Business 101 exam 1

1-3 Types of Economic Systems 

• Economics*: The study of How Wealth is Created and distributed  

• Today, Experts often study economic problems from two-different perspectives: 

• Microeconomics*: The study of the decisions made by individuals and businesses 

• Macroeconomics*: The study of the national economy and the global economy  

• Economy*: The way in which people deal with the creation and distribution of wealth 

• Factors of production*: Inputs and resources used to produce goods and services 

• Land and natural resources: Elements used in the production process to make appliances, automobiles, and other products (Examples: Crude oil, forests, minerals, land, and water) 

• Labor: The time and effort used to produce goods and services (Examples: Managers and employees) 

• Capital: The money, facilities, equipment, and machines used in the operation of organizations (Examples: manufacturing equipment at a production facility) 

• Entrepreneurship: The activity that organizes land and natural resources, labor, and capital 

• WORDS ACCOMPANIED BY AN ASTERISK ARE KEY TERMS FROM THE CHAPTER 

Capitalism 

• Capitalism*: An economic system in which individual own and iterate most businesses that provide goods and services  

• Capitalism stems from the theories of the Scottish economist Adam Smith 

• Invisible hand*: A term created by Adam Smith to describe how an individual's own personal gain benefits others and a nation’s economy 

• Laissez-faire: Implies that there should be no government interference in the economy 

• Market economy*: An economic system in which businesses and individuals decide what to produce and buy, and the market determines prices and quantities sold (also known as a free-market economy) 

Capitalism in the United States 

• Mixed economy*: An economy that exhibits elements of both capitalism and socialism  

• The U.S. economy is a mixed economy 

• In a mixed economy, the four basic economic questions (what, how, for whom, and who) are answered through the interaction of:  

• Households Businesses Governments 

Command Economies 

• Command economy*: 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 

• Today, two types of economic system serve as examples of command economies: 

• Socialism Communism  

The Importance of Productivity in the Global Marketplace 

• Productivity*: The average level of output per worker per hour 

The Nation’s Gross Domestic Product 

• Gross domestic product (GDP)*: The total dollar value of all goods and services produced by all people within the boundaries of a country during a specified period—usually a one-year period 

• To make accurate comparisons of the GDP for different years, dollar amounts must be adjusted for inflation and deflation 

• Inflation*: A general rise in the level of prices 

• Deflation*: A general decrease in the level of prices 

Other Important Economic Indicators That Measure a Nation’s Economy 

• Unemployment rate*: The percentage of a nation’s labor force unemployed 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 

Ways to get more applications 

1. Pay 

2. Benefits 

3. Culture/Reputation 

1-5 The Business Cycle 

• Business Cycle*: The recurrence of periods of growth and recession in a nation’s economic activity 

• Peak -> Recession -> Trough -> Recovery 

• Recession*: Two or more consecutive three-month periods of decline in a country’s GDP 

• Depression*: A severe recession that lasts longer than a typical recession and has a larger decline in business activity when compared to a recession 

• To offset the effects of recession and depression, the federal government uses both monetary and fiscal policies 

• Monetary policies*: Federal reserve’s actions to promote maximum employment, stabilize prices, and increase or decrease interest rates 

• Fiscal policy*: Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending 

• Federal deficit*: A shortfall created when the federal government spends more in a fiscal year than it receives 

• National debt*: The total of all federal deficits 

2-1 Business Ethics Defined 

• Ethics*: The study of right and wrong and of the morality of the choices individuals make 

• An ethical decision or action is one that is “right” according to some standard of behavior  

• Business ethics*: The application of moral standards to business situations  

2-2 Ethical issues in Business 

• Ethical issues often arise out of a business’s relationship with investors, customers, employees, creditors, suppliers, or competitors 

• Each of these stakeholder groups has specific concerns and usually exerts pressure on the organization’s managers 

Fairness and Honesty 

• Businesspeople are expected to refrain from knowingly deceiving, misrepresenting, or intimidating others 

Organizational Relationships 

• Businesspeople should not place their personal welfare above the welfare of others or the welfare of the organization 

