UNDE RSTANDING THE BUS INESS SYSTEM CHAPTER 1

04/20/23 1

UNDEUNDERSTANDING THE RSTANDING THE

BUSBUSINESS SYSTEMINESS SYSTEMCHAPTER 1CHAPTER 1

This slide set is prepared for use with Ebert and Griffin, Business Essentials. Fifth Edition. Prentice Hall, New Jersey, 2005.

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• Business -- an organization that provides goods and services for profit (ticari kuruluş)

• Profit -- revenue minus expenses (kar)

• All kinds of businesses produce goods and services (mal ve hizmet)– profits from businesses– taxes from businesses– charitable activities

• Businesses exist in economic systems

The Concept of Business and The Concept of Business and ProfitProfit

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• An economic system is a set of rules and institutions used to allocate (dağıtım; tahsis) a society’s resources to satisfy its citizens’ needs.– Shaped by politics and social values– link between economy & society is crucial

ECONOMICECONOMIC SYSTEMSSYSTEMS

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• Factors of Production (üretim faktörleri)

Resources of the society used in the production of goods and services– labor (human resources)– capital (funds needed to create and operate a

business)– physical resources (natural resources, raw

materials, production facilities, parts and supplies, and other elements used to produce goods & services)


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– entrepreneurs (girişimciler)• risk takers• locomotive role• can you name some entrepreneurs?

– information resources (data and other information used by businesses) (bilgi kaynakları)

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• Types of Economic Systems– ownership of factors of production (private

or owned by the government)– decisions about allocation and production

individuals or government)• Planned Economies• Market Economies• Mixed Market Economies

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ECONOMICECONOMIC SYSTEMSSYSTEMS• Planned Economies

central government controls all or most factors of production and makes all or most production and allocation decisions

communism and socialism– Communism

• All factors of production owned & operated by the state• No private property• Planned resource allocation -- “planned economy” concept

– social equality

– private enterprise considered wasteful & exploitative (kötüye kullanmak, sömürü)

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• Various degrees --Pure (Cuba, North Korea, People’s Rep. Of China, USSR in the past)

• Karl Marx (1818-1883) -- German political philosopher and economist

– founder of communism along with Friedrich Engels (also German)

– “from each according to his abilities, to each according to his needs” - a society envisioned by Marx


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– Socialism• state ownership & operation of key industries

(trans., utilities, steel, communication)• private ownership of less vital industries &

businesses• concept of “welfare state” (refah devleti)

– medical care, education, housing, social services, etc.


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ECONOMICECONOMIC SYSTEMSSYSTEMS• Market Economies

Market --mechanism for exchange between buyers & sellers of a good or service (piyasa)

Basic idea: people are free to make free choices regarding production and consumption of goods and services. Demand & supply regulate production and prices

– Capitalism : market economy (piyasa ekonomisi) that provides for private ownership of production and encourages entrepreneurship by offering profits as an incentive

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Adam Smith - Wealth of Nations (1776)

“Pure Capitalism” -- Laissez faire - laissez passe (let them do, let them pass) (bırakınız yapsınlar, bırakınız geçsinler)

Market --- self-correcting mechanism (invisible hand)

Demand & Supply regulate production and prices

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ECONOMICECONOMIC SYSTEMSSYSTEMS• Mixed Market Economies (Karma Ekonomi)

Economic system featuring characteristics of both planned and market economies– some government intervention (müdahale) in

prices, wages, and conduct of business activities

• minimum wage laws• anti-trust legislation (tekelciliği önleyici yasalar)• prices of certain basic goods• subsidy system (subvansiyon, destekleme alımları)• consumer and environmental protection regulation

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– Statism -- “devletçilik”– Government + private enterprises– A form of socialism (although not called by that name in

Turkey)– State Economic Enterprises (Kamu İktisadi Teşekkülleri -

KİT)• Turkey

• France

• Italy, England are examples

– Issue of privatization (Özelleştirme)• a very current issue in Turkey and other countries such as

Hungary, Poland, Romania)

