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Transcript of Business for a Changing World Chapter 1
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n this first chapter we
will examine the basic
concepts of business,
product and profit. Wewill identify the main
participants and
activities of business and
explain why studying
business is important.
We will consider the four
types of economic
systems, and describe
the role of supply,
demand, We will identify
the main participants
and activities of business
and explain why
studying business is
important. We will
consider the four types
of economic systems,
and
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The plastic shoes
from the company
Crocs provide anexcellent
perspective on how
businesses start,
how products
become popular,
and how
businesspeople
learn to expand
their operationsand satisfy the
needs of customers.
Click on the Crocs
link on
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The nature of all
business is to try
to earn a profit.
To do so, abusiness must
produce a
product that
satisfies some
need of a
customer. For
example, a
Porsche
Cayenne sportutility vehicle
may satisfy the
need for
transportation,
but is also
satisfies the
desire of a
customer to
present a certain
image.
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Businesses
earn profits by
providing
products that
satisfy
customer
needs.
Products can
be either goods
or services and
have either
tangible or
intangible characteristics.
In either case,products must
provides
satisfaction to
the customer
and benefits
that a
customer
desires.
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Products may
be categorized
as tangible
goods such as
cars,computers,
food, cell
phones, and so
on. Products
may also be
categorized by
the services
they provide.
For example,
dry cleaning,photo
processing, and
a check up at
your doctor’s
office are not
products per se,
but do provide
an important
benefit to you
as a customeror client.
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As we know, the
primary goal of any
business is to earn a
profit. What does this
mean? To gaugewhether or not a
business is earning a
profit, the company
determines the
difference between
what it costs to make
and sell the product
and the price that a
customer will pay for it.
When the pricebusiness is earning a
profit, the company
determines the
difference between
what it costs to make
and sell the product
and the price that a
customer will pay for it.
When the price
exceeds the business’cost of producing and
delivering it, the
business earns a profit.
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Another way
of looking at
the concept
of profit is to
consider it as
the reward
for the risks
that the
business
takes in
providingproducts.
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Not all
organizations
are
considered
businesses.
Nonprofit
organizations
such as
Greenpeace
and the
Special
Olympics, donot have the
fundamental
purpose of
earning
profits,
although they
may provide
goods or
services to
clients.
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In order to ensure
that a business
remains profitable,
it must haveexcellent
management skills
and a high level of
marketing
expertise. Ensuring
sustained
profitability requires
a business to be
focused on thequality of its
products,
maintaining
efficient operations,
and to be socially
responsible and
ensure that its
employees practice
sound business
ethics.
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Businesses
have
customers,
employees,investors,
government
regulations,
and the
interests of
the
community
and society
to consider.These groups
all have a
stake in the
success of a
business and
are called
stakeholders.
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Today more than
ever before,
businesses areconcerned about
the environment
and engage in
environmentally
friendly
practices. Visit
some of the
companies on
this slide byclicking on the
company name
to see examples
of how different
companies
approach this
important
concern.
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The figure on this
slide shows the
people and
activities involved inbusiness. At the
center of the figure
are owners,
employees, and
customers. The
outer circle includes
the primary
business activities
of management,marketing and
finance. As you
continue reading
this and the
following chapters,
keep in mind the
people and
activities that are
involved in business
important to its
success.
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Management
involves
coordinating
employees’actions to
achieve the
firm’s goals,
organizing
people to work
well, and
motivating
them to
achieve thecompany’s
goals. The
more effective
management
is, the more
profitable and
successful a
business may
be.
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Production and
manufacturing
can be another
key element of management.
Managers must
plan, organize,
staff, and control
tasks that are
required to
successfully
produce the
work of thecompany or the
services of the
nonprofit
organization.
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The focus of all
marketing efforts in a
business is satisfying
customers. Marketingincludes all the activities
designed to provide
goods and services that
satisfy consumers’ needs
and wants. Research is
conducted by marketers
to determine what
customers want.
Marketing researchprovides information to
help marketers develop
new products, make
pricing decisions about
them, and where to sell
them.
