ISOM 125 - Introduction to Business with Integrated Computer Applications

Chapter One - Understanding Economic systems and Business

Business

an organization that strives for a profit by providing goods and services desired by its customers

Goods

tangible items manufactured by businesses

○ Example: laptop, cell phone, notebook

Services

intangible offerings of businesses that can’t be held, touched, or stored

○ Example: physician, lawyer, airline

Standard of living

measurement of the output of goods and services people can buy with the money they have

Quality of life

the general level of human happiness based on such things as life expectancy, educational standards, health sanitation, and leisure time

Revenue

the money a company receives by providing services or selling goods to customers

Costs

expenses that a company incurs from creating and selling goods and service

Profit

amount of money remaining from sale’s revenue after deducting production costs, interest costs, and taxes

Factors of production

inputs in the form of resources

○ Natural resources

○ Labor (human resources)

○ Capital: the tools, machinery, equipment, and buildings used to produce goods and services and get them to the consumer

○ Entrepreneurs: the people who combine the inputs of natural resources, labor, and capital to produce goods and services with the intention of making a profit or accomplishing a not-for-profit goal

Capital

the tools, machinery, equipment, and buildings used to produce goods and services and get them to the consumer

Entrepreneurs

the people who combine the inputs of natural resources, labor, and capital to produce goods and services with the intention of making a profit or accomplishing a not-for-profit goal

Demography

the study of people’s vital statistics, such as age, gender, race and ethnicity, and location

Technology

the application of science and engineering skills and knowledge to solve production and organizational problems

Economics

the study of how a society uses scarce resources to produce and distribute goods and services

Economic systems

the combination of policies, laws, and choices made by its government to establish the systems that determine what goods and services are produced and how they are allocated

Capitalism

based on competition in the marketplace and private ownership of the factors of production

Communism

the government owns virtually all resources and controls all markets

Socialism

basic industries are owned by the government or by the private sector under strong government control

Mixed economy

the use of more than one economic system

Economic growth

an increase in a nation’s output of goods and services

Gross domestic product (GDP)

the most basic measure of economic growth, the total market value of all final goods and services produced within a nation’s borders each year

Business cycles

the upward and downward changes in economic activity

Frictional unemployment

short-term unemployment that is not related to the business cycle

Structural unemployment

involuntary unemployment unrelated to the business cycle caused by a mismatch between available jobs and the skills of available workers in an industry or region

Cyclical unemployment

a downturn in the business cycle reduces the demand for labor throughout the economy

Seasonal unemployment

occurs during certain times of the year for certain jobs

○ Example: retail workers hired for holiday shopping season, lettuce pickers

Inflation

situation where all prices of goods and services are rising

Demand-pull inflation

demand for goods and services is greater than the supply

Cost-push inflation

triggered by the increase in production costs, like materials and wages

Purchasing power

the value of what money can buy

Consumer price index (CPI)

an index of the prices of a “market basket” of goods and services purchased by typical urban consumers

Producer price index (PPI)

measures prices paid by producers and wholesalers for various commodities

Demand

the quantity of a good or service that people are willing to buy at various prices

Supply

the quantity of a good or service that businesses will make available at various prices

Perfect (pure) competition

structure where there are many small firms selling similar products, buyers and sellers have good information about prices, and it’s easy to open/close a business

Pure monopoly

the market structure in which a single firm accounts for all industry sales of a particular good or service

Monopolistic competition

structure where many firms are in the market offering products that are close substitutes of each other and it’s easy to enter the market

Oligopoly

structure where a few firms produce most or all of a certain product and large capital requirements restrict the number of firms to enter the industry