ECONOMIC SYSTEMS

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A CLOSER LOOK AT THE A CLOSER LOOK AT THE ECONOMIC SYSTEMECONOMIC SYSTEM

• How does the economic system of a country work?– markets (piyasalar)– nature of demand and supply (arz ve talep)– private enterprise (özel teşebbüs)– competition (rekabet)

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• Markets– many different markets in the economy

(housing, white goods, money, tobacco, etc.)– producers, consumers, prices– many many exchanges (alış-veriş) take place

in these markets– events in one market often have effects on

other markets (for example; money market & tourism)

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• Supply and Demand– Supply : quantity of a product that the

seller is able and willing to provide at various prices at a given time (arz, sunu)

– Demand : quantity of a product that consumers are willing and able to buy at various prices at a given time (talep, istem)

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– Laws of Supply and Demand (arz ve talep yasası)• Law of demand -- buyers will purchase

more of a product as its price drops and less of a product as its price increases

• Law of supply -- producers will offer (supply) more of a product for sale as its price rises and less as its price drops

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– Demand curve -- graph showing how many units of a product will be demanded (bought) at different prices (talep eğrisi)

– Supply curve -- graph showing how many units will be supplied (offered for sale) at different prices (arz eğrisi)

– Market (or equilibrium) price -- price at which quantity demanded equals quantity supplied (piyasa veya denge fiyatı)

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Supply & Demand curvesSupply & Demand curves

Demand

Supply

Quantity

Priceequilibrium price at this quantity

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Equilibrium price where supply = demand

Quantity Quantity

Price Demanded Supplied

2 2000 100

4 1700 400

6 1500 600

8 1200 800

10 1000 1000

12 800 1200

14 600 1300

16 400 1600

Supply and Demand ScheduleSupply and Demand Schedule

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Surplus = quantity supplied > quantity demanded

Shortage = quantity supplied < quantity demanded

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• Private Enterprise (Özel Teşebbüs; Özel Girişimcilik) Economic system that allows individuals to pursue their own interests without undue governmental restrictionFour elements of private enterprise:

1. private property rights (özel mülkiyet hakları)

2. freedom of choice (seçme özgürlüğü)3. profits4. competition (rekabet)

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– Private Property Rights

Right to buy, own, use, and sell almost any form of property (mal ve mülk) -- car, home, TV sets, diapers, walkman, etc.

– Freedom of Choice

Sell your labor, buy any product, make and sell any product/service, hire any one

Some exceptions -- drugs, guns, child labor, etc.

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– ProfitsNecessary for continued existence of businesses. Also to attract people to invest in new products and services. Entrepreneurs.

– CompetitionVying among businesses for the same resources or customers

• Nike vs. Reebok athletic shoes• Turkcell vs. Telsim GSM operators• Compaq vs. Dell computers• Ulaş Taxi vs. Günay Taxi in Mağusa

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• Degrees (or types) of Competition– Perfect (or pure) Competition (Tam rekabet):

• small firms in the market• large number of firms producing identical products or

services • because of the above, no single firm can control

price and quantity• prices are known by all parties (sellers & buyers)• easy to enter or leave the market• demand and supply determine the price

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• Examples of pure competition -- farmers, all kinds of small businesses such as restaurants, grocery stores

– Monopolistic Competition (Tekelci rekabet)Market or industry where there are a large number of buyers and a relatively large number of sellers trying to differentiate (farklılaştırmak) their products from those of competitors

• no one company dominates the market

• fewer sellers than in pure competition

• brand names heavily used (Coke and Pepsi; Nike and Adidas; Uludağ Kebabcısı and Kebab 49)

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– Oligopoly (Oligopoli)

Market or industry where there are a handful (few) of sellers

• power to influence the prices of their products• sellers are usually very large companies• entry is difficult (large capital investment necessary)• actions of one can seriously affect the sales of others,

such as price changes• examples -- auto industry, steel, airlines, white goods

(Arçelik, Profilo, Teba), banking (Vakıfbank, İsbank, Garanti Bankası)

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– Monopoly (Tekel, monopoli)

Market or industry in which there is only one producer

• the producer can set the prices of its products• the producer dominates the market

Anti-trust laws in many countries (including Turkey) prevent monopolies.

