Lecture Test 1 (Intro, Economics 1-3, Global business 1-2)

Intro to business

Questions;

1) Business? Profits?

2) Competition? Invisible Hand?

3) How do we vote?

4) 4 factors of production? And how do we pay for them? Give examples & define.

5) Entrepreneur? 3 characteristics of entrepreneurs? HOW TO SPELL IT!!!

Answers;

1) Business: all profit seeking activities & enterprises that provide goods (tangible items) and services necessary to an economic system.

Profit: rewards for business people who take the risks involved to offer goods & services to customers.

4 things a business does;

1. Provides the means through which standards of living improve.2. An exchange between a buyer, who recognizes the need for a good or services,

and a seller, who receives money for the good or service.3. Provides profits or rewards for businesspeople, who take risks in blending

people, technology and information to create and market want-satisfying goods and services.

4. Business people also recognize social and ethical responsibilities to employees, customers, suppliers, competitors, government and the general public.

2) Competition: battle among businesses for consumer acceptance.

“Invisible hand”: individuals acting in their own self-interest will make society better. Force that gives us what we want at the prices we want to pay. Adam Smith coined this term from the book The Wealth of Nations.

Capitalism: US economic system. Based on private ownership and production for profit. That rewards businesses for their ability to perceive and serve the needs and demands of consumers.

3 characteristics of capitalism;

1. Competitive differentiation: is the unique combination of organizational abilities and approaches that set a company apart from competitors in the minds of consumers.

2. Minimizes government interference in economic activity3. Capitalism was first identified by Adam Smith in his 1776 book, The Wealth of

Nations, in which he described the invisible hand of competition

3) We vote with our dollars under capitalism.

4) 4 factors of production.

1. Natural resources: all product inputs that are useful in their natural state. Land, building sites, forests, or mineral deposits.2. Capital: money. Technology (machines or equipment), tools, information, physical facilities, or

money.3. Human resources: anyone who works physically or mentally. Workers.4. Entrepreneurship: willingness to take risks to create & operate a business.

5) Entrepreneur: risk taker in the private enterprise system does it for profits. But in the end benefits society as a whole.

3 characteristics of entrepreneurs;

1. Entrepreneurs find novel ways to use natural resources, technology, and other factors of production.

2. Entrepreneurs are also important to existing large companies by enhanced flexibility, improved innovation and new market opportunities.

3. Entrepreneurs have also been significant in U.S. history by creating new industries, developing successful business methods and improved U.S. standing in the global markets.

Spell a “risk taker in a private enterprise system” without looking.

Economics 1-3

Questions;

1) Gross Domestic Product? Function?

2) Productivity? Total productivity equation?

3) Economics? 2 types of economics? Explain each.

4) What is something worth?

5) Demand? 10 factors that shifts the demand curve?

6) Supply? 6 factors that shift the supply curve?

7) Does change in price shift or affect either the supply or demand curve? Does coupons affect the demand curve?

8) Equilibrium point? Shortage? Surplus?

9) Capitalism? Private enterprise system? Free market? Private vs. Public enterprise?

10) Communism? 2 problems with communism? Planned economy?

11) Socialism? 3 problems with socialism?

12) 5 types of competition? Differentiation?

13) Recession? Growth? Business cycle? Why do we have recessions? 4 stages of the business cycle? Explain each stage.

14) Inflation? Hyperinflation? Who is benefited by inflation? Rule of 72? Deflation?

15) How to measure inflation for consumers & producers?

16) 2 reasons for inflation?

17) Nominal? Real? How do you calculate both nominal and real?

18) Unemployment rate? 4 types of unemployment?

19) 2 ways the government will try to affect the economy? 2 monetary policies? 2 fiscal policies?

Answers;

1) Gross Domestic Product or GDP: sum of all goods & services produced in a nation. Function; a good measure of the economy’s health.

MAYBE INPUT GRAPH OF GDP?????????

2) Productivity: describes the relationship between the number of units produced & the number of human and other production inputs necessary to produce them.

Total productivity: function; can be used to measure efficiency in a company.

3) Economics: social science that analyzes the choices made by people & governments in allocation scare resources.

2 types of economics; (Both macro & micro economics are interrelated).

1. Microeconomics: study of economic activities of an individual consumer, family, business, or product.

2. Macroeconomics: how an economy maintains and allocates resources and how government policies affect citizen’s standards of living.

4) Something is worth whatever is willing to pay for it.

5) Demand: willing & ability of buyers to purchase goods & services. Function; shows us what everyone will buy at a every price.

10 factors that affect demand;

1. Consumer preferences 2. Incomes 3. Prices of substitute products 4. Advertising

5. Number of buyers & location Example; if you’re a fine dining restaurant and you move it into a poor inner city. Then obviously your demand is going to be shifted left compared to if you were in Soho NYC.

