BSA 101 Chapter 1 Notes

Business and the economy…

are constantly changing to adapt to the world

Free Enterprise

system of business where individuals set what they produce, how they produce it, and for what price to sell it for

Ex: Amazon

Why do we study business

• To become a better informed consumer

• To make business decisions and transactions

• To understand how the world works

Business

the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy their customer’s needs

Four Kinds of resources to organize a business

Material, human, financial, information

Material resources

raw materials, buildings, and machinery (3rd aquired resource)

Human resources

people who furnish labor in exchange for resources, second aquired resource

Financial resources

money required to pay employees, purchase materials, and operate (1st aquired resource)

Informational resources

tells managers how effectively other resources are being used

The three types of business

Service, manufacturing, and marketing intermediaries

Service business

produces services

ex: hairdresser

Manufacturing businesses

process materials into tangible resources

Ex:

Marketing intermediaries

buy from manufacturers and resell

Ex: grocery store

The ultimate goal for every firm

To satisfy the needs of their customers

Profit (Net income)

money remaining after deducting expenses from total revenue

Stakeholders

people affected by policies, decisions, and activities of the business

Ex: consumers, employees, community

Economics

the study of how wealth is created and distributed

Micro: looking at individuals and business decisions

Maco: patterns over larger national and/or global economy

Factors of production

1. Land and Natural Resources: used to make appliances, cars, etc

2. Labor: time and effort used to produce goods and services

3. Capital: money, facilities, equipment, and machines involved in the process

4. Entrepreneurship: organizes land, natural resources, labor, and capital

Capitalism

individuals own and operate the majority of goods and services businesses

Adam Smith’s Invisible Hand

people act to improve their own lives and end up helping others in the process and boosting the economy

Four Concerns of Capitalism

1. Creation of wealth is concern of private individuals

2. Inndividuals must own private property and resources to create wealth

3. Economic freedom is a compeittive market where people can come and go at will

4. Government role is limited to defense, ensuring order, and furnishing education and public services

Laissez-Faire

no government interference in the economy

Market economy

businesses and individuals decide what to produce and buy, and the market determines the price and quantity sold

The United States is a….

mixed economy

BECAUSE of government involvement

Mixed economy

• Households are consumers and resource owners → consumers are customers

• Businesses exchange money for labor to produce goods they then sell

• Governments collect taxes in exchange for protection, education, and construction services

Command economy

government decides what, how, for whom, and who owns goods and services

Socialism

key industries are owned by the government

• What is produced is determined by national goals and avaiability of resources

Communism

citizens together own all economic resources

• Consumption is based on need

Productivity

the average level of output per worker per hour

Productivity increase = economic growth

GDP

Gross Domestic Product

• Total value of all final goods and services produced in a country in a year

• Used to help determine economic growth

• Real GDP is adjusted for inflation

Inflation

general increase in prices

Deflation

general decrease in prices

Recession

2+ quarters of GDP decreasing

Unemployment Rate

The percent of the nation’s labor force unemployed at any given time

Consumer Price Index

Basket of goods measured for the typical consumer (shelter, food, clothing, gas, etc)

Producer price index

measures prices producers recieve for finish goods

• accurate predictor of changes in the CPI

Business cycle

recurrance of periods of growth and recession

• Peak, recession, trough, and recovery

Perfect Competition

many buyers and sellers and neither is powerful enough to affect the price of that product

• Market of a single product

• No restrictions on firms entering the industry

• All sellers offer same product

• All involved know everything about the market

• Overall market not affected by a buyer or seller

Monopolistic Competition

many buyers and large number of sellers

Product diferentiation

process of developing and promoting differences between competitive products

Oligopoly

few sellers → large, sizable investments required to enter

Ex: airlines, cars, farm implement industries

Domestic System

entrepreneur distributes raw materials that households then make into various products

Factory system

all labor and machinery and production happens in the same place

Service economy

More effort to service buinesses than goods

What must always be considered in business decisions?

The economic environment

Measures used to evaluate economic health

1. Balance of Trade

2. Consumer confidence index

3. Corporate Profits

4. Inflation Rate

5. National Income

Balance of trade

total value of nation’s exports - value of imports over a period of time

Consumer confidence index

measures how consumers feel about the economy, monthly measurement

Corporate profits

total profits of corporations over selected time periods

Inflation rate

tracks inflation of goods and services over time, monthly and annual rate

National Income

total income earned by various parts of the population

All nations seek

economic growth, full employment, and price stability

Peak period (prosperity)

economy at its highest point, unemploymemnt is low. Total income increases

• Businesses expand, consumers buy

Recession

unemployment rises, buying power declines, consumers more value selective

Depression

severe recession, longer and larger business decline in activity

Trough

production and employment bottom out → get back up with monetary and fiscal policies

Monetary policy

federal reserve’s decisions that determine the size of the supply of money and the level of interest rates

Fiscal policy

government influences the amount of savings and expenditures by altering the taz structure and changing the levels of government spending

Federal deficit

goverment spending more than it earns

Recovery

moving to the next stage in the business cycle after the trough

Natural monopoly

industry that requires a huge investment in capital within which any duplication of facilities would be wasteful

Limited monopoly

Government entity issues a franchise, license, copyright, or trademark

Specialization

Separation of manufacturing process into different tasks and assigning those tasks to specific people

Competitive environment

how businesses adjust to satisfy society’s needs

Global Environment

competing at home and abroad

Technological Environment

Technology changes business and they must adapt