Chapter 1 Intro to Business

Business

 organization that provides goods + services (Earns profit)

Profit

The financial gain remaining after all expenses, costs, and taxes have been subtracted from total revenue. Profit is a key indicator of a business's success.

external environment

Factors outside a business that can influence its operations and performance, including economic, social, and political conditions.

tariffs

Taxes imposed on imported goods to protect domestic industries and generate revenue for the government.

• consumers primarily affected, paya higher price due to tariffs, which can lead to reduced demand for imported products.

centrally planned economy

An economic system where the government makes all decisions regarding the production and distribution of goods and services, often with the aim of achieving specific societal goals.

ex. north korea

Mixed economy

An economic system that blends elements of both free market and centrally planned economies, allowing for private ownership alongside government intervention.

ex. usa, most countries

market economy

mostly private (individual or business) ownership of economic resources

supply

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

demand

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

surplus

a situation in which quantity supplied exceeds quantity demanded , leads to discounts, sales due to overflow in goods

shortage

A situation in which quantity demanded exceeds quantity supplied

• leads to higher prices due to limited supply

• supply and demand connect to inflation.

law of supply and demand

If price increases so does supply but demand drops & if price decreases, supply drops but demand goes up

Perfect Competition

1. Products of each firm are so similar that buyers view them as identical

2. Buyers + sellers know the prices people are paying + receiving in market 

3. Each firm is small, easy to enter + leave 

4. Prices are set by supply and demand 

Oligopoly

market or industry characterized by a handful of (generally larger) sellers with the power to influence the prices of their products (ex. Airlines, coffee shops, gas)

monopoly

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

How is a 'business' defined in the context of earning profits?

An organization that provides goods or services to earn profits.

In business terms, what is the 'profit' of an organization?

The difference between a business's revenues and its expenses.

What constitutes the 'external environment' of a business?

Everything outside an organization's boundaries that might affect it.

Term: Economic System

Definition: A system for allocating resources among citizens, characterized by either government or private ownership.

What characterizes a 'centrally planned' economic system?

Government ownership of economic resources and state planning.

What characterizes a 'market' economic system?

Mostly private ownership of economic resources by individuals or businesses.

How is 'demand' defined in a market economy?

The willingness and ability of buyers to purchase a product, which can be a good or a service.

How is 'supply' defined in a market economy?

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

A situation in which the quantity supplied exceeds the quantity demanded is known as a _____.

Surplus

A situation in which the quantity demanded exceeds the quantity supplied is known as a _____.

Shortage

According to the Law of Demand, what happens to the demand for a product if its price increases?

The demand for the product decreases.

According to the Law of Supply, what happens to the supply of a product if its price increases?

The supply of the product increases.

In a supply and demand graph, what is the point where the supply and demand curves intersect called?

Equilibrium

Under the law of supply and demand, what does $P^*$ represent on a market graph?

The equilibrium price.

Under the law of supply and demand, what does $Q^*$ represent on a market graph?

The equilibrium quantity.

What is a mandatory condition regarding firm size for 'perfect competition' to exist?

All firms in the industry must be small.

What is a mandatory condition regarding the number of firms for 'perfect competition' to exist?

The number of firms in the industry must be large.

In perfect competition, how do buyers perceive the products of different firms?

Buyers view the products as identical to those of other firms.

Who sets the 'going prices' in a market characterized by perfect competition?

Prices are set exclusively by supply and demand and accepted by both sellers and buyers.

What is 'monopolistic competition'?

A market where numerous sellers try to differentiate their products from those of competitors for numerous buyers.

Concept: Oligopoly

Definition: A market characterized by a handful of generally large sellers with the power to influence prices.

What defines a 'monopoly' in a market or industry?

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

What is a 'natural monopoly'?

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

What is the purpose of 'economic indicators'?

Statistics that show whether an economic system is strengthening, weakening, or remaining stable.

What does 'standard of living' measure?

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

How is the 'balance of trade' calculated?

The economic value of all products a country exports minus the economic value of its imported products.

What is the definition of 'national debt'?

The amount of money the government owes its creditors.

When does 'inflation' occur in an economic system?

When widespread price increases occur throughout the system.

What does the 'Consumer Price Index (CPI)' measure?

The prices of typical products purchased by consumers living in urban areas.

How is 'unemployment' defined?

The level of joblessness among people actively seeking work in an economic system. (4.2 rn)

A period during which aggregate output, as measured by GDP, declines is known as a _____.

Recession

What is a 'depression' in economic terms?

A prolonged and deep recession.

What are 'managerial ethics'?

Standards of behavior that guide individual managers in their work.

What are the three main areas of behavior addressed by managerial ethics?

Behavior toward employees, the organization, and other economic agents.

What does the term 'social responsibility' refer to in a business context?

The way a business attempts to balance its commitments to relevant groups and individuals in its social environment.

Who are 'organizational stakeholders'?

Groups, individuals, and organizations directly affected by the practices of an organization who have a stake in its performance.