6. Economy 7. Quality of good 8. Weather Example; during winter people are more likely to buy snow blowers. 9. Future expectations if you think you’re going to lose your job. You’re less likely

to buy a car. On the other side if you have a positive outlook you’re more likely to buy more.

6) Supply: willing & ability of sellers to provide goods & services. Function; shows us what suppliers will supply at a every price.

6 factors that affect supply; (Basically the rule is if you make less profits the supply curve shifts left)

1. Costs of input goods if the prices from the raw material suppliers increase then the supply curve would shift left.

2. Costs of labor if minimum wage increased. The supply curve would shift left.3. Costs of technology if the cost of technology rises then the supply curve would

shift left. 4. Availability of suppliers if the raw material suppliers decreased then the supply

curve would shift left. 5. Taxes if the government increased taxes for businesses. Then the supply

curve would shift left. 6. Weather if the crops for farmers were destroyed then the supply curve would

shift left.

7) Change in price does not affect the supply or demand curve. Because the supply or demand curve shows us exactly what we’ll supply or buy at every price.

Coupons DO NOT affect the demand curve. Because you know what everyone will buy at every price point. So if the nominal price is $8. And the coupon is half off. Then you already know what everyone will buy at the $4 price already.

8) Equilibrium point (price): everything suppliers are willing to produce is all bought by consumers. There is no shortage or surplus.

Shortage: demand is greater than supply.

Surplus: supply greater than demand.

9) Capitalism: the private enterprise system.

Private enterprise system: economic system in which business success or failure depends on how well firms match & counter the offerings of competitors.

Free markets: economic system in which prices are determined by unrestricted competition between privately owned businesses.

Private enterprise: “private” means not related to the government. So people won the business.

Public enterprise: government owns the business.

10) Communism (for business): the government owns all businesses. Example; Cuba.

2 problems with communism;

1. Communist economies can’t react as quickly to supply & demand. There is constantly a shortage or surplus problem.

2. It basically takes away consumer vote.

Planned economy: the government exerts stronger control over business ownership, profits, and resources in order to accomplish government--rather than individual-goals.

11) Socialism: the government will run major businesses (government decides which businesses to run). Example; Russia.

3 problems with socialism;

1. The problem ends up being nobody knows exactly what businesses the government should or should not run.

2. If people need a good or product. A socialist government might take it over and now most likely won’t be able to come up with the most competitive products. If

the government took over the smartphone industry they won’t be able to produce the next greatest smart phone.

3. Government wants money & is greedy. Example; Venezuela took over the oil business. And then oil prices dropped they got screwed. Venezuela said they “did it for the people” but that’s not true. They wanted the money.

12) Differentiation: how different a product is from the competitors. If you cannot differentiate your product from others how do you compete? You have to lower the price. And that is a horrible business model.

5 types of competition;

1. Pure competition: where all products are the same & everyone competes with the exact same product. (Most likely unrealistic because even with water there are slight differences). Example; Water industry.

2. Monopolistic competition: products that are differentiated. You can compete by creating differentiation. Example; Coke vs. Pepsi.

3. Oligopoly: economic system wehre a market has only a few competitors. Example; cable business, airline business, package delivery business.

4. Monopoly: only 1 supplier. Example; Sirius XM radio. 5. Monopsony: only 1 buyer. Multiple suppliers. Example; tanks. K footballs the

NFL is the only buyer of those footballs.

13) Recession: 2 quarters (6 months) of negative real GDP. Since 1929 there is a recession every 8 years.

Growth: real GDP growth.

Business cycle: is the fluctuation in economic activity that an economy experiences over a period of time.

Reason why we have recessions?;

1. Because things can’t grow forever. Especially if you grow too quickly and you open a lot of branches then you have to start closing them. Then you get back to where you make good profits & you start to grow again.

4 stages of the business cycle;

1. Prosperity: unemployment remains low, strong consumer confidence exists, record number of purchases, and businesses expansion.

2. Recession: contractions of consumers postponing major purchases and a shift in buying patterns toward basic, functional products with lower prices, and businesses slowing production and spending that last at least six months.

3. Depression: a continued downward spiral.4. Recovery: the economy emerges from recession and consumer spending

increases, unemployment begin to decline again as business activities increase.

14) Inflation: rising prices caused by excess consumer demand & increases in product & service costs. Problem; devalues money as persistent price increases reduce the amount of goods & services people can purchase with a given amount of money.

Hyperinflation: economic situation characterized by soaring prices very quickly.

Who benefits from inflation? People who borrow money is benefited by inflation. Because they are taking the money now & spending it to maximize their ability to spend the dollar. But when you pay it back you’re paying back a “cheaper dollar”. Because now it can’t use the money to buy as much as before when you loaned it.

