growth)

trade deficit

when a country imports more than it exports

national debt

the amount of money the government owes its creditors

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

what is the chief goal of an economic system?

economic stability

what is a stable growth rate?

2 to 5%

inflation

occurs when widespread price increases occur throughout an economic system

(more $ to spend but same # of products to buy)

(threatens stability, purchasing power declines)

(better than deflation)

BLS

Bureau of Labor Statistics

FRED

Federal Reserve Economic Data

deflation

when prices go down

(shrinking economy)

how would you correct unemployment?

inject more money into an economy

(EX: Economic Recovery Act of 2009)

unemployment

the level of joblessness among people actively seeking work in an economic system

what happens if there is low unemployment?

low unemployment -> shortage of labor -> raise wages -> raise price of products -> reduced sales -> cut back on hiring -> high unemployment

consumer price index (CPI)

a measure of the average change of prices of typical goods/services (market basket) from the prior period (previous month) purchased by consumers living in urban areas

how did the 2009 recession occur?

housing market was big -> people buy things with money they don't have -> loose credit -> banks sell structure notes (collected credit) -> people can't pay it back

(snowball effect)

recession

a period during which aggregate output, as measured by GDP, declines

(2 quarters)

depression

a prolonged and deep recession

fiscal policies

policies used by a government regarding how it collects and spends revenue

monetary policies

policies used by a government to control the size of its money supply

stabilization policy

government economic policy intended to smooth out fluctuations in output and unemployment and to stabilize prices

what causes a recession?

1) a shock

2) a bursting bubble

3) federal reserve bank meddling

4) fear

what stops a recession?

confidence

employed

currently has a job

out of the labor force

a person with no job and not actively looking for one

unemployed

no job and actively looking for one

(must be 16+, looked for work in the previous 4 weeks, currently available for work)

underemployed

working part time and would want to work full time OR overqualified for their job

unemployment rate

percentage of labor force that are unemployed

(# unemployed)/(# people in labor force) x 100