• Competition Council (Rekabet Kurulu) in Turkey

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– A number of factors help prevent development of monopolies & oligopolies

• if tomatoes are expensive use carrots• copper prices go up, fiber optics used for

communication• cotton prices go up, synthetic fibers are used• oil crisis of 1974 gave rise to oil substitutes

such as natural gas, solar power, gasohol, more energy efficient cars, machines, etc.

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– Natural Monopolies

Industry in which one company can most efficiently (verimli) supply all needed goods or services. Examples:

• power (electricity)• water• bus service within a large city (Ankara, New

York, etc)

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UNDERSTANDING EUNDERSTANDING ECONOMIC CONOMIC PERFORMANCEPERFORMANCE

• How do we know if the economic system of a country is working well and achieving key goals (ana hedefler)? This is what we mean by “performance of the economic system”.

• Two Key Economic Goals : 1. Economic growth (büyüme)

2. Economic stability ( istikrar)

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1. Economic Growth (Ekonomik Büyüme)

Growth is the increase in the amount of goods and services produced by a nation’s resources.

• It is difficult to achieve growth without triggering inflation and other economic problems

• Turkey’s economy has grown at an average rate of 6 % for the past 5-10 years

• What about China?

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• How do we know whether or not an economic system is growing?– Business cycle - pattern of short-term

expansions and contractions (ups and downs) in an economy

– The main measure of growth in the business cycle is aggregate output (toplam üretim):

• total quantity of goods and services produced by an economic system during a given period.

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– An increase in aggregate output is called economic growth.

– If output growth rate is more than the growth rate of the population, the result is

• an increase in output per capita (kişi başına üretim miktarı)

• the system provides more of the goods & services that people want

RESULT : HIGHER STANDARD OF LIVING FOR THE PEOPLE

Standard of living - total quantity & quality of goods and services that people can buy

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– Measures of aggregate output• Gross Domestic Product (GDP)

The value of all goods and services produced in a year by a nation’s economy through domestic factors of production (Gayri Safi Yurtiçi Hasıla - GSYİH)

– If GDP is increasing, the nation’s aggregate output is increasing, which means the economy is also growing.

• Gross National Product (GNP)The value of all final goods & services produced by an economic system in one year regardless of where the factors of production are located (Gayri Safi Milli Hasıla (GSMH) veya Milli Gelir)

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• Real Growth Rate

Increase in GDP and GNP must be adjusted for inflation and changes in the value of the country’s currency. This is called the real growth rate.

• GDP per capita - GDP per person

For real growth to take place, output must increase at a faster rate than population. If this is the case, GDP per capita will increase and the country will become richer.

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• Nominal GDP - GDP measured in current (cari; bugünkü) Turkish Liras or at current prices.

• Real GDP - Nominal GDP that has been adjusted for price changes (usually inflation) and exchange rates

• Purchasing Power Parity (PPP) - principle that exchange rates are set so that the prices of similar products in different countries are about the same. (Satınalma gücü paritesi)

• PPP gives us a much better idea of what people can actually buy with what they earn in an economic system.

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• GDP & GNP may be misleading…

“Underground (kayıt dışı) economy”

Barter (takas), cross-border trade, illegal transactions

Unreported to the government - legal & illegal

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– Productivity (üretkenlik; verimlilik)• Measure of economic growth that compares how much an

economic system produces with the resources needed to produce it.

• Essential for continued economic growth• Examples:

– 80 cars/day by Toyota vs. 60 cars/day by Tofaş using the same amount of equipment and labor

– Canon 1000 $ per copier vs. Xerox 1200 $ per comparable copier

• If more products are produced with fewer factors of production, prices of products go down. This means a higher standard of living.

