Business in a Changing World: Foundations and Economic Systems and the Role of Government
The Nature of Business and Products
Definition of Business: Individuals or organizations that attempt to earn a profit by providing products that satisfy the needs of people.
Definition of Products: Objects or items consisting of goods or services with both tangible and intangible characteristics which provide satisfaction and benefits to the consumer.
Categories of Products:
Tangible Goods: Physical items such as an automobile, a computer, a phone, or a coat.
Services: Actions performed for a consumer, such as dry cleaning, a doctor’s checkup, a basketball game, or a concert.
Ideas: Concepts or problem-solving solutions generated by professionals.
The Goal of Business and Profitability
The Primary Goal: The fundamental goal of any business is to earn a profit.
Profit Calculation: Profit is defined as the difference between the cost to make and sell a product and the amount a customer pays for it.
Example formula: $10 \, \text{sale} - 8 \, \text{to make} = 2 \, \text{profit}.\n* **Contribution to Society**: Earning profits benefits society by providing employment. This employment provides money that is subsequently reinvested back into the economy.\n* **Responsibility**: Profits must be earned in a manner that is responsible.\n* **Requirements for Earning a Profit**:\n * Effective management skills.\n * Marketing expertise.\n * Financial resources.\n * Quality products and staff.\n * Abiding by the law.\n * Adapting to change.\n * Acting ethically.\n\n# Nonprofit Organizations\n\n* **Purpose**: These organizations provide goods and services but do not share the primary goal of earning profits.\n* **Operations**: Despite not seeking profit, they still engage in management, marketing, and finance activities to reach their organizational goals.\n\n# Stakeholders in Business\n\n* **Definition**: Stakeholders are groups that have a stake in the success and the ultimate outcome of a business.\n* **Examples of Stakeholders**: Customers, employees, investors, government regulators, the community, and society at large.\n* **Requirements for Success**: To achieve and maintain profitability, a business must:\n * Produce quality products.\n * Operate with efficiency.\n * Maintain social responsibility.\n * Act ethically when dealing with stakeholders.\n\n# People and Activities of Business\n\n* **Management**: Concerned with the effective and efficient acquisition, development, and use of resources (including human resources). Managers perform the following tasks:\n * Planning.\n * Organizing.\n * Staffing.\n * Controlling.\n* **Marketing**: Focuses on satisfying customers.\n* **Finance**: The owner is primarily responsible for obtaining and managing financial resources, including:\n * Obtaining money.\n * Using money effectively.\n* **External Influences**: Business activities are influenced by competition, the economy, information technology, social responsibility and ethics, and legal, political, and regulatory forces.\n\n# Why Study Business?\n\n* **Career Opportunities**: Business studies prepare individuals for various fields, including:\n * Marketing.\n * Human resources management.\n * Information technology.\n * Finance.\n * Production and operations.\n * Wholesaling and retailing.\n* **Skill Development**: Students develop skills necessary for career success.\n* **Societal Role**: It helps individuals become well-informed consumers and members of society.\n\n# Economic Foundations of Business\n\n* **Economics**: The study of how resources are distributed for the production of goods and services within a specific social system.\n* **Natural Resources**: Things not made by people, such as land, forests, minerals, and water.\n* **Human Resources (Labor)**: The physical and mental abilities people utilize to produce goods and services.\n* **Financial Resources (Capital)**: The funds used to acquire the natural and human resources needed to provide products.\n* **Intangible Resources**: Non-physical assets such as a good reputation for quality products or being socially responsible.\n\n# Economic Systems\n\n* **Economic System Definition**: A description of how a society distributes resources to produce goods and services.\n* **Three Fundamental Questions**:\n 1. What goods and services, and how much of each, will satisfy consumers’ needs?\n 2. How will goods and services be produced, who will produce them, and with what resources will they be produced?