Business - (CH 1 & 2) Simplify!

As defined by your text economics is primarily the study of

How to employ resources to produce goods and services and distribute them for consumption among competing groups and individuals

Thomas Carlyle called economics the “dismal science” after reading the early work of

Thomas Malthus

Eduardo owns a farm in a country where taxes are very high and where the government openly considers the possibility of taking over the agricultural sector Eduardo stopped investing in his farm and only works enough houts to be able to grow the food necessary for him and his family Eduardo’s behavior demonstrates that

The freedom to own property and keep the profits from work is necessary to the survival of an economy

In a free market the prices of products exchanged in the market

Are negotiated by buyers and sellers

Huge differences in the wealth or relatively similar countries such as North and South Korea are an example of how different (blank) and political conditions affect businesses

Economic

Prices in a free-market economy are determined by

Buyers and sellers negotiating in the marketplace

What is the study of how resources are distributed for production of goods and services within a social system called?

Economics

Why did Thomas Malthus believe that population growth would surpass the available resrouces?

Fast population growth seemed to surpass the growth of the food supply

Reason: during Malthus times, rich landowners had most of the wealth while the majority of the people were peasants who had many children Therefore it seemed that there would soon be too many people not enough food and other resources

Adam Smith believed (blank) was essential to the survival of any economy

Freedom

In a free market system, decisions about what and how much is produced are made by

The market consisting of buyers and sellers

The supply concept refers to the relationship between the quantity of products produced and price If the market of a product increases, quantity supplied will

Increase

Reason: This is the supply concept Generally speaking, the amount supplied will increase as the price increases because sellers can make more money with a higher price The demand concept states that quantity demanded will increase if the price decreases

Over time, as negotiation occurs between buyers demanding products and sellers supplying products, the (blank) will be determined

Market Price

Thomas Carlyle

Thomas Carlyle famously called economics the "dismal science" in his 1849 essay, criticizing its focus on supply and demand over moral and social concerns. He opposed laissez-faire economics, believing that governance should enforce labor discipline rather than rely on market forces2. His views clashed with thinkers like John Stuart Mill, who defended economic freedom. Carlyle’s critique influenced later discussions on the ethical dimensions of political economy3.

Thomas Malthus

Thomas Malthus is best known for his Malthusian theory of population, which argues that population growth tends to outpace food production, leading to inevitable shortages and hardship. In his 1798 work An Essay on the Principle of Population, he proposed that population increases geometrically while food supply grows arithmetically, creating a natural limit on human expansion. His ideas influenced economic thought on scarcity, sustainability, and policy responses to population growth

Adam Smith

Adam Smith (1723–1790) is known as the "father of economics" for his foundational work in classical economics. His 1776 book, The Wealth of Nations, introduced key concepts like the invisible hand, division of labor, and free markets, arguing that self-interest in a competitive market leads to economic prosperity. His earlier work, The Theory of Moral Sentiments (1759), explored ethics and human behavior, showing that economic systems are deeply tied to moral philosophy. Smith’s ideas shaped modern capitalism and economic thought.

“Invisible Hand”

Adam Smith’s Invisible Hand is a metaphor for how individual self-interest in a free market unintentionally benefits society. When people pursue their own economic gain—whether by producing goods, investing, or trading—the market naturally allocates resources efficiently, leading to overall prosperity. Smith introduced this idea in The Wealth of Nations (1776), arguing that minimal government intervention allows markets to self-regulate2. However, critics point out that unchecked markets can lead to inequality and negative externalities.

Perfect, monopolistic, oligopoly, and monopoly are four different degrees of?

Competition

A benefit of free markets is that it

Allows for open competition among companies

The quantity of products that manufactures or owners are willing to sell at different prices at a specific time it referred to as

Supply

Reason: In most cases, the amount supplied will increase as the price increases, because sellers can make more money with a higher price

In Socialism (blank)

The government owns and operates some, if not most, basic industries such as postal service or transportation

Mark, the marketing manager of a large U.S. corporation, realizes that Afghanistan has virtually no supply of tomatoes. He conducts a study to see that what quantity of tomatoes Afghan customers would be able and willing to buy at different prices Mark is analyzing Afghanistan’s

Demand for tomatoes

The loss of the best and brightest people to other countries is called

Brain Drain

In free markets the price of a product depends on how much consumers are willing and able to buy and how much the producers are willing and able to sell what does the market price depend on in a free market

Supply and Demand

What is the political and economic system in which the government makes almost all economic decisions and owns almost all the major factors of production as well as choosing religion where to live and jobs for its citizens

Commmunism

What are the four different degrees of competition within free markets

• Perfect Competition

• Oligopolies

• Monopolies

• Monopolistic Competition

GDP unemployment rate and price indexes are considered the three major (blank) indicators

Economic

What are three benefits of a free market economy?

