INTRODUCTION TO BUSINESS

‡ 1st Lecture ‡ Assist. Prof. Dr. Ugur Ergun ‡ uergun@ibu.edu.ba

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INTRODUCTION TO BUSINESS 

Class meets every Monday Consultation by appointment Text Book; Ronald J. Ebert and Ricky W Griffin, ³Business Essentials´, 8th edition, Prentice Hall
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

INTRODUCTION TO BUSINESS 

Course objective; This course is an introduction to what a business is, how it operates, and how it is managed. Students will identify forms of ownership and the processes used in production and marketing, finance, personnel and management in business operations.
Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

INTRODUCTION TO BUSINESS

Grading; Mid-Term Exams %20 Presentation, Attendance, Participation, Homework %30 Final Exam %50

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1 chapter

The U. S. Business Environment

Business Essentials, 8th Edition Ebert/Griffin

Instructor Lecture PowerPoints
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PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College

LEARNING OBJECTIVES

After reading this chapter, you should be able to: 1. Define the nature of U.S. business and identify its main goals and functions. 2. Describe the external environments of business and discuss how these environments affect the success or failure of any organization. 3. Describe the different types of global economic systems according to the means by which they control the factors of production.
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L E A R N I N G O B J E C T I V E S (cont.)

After reading this chapter, you should be able to: 4. Show how markets, demand, and supply affect resource distribution in the United States. 5. Identify the elements of private enterprise and explain the various degrees of competition in the U.S. economic system. 6. Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

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The Concept of Business and Profit
‡ Business ± An organization that provides (sells) goods or services to earn profits. ‡ Profits ± The difference between a business s revenues and its expenses. ‡ Consumer Choice and Demand ± Consumers choose how to satisfy their wants and needs. ‡ Opportunity and Enterprise ± Identify needs and capitalize on the opportunity.

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The Concept of Business and Profit (cont.)
‡ The Benefits of Business
± Provide goods and services ± Employ workers which results in increased quality of life and standard of living ± Innovation and opportunities ± Enhanced personal incomes of owners and stockholders ± Support for charities and community leadership

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The External Environments of Business ‡ External Environment
± Everything outside an organization s boundaries that might affect it
‡ Six areas: domestic business, global business, technological, political-legal, sociocultural, and economic environments

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The External Environments of Business (cont.) ‡ Domestic Business Environment
± The environment in which a firm conducts its operations and derives its revenues by:
‡ Seeking to be close to customers ‡ Building relationships with suppliers ‡ Distinguishing itself from competitors

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The External Environments of Business (cont.) ‡ Global Business Environment
± The international forces that affect a business:
‡ International trade agreements ‡ International economic conditions ‡ Political unrest ‡ International market opportunities ‡ Suppliers ‡ Cultures ‡ Competitors ‡ Currency values

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The External Environments of Business (cont.) ‡ Technological Environment
± All the ways by which firms create value for their constituents:
‡ Human knowledge ‡ Work methods ‡ Physical equipment ‡ Electronics and telecommunications ‡ Various business activity processing systems
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The External Environments of Business (cont.)
‡ Political-Legal Environment
± The relationship between business and the government; laws regulate what an organization can and cannot do in many areas including: ‡ Products ‡ Advertising practices ‡ Safety and health considerations

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The External Environments of Business (cont.) ‡ Sociocultural Environment

± The customs, mores, values, and demographic characteristics of the society ± The standards of business conduct a society is likely to accept

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The External Environments of Business (cont.)
‡ Economic Environment
± The relevant conditions that exist in the economic system in which a company operates ‡ In a strong economy where many people have jobs, a growing company may find it necessary to pay higher wages and offer more benefits in order to attract workers. ‡ In a weaker economy where people are looking for jobs, a firm may be able to pay less and offer fewer benefits.
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Economic Systems
‡ Economic System
± A nation s system for allocating its resources among its citizens, both individuals and organizations

‡ Factors of Production
± ± ± ± ± Labor Capital Entrepreneurs Physical resources Information resources

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Two Types of Economic Systems
‡ Planned Economy
± A centralized government controls all or most factors of production and makes all or most production and allocation decisions for the economy.