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Advertising, personal
selling, sales promotion,
and publicity are all part
of the marketingfunction called
promotion. Marketers
use promotion to
communicate the
benefits and
advantages of their
products to consumers
with the goal being to
increase sales.Nonprofit organizations
increase sales.
Nonprofit organizations
also use promotion to
reach the clients that
they wish to serve. We
will explore marketing
in much more detail in
part 5 of the text.
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Management and
marketing deal with
financial
considerations of the business.
However, financial
resources and
accountability are
within the primary
responsibility of the
owners. The owners,
of course, have the
most to lose if thebusiness fails to
make a profit.
Finance, as shown in
this slide, refers to
all of the activities
concerned with
obtaining money
and using it
effectively to pursue
the goals of the
business.
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This is an appropriate point
in our discussion to ask a
central question: “Why
study business?” Theanswers include: helping
you develop skills and
acquire knowledge to
prepare you for your future
career. Studying business
also help you better
understand the many
business activities that go in
to providing satisfyinggoods and services. Ask
yourself the next time you
buy a CD why it has the
price that it does. In other
words, what does it cost to
press the CD, to package it?
To transport it? How much
does the artist receive for
her work? What about the
store that is selling you the
CD?
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Studying business
will help you learn
about the impact
that businesses haveon your life and the
lives of everyone
around you.
Businesses generate
a profit so that they
can purchase
additional raw
materials to produce
more goods tosatisfy customer
needs; they hire
employees, attract
investment, create
products, and, by
doing all of this,
businesses help fuel
the global economy.
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Business is
conducted within
an economic
environment thatdiffers in various
parts of the
world. Economics
studies how
resources are
distributed for the
production of
goods and
services. Thereare various types
of resources to
consider including
natural resources
such as land,
minerals, and
water, human
resources, and
financial
resources.
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Natural, human,
and financial
resources are
necessary toproduce goods
and services.
These resources
are often times
referred to as the
factors of
production. These
factors of
production arecarefully
considered by
economists in
analyzing and
explaining the
various economic
systems that exist
globally.
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An economic
system is a
description of how
a particular societydistributes its
resources to
produce goods and
serves. A central
issue of economics
is not how to fulfill
an unlimited
demand for goods
and services in aworld with a limited
supply of resources.
The fact of the
matter is that
different economic
systems attempt to
resolve this central
issue in numerous
ways as we will
soon discuss.
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The table on
this slide
provides a side
by sidecomparison of
the three major
economic
systems:
communism,
socialism, and
capitalism. Each
of the three
systems arecompared on
the basis of
ownership,
competition,
profits, product
and price, and
employment.
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Communism was first
described by Karl Marx
in the 19th century. He
defined communisms
as a society in which
the people, without
regard to class, won all
the nation’s resources.
This is an ideal political
economic system
where everyone
contributes according
to their ability butreceives benefits
according to their
needs. While there are
no pure communistic
economic systems in
the world today, three
countries still adhere
to the ideology. These
countries are China,
North Korea, and Cuba.
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Socialism is closely related
to communism. It is an
economic system in which
the government owns and
operates basic industries
such as the postal service,
telephone services,
utilities, transportation,
and health care, but
individuals own most of the
businesses. Socialism relies
on central planning to
determine what basicgoods and services are
produced and distributed.
Today nations such as
Sweden, India and Israel
are considered socialistic
but are democratic and
recognize individual
freedoms.
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Capitalism is often
called free enterprise
and is an economic
system where
individuals own and
operate the majority of
businesses that provide
goods and services.
Rather than the
government
determining product
mix, competition,
supply and demand,determine which goods
and services are
produced and
distributed. The United
States, Japan, Australia,
and Canada are
examples of economic
systems based on free
enterprise.
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The two forms of
capitalism are free market
and modified capitalism.
In the free market system,
all economic decisions are
made without
government intervention.
Sometimes this is called
laissez faire capitalism
because the government
does not interfere in
business. Modified
capitalism differs frompure capitalism because
the government
intervenes and regulates
business to some extent.
Antitrust laws and the
Federal Trade
Commission are examples
of the government’s role
in the economy.
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In reality today, there is
no country that
practices a pure form
of any of the economic
systems we have
discussed thus far.
