SEVI exam 1 (halsell)

capitalism

capitalism

an economic system in which individuals own and operate the majority of businesses that provide goods and services

invisible hand

a term created by Adam Smith to describe how an individual's own personal gain benefits others and a nations economy

command economies

an economic system in which the government decides what goods and services will be produced, how they will be produced, for whom available goods and services will be produced, and who owns and controls the major factors of production.

examples of a command economy

socialism and communism

market economies

an economic system in which businesses and individuals decide what to produce and buy, and the market determines prices and quantities sold.

mixed economies

an economy that exhibits elements of both capitalism and socialism

GDP

the total dollar value of all goods and services produced by all people within the boundaries of a country during a specified time period

productivity

the average level output per worker per hour

real GDP

GDP when adjusted with inflation or deflation, provides a more accurate measure of change in quantity of goods and services produced

GDP per capita

measure of a countries economic output per person (average economic standard of living)

inflation

a rise in level of prices

unemployment rate

the percentage of a nations labor force without a job at any time

consumer price index (CPI)

a monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area

producer price index (PPI)

a monthly index that measures prices that producers receive for their finished goods

how are CPI and PPI related?

changes in PPI often influences CPI, reflecting in consumer prices

federal deficit

a shortfall created when the federal government spends more in a fiscal year than it receives

national debt

the total accumulated amount of money the government owes on borrowed money

competition

rivalry among businesses for sales to potential customers

pure competition

there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product

example of pure competition

agriculture (wheat, corn, rice)

monopolistic competition

there are many buyers along with a relatively large number of sells who differentiate their products from the products of competitors

examples of a monopolistic competition

clothing, fast food, shoes, soaps

Oligopoly

there are few sellers

examples of oligopoly

cars, airlines, car rental industries

monopoly

a market with only one seller and customer can only buy the product or service from that seller

example of a monopoly

Microsoft in the 90s

Market Price (Equilibrium)

The price of any product at which the quantity demanded is exactly equal to the quantity sold. (where supply and demand curve meet)

ethics in business

the study of right and wrong and of the mortality of the choices individuals make. Business ethics is the application of moral standards to business situations (ex: code of ethics)

what is the main source of ethical issues in business?

relationships; with investors, customers, employees, creditors, suppliers, or competitors

US government's role in encouraging ethical behavior

enacting more stringent regulations such as Sarbanes-oxley act of 2002 and US foreign Corrupt Practices act.

US Foreign Corrupt Practices Act

federal law that prohibits businesses from paying bribes to foreign government officials, political parties, or political candidates.

Sarbanes-Oxley Act of 2002

provides sweeping new legal protection for employees who report corporate misconduct

what can companies do to encourage ethical behavior?

- regulate their code of ethics
- role model ethical behavior
- keep communication open
- provide training on ethical decision-making
- punish violations of the code of ethics.

social responsibility

the recognition that business activities have an impact on society and the consideration of that impact in business decision-making

economic model of social responsibilty

the view that society will benefit most when business is left alone to produce and market profitable products that society needs

socioeconomic model of social responsibility

the concept that business should emphasize not only profits but also the impact of its decisions on society

how are economic and socioeconomics social responsibilities different?

- economic focuses on how businesses or individuals contribute to the financial well-being of society. It's about things like creating jobs, paying taxes, and making profits ethically.
- Socioeconomics goes beyond just money and looks at how businesses or individuals impact society as a whole, including factors like equality, education, health, and the environment.

consumerism

all activities undertaken to protect the rights of consumers

affirmative action plan

a plan designed to increase the number of employees from underrepresented groups at all levels within an organization

what is affirmative action plan trying to remedy?

discrimination in the workplace

what is affirmative action plan trying to accomplish?

Helping the hard-core unemployed and creating equal opportunity

which businesses are required to have affirmative action plan?

Employers with federal contracts of more than $50,000 per year

green marketing

the process of creating, making, delivering, and promoting products that are environmentally safe

greenwashing

the exaggerated or false marketing of a product, good, or service as environmentally friendly

How to ensure that corporate social responsibility programs are successful?

by enforcing a SLO (social license to operate).

Social license to operate (SLO)

companies must be operating responsibly, taking care of its employees and the environment, and being a good corporate citizen

absolute advantage

the ability to produce a specific product more efficiently than any other nation

comparitive advantage

the ability to produce a specific product more efficiently than any other product that country produces

Balance of trade vs balance of payments

- trade is exports - imports - payment is flow of money in a country - flow of money out of the country

balance of trade

the total value of a nation’s exports minus the total value of its imports over a specified period of time

balance of payments

the total flow of money into a country minus the total flow of money out of that country over a specified period of time.

balance of trade can result in what if the trade balance is negative?

trade deficit

tariffs

Taxes on particular imported goods

quotas

a limit on the amount of a particular good that may be imported into a country during a given period of time

embargos

a complete halt to trading with a particular nation or of a particular product

dumping

exportation of large quantities of a product at a price lower than that of the same product in the home market

exchange control

a restriction on the amount of a particular foreign currency that can be purchased or sold

Negative impacts of trade restrictions

- Loss of jobs
- higher prices for consumers
- retaliation (trade wars

Positive outcome of the expansion of international trade

- Contributed to US economy and jobs
- Lower consumer prices
- Expansion in companies

What is the importance of international trade to the US economy?