\n 3. How are the goods and services to be distributed to consumers?\n\n* **Communism**:\n * First described by Karl Marx.\n * A society in which people, without regard to class, own all the nation's resources.\n * **Practical Shortcomings**: Low standards of living, critical shortages of goods, high prices, corruption, and limited freedom.\n * **Examples**: Cuba, China, North Korea.\n\n* **Socialism**:\n * The government owns and operates basic industries, but individuals own most businesses.\n * Often democratic with recognized individual freedoms.\n * **Characteristics**: Higher standards of living and stability, though taxes and unemployment are generally higher.\n * **Examples**: Sweden, Israel, India.\n\n* **Capitalism (Free Enterprise)**:\n * Individuals own and operate the majority of businesses.\n * **Pure Capitalism (Laissez-faire)**: All economic decisions are made without government intervention.\n * **Modified Capitalism**: The government intervenes and regulates business to some extent.\n * **Examples**: USA, Canada, Japan.\n\n* **Mixed Economies**:\n * No country practices a pure form of any system; most favor one but include elements of others.\n * **State Capitalism**: Used by China and Russia to advance the economy by integrating state power with capitalist advantages.\n\n# The Free-Enterprise System and Entrepreneurship\n\n* **Market Dynamics**: Allows companies to succeed or fail based on market demand.\n* **Basic Individual and Business Rights**:\n * Right to own property.\n * Right to earn profits and use them as desired.\n * Right to determine business operations.\n * **Right to Choose**: Includes career choices, residence/business location, and products to purchase.\n* **The Entrepreneur**: An individual who risks wealth, time, and effort to develop an innovative product or process for profit.\n * **Elements of Entrepreneurship**: Risk, Innovation, Creativity, and Reward.\n\n# The Nature of Competition\n\n* **Definition**: Rivalry among businesses for consumer dollars.\n* **Market Structures**:\n * **Pure Competition**: Many small businesses selling one standardized product.\n * **Monopolistic Competition**: Fewer businesses than pure competition; differences between products are small.\n * **Oligopoly**: Very few businesses selling a product.\n * **Monopoly**: Only one business providing a product in a given market.\n\n# Economic Cycles and Productivity\n\n* **Recession**: Characterized by rising unemployment (people wanting to work but unable to find jobs).\n* **Deflation**: Occurs when high unemployment stifles demand, forcing prices down.\n* **Depression**: A severe recession with very high unemployment, low consumer spending, and sharply reduced business output.\n* **Entrepreneurship in Recession**: Many companies start during recessions because unemployment is high and people become less risk-averse.\n * **Historical Examples**: Hewlett Packard, Revlon, IHOP.\n * **2008 Great Recession Examples**: Groupon (founded 2008, valued near 10 \, \text{billion}500 \, \text{million}$$ in 2010).
Measuring the Economy
Gross Domestic Product (GDP): The sum of all goods and services produced in a country during a year; excludes profits from overseas operations.
Budget Deficit: Occurs when a nation spends more than it takes in through taxes.
U.S. budget deficit has recently grown to record levels.
Remedies: Raising taxes or reducing spending.
The American Economy and Government Role
Economic Evolution:
Early Economy: Agricultural; self-sufficiency at home.
Industrial Revolution: New technologies and factories combining materials, machines, and workers.
Manufacturing and Marketing: Assembly line production and focus on customer needs.
Service and Digital Economy: Current phase where technology leads the economy.
Modified Capitalism in the U.S.:
The government regulates industry to encourage competition and protect stakeholders (consumers, employees, environment).
Laws require adherence to government standards.
Agencies like the U.S. Federal Reserve Board and the Department of Commerce intervene to regulate and spur growth.
Ethics and Social Responsibility in Business
Business Ethics: Standards set by society.
Reputation: Heavily dependent on profit, ethics, and social responsibility.
Stakeholder Demand: Stakeholders increasingly demand ethical and socially responsible behavior from businesses.
Questions & Discussion
Question: Why is it important for the government to measure the economy?
Question: What kinds of actions might it take to control the economy’s growth?