Exploring Business 2.0 © 2012 Flat World Knowledge 1-1 Chapter 1: The Foundations Of Business.

1-1Chapter 1: The FoundationsChapter 1: The FoundationsOf BusinessOf Business

Chapter ObjectivesChapter Objectives

1.1. Identify the main participants of Identify the main participants of business, the functions that most business, the functions that most businesses perform, and the external businesses perform, and the external forces that influence business forces that influence business activities.activities.

2.2. Define Define economicseconomics and identify factors and identify factors of production. of production.

3.3. Explain how economists answer the Explain how economists answer the three key economics questions. three key economics questions.

4.4. Compare and contrast economic Compare and contrast economic systems.systems.

Chapter ObjectivesChapter Objectives

5.5. Describe perfect competition, and Describe perfect competition, and explain how supply and demand explain how supply and demand interact to set prices in a free interact to set prices in a free market system.market system.

6.6. Describe monopolistic competition, Describe monopolistic competition, oligopoly, and monopoly.oligopoly, and monopoly.

7.7. Understand the criteria used to Understand the criteria used to assess the status of the economyassess the status of the economy

8.8. Discuss the governmentDiscuss the government’’s role in s role in managing the economy.managing the economy.

1-4BusinessBusiness

““……any activity that provides any activity that provides goods or services for the goods or services for the

purpose of making a profit.purpose of making a profit.””

For ProfitFor Profit

Vs.Vs.

Not-for-profitNot-for-profit

Business ParticipantsBusiness Participants

OwnersOwners

EmployeesEmployees

CustomersCustomers

1-7Functional AreasFunctional Areasof Businessof Business

ManagementManagementOperationsOperationsMarketingMarketingAccountingAccountingFinanceFinance

1-8ManagementManagement

““……planning, organizing, planning, organizing, staffing, directing, and staffing, directing, and controlling a companycontrolling a company’’s s

resources so it can achieve resources so it can achieve its goals.its goals.””

OperationsOperations

““……convert(s) resources…into convert(s) resources…into goods or services…to goods or services…to

ensur(e)...products are...high ensur(e)...products are...high quality.quality.””

1-10MarketingMarketing

““...everything that a company ...everything that a company does to identify customersdoes to identify customers’’ needs and design products needs and design products

to meet those needs.to meet those needs.””

1-11AccountingAccounting

““……measure(s), measure(s), summarize(s), and summarize(s), and communicate(s) communicate(s)

financial and managerial financial and managerial information...and advise information...and advise

other managers on other managers on financial matters.financial matters.””

Fields of AccountingFields of Accounting

Financial AccountantsFinancial Accountants1)1) Prepare financial statementsPrepare financial statements

2)2) Assess financial strengthAssess financial strength Managerial Accountants-Managerial Accountants-

Prepare internal reportsPrepare internal reports

FinanceFinance

““……planning for, obtaining, planning for, obtaining, and managing a and managing a

companycompany’’s funds.s funds.””

1-14Business andBusiness andIts EnvironmentIts Environment

1-15EconomicsEconomics

““……study of the study of the production, distribution, production, distribution,

and consumption of and consumption of goods and services.goods and services.””

1-16Resources orResources orInputs and OutputsInputs and Outputs

LandLand

LaborLabor CapitalCapital

EntrepreneurshipEntrepreneurship

BusinessBusiness

OutputsOutputs

GoodsGoods ServicesServices

1-17The Circular Flow of The Circular Flow of Inputs and OutputsInputs and Outputs

EconomistsEconomists’’ Questions Questions

1)1) What Goods & Services Should Be What Goods & Services Should Be Produced...?Produced...?

2)2) How Should Goods & Services Be How Should Goods & Services Be Produced?Produced?

3)3) Who...Receive(s) The Goods & Who...Receive(s) The Goods & Services Produced?Services Produced?