‡ Market Economy
± Individual producers and consumers control production and allocation by creating combinations of supply and demand.

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Types of Economic Systems ‡ Planned Economy - Communism individuals contribute according
to their abilities and receive benefits according to their needs.
‡ The government owns and operates all factors of production. ‡ The government assigns people to jobs and owns all businesses and controls business decisions.

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Types of Economic Systems (cont.) ‡ Market Economics
‡ Capitalism
± The government supports private ownership and encourages entrepreneurship. ± Individuals choose where to work, what to buy, and how much to pay. ± Producers choose who to hire, what to produce, and how much to charge.

‡ Market
± A mechanism of exchange between buyers and sellers of a good or service.

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Types of Economic Systems (cont.) ‡ Market Economics
‡ Mixed Market Economy ± Features characteristics of both planned and market economies. ± Privatization: The process of converting government enterprises into privately owned companies. ± Socialism: The government owns and operates select major industries such as banking and transportation. Smaller businesses are privately owned.
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The Economics of Market Systems
‡ Demand
± The willingness and ability of buyers to purchase a product (a good or a service).

‡ Supply
± The willingness and ability of producers to offer a good or service for sale.

‡ The Laws of Demand and Supply in a Market Economy
± Demand: Buyers will purchase (demand) more of a product as its price drops and less of a product as its price increases. ± Supply: Producers will offer (supply) more of a product for sale as its price rises and less of a product as its price drops.

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Demand and Supply in a Market Economy
‡ Demand and Supply Schedule
± The relationships among different levels of demand and supply at different price levels
‡ Demand curve: How much product will be demanded (bought) at different prices. ‡ Supply curve: How much product will be supplied (offered for sale) at different prices. ‡ Market price (equilibrium price): The price at which the quantity of goods demanded and the quantity of goods supplied are equal.

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Demand and Supply (cont.)

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Demand and Supply (cont.)

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Demand and Supply (cont.) ‡ Surplus
± A situation in which the quantity supplied exceeds the quantity demanded

‡ Shortage
± A situation in which the quantity demanded will be greater than the quantity supplied

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Private Enterprise in a Market Economy ‡ Private Enterprise System
± Allows individuals to pursue their own interests with minimal government restriction.

‡ Elements of a Private Enterprise System
± Private property rights ± Freedom of choice ± Profits ± Competition
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Degrees of Competition
‡ Perfect Competition
± No single firm is powerful enough to influence the price of its product.
‡ All firms in an industry are small. ‡ The number of firms in the industry is large.

± Four Principles:
‡ Buyers view all products as identical. ‡ Buyers and sellers know the prices that others are paying and receiving in the marketplace. ‡ Firms easily enter or leave the market. ‡ Prices are set exclusively by supply and demand.
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Degrees of Competition (cont.)
‡ Monopolistic Competition
± Numerous sellers try to differentiate their products from those of competitors in an attempt to influence price. ± There are many sellers, though fewer than in pure competition. ± Sellers can enter or leave the market easily. ± The large number of buyers relative to sellers applies potential limits to prices.

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Degrees of Competition (cont.)
‡ Oligopoly
± An industry with only a few large sellers. ± Entry by new competitors is hard because large capital investment is needed. ± The actions of one firm can significantly affect the sales of every other firm in the industry. ± The prices of comparable products are usually similar. ± As the trend toward globalization continues, most experts believe that oligopolies will become increasingly prevalent.

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Degrees of Competition (cont.)
‡ Monopoly
± An industry or market that has only one producer (or else is so dominated by one producer that other firms cannot compete with it). ± Natural monopolies: Industries in which one firm can most efficiently supply all needed goods or services. ‡ Example: Electric company

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Economic Indicators
‡ Economic Indicators
± Statistics that show whether an economic system is strengthening, weakening, or remaining stable ± Economic growth indicators
‡ Aggregate output, standard of living, gross domestic product, and productivity

± Economic stability indicators
‡ Inflation and unemployment

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Economic Indicators (cont.)
‡ Business Cycle
± The pattern of short-term ups and downs (expansions and contractions) in an economy.