• Relationships among co-workers often create ethical problems 

• Not meeting one’s commitments in a mutual agreement 

• Pressuring others to behave unethically 

• Plagiarism*: Knowingly taking someone else’s words, ideas, or other original material without acknowledging the source 

Conflicts of Interest 

• Conflict of interest*: When businesspeople take advantage of a situation for their own personal interest rather than for the employer’s interest 

• Occur when a businessperson takes advantage of a situation for his or her own personal interest rather than for the employer’s interest 

• May occur when payments and gifts make their way into business deals 

• Bribes: Gifts, favors, or payments offered with the intent of influencing an outcome—are illegal in the U.S. and abroad 

Communications 

• False and misleading advertising is illegal and unethical 

2-3 Factor Affecting Ethical Behavior  

Level of Ethical Behavior  

2-4 Encouraging Ethical Behavior  

Government’s Role in Encouraging Ethics 

• The government can encourage ethical behavior by enacting more stringent regulations 

• Sarbanes-Oxley Act of 2002*: Provides sweeping legal protection for employees who report corporate misconduct 

Trade Associations’ Role in Encouraging Ethics 

• Trade associations can often do provide ethical guidelines for their members 

Individual Companies’ Role in Encouraging Ethics 

• Codes of ethics are perhaps the most effective way to encourage ethical behavior 

• Code of ethics*: A guide to acceptable and ethical behavior as defined by the organization 

• Today, about 95 percent of Fortune 1000 firms have a formal code of ethics or conduct 

• In the wake of several corporate scandals and the Sarbanes-Oxley Act, many large companies how have created a new executive position, the chief ethics (or compliance) officer  

Individual Companies’ Role in Encouraging Ethics 

• Employees with high personal ethics may take a controversial step called whistleblowing 

• Whistle-Blowing*: Informing the press or government officials about unethical practices within one’s organization 

• The Sarbanes-Oxley Act of 2002 protects whistle-blowers who report corporate misconduct 

• Federal employees who report misconduct are protected by the Whistleblower Protection Act of 1989 

• Social responsibility*: Your thinking that businesses help society 

• Corporate citizenship*: Actions and strategies to help the environment 

Two Views of Social responsibility 

• Economic model of social responsibility*: Focused on making money and leaving the community stuff to others  

• Socioeconomic model of social responsibility*: Focused more on society  

• Consumerism*: All activities undertaken to protect the rights of consumers  

Affirmative Action Programs 

• Affirmative Action program*: A plan designed to increase the number of employees from underrepresented groups at all levels within an organization 

• Equal Employment Opportunity Commission*: A government agency with the power to investigate complaints of employment discrimination and the power to sue firms that practice it 

• EPA over sees pollution 

• Social Audit*: makes reports of when an organization had done and is doing with regard to social issues that affect it 

Chapter 3 - The Basis for International Business 

Exporting and Importing 

• Exporting*: Selling and shipping raw materials or products to other nations 

• Importing*: Purchasing raw materials or products in other nations and bringing them into one’s own country 

Balance of Trade*: The total value of a nation’s exports minus the total value of imports 

• Bill of Sale*: Proof you bought something 

• Draft*: Invoice of you buying something  

• Bill of Lading*: An agreement between the shipper and buyer  

Licensing and Franchising 

• Licensing*: A contractual agreement in which one firm permits another to produce and market its product and to use its brand name in return for a royalty or other compensation 

Joint Ventures and Alliances 

• Joint Venture: A partnership formed to achieve a specific goal or to operate for a specific period 

• Strategic Alliance*: When two companies come together to make a stronger one 

Trade Restrictions 

• Tariff*: A tax levied on a particular foreign product entering a country 

• Revenue tariffs are imposed solely to generate income for the government 

• Protective tariffs are imposed to protect a domestic industry from competition by keeping the price of competing imports level with or higher than the price of similar domestic products 

• Nontariff Barrier*: A nontax measure imposed by a government to favor foreign suppliers 

• Import quota*: A limit on the amount of a particular good that can be imported during a time frame 

• Embargo*: A complete halt to trading with a nation