Most nations operate
as mixed economies
that have elements
form more than one
economic system. For
example, In Sweden
which is socialistic,most businesses are
owned and operated
by private individuals.
In the U.S which is
considered capitalistic,
the federal
government owns and
operates the postal
service the TVA, which
is an electric utility in
Tennessee.
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Globally, there are many
economies that are based
on free enterprise including
the United States, Japan,
Australia, and Canada.
Many socialist countries
including China and Russia
are applying more
principles of free
enterprise. The distribution
of resources and products
in a free enterprise system,is determined by supply and
demand. Demand is the
number of goods or
services that consumers are
willing to buy at different
prices at a given time.
Supply is the number of
products that businesses
are willing to sell at
different prices at a specific
time.
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In the figure on this
slide, the forces of
supply and demand
are shown as the
supply curve and
the demand curve.
Where the two
intersect, the price
at which the
number of products
that businesses are
willing to supply
equals the amountof products that
consumers he
amount of products
that consumers are
willing to by at a
specific point in
time. This is called
the equilibrium
price.
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Businesses compete or are rivals for
consumers’ dollars. This competition is a vital
element in the free enterprise system.
Competition should improve the quality of
goods and services available or reduce prices.
There are four types of competitive
environments within a free enterprise
system. Pure competition exists when there
are many small businesses competing by
selling one standardized product such as a
commodity like wheat or corn. There is little
or no differentiation in product so prices aredetermined solely on the basis of supply and
demand. In monopolistic competition, there
are a small number of businesses competing.
The differences in the products they sell is
small such as aspirin, soft drinks and vacuum
cleaners. In an oligopoly, there are very few
businesses selling a product. Individual
businesses have control over their products’
price because the business supplies a large
portion of the products sold in the
marketplace.
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As you know,
economies are quite
dynamic; they are
not stagnant. They
expand and they
contract. When an
economy is growing
and people are
spending more
money, we have
economic
expansion. Purchase
stimulateproduction which in
turn stimulates
employment and
the economy grows
and expands. When
spending declines,
businesses cut back
and lay off workers
and we experience
economic
contraction.
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Within economic cycles of
expansion or contraction,
changes may trigger negative
reactions in the economy.
Inflation may occur when prices
continue to rise regardless of
supply which can be harmful if
individuals incomes do not rise
accordingly. Recession is a
decline in production,
employment, and income.
Recessions usually involve rising
levels of unemployment which ismeasured as the percentage of
the population that want to work
but cannot find jobs. If left
unchecked, a severe recession
can lead to depression where
unemployment is very high,
consumer spending is low, and
business output is greatly
diminished.
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The graph in this slide
depicts the overall
unemployment rate
among the United
States civilian labor
force between 1920
and 2007. As you can
see, the relative level
of unemployment has
been quite low since
2000.
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Most nations
measure the health
or state of their
economies to
determine whether
they are expanding
or contracting. A
commonly used
metric is Gross
Domestic Product,
or GDP, which is
the sum of all
goods and servicesproduced in a
country during a
year.
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In addition to GDP,
economies are
gauged by metrics
as shown in this
slide. Trade balance,
consumer price
index, per capita
income, the
unemployment rate,
the rate of inflation,
and worker
productivity all help
assess the overallhealth of the
economy and
indicate whether it
is expanding or
contracting and at
what rate.
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Today, a significant
part of the overall
economy in the U.S. is
based on the efforts of
successful
entrepreneurs. Usually
these individuals start
small and, if very
successful, build
powerful businesses.
A few of these
successful individuals
are listed on this slide.Feel free to click on
one or more of these
names to see the
companies that have
been built by these
successful
entrepreneurs. Do you
recognize any of these
names and thebusinesses they have
built?
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In the recent years, you
have no doubt heard
about a number of
scandals in the business
world. Companies such as
Enron, WorldCom, Tyco,
and Arthur Andersen are
probably familiar to you.
In many cases, misconduct
by individuals within the
firm had an adverse effect
on employees, investors,
and other stakeholders of these firms. Today, a
significant part of the
overall profitability and
success of a company is
based on its reputation for
practicing sound ethics
and being socially
responsible. In a later
chapter we will return tothe importance of this
topic.