‡ Aggregate Output
± Growth during the business cycle is measured by the total quantity of goods and services produced by an economic system during a given period.

‡ Standard of Living
± The total quantity and quality of goods and services that consumers can purchase with the currency used in their economic system.
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Economic Indicators (cont.)
‡ Gross Domestic Product (GDP)
± An aggregate output measure of the total value of all goods and services produced within a given period by a national economy through domestic factors of production.

‡ Gross National Product (GNP)
± The total value of all goods and services produced by a national economy within a given period, regardless of where the factors of production are located.

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Economic Indicators (cont.) ‡ Real Growth Rate
± The growth rate of GDP adjusted for inflation and changes in the value of the country s currency
‡ Growth depends on output increasing at a faster rate than population.

‡ Real GDP
± GDP that has been adjusted to account for changes in currency values and price changes.

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Economic Indicators (cont.) ‡ Nominal GDP
± GDP measured in current dollars or with all components valued at current prices.

‡ GDP per Capita
± A reflection of the standard of living: GDP per capita means GDP per person. ± It is a better measure of the economic well-being of the average person than GDP itself.
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Economic Indicators (cont.) ‡ Purchasing Power Parity
‡ The principle that exchange rates are set so that the prices of similar products in different countries are about the same. ‡ Indicates what people can buy with the financial resources allocated to them by their respective economic systems

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FIGURE 1.3 Purchasing Power Parity Big Mac Index

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Economic Indicators (cont.) ‡ Productivity
± A measure of economic growth that compares how much product a system produces with the resources needed to produce that product.
‡ The standard of living in an economy improves through increases in productivity.

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Economic Indicators (cont.)
‡ Balance of Trade
± The economic value of all the products a country exports minus the economic value of its imported products. ‡ Positive balance of trade: When a country exports (sells to other countries) more than it imports (buys from other countries). ‡ Negative balance of trade: When a country imports more than it exports. Commonly called a trade deficit.

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FIGURE 1.4 Balance of Trade

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Economic Indicators (cont.)
‡ National Debt
± The amount of money that the government owes its creditors. ‡ Financed by borrowing in the form of bonds (government promises to pay buyers certain amounts of money by specified future dates).

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Economic Indicators (cont.)
‡ Stability
± A condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate.

‡ Inflation
± Inflation occurs when the amount of money injected into an economy exceeds the increase in actual output, resulting in price increases exceeding purchasing power increases.

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Economic Indicators (cont.) ‡ Consumer Price Index (CPI)
± A measure of the prices of typical products purchased by consumers living in urban areas

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Economic Indicators (cont.)
‡ Unemployment
± The level of joblessness among people actively seeking work in an economic system
‡ Low unemployment results in higher wages. ‡ Higher wages increases unemployment.

‡ Cyclical Unemployment
± Businesses continuing to eliminate jobs during a business cycle downturn cause more reduced revenues and further job losses.

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Economic Indicators (cont.) ‡ Recession
± A period during which aggregate output, as measured by real GDP, declines

‡ Depression
± A prolonged and deep recession

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Managing the U.S. Economy
‡ Fiscal Policy
± The ways in which a government collects (taxes) and spends revenues.

‡ Monetary Policy
± The manner in which a government controls its money supply.

‡ Stabilization Policy
± Coordinating fiscal and monetary policies to smooth fluctuations in output and unemployment and to stabilize prices.

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Key Terms
aggregate output balance of trade business business cycle capital capitalism communism competition consumer price index demand demand and supply schedule demand curve depression domestic business environment economic environment economic indicators economic system entrepreneur external environment factors of production fiscal policies

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Key Terms (cont.)
global business environment gross domestic product (GDP) gross national product (GNP) inflation information resources labor (human resources) law of demand law of supply market market economy market price (equilibrium price) mixed market economy monetary policies monopolistic competition monopoly national debt natural monopoly nominal GDP oligopoly perfect competition physical resources planned economy

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Key Terms (cont.)
political-legal environment private enterprise privatization productivity profits purchasing power parity real GDP recession shortage socialism sociological environment stability stabilization policy standard of living supply supply curve surplus technological environment unemployment

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