1-19The Spectrum ofThe Spectrum ofEconomic SystemsEconomic Systems

Mixed Market EconomyMixed Market Economy

“A mixed market economy relies on both markets and the government to allocate resources. “

1-21PrivatizationPrivatization

““……converting converting previously previously

government-owned government-owned businesses to private businesses to private

ownership...ownership...””

Adam SmithAdam Smith

Wealth of Nations (1776)Wealth of Nations (1776) ““Invisible HandInvisible Hand”” Laissez-faireLaissez-faire

1-23Perfect Competition Perfect Competition ExistsExists

Standardized ProductStandardized Product

Numerous SellersNumerous Sellers

Many ConsumersMany Consumers

1-24Demand, Supply and Demand, Supply and EquilibriumEquilibrium

The Demand CurveThe Demand CurveThe Supply CurveThe Supply Curve

The Equilibrium PriceThe Equilibrium Price

1-25Monopolistic Monopolistic CompetitionCompetition

Differentiated ProductDifferentiated Product

Many SellersMany Sellers

Consumers Consumers Group AGroup A Consumers Consumers

Group BGroup B

Consumers Consumers Group CGroup C

1-26OligopolyOligopoly

Similar ProductSimilar Product

Seller ASeller A

Consumer Consumer Group AGroup A Consumer Consumer

Group BGroup B

Consumer Consumer Group CGroup C

Seller BSeller B

MonopolyMonopolySellerSeller

Consumer Consumer AA

Consumer Consumer DD

Consumer Consumer BB

Consumer Consumer EE

Consumer Consumer CC

1-28WorldWorld’’s Mains MainEconomic Goals & MeasuresEconomic Goals & Measures

1)1) Growth- Gross Domestic ProductGrowth- Gross Domestic Product

2)2) High Employment- Unemployment High Employment- Unemployment RateRate

3)3) Price Stability- Consumer Price IndexPrice Stability- Consumer Price Index

Gross Domestic ProductGross Domestic Product

““……market value of all goods and market value of all goods and services produced by...economy services produced by...economy

in a given year…includes in a given year…includes only...goods and services only...goods and services produced domestically.produced domestically.””

Business CycleBusiness Cycle

• Has four phases:– Prosperity - economy expands,

unemployment is low, incomes rise, and consumers buy more products• Businesses increase production and offer new,

better products

– Recession - slowdown in economic activity

– Recovery - economy starts growing again– Depression - severe long-lasting recession

U.S. Unemployment RateU.S. Unemployment Rate

1-32Price StabilityPrice Stability

InflationInflationDeflationDeflationConsumer Price Index Consumer Price Index

(CPI)(CPI)

U.S. Inflation RateU.S. Inflation Rate

Economic IndicatorsEconomic Indicators

““……statistic(s) that provide statistic(s) that provide valuable information valuable information about the economy.about the economy.””

1-35LaggingLaggingEconomic IndicatorsEconomic Indicators

““Statistics that report the Statistics that report the status of the economy a status of the economy a

few months in the few months in the past....past....””

1-36LeadingLeadingEconomic IndicatorsEconomic Indicators

““...predict the status of the economy ...predict the status of the economy three to twelve months in the future....three to twelve months in the future....””

1)1) Unemployment ClaimsUnemployment Claims

2)2) Average Weekly Manufacturing HoursAverage Weekly Manufacturing Hours

3)3) Building PermitsBuilding Permits

4)4) U.S. Leading IndexU.S. Leading Index

5)5) Consumer Confidence IndexConsumer Confidence Index

1-37Government &Government &Economic ManagementEconomic Management

Monetary PolicyControl = Federal ReserveContractionaryExpansionary

Fiscal PolicyControl = governmentTaxationSpendingNational Debt

1-38National DebtNational Debt

Areas of EconomicsAreas of Economics

Macroeconomics - Study of the economy as a whole

Microeconomics - Study of the economic choices of individual consumers &

businesses

Exploring Business 2.0 © 2012 Flat World Knowledge 1-1 Chapter 1: The Foundations Of Business.

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