• The opportunity for people to work their way out of poverty

• Competition that benefits consumers with better prices and service

• Encouraging efficiency among competing businesses

Gross Domestic Product refers to the total value of goods and services produced in a country in a given year. The goods and services can be (blank)

• Produced by domestically owned companies

• Produced by foreign owned companies located in the country

The idea that some basic businesses such as steel mills coal mines and utilities should be owned by the government so that profits can be more evenly distributed among the people is indicative of a (blank) economic system

Socialist

The unemployment rate refers to the percentage of civilians at least 16 years old who are unemployed and (blank)

Tried to find a job within the prior 4 weeks

In an economic and political system called communism

The government owns almost all the factors of production

The real unemployment rate includes the percentage of the population

Who are included in the standard unemployment rate and those who are underemployed discouraged and have looked for a job in the past year

What are the three major U.S. economic indicators

• GDP

• Price Indexes

• The unemployment rate

Mary worked for a GM factory in Detroit all her life Unfortunately when GM closed the plant because of restructuring she could not find any jobs in the automotive industry in or around Detroit Mary would be counted as an example of

Structural Unemployment

Reason: Refers to unemployment caused by the reconstructing of firms or by a mismatch between the skills (or location) of job seekers and the requirements (or location) of available jobs

Structural Unemployment

Structural unemployment occurs when workers' skills do not match available jobs due to economic shifts, technological advancements, or industry changes. Unlike cyclical unemployment, it persists even during economic growth. Causes include automation, globalization, and geographic immobility. Solutions often involve retraining programs and relocation incentives to help workers adapt to new industries

Cyclical Unemployment (most dangerous)

Cyclical unemployment occurs due to economic downturns, such as recessions or depressions, when demand for goods and services declines, leading businesses to cut jobs. It is considered especially dangerous because it can trigger widespread job losses, reduce consumer spending, and prolong economic instability. Unlike structural unemployment, which results from long-term shifts in industries, cyclical unemployment fluctuates with the business cycle and requires government intervention—such as stimulus measures or monetary policy—to restore employment levels3.

Seasonal Unemployment

Seasonal unemployment occurs when workers lose jobs due to predictable seasonal fluctuations in demand. Common examples include tourism, agriculture, and holiday retail, where employment rises during peak seasons but declines when demand drops. While not permanent, it can create financial instability for workers. Solutions include diversifying local economies, offering off-season employment programs, and encouraging savings strategies to manage income gaps

What is the total value of final goods and services produced in a country in a given year called?

Gross domestic product

A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of goods and services is the official definition of

Inflation

Suppose the Fed takes money out of the economy leaving less money to buy the goods and services available. What economic situation would result?

Deflation

Unlike inflation where prices rise even if the economy is not slowing down, the situation where the economy is in fact slowing but prices are going up is called

Stagflation

Mark graduated from college a short time ago and is still looking for his first (dream) job Mark is part of the unemployment category known as (blank) unemployment

Frictional

Frictional Unemployment

Frictional unemployment occurs when workers are temporarily between jobs due to voluntary transitions, such as quitting to find better opportunities or entering the workforce for the first time. It is a natural part of a healthy economy and reflects job mobility rather than economic distress. Causes include career changes, geographic relocation, and job searching delays. While generally short-term, efficient job-matching services and labor market transparency can help reduce frictional unemployment

What does the consumer price index measure?

The pace of inflation or deflation

What is Inflation?

A general rise in the price of goods and service over time

One of the main explanation for the relatively sharp increases in the U.S. manufacturing sector productivity is (blank)

Improved technology makes the production process faster

A condition characterized by an oversupply of goods and services compared to the money available to buy them is termed

Deflation

Equipment in hospitals, such as CAT scanners, PET scanners, and MRI scanners (blank)

Improve the quality of services provided, but do not necessarily increase productivity

What are two characteristics of stagflation?

• Prices are rising

• The economy is slowing

What are business cycles?