It helps create jobs and ultimately helps GDP as the US has more access to imports and sells exports

Challenges of doing business internationally: economic

- individual income (lower standard of living)
- buying power, resource
- The value of a nation's money can fluctuate, which can harm a firm in international transactions. Some counties may have less reliable infrastructure systems, making introducing certain products difficult

Challenges of doing business internationally: legal/political

- laws
- regulatory agencies
- political systems
- special interest groups within a country

Challenges of doing business internationally: social

Differences due to religious institutions, values, customs, social systems, and language can affect communications, negotiations, and perceptions of products and companies

Challenges of doing business internationally: cultural

can impede acceptance of products in foreign countries

General Agreement on Tariffs and Trade (GATT)

an international organization of 164 nations dedicated to reducing or eliminating tariffs and other barriers to world trade

Most favored nation (MFN)

A principle by which one state, by granting another state MFN status, promises to give it the same treatment given to the first state's most-favored trading partner.

What is the main goal of the World Trade Organization?

mediating disputes and fostering efforts to reduce trade barriers

Sole proprietorship: advantages

- easy to start up and close

-pride of ownership

- retention of all profits

- no special taxes

- flexibility of being your own boss.

Sole proprietorship: disadvantages

- unlimited liability
- lack on continuity
- lack of money
- limited management skills
-difficulty hiring employees

general partner

a person who assumes full or shared responsibility for operating a business

limited partner

someone who invests money into a business but has no management responsibility or liability for losses beyond the amount they invested

corporations: advantages

- limited liability
- easy to retail capital
- easy to transfer ownership
- perpetual life
- specialized management

corporations: disadvantages

- difficulty and expense of formation
- government regulation and increased paperwork
- conflict within the corporation
- double taxation
- lack of secrecy

who makes decisions in a corporation?

board of directors

common stock

basic form of corporate ownership, owners may VOTE on corporate policies (ex: Walmart convention)

preferred stock

stock owned but you do NOT have voting rights but you are first to receive dividends

proxy

a legal form listing issues to be decided at stockholders meetings and enabling stockholders to transfer their voting rights to someone else

domestic corporations

Operate in state in which it is incorporated

foreign corporation

a corporation in any state in which it does business except the one in which it is incorporated

alien corporation

a corporation in a foreign gov or country

Limited Liability Company (LLC)

- avoids double taxation
- enjoys limited liability
- fewer restrictions and more management flexibility than a corporation
- Is NOT restricted to 100 stockholders

s-corporation

- avoids double taxation of a C-corporation

- enjoys the corporate benefit of limited liability

- is limited to 100 stockholders

Equity funding as a way to launch a new business. What do funders expect in exchange for funding the start-up?

ownership stake in the company

what makes small business "small"

fewer than 500 employees

Characteristics of entrepreneurs

- Entrepreneurial spirit
- Independence
- A desire to determines ones own destiny
- Willingness to find and accept a challenge
- Family ties
- Age

small business: advantages

- personal relationships with customers and employees
- ability to adapt to change
- simplified record keeping
- independence
- profit retention
- ease and low cost of starting or closing business
- ability to keep proprietary information private.

small business: disadvantages

- risk of failure
- limited potential
- limited ability to raise capital

main reasons for small business failures

- funding
- management
- planning issues

venture capital

money that is invested in small (and sometimes struggling) firms that have the potential to become successful

Small Business Administration (SBA)

offers counseling, courses, conferences, workshops, and a wide range of publications.

Service Corps of Retired Executives (SCORE)

business people who volunteer their services to small businesses through SBA, more than 10,000 retirees, and active businessmen

Small business institutes (SBIs)

groups of senior and graduate students in business administration who provide management counseling to small businesses

Small business development centers (SBDCs)

university-based groups that provide individual counseling and practical training to owners of small businesses

business plan

a carefully constructed guide for the person starting a business made up of three basic purposes

three basic purposes of a business plan

- communication
- management
- planning

three basic purposes of a business plan: communication

allows potential investors to see if they want to invest or assist in financing

three basic purposes of a business plan: management

tracks, monitors, and evaluates the progress, establishes timelines and milestones and allows for comparison of growth.

three basic purposes of a business plan: planning

guides through the various phases of business

importance of small businesses

- They make up the overwhelming majority of all businesses in the US, but they are last in terms of total revenues
- They drive new job growth
- Play a significant role in technological innovation
- Make up a significant proportion of export firms