Business: A Definition

Overview

• Business: The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society
  ’s needs.

Types of Resources in Business

1. Material Resources: Raw materials used in manufacturing processes, buildings, and machinery.
2. Human Resources: The labor provided by people for wages.
3. Financial Resources: Money required for operations including paying employees and purchasing materials.
4. Informational Resources: Data that informs business managers how effectively resources are being utilized.

Types of Businesses

• Service Businesses: Provide services (e.g., H&R Block).
• Manufacturing Businesses: Convert materials into tangible goods (e.g., Intel).
• Marketing Intermediaries: Buy products from manufacturers to resell (e.g., Sony Corporation).
• E-business: Online organized efforts for profit-driven trade.

Objectives of Business

• Customer Needs: The primary goal is to satisfy customer needs.
• Profit: The difference between sales revenue and expenses.
• Loss: Occurs when expenses exceed revenue.
• Stakeholders: Individuals or groups affected by the organization
  ’s policies and operations.

Types of Economic Systems

Economic Perspectives

• Economics: The study of how wealth is created and distributed.
• Microeconomics: Focuses on individual and business decision-making.
• Macroeconomics: Examines the economy at a national and global level.

Factors of Production

• Inputs/Resources used in producing goods and services:
  • Land and Natural Resources: Elements like crude oil and minerals.
  • Labor: Human efforts in production.
  • Capital: Financial means for operations.
  • Entrepreneurship: Organizing and combining resources (e.g., an Entrepreneur).

Economic Systems Overview

Two Major Economic Systems:

1. Capitalism:
   • Individuals own and operate most businesses.
   • Invisible Hand: Concept by Adam Smith explaining self-regulating nature of marketplace.
   • Laissez-faire: Minimal government intervention in the economy.
   • Market Economy: Decisions by businesses and individuals determine production and pricing.
2. Command Economy:
   • Government controls production and distribution of goods and services.
   • Examples: Socialism and Communism.

Economic Questions Addressed by Systems

• What goods and services will be produced?
• How will goods and services be produced?
• For whom will they be produced?
• Who owns and controls the factors of production?

Measuring Economic Performance

Importance of Productivity

• Productivity: Average output per worker per hour.

Gross Domestic Product (GDP)

• GDP: Total dollar value of all goods and services produced over a specific time period.
• Adjustments may be made for inflation (rise in prices) and deflation (fall in prices) for accurate comparisons.

Other Economic Indicators

1. Unemployment Rate: Percentage of workforce unemployed.
2. Consumer Price Index (CPI): Monitors price changes of goods.
3. Producer Price Index (PPI): Measures prices received by producers.

Common Economic Health Measures

1. Balance of Trade
   • Definition: Difference in value between exports and imports.
2. Consumer Confidence Index
   • Definition: Monthly measure of consumer optimism regarding the economy.
3. Corporate Profits
   • Definition: Total profits over designated time frames.
4. Inflation Rate
   • Definition: Monitors price increases over time.
5. National Income
   • Definition: Total income across the economy.
6. New Housing Starts
   • Definition: Total new homes started in a given timeframe.
7. Prime Interest Rate
   • Definition: Lowest rate banks charge to top borrowers.

The Business Cycle

Phases of the Business Cycle

• Recession: Two consecutive quarters of GDP decline.
• Depression: Prolonged and severe recession.
• Cycle Phases: Peak, Recession, Trough, Recovery.

Government's Role During Economic Cycles

• Monetary Policies: Federal Reserve's measures to influence employment and interest rates.
• Fiscal Policy: Government strategy on savings and expenditures via taxes and spending.
• Federal Deficit: Yearly shortfall of government spending vs. revenue.
• National Debt: Sum of all federal deficits.

Types of Competition

Competition Overview

• Competition: Rivalry among businesses for customer sales.

Types of Competition

1. Perfect Competition
   • Characteristics: Many firms selling identical products, no single entity influences price.
2. Monopolistic Competition
   • Characteristics: Many sellers with differentiable products.
3. Oligopoly
   • Characteristics: Few sellers dominate the market.
4. Monopoly
   • Characteristics: Single seller in the market, often in public utilities.