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Business and Wealth Building

Business

  • Definition: Any activity that seeks to provide goods and services to others while operating at a profit.

  • Types of Products:

    • Goods: Tangible products (e.g., computers, food, clothing, cars, appliances).

    • Services: Intangible products (e.g., education, health care, insurance, recreation, travel/tourism).

Revenues, Profits, and Losses

Financial Metrics

  • Revenue: Total amount of money a business takes in by selling goods and services during a specific period.

  • Profit: Amount earned exceeding expenses.

  • Loss: Occurs when expenses surpass revenues.

Risk and Profit

Risk Management

  • Risk: The chance an entrepreneur takes of losing time and money.

  • Not all businesses yield the same profit; higher risks may lead to higher profits.

Standard of Living and Quality of Life

Definitions

  • Standard of Living: The amount of goods and services people can buy with their money, influenced by business wealth; varies geographically.

  • Quality of Life: General well-being of society based on political freedom, environment, education, health care, and leisure; requires input from businesses and governments.

Stakeholders and Business Dynamics

Stakeholder Engagement

  • Stakeholders: Individuals or entities directly affected by a business's policies and activities.

  • Challenge: Recognizing and responding to diverse stakeholder needs.

Outsourcing and Insourcing

Business Operations

  • Outsourcing: Contracting functions to other companies, often abroad.

  • Insourcing: Foreign companies establishing facilities in the U.S. for design and production.

Entrepreneurship

Role in Wealth Creation

  • Entrepreneur Defined: A person who takes risks to start/manage a business.

Positives:

  • Freedom to succeed, make decisions, potential for wealth.

Negatives:

  • Freedom to fail, lack of benefits like paid vacations or health insurance.

Economic Conditions and Business

Economic Theories

  • Economics: Study of resource allocation for goods and services.

    • Macroeconomics: National economic performance.

    • Microeconomics: Individual market behavior.

  • Resource Development: Increasing and optimizing resource use.

    • Examples: New energy sources, innovative food production methods.

Theories of Economic Wealth

Populations and Economics

  • Malthusian Theory: Risk of resource depletion due to wealth disparity and population growth.

    • Population growth is less severe than Malthus predicted.

  • Macro and Micro Views: A large, educated workforce is a significant asset for businesses and communities.

Free-Market Capitalism

Capitalism Overview

  • Definition: An economic system where most production factors are privately owned for profit.

  • State Capitalism: Mix of free markets with governmental regulation (e.g., China).

Basic Rights in Capitalism

Fundamental Rights

  1. Right to own property.

  2. Right to own a business and retain profits.

  3. Right to free competition.

  4. Right to choose freely.

Supply, Demand, and Market Price

Economic Principles

  • Supply: Quantity of products sellers are willing to sell at various prices.

  • Demand: Quantity consumers are willing to buy at various prices.

  • Market Price: Determined by the intersection of supply and demand.

Competition Types in Markets

Market Structures

  • Perfect Competition: Many small sellers, none control pricing.

  • Monopolistic Competition: Many sellers with similar but differentiated products.

  • Oligopoly: Few sellers dominate, substantial initial investment needed.

  • Monopoly: A single seller controls the entire market, illegal in U.S.

Understanding Socialism and Communism

Economic Systems

  • Socialism: Government owns key businesses for profit distribution; fewer incentives for innovation.

  • Communism: Government controls all economic decisions; often leads to shortages.

The Trend Toward Mixed Economies

Economic Systems Evolution

  • Shift toward mixed economies combining market and government resource allocation.

Key Economic Indicators

Economic Health Metrics

  • Gross Domestic Product (GDP): Total value of products/services produced in a country.

  • Gross Output (GO): Total sales volume at all production stages.

  • Inflation concepts: Includes disinflation, deflation, and stagflation.

Global Trade Dynamics

Concepts in International Trade

  • Importing: Purchasing products from other countries.

  • Exporting: Selling products to foreign markets.

Trade Theories

Economic Advantages

  • Comparative Advantage: Sell products produced efficiently, buy less efficiently.

  • Absolute Advantage: Monopoly in producing specific products.

Measuring Global Trade

Trade Balance

  • Balance of Trade: Comparison of imports and exports.

    • Trade Surplus: More exports than imports.

    • Trade Deficit: More imports than exports.

Strategies for Global Market Entry

Approaches to Expansion

  • Licensing: Allowing a foreign company to produce/sell products for a fee.

  • Franchising: Selling business rights for local operation under a trademark.

  • Contract Manufacturing: Outsourcing production to foreign firms.

  • Joint Ventures: Collaborating on projects with foreign firms.

  • Foreign Direct Investment (FDI): Acquiring businesses or property in foreign nations.

Cultural and Ethical Considerations

Global Business Dynamics

  • Culture: Values and beliefs impacting business practices.

  • Ethics: Standards of moral behavior; crucial for restoring trust in businesses after scandals.

    • Examples of major corporate scandals (e.g., Volkswagen, Lehman Brothers).

Corporate Social Responsibility (CSR)

Ethical Business Practices

  • CSR Defined: Commitment to societal welfare based on integrity and fairness.

  • Dimensions: Corporate philanthropy, enhancing social initiatives, and responsibility for environmental and economic change.

Forms of Business Ownership

Ownership Structures

  • Sole Proprietorship: Owned and managed by one person.

  • Partnership: Business with two or more owners, sharing profits and liabilities.

  • Corporation: Legal entity with separate liabilities from owners.

Advantages and Disadvantages

Business Structures Overview

Sole Proprietorships

  • Advantages: Easy setup, control, no special taxes.

  • Disadvantages: Unlimited liability, limited resources, few benefits.

Partnerships

  • Types: General and limited partnerships.

  • Advantages: More resources, shared skills, no special taxes.

  • Disadvantages: Unlimited liability, shared profits, potential conflicts.

Corporations

  • Advantages: Limited liability, easy to raise funds, perpetual existence.

  • Disadvantages: High costs, double taxation, complex setup.

The Path of Entrepreneurship

Entrepreneurship Explained

  • Definition: Accepting risks to initiate and run a business.

  • Characteristics: Self-directed, action-oriented, energetic, tolerant of uncertainty.

Home-Based Businesses and Micropreneurs

  • Micropreneurs: Manage small, sustainable businesses that allow for work-life balance.

  • Challenges: Customer acquisition, time management, and legal ordinances.