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• PRODUCTIVITY = OUTPUT/INPUT

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– Some factors can play a negative role in economic growth. Two important factors are:

1.Balance of Trade (Dış Ticaret Dengesi)

2.National Debt (Ulusal Borç)

Some definitions first --•Importing: Purchasing goods/services from

another country (dışalım, ithal)•Exporting: Selling and shipping goods or

services to another country (dışsatım, ihraç)

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– Balance of Trade: Difference between the value of products a nation exports and those that it imports (Dış Ticaret Dengesi)

• If Imports > Exports, we have Trade deficit

(dış ticaret açığı)• If Imports < Exports, we have Trade surplus

(dış ticaret fazlası)• Trade deficit is also called “negative trade balance”

– Japan and Taiwan have trade surplus, while Turkey and the U.S. experience a trade deficit.

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– National Debt (Milli/Ulusal Borç)

Government takes in revenues (gelir) and spends these for many purposes.

• Revenues come mostly from taxes (vergiler); another source of revenue is borrowing (borç alma) by selling bonds (devlet tahvili) to individuals, banks, insurance companies, other companies, etc.

• Spending (harcama) is for many purposes (military, social programs, investments for power generation and highways, education, etc.)

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• Budget Deficit (Bütçe Açığı)– Government spends more than the money it takes in

( expenses > revenues)– many governments (including Turkey and TRNC) experience

budget deficits all the time.– Where do governments get the money to spend more than

they take in? Of course, they borrow from various sources.

• So what is National Debt? (Ulusal Borç)

Total amount that a nation owes its creditors (alacaklılar)

• Effect of national debt on economic growth:– Money borrowed by the government means there is less

money for private borrowing and investment

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2. Economic Stability (istikrar): condition in which the balance between the money available in an economy and the goods produced in it are growing at about the same rate

• enough desirable products to satisfy consumer demand, and consumers have enough money to buy what they need and want

• prices for consumer goods, interest rates (faiz oranları), and wages (ücretler) paid to workers change very little

• biggest threat to stability is inflation (enflasyon)

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• What is inflation? Widespread continuous price increases throughout the economic system.

• Inflation occurs when the amount of money in the economy is greater than the amount of goods & services available. This leads to higher prices for goods and services. The result is a decrease in purchasing power. (satınalma gücü)

• Inflation always hurts consumers !!!

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• Inflation is not necessarily or entirely bad. A little inflation, if kept under control, it may be a sign of economic growth.

• If it gets out of control, as in Turkey and some other countries (Brazil, Israel for example) then it can be very damaging to a country.

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• Measuring Inflation– Consumer Price Index (CPI)

• Producers Price Index (In Turkey: ÜFE)

• Consumer Price Index (In Turkey: TÜFE)

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• Unemployment (işsizlik): Level of joblessness among people actively seeking work

– Effect of unemployment on stability» low unemployment leads to shortage of labor; result

is higher wages» higher wages means higher costs and prices» if wage rates are too high, businesses will hire fewer

workers, which means increased unemployment– High unemployment usually means that businesses and

the economy are performing poorly. This results in decreased aggregate output (GDP) and standard of living.

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• Recession and Depression – Recession: period characterized by decreases in

aggregate output as measured by real GDP (küçülme, gerileme)

» aggregate output decreases» unemployment increases» national income decreases (GDP)

– Depression: Severe and long-lasting recession (ekonomik bunalım) Example -- the famous depression of 1929 which started in the U.S. and spread throughout the whole world

» serious economic and social problems» Argentina in 2002 is an example

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• Managing the Economy– The government has two ways in which it can

manage the economy:• Fiscal Policies (Mali Politikalar): policies that determine

how the government collects and spends its revenues• Monetary Policies ( Para Politikaları): policies that

determine the size of a nation’s money supply (interest rates, bank reserves, open market operations are some major tools).

– Monetary policies are used by the governments through central banks (merkez bankası). In the USA, central bank is called Federal Reserve Bank (usually called the Fed)

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– Fiscal and monetary policies are used by governments as part of a stabilization policy.

– The goal of stabilization policy is to smooth (gidermek) out fluctuations (dalgalanma) in output and unemployment and to stabilize prices

UNDE RSTANDING THE BUS INESS SYSTEM CHAPTER 1

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