What is the concept of 'accountability' in contemporary social consciousness?

The expectation of an expanded role for business in protecting and enhancing the general welfare of society.

In the spectrum of social responsibility, which stance represents the lowest level of responsibility?

Obstructionist Stance

In the spectrum of social responsibility, which stance represents the highest level of responsibility?

Proactive Stance

What are the four stances on the spectrum of corporate social responsibility?

Obstructionist, Defensive, Accommodative, and Proactive.

What are three key contributions of small businesses to the U.S. economy?

Job creation, innovation, and contributions to big business.

According to Figure 3.2, which industry accounts for the largest percentage (55.8%) of small businesses?

Services

What is a 'closely held' (or private) corporation?

A corporation whose stock is held by only a few people and is not available for sale to the general public.

What is a 'publicly held' (or public) corporation?

A corporation whose stock is widely held and available for sale to the general public.

How is an 'S Corporation' organized and taxed?

It is organized and operated like a corporation but treated as a partnership for tax purposes.

What is the maximum number of shareholders allowed in an S Corporation?

100 shareholders

What is a 'Limited Liability Corporation (LLC)'?

A hybrid of a publicly held corporation and a partnership where owners are taxed as partners but enjoy limited liability.

What is 'pass-through taxation' as it relates to LLCs?

Profits and losses are reported on the members' individual tax returns, avoiding double taxation.

What is a primary disadvantage of the LLC structure regarding its existence?

Limited Lifespan (LLCs may have a limited lifespan depending on state laws).

In corporate governance, what is a 'stockholder' (or shareholder)?

An owner of shares of stock in a corporation.

What is the role of a corporation's 'Board of Directors'?

A governing body that reports to shareholders and delegates power to run day-to-day operations while sustaining assets.

Who is the 'Chief Executive Officer (CEO)' in a corporation?

The leader of the top management team who is responsible for overall performance.

How is 'globalization' defined?

The process by which the world economy is becoming a single interdependent system.

What is an 'import'?

A product made or grown abroad but sold domestically.

What is an 'export'?

A product made or grown domestically but shipped and sold abroad.

What was the primary goal of the General Agreement on Tariffs and Trade (GATT)?

To encourage the multilateral reduction or elimination of trade barriers.

What is the 'World Trade Organization (WTO)'?

An organization through which member nations negotiate trade agreements and resolve disputes about trade policies.

What constitutes a 'positive balance' of trade?

A situation where a country exports more than it imports.

What is a 'trade surplus'?

A situation in which a country's exports exceed its imports.

What does the 'balance of payments' measure?

The total flow of all money into or out of a country.

What is 'absolute advantage' in international trade?

The ability to produce something more efficiently than any other country can.

Concept: Comparative Advantage

Definition: The ability to produce some products more efficiently than others.

What is a 'branch office' in an international business structure?

A foreign office set up by a multinational firm that provides a visible presence and more direct control.

What is 'Foreign Direct Investment (FDI)'?

An arrangement in which a firm buys or establishes tangible assets in another country.

In the cultural environment of business, what is 'uncertainty orientation'?

The feeling individuals have regarding uncertain and ambiguous situations.

What does 'time orientation' refer to in a cultural context?

The extent to which members of a culture adopt a long-term versus a short-term outlook on work and life.

What is a trade 'quota'?

A restriction on the number of products of a certain type that can be imported into a country.

What is a trade 'embargo'?

A government order banning the exportation and/or importation of a particular product or all products from a particular country.

What is the definition of a business?

An organization that provides goods or services to earn profits.

Concept: Profits

Definition: The difference between a business's revenues and its expenses.

What term refers to everything outside an organization's boundaries that might affect it?

External environment.

The _____ environment of business refers to the international forces that affect a business, such as trade agreements or political unrest abroad.

Global business

In which type of economic system does the government own economic resources and perform state planning?

Centrally planned economy.

A _____ economy is characterized by mostly private ownership of economic resources by individuals or businesses.

Market

What is the definition of demand in a market economy?

The willingness and ability of buyers to purchase a product (a good or a service).

According to the Law of Demand, what happens to demand if the price of a product increases?

decreases

According to the Law of Supply, what happens to the quantity supplied if the price of a product decreases?

Quantity supplied decreases.

The price and quantity at which the supply and demand curves intersect is called _____.

Equilibrium

What is a market surplus?

A situation in which the quantity supplied exceeds the quantity demanded.

A situation in which the quantity demanded exceeds the quantity supplied is known as a _____.

Shortage

For perfect competition to exist, all firms in an industry must be _____ and the number of firms must be _____.

Small; large

Under perfect competition, who sets the going prices for goods?

Supply and demand exclusively.

An industry characterized by a handful of generally large sellers with power to influence product prices is an _____.

Oligopoly

What is the definition of a monopoly?

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

A _____ monopoly is an industry in which one company can most efficiently supply all needed goods or services.

Natural