The periodic rises and falls that occur in economies over time

Select all the ways that taxes are used to influence the economy

• Low taxes rates give the economy a boost

• The raising and lowering of tax rates are used to stabilize the economy

• High taxes draw the money away from the private sector

Private Sector

The private sector consists of businesses and organizations owned by individuals rather than the government. It operates for profit and includes industries like retail, manufacturing, finance, and technology. In free-market economies, the private sector drives innovation, competition, and job creation. Unlike the public sector, which provides government-run services, private enterprises respond to consumer demand and market forces

The monthly statistic that measures the pace of inflation or deflation is called

Consumer Price Index

By increasing or decreasing taxes or government spending, the government is affecting (blank) policy to keep the economy stable

Fiscal

What statement regarding technology and productivity is true?

Technology may add to the quality of the service provided but not necessarily to the out-put per worker

What two factors are affected by the Federal Reserve’s use of monetary policy?

• Interest rates

• Money supply

What does the consumer price index measure?

The pace of inflation or deflation

Fiscal policy is the federal government’s effort to keep the economy stable by increasing or decreasing

• Taxes

• Government Spending

The management of the money supply and raising and lowering interest rates by the Federal Reserve Bank is called (blank) policy

Monetary

When the government computes the cost of goods and services, including housing, food, apparel and medical care to see whether or not they are going up or down they are measuring

Gross domestic product

Describe the relationship between profit and risk, and show how businesses and non - profit organizations can raise the standard of living for all

• Profit & Risk Connection: Businesses take risks to innovate and expand, aiming for higher potential profits.

• Businesses & Economic Growth: Companies create jobs, boost efficiency, and enhance consumer access to valuable goods and services.

• Non-Profits & Social Welfare: Provide essential services like education, healthcare, and aid, improving quality of life and economic stability.

Explain how entrepreneurship and the other factors of production contribute to the creation of wealth

• Entrepreneurship: Identifies opportunities, organizes resources, and drives innovation to create wealth.

• Land, Labor & Capital: Natural resources, human effort, and financial assets fuel production and economic growth.

• Value Creation: Efficient use of factors of production leads to goods, services, income, and higher living standards.

Analyze the effects of the economic environment and taxes on businesses

• Economic Conditions: Growth boosts sales and investment, while recessions reduce demand and profitability.

• Interest Rates & Inflation: High rates make borrowing costly; inflation increases expenses, squeezing profit margins.

• Taxation Impact: Higher taxes reduce reinvestment potential, while incentives encourage expansion and innovation.

Describe the effects of technology on businesses

• Efficiency & Automation: Technology streamlines operations, reduces costs, and boosts productivity through AI and automation.

• Market Expansion & Connectivity: Digital platforms enable global reach, improve customer interaction, and enhance remote work capabilities.

• Innovation & Competitive Edge: Businesses must adapt to rapid advancements, leveraging tech for new products, data-driven strategies, and agility in evolving markets.

Demonstrate how businesses can meet and beat competition

• Differentiation & Innovation: Unique products, services, or branding help businesses stand out and attract loyal customers.

• Cost & Operational Efficiency: Streamlining processes, optimizing pricing, and leveraging economies of scale enhance competitiveness.

• Customer Engagement & Market Awareness: Strong relationships, strategic marketing, and data-driven insights ensure adaptability and long-term success.

Analyze the social changes affecting businesses

• Evolving Consumer Expectations: Demand for sustainability, ethical business practices, and personalized experiences is reshaping industries.

• Digital Transformation & Workforce Shifts: Remote work, automation, and AI adoption are redefining operations and employment strategies.

• Cultural & Regulatory Adaptation: Diversity, inclusion, privacy laws, and environmental policies require businesses to adjust strategies for long-term success.

Identify what businesses must do to meet global challenges including war and terrorism

• Risk Management & Security: Businesses must strengthen cybersecurity, supply chain resilience, and crisis response to mitigate risks.

• Adaptability & Sustainability: Diversifying operations, securing resources, and investing in sustainable practices help ensure stability during global disruptions.

• Social Responsibility & Collaboration:

Review how past trends are being repeated in the present and what those trends mean for tomorrow’s college graduates

• Economic Cycles & Job Markets: Recessions and recoveries follow historical patterns, influencing employment prospects and required skill adaptability.

• Technological Disruptions: Automation and AI mirror past industrial shifts, demanding tech fluency and continuous learning.