Rule of 72: general estimate to see when prices will double calculated by the current inflation rate. If inflation is 4% it’s 72/4=18 years is when prices will double.

Deflation: consumer pessimism about the future causes individuals to stop purchasing which results in a drop in demand then drop in prices. Has negative effect on business’s growth.

15) Consumer price index or CPI: measures prices that we the consumers buy like gifts, education, food, and etc. Nobody cares about the specific number. You care whether prices are going up or down. Function; measures consumer inflation.

Index: a number we invent to measure something. Measures monthly average changes in prices that consumers pay for certain

goods and services. Not a perfect measure of inflation - might actually overstate inflation by not fully

accounting for changes in the goods and services that people buy.

Producer price index or PPI: measures the inflation for businesses. Their prices for things are different such as gas prices, minimum wage labor, bulldozer, and etc. Function; measures the inflation for businesses. Generally if business prices goes up then consumer prices will go up.

Tracks the differences in goods and services prices from the sellers perspective. Uses three measurements – finished goods, intermediate goods, and crude

goods.

16)

2 reasons for inflation;

1. Demand-pull inflation: excess consumer demand. 2. Cost-push inflation: generated by rises in costs of factors of production.

17) Nominal: sticker price. So unadjusted to inflation or anything. Just the price everyone sees today.

Real: taking out inflation.

Nominal price = Real + Inflation.

Real = Nominal - Inflation. Example; Real GDP = GDP - Inflation.

18) Unemployment rate: people who don’t have jobs AND are looking for them. Once you stop looking for a job you’re out of the unemployment rate count.

4 types of unemployment;

1. Season unemployment: when your job is tied to seasons so when the season is over you’re unemployed.

2. Cyclical unemployment: has to do with the business cycle of the company. When the company is doing worse you close operations & lead to unemployment.

3. Structural unemployment: you don’t have the skills to work anymore.4. Frictional unemployment: idea that it takes time to find a job. You have the skills

& you want to find a job. But it takes time.

19)

2 ways the government will try to affect the economy;

1. Monetary policy: government action to increase or decrease the money supply, and change banking requirements and interest rates to influence spending via loans. Tools; interest rate.

Federal Reserve or Fed: government body that regulates the money supply.

2. Fiscal policy: government spending and taxation decisions designed to control inflations, reduce unemployment, improve the general welfare of citizens, and encourage economic growth. Tools; taxes & spending.

2 monetary policy strategies;

1. Expansionary monetary policy increases the money supply (low interest rates more loans) to cut the cost of borrowing to stimulate new business growth.

2. Restrictive monetary policy reduces the money (high interest ratesless loans) supply to curb rising prices and over expansion.

2 fiscal policy strategies;

1. Increased taxes the primary source of government funds–may reduce inflation, but could also restrict individual and business economic activities.

2. Lower taxes and/or increased government spending usually boost spending and profits, cut unemployment rates, and spur economic expansion.

Global Business 1-3

Questions;

1) Exports? Imports? Is it better for a country to export more or import more?

2) 4 reasons why international trade is good?

3) Balance of trade? Trade surplus? Trade deficit?

4) Balance of payments? Balance of payment surplus? Balance of payment deficit?

5) Exchange rates? 4 factors that shift currency’s demand curve?

6) Foreign exchange? 2 types of exchange rates? 2 types of currencies? Counter trade?

7) 5 types of barrier to trade? Define each.

8) General Agreement on Tariffs and Trade?

9) Trade treaty? 3 examples of trade treaties?

10) World organization? 3 examples of world organizations?

11) Anti-trust law?

12) Regulation? 3 regulatory agencies?

Answers;

1) Exports: domestically produced goods & services sold in other countries.

Imports: foreign goods & services purchased by domestic customers.

Countries that export more than import are more wealthy.

2)

4 reasons why international trade is vital;

1. It expands markets for products.2. Allows companies to seek out growth opportunities in other nations.3. Makes production and distribution systems more efficient.4. Reduces firms’ dependence on the economies of their home nations.

3) Balance of trade: difference between a nation’s exports and imports.

Trade surplus: when a country exports more than it imports and achieves a positive balance of trade

Trade deficit: when a country imports more than it exports and achieves a negative balance of trade.

U.S. has run a trade deficit since 1976.

4) Balance of payments: difference in money flows into or out of a country.

Balance of payments surplus: more money has moved into a country than out. Balance of payments deficit: more money has gone out of the country that in.

3 ways money moves in & out of the country without exports or imports;

1. Investments. We take our money & invest it into other countries. 2. Tourism.

3. Aid to other countries.

5) Exchange Rates: value of one nation's currency relative to the currencies of other nations.

Important currency demand & supply is similar to any other good or product. It’s worth whatever you’re willing to pay for it.

4 factors that shift the demand of the dollar;

1. Interest rates goes up if we have higher interest rates than Europe. Then people from Europe move their currency into the US.

