BUMA Midterm

CH. 1-8

The four factors of production are

land, labor, capital, and entrepreneurship, which are the resources needed to produce goods and services. Land refers to all natural resources; labor is the human effort involved; capital consists of manufactured goods like machinery and buildings; and entrepreneurship is the initiative to organize the other three factors to create a business.

PPI (Producer Price Index)

measures changes over time in the prices domestic producers receive for their goods, reflecting inflation from the producer’s perspective and signaling potential future consumer inflation.

CPI

____ is a measure that tracks the average change over time in the prices of a representative "basket" of goods and services paid by urban consumers. It is a key indicator of inflation, showing how the cost of living changes for households. The __ is used by governments for policy, such as guiding interest rates, and for adjusting wages and social security benefits.

A market basket is

a fixed list of goods and services used to track inflation by measuring the average price change over time. It can also refer to a group of financial instruments used to gauge a market's performance, or in retail, the collection of items bought by a customer in a single transaction.

Capitalism

businesses are privately owned and driven by private individuals and companies seeking profit in a competitive free market

Communism

the government owns and controls all means of production and businesses on behalf of the people, with the goal of distributing resources equally based on need.

what is the fundamental difference between communism and capitalism

The fundamental difference lies in the ownership and control of the factors of production and how wealth is generated and distributed.

Kohlberg’s Levels

of moral development describe how people make ethical decisions based on three stages

Deontology

is an ethical theory that focuses on following rules, duties, or obligations regardless of outcomes.

Utilitarianism

emphasizes achieving the greatest good for the greatest number, focusing on outcomes rather than actions.

Fundamental difference between deontology and utilitarianism

Deontology is rule-based (what is right), while utilitarianism is outcome-based (what produces the best result).

Bottom of the Pyramid

refers to the largest but poorest socio-economic group, often earning under $2,500 a year.
Businesses target this segment with affordable, accessible products to achieve social impact and tap into a large potential market The "Bottom of the Pyramid" (BoP) theory refers to the idea that the world’s largest but poorest socioeconomic group—those living on very low incomes—represents a vast, untapped market for major corporations. Companies like Coca-Cola see this group as an opportunity to expand their customer base and promote economic inclusion by offering affordable products and services. However, the approach raises ethical questions about whether corporations are truly helping improve lives or simply exploiting vulnerable populations for profit. Ultimately, it can be viewed as both an economic opportunity and an ethical challenge, depending on how responsibly and sustainably companies engage with these markets.

A trade surplus

occurs when a country exports more goods and services than it imports.

A trade deficit

happens when a country imports more than it exports.

Fundamental difference between trade surplus and trade deficit

one adds to a nation’s wealth; other means it spends more on foreign goods than it earns from exports.

Comparative Advantage

Comparative advantage means a country or business can produce a good at a lower opportunity cost than others.
It’s the foundation of international trade—each party benefits by specializing in what it does most efficiently.

Outsourcing

is hiring an external company to perform tasks or services previously done internally.

Offshoring

involves moving business processes to another country, either through a third party or a company-owned operation.

Fundamental difference between outsourcing and offshoring

Outsourcing focuses on who does the work; offshoring focuses on where the work is done.

A tariff

is a government-imposed tax on imported goods and services.
It’s used to protect domestic industries, generate revenue, or influence trade relationships.

LLC (Limited Liability Company)

Combines limited liability protection with flexible taxation options.

Sole Proprietorship

Owned by one individual with no legal separation between the owner and the business.

S Corporation

Offers limited liability and pass-through taxation but with ownership restrictions.

C Corporation

A separate legal entity taxed independently, often used by large companies.

Fundamental difference between LLC, Sole proprietorship, S Corp, and C Corp

They differ mainly in liability protection, taxation, and ownership structure.

Commingling

is mixing personal and business funds or assets.
It can cause legal and tax issues, especially by undermining liability protection for business owners.

A small business owner

typically manages a stable, local business for steady income.

An entrepreneur

seeks to create new products, grow rapidly, and disrupt markets.

Fundamental difference between small business owner and entrepreneur

Owners aim for stability; entrepreneurs aim for innovation and growth.

Four Functions of Management

planning, organizing, leading, and controlling.
They represent the core activities managers perform to achieve organizational goals efficiently and effectively.

Strategic planning

Long-term goals and overall direction of the company.

Tactical planning

Shorter-term actions to implement strategy.

Operational planning

Day-to-day processes for efficiency.

Crisis planning

Preparation for unexpected emergencies.

Fundamental difference between Strategic, Tactical, Operational, and Crisis Planning

They differ in time horizon and focus—from long-term vision to immediate action.

Leadership Styles

include autocratic (leader makes all decisions), democratic (team input encouraged), laissez-faire (hands-off), and transformational (inspires change).
Each style affects motivation, performance, and company culture differently.

Three Roles of the Manager

Together, they outline the key responsibilities of a manager.

According to Henry Mintzberg, three categories: interpersonal, involving interaction with people; informational, focused on gathering and sharing information; and decisional, centered on making choices and solving problems.

A vision statement

describes the long-term, inspirational future a company strives to achieve.

A mission statement

defines the company’s purpose, target audience, and core activities.

Fundamental difference between Vision Statement vs Mission Statement

Vision is future-oriented (“where we want to go”), mission is present-oriented (“what we do now”).

A flat organization

has few management levels, promoting quick decisions and open communication.

A tall organization

has many hierarchical layers with defined roles and slower decision-making.

Fundamental difference between Flat vs Tall Organization

One emphasizes flexibility; the other emphasizes control and structure.

A functional structure groups

employees by specialty (e.g., marketing, finance).

A divisional structure

groups teams by product line, geography, or customer segment.

Fundamental difference between Functional Structure vs Divisional Structure

Functional focuses on expertise; divisional focuses on product or market focus.

A matrix structure

blends functional and divisional approaches, where employees report to two managers, one functional, one project-based. It improves flexibility and collaboration but can create role confusion or conflict.

Four Human Resource Activities

The main HR activities are recruitment and selection, training and development, performance management, and compensation and benefits.
Together, they ensure the organization attracts, develops, and retains qualified employees.

A 360-degree review

is a performance evaluation method that gathers feedback from an employee’s supervisors, peers, subordinates, and sometimes clients. It provides a comprehensive view of performance and development areas