• Globalization & Workforce Evolution: Trade dynamics, remote work, and cultural integration reshape career opportunities, pushing graduates toward flexibility and innovation.

Business

Any activity that seeks to provide goods and services to others while operating at a profit

Goods

Tangible products such as computers food clothing cars and appliances

Services

Intangible products that can’t be held in your hand such as education health care insurance recreation and travel and tourism

Entrepreneur

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

Revenue

The total amount of money a business takes in during a given period by selling goods and services

Profit

The amount of money a business earns above and beyond what it spends for salaries and other expenses

Loss

When a businesses’ expenses are more than its revenue

Risk

The chance an entrepreneur takes of losing time and money on a business that may not prove profitable

Standard of Living

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

Quality of life

The general well - being of a society in terms of its political freedom natural environment education health care safety amount of leisure and rewards that add to the satisfaction and joy that other goods and services provide

Business and Wealth Building

• Business & Economic Development: Businesses drive innovation, create jobs, and contribute to economic growth, shaping national and global markets.

• Risk vs. Reward: Entrepreneurs take risks in pursuit of profit, balancing investment, market competition, and economic fluctuations.

• Stakeholders & Social Impact: Companies must consider customers, employees, investors, and society, ensuring ethical practices and long-term sustainability.

Revenues Profits and Losses

• Revenue: Total income a business earns from sales of goods or services before deducting expenses.

• Profit: The financial gain when revenues exceed costs; calculated as Revenue – Expenses.

• Loss: Occurs when expenses surpass revenue, leading to negative financial results.

Businesses aim to maximize profit by managing costs, optimizing pricing, and increasing sales efficiency.

Managing Risk with Profit

• Strategic Decision-Making: Businesses assess risks—economic shifts, competition, and market volatility—to maximize profitable opportunities.

• Diversification & Adaptability: Expanding product lines, adjusting pricing, and responding to trends help balance risks while sustaining profit.

• Cost Control & Efficiency: Streamlining operations, optimizing investments, and leveraging technology minimize financial risks and enhance profitability.

Successful businesses align risk management with profit strategies to ensure long-term growth and stability.

Standard of Living and Quality of Life

• Standard of Living: Measures economic factors like income, employment, and access to goods/services, reflecting material well-being.

• Quality of Life: Encompasses broader well-being, including health, education, environment, and personal happiness beyond financial status.

• Business Impact: Companies and non-profits influence both by creating jobs, providing essential services, and fostering innovation that enhances societal welfare.

A high standard of living doesn’t always equate to high quality of life—balanced development is key to sustainable growth. Let me know if you need further analysis!

Stakeholders

All the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address

Outsourcing

Contracting with other companies often in other countries to do some or all of the functions of a firm like its production or accounting tasks

Nonprofit organization

An organization whose goals do not include making a personal profit for its owners or organizers

Responding to the various business stakeholders

• Customers: Deliver quality products, transparent communication, and strong service to build trust and loyalty.

• Employees: Foster fair wages, professional growth, and a supportive work environment to boost morale and productivity.

• Investors & Community: Maintain financial integrity, innovation, and ethical practices to sustain long-term confidence and impact.

Effective stakeholder management strengthens reputation, competitiveness, and overall business success.

Using Business Principles in Nonprofit Organizations

• Strategic Management: Efficient resource allocation, financial planning, and goal-setting enhance impact and sustainability.

• Revenue Diversification: Fundraising, grants, and earned income strategies reduce dependence on limited funding sources.

• Stakeholder Engagement: Strong relationships with donors, volunteers, and communities build trust and long-term support.

Nonprofits thrive when they adopt sound business strategies while staying true to their mission.

What is the difference between revenue and profit

• Revenue: The total income a business generates from sales of goods or services before deducting expenses. It's often called gross sales or top-line earnings.

• Profit: The amount left after subtracting all costs, including expenses, taxes, and operational costs, from revenue. This is the net earnings or bottom-line result.

In short, revenue is the money coming in, while profit is what remains after covering all costs. Businesses aim to maximize profit by managing expenses and optimizing revenue streams!

What is the difference between standard of living and quality of life

• Standard of Living: Measures economic factors like income, employment, and access to goods/services, focusing on material well-being.

• Quality of Life: Encompasses broader well-being, including health, education, environment, and personal fulfillment beyond financial status.

