Business Chapter 1

What is a business?

An activity that provides goods and services to others while operating at a profit.

What is revenue?

The money a business takes in from selling goods and services.

What is profit?

The amount a business earns after deducting its expenses.

What is a loss?

When a business's expenses are greater than its revenue.

What is an entrepreneur?

A person who risks time and money to start and manage a business.

What is risk?

The chance a business owner will lose the time and money invested in a business that proves unprofitable.

What is standard of living?

The amount of goods and services people can buy with the money they have.

How do entrepreneurs contribute to wealth creation?

By taking risks, creating businesses/jobs, paying taxes, and contributing to communities.

What is a stakeholder?

Anyone who gains or loses from a business's policies and activities.

Why can stakeholder interests conflict?

Meeting one stakeholder's needs can negatively affect another's.

Who balances conflicting stakeholder demands?

Business managers.

What is a nonprofit organization?

An organization whose goals do not include making personal profit for its owners/organizers.

What happens to financial gains in a nonprofit?

They are used to meet the organization's goals.

What are the five elements of the business environment?

Economic/legal, technological, competitive, social, and global.

How can the economic and legal environment affect business?

It affects the level of risk and regulates business activity.

How can technology affect business?

It can make businesses more effective, efficient, and productive.

What is productivity?

The amount of output generated given the amount of input

What is effectiveness?

Producing the desired result.

What is efficiency?

Producing goods/services using the least amount of resources.

Why must businesses differentiate themselves?

To distinguish their products/services from competitors.

What does it mean for a business to be customer-driven?

It understands and responds to customers' wants and needs.

What is demography?

The statistical study of a population's size, density, and characteristics

How can population changes affect businesses?

They can create opportunities for some businesses and declining opportunities for others.

What does the global environment include?

Trade agreements, international economic conditions, pandemics, war/terrorism, and climate change.

Why has globalization increased?

More efficient distribution systems and advances in communication.

What is economics?

The study of how society chooses to employ resources to produce goods/services and distribute them for consumption.

What is macroeconomics?

The study of the operation of a nation's economy as a whole.

What is microeconomics?

The study of the behavior of people and organizations in particular markets.

What are the five factors of production?

Land, labor, capital, entrepreneurship, and knowledge.

What are the two broad types of economic systems?

Command economies and free-market economies.

What is a command economy?

An economy where the government largely decides what is produced, who gets it, and how the economy grows.

What is a free-market economy?

An economy where the market largely determines what is produced, who gets it, and how the economy grows.

What is socialism?

An economic system in which some or most basic businesses are government-owned so profits can be more evenly distributed.

What is communism?

An economic and political system where the government makes almost all economic decisions and owns most major factors of production.

What is capitalism?

An economic system where most factors of production and distribution are privately owned and operated for profit.

What is the invisible hand?

Adam Smith's idea that self-directed individual gain can create social and economic benefits for society.

What are the four basic rights under capitalism?

Right to private property, right to own a business/keep profits, freedom of competition, and freedom of choice.

What is a mixed economy?

An economy where some resource allocation is determined by markets and some by government.

What is supply?

The quantity of products sellers are willing to sell at different prices at a specific time

What is demand?

The quantity of products people are willing to buy at different prices at a specific time

What happens to quantity supplied when price increases

It increases.

What happens to quantity demanded when price decreases?

It increases.

What is equilibrium?

The point where quantity demanded equals quantity supplied

How are prices determined in a free market?

Through supply and demand

What are the four degrees of competition?

Perfect competition, monopolistic competition, oligopoly, and monopoly

What is perfect competition?

Many sellers exist and none is large enough to dictate the price.

Many sellers exist and none is large enough to dictate the price.

Many sellers offer similar products that buyers perceive as different.

What sets sellers apart under monopolistic competition?

Product differentiation.

What is an oligopoly?

A market dominated by a few sellers.

What is a monopoly?

A market where one seller controls the total supply and sets the price.

What is GDP?

The total value of final goods and services produced within a country in a given year.

What are the three key economic indicators?

GDP, unemployment, and inflation/price indexes

What is the unemployment rate?

The percentage/number of civilians at least 16 who are unemployed and have recently tried to find work.

What is inflation?

A general rise in prices over time.

What is deflation?

A situation where prices are declining.

What is disinflation?

A situation where the rate of price increases is slowing.

What is stagflation?

A situation where the economy is slowing while prices continue to increase.

What is the CPI?

A measure of inflation/deflation based on prices of goods and services such as housing, food, apparel, and medical care.

What is the PPI?

An index measuring changes in prices at the wholesale level.

What are the four phases of the business cycle?

Economic boom → recession → depression → recovery

What is a recession?

Two or more consecutive quarters of decline in GDP.

What is a depression?

A severe recession, usually accompanied by deflation.

What is fiscal policy?

The federal government's efforts to stabilize the economy by changing taxes and/or government spending.

What is monetary policy?

The Federal Reserve's efforts to control the money supply and interest rates.

What is the easiest way to remember fiscal vs. monetary policy?

Fiscal = government → taxes/spending.
Monetary = Fed → money supply/interest rates.