2. Demand for goods & services3. Economy4. Inflation Demand shifts left. Supply shifts right. Quantity & price goes down.

6) Foreign exchange: an institution or system for dealing in the currency of other countries.

2 types of exchanges rates;

1. Fixed exchange rate: market that determines the price.2. Floating exchange rate: government determines he price. Why? If you’re China

you want to become a wealthy country. You’ll export more than you import. So you deflate the price of the Ren. So more countries will buy more of your things.

2 types of currencies;

1. Hard currency: currency in which it is freely traded & thus very liquid.2. Soft currency: currency of those that is difficult to exchange either the

government makes it hard or people don’t want their currency.

Counter trade: when you buy a product in their country. And ship the product to your own country & sell it. To convert the currency to US dollars.

7)

5 barriers to trade; (if you don’t want you the consumer to buy things from China. What do you do?)

1. Tariff: tax on imports. Shifts supply curve of Japanese steel. The competitors of the product in the US gets helped. Consumers get hurt with higher prices & worse products. 2. Quota: limit on the number that can be brought in.3. Embargo: ban on trade. This is all about politics you’re trying to hurt the country. 4. Prevent dumpling: a practice of selling products abroad at prices below its cost of

production or its selling price in the nation of production.

5. Exchange controls: imposed through a central bank or government agency, affecting both importers and exporters, by requiring all exchanges to take place through a designated agency.

8) General Agreement on Tariffs and Trade or GATT: a series of negotiations, called rounds that substantially reduced worldwide tariffs and other barriers.

9) Trade treaty: is a wide ranging tax, tariff and trade treaty that often includes investment guarantees.

3 example trade treaties;

1. NAFTA: US, Mexico, Canada. Free trade treaty. 2. CAFTA or central America free trading: free trade treaty. 3. European union or EU: started as a common market (free trade in Europe). Then

they changed it to more than that. 1 monetary system which is the EU.

10) World organization: an international alliance involving many different countries.

3 example world organizations;

1. World trade organization: China is violating tariff agreements. They would arbitrate. And you have to pay a penalty fee.

World organizations set up to promote trade. 2. World bank: provides loans to countries for programs or projects.3. International monetary fund or IMF: loans money to countries to bail them out.

IMF gives you a list of things to fix your problems (raise taxes, decrease pensions, decrease government spending). And then we give you the money. Example; Greece was bankrupt. Taxes were low. Free healthcare & great pensions. Where did the money come from? They borrowed it. They had to pay it back but they couldn’t pay it back. They got help from the IMF. Greece didn’t do that initially so they didn’t get the money.

11)

Anti-trust laws: laws to prevent monopolies. It is illegal to be a monopoly. There are exceptions (Sirius XM). You can’t even say you want to knock someone out of business. Make sure there is competition.

It’s illegal to agree on price with another company. It’s illegal to talk to other companies about pricing.

You can’t agree not to compete. You have to compete on your own by yourself. Monopolies are illegal No price discrimination No collusion

12) Regulation; (are enforced usually by a regulatory agency formed or mandated to carry out the purpose or provisions of a legislation). Example; regulation for no smoking on campus. Air bag regulations. Home regulations.

3 examples of regulatory agencies;

1. FDA or food & drug administration: they regulate the safety of the food & drugs. They have to approve the drug. 100 million dollars to get the drug approved by the FDA.

Drug that cures cancer. 10% chance you cure the cancer but lose your limbs. The consequence of regulation you take people’s choice away.

2. SEC or Securities & exchange center: regulate wall street & stock sales the whole financial industry.

3. FCC or federal communication commissions: regulate content. They kind of regulate free speech in entertainment.

Businesses have trouble with keeping up with the regulations.

13) Intellectual property: a work or invention that is the result of creativity, such as a manuscript or a design, to which one has rights and for which one may apply for a patent, copyright, trademark, etc.

4 forms of protection for intellectual property;

1. Copyright: protects movie scripts, books, music lyrics, and etc. Or art work. 2. Patent: protect inventions. Wants to encourage people to have inventions. Legal

monopoly to use your invention. When the patent runs out anyone can use the patent. You have to describe how you do it & it has to be real. And you have to do something with the patent. Example; if you have a cure for cancer & you patent it. You have to sell it or do something with it.

3. Trademark: protects logos. Phrases can be trademarked. Relatively easy to produce. You can get a registered trade mark with the government. If you don’t protect trademarks you will lose them. Once people started using it as a generic term they will lose the trademark.

How do you protect your coke formula?

4. Trade secret: basically no patent. Info a company keeps private to yourself. If someone stole the coke formula & used it. The laws are really bad for companies that steal trade secrets. Anything that touched what they stole it would go to coke.

If you reverse engineer something you can use it.