• Key Difference: Standard of living is about financial and economic conditions, while quality of life considers overall happiness and life satisfaction.

Both concepts shape societal progress, but a high standard of living doesn’t always guarantee a high quality of life!

What is risk and how is it related to profit

• Risk Defined: The possibility of loss or uncertainty in business decisions, such as investments, market shifts, or operational challenges.

• Higher Risk, Higher Potential Profit: Businesses taking bigger risks—like launching new products or entering new markets—often have a greater chance of earning higher profits.

• Balancing Risk & Reward: Successful businesses manage risks strategically by analyzing market conditions, diversifying investments, and optimizing operations to maximize profits while minimizing potential losses.

Smart risk-taking fuels innovation and growth, but excessive risk can lead to financial instability.

What do the terms Stakeholders Outsourcing, and Insourcing mean

• Stakeholders: Individuals or groups affected by a business’s decisions—customers, employees, investors, suppliers, and the community.

• Outsourcing: Hiring external companies or individuals to handle tasks or services instead of doing them in-house, often to reduce costs or access expertise.

• Insourcing: Using a company’s own resources and personnel to complete tasks instead of contracting external providers, often for quality control and efficiency.

Each approach has strategic benefits depending on a business’s goals, budget, and operational needs.

The Importance of Entrepreneurs to the Creation of Wealth

• Driving Innovation: Entrepreneurs introduce new products, services, and solutions that enhance efficiency and expand markets.

• Generating Employment: New businesses create job opportunities, boosting income levels and economic activity.

• Expanding Economic Growth: Successful ventures increase productivity, investment, and overall national prosperity.

By taking calculated risks, entrepreneurs fuel progress, improve living standards, and shape the future of industries.

Factors of production

The resources used to create wealth land labor capital entrepreneurship and knowledge

Business Environment

The surrounding factors that either help or hinder the development of businesses

The Five Factors of Production

• Land: Natural resources like minerals, water, and forests used in production.

• Labor: Human effort, skills, and knowledge applied to creating goods and services.

• Capital: Machinery, tools, buildings, and financial assets that enhance productivity.

• Entrepreneurship: The ability to organize, manage, and take risks to innovate and create value.

• Technology: Advancements that improve efficiency, automate processes, and drive innovation.

Each factor plays a crucial role in generating economic output and shaping industries. (The most important Factor is Knowledge)

The Economic and Legal Environment

• Regulatory Framework: Government laws and policies shape market conditions, affecting taxation, trade, and business operations.

• Market Stability & Growth: Economic conditions, such as inflation, interest rates, and consumer demand, influence profitability and investment strategies.

• Competitive & Ethical Standards: Businesses must navigate labor laws, environmental regulations, and fair competition practices to maintain compliance and reputation.

A strong legal and economic foundation fosters business success while ensuring stability and fairness in the market.

What are some of the advantages of working for others

• Stable Income & Benefits: Regular salary, health insurance, retirement plans, and other perks provide financial security.

• Skill Development & Career Growth: Access to training, mentorship, and promotion opportunities help build expertise and advance professionally.

• Less Financial Risk: Unlike entrepreneurs, employees don’t bear the burden of business losses, market fluctuations, or operational expenses.

Working for an employer offers structure, security, and growth opportunities without the uncertainties of running a business!

What benefits do you lose by being an entrepreneur and what do you gain

• Losses: Entrepreneurs lose stable income, benefits, and security compared to traditional employment.

• Gains: They gain independence, unlimited earning potential, and personal fulfillment through innovation.

• Trade-Off: Success depends on managing risks while leveraging opportunities for financial and personal growth.

What are the five factors of production? Which ones seems to be the most important for creating wealth?

• Land: Natural resources like minerals, water, and forests used in production.

• Labor: Human effort, skills, and knowledge applied to creating goods and services.

• Capital: Machinery, tools, buildings, and financial assets that enhance productivity.

• Entrepreneurship: The ability to organize, manage, and take risks to innovate and create value.

• Technology: Advancements that improve efficiency, automate processes, and drive innovation.

Most Important for Wealth Creation: While all five factors play a role, entrepreneurship and technology are often the most crucial. Entrepreneurs identify opportunities and drive business growth, while technology accelerates efficiency, productivity, and innovation—key drivers of wealth in modern economies.

Technology

Everything from phones to computers mobile devices medical imaging machines robots the internet social media and the various software programs and apps that make business processes more effective efficient and productive