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Chapter 1 Outline

Introduction to Business (The University of Maine)

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Connor DiAngelo
Professor Demarco
BUA 101- 0007
11 September 2018

Chapter 1 Outline

Business Profit and the External Environment

 Business and Profit
o Businesses: organizations supply goods and services, sell for profit
o Profits: revenue – expenses. Difference between business and non-profits (universities,
hospitals, govt.)
o Consumer Choice and Demand
 Capitalism/free market allows free choices for both supply and demand
o Opportunity and enterprise
 Enterprising business people use opportunity to reach success
 Ex: failed tech stores liquidate inventory, remaining one’s profit and
receive assets
 Ex: gas prices drop hurting oil, food distributors and shipping lower
expenses and profits rise
 Demand for goods or inefficiency of supplied goods causes opportunity
o Benefits of business
 Supply goods and services, labor and jobs, innovation, contribution to society
and quality of life, profits enhance income of investors and stockholders, taxes
benefit govt., philanthropy
 Environmental harm and decisions for personal gain  negative effects
 External environment of business
o External environment: everything outside of organization that can affect it
o Environment plays major role in success/failure
o Managers must complete must completely and accurately understand environment to
operate and compete
o Impactors include domestic business envt., global business envt., tech envt.,
political/legal envt., sociocultural envt., economic envt.
o Domestic environment
 Domestic business envt. is where they operate and gain revenue
 Seek to be close to customers, establish strong supplier relationships, and
distinguish from competitors
 Urban outfitters expanded from urban colleges to upscale areas as well,
good supplier relations and supplies others, and clear identity
o Global business environment
o Global business environment is international forces affecting businesses
 Forces include international trade agreements, international economy, politics
 Ex: political unrest in Middle East led to high prices and it had to protect
emplyees
 Ex: oil surplus dropped prices extremely
 Businesses are affected by international market and opportuinities,
suppliers, cultures, competitors, currency/economy
o Tech Environment
 Tech envt. includes all ways of creating value for members
 Includes human knowledge, work methods, physical equipment, electronics,
telecommunications, processing systems
 Urban Outfitters has info system to track sales/inventory for enhanced
ecommerce

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Connor DiAngelo
Professor Demarco
BUA 101- 0007
11 September 2018

o Political environment
o Political/Legal environment based on relationship between government and business
(usually regulation is impact)
 Legal system defines guidelines for organizations (Urban Outfitters subject to
product ID laws, hiring restrictions, zoning)
o Govt agencies regulate advertising, safety and health, conduct
o Pro/anti-business sentiment is valuable to consider, especially intl.
 Obama’s presidency imposed business regulations
 Sociocultural Environment
 Sociocultural environment includes surrounding customs, morals, values, demographic of society
 Also determines goods and services sold, and levels of business conduct accepted
o Ex: Urban Outfitters Ghettoopoly

Economic Systems (system for allocation of resources between individual citizens and organization)
 Factors of production
o Factors of production are resources for goods and services
o Labor, capital, entrepreneurs, physical resources (and info resources)
o Also applicable to specific organization’s production of goods and services
o Labor (human capital) is physical and intellectual contributions from people to the
economy
 Ex: Starbucks positions vary from baristas to business and finance jobs, employ
182K
o Capital
o Capital is financial resources needed to operate business; necessary to start new and
maintain business
 Ex: Starbucks company purchase with savings/loan, publicly traded stock, long
short/term debt
o Entrepreneurs
o Entrepreneurs are people who accept risk and opportunity of starting a new business
 Ex: Starbucks initially fails, new entrepreneurship goes into retail
o Economic systems encourage entrepreneurs to start new businesses, and maximized jobs
and profit
 Physical resources
 Physical resources are tangible items that businesses and organizations use to conduct business
o Natural resources, raw materials, offices, storage, manufacturing, parts and supplies,
computer and tech
 Ex: Starbucks has many levels: beans, shipment, manufacturing, food products,
paper products, business items too
o Info resources
o Info resources is data and other info used in business
 Market forecasts, specialized knowledge of people, and even data
 Types of economic systems
 Planned economy is where govt./central power controls economy through factors of production
and allocation of resources
o Communism is where govt. owns and operates all factors of production
 Market economy

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Connor DiAngelo
Professor Demarco
BUA 101- 0007
11 September 2018

o Market is a mechanism for exchange between buyers and sellers for specific
goods/services
o Capitalism sanctions/regulates private ownership of factors and incentivizes new
businesses/entrepreneurship
 Mixed market is a system that includes both other market styles
o Privatization is the transition from govt enterprise to private business
o Socialism is planned economy where govt only controls some major sources of
production

The Economics of Market Structures

 Demand and supply in a market economy
o Consumers and producers have many decisions
o Law of supply and demand
 Demand is the willingness and ability to buy
 Supply is the willingness and ability to sell
 Law of demand: P up  Q down, P down  Q up
 Law of supply: P up  Q up, P down  Q down
 Supply and demand schedule shows interaction between S, P, D at each price
 Demand curve shows QD at each P
 Supply curve shows QS at each P
 Equilibrium: profit maximizing QD=QS
 Surplus is QS>QD
 Shortage is QS<QD
 Private enterprise and competition in a market economy
o Private enterprise is a system that allows individuals to pursue interests without govt
restriction
 Private property rights
 Free choice
 Profits
 Competition (multiple businesses compete for customers)
o Degrees of competition
 Perfect competition is many small firms with identical product
 Products identical
 Buyers and sellers know market prices
 Easy to enter/exit market
 Prices set by S+D, accepted by producers and consumers
 Monopolistic competition is buyers and sellers who try to make product seem
unique from competition
 Name brands, design/style, advertising to stand out
 Can enter/exit easily
 Differentiation gives some price control
 Oligopoly is small number of sellers control market with high power to move
prices
 More control over strategies
 Monopoly is when industry/market only has one producer
 Complete price control
 Constraint is QD down when P up

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Connor DiAngelo
Professor Demarco
BUA 101- 0007
11 September 2018

 Natural monopoly is when producer can most effectively supply all

needed goods and services (utilities)
o Economic Growth, Aggregate Output, and Standard of Living
 Business cycle is short term pattern of economic expansions and contractions
 Aggregate output is total QS by an economic system during a given period
 Increase in aggregate output  growth
 When output grows more quickly than population
o Output per capita goes up
o System provides more goods and services that people want
o These conditions raise standard of living, total quantity and
quality of goods and services available
 GDP is total value of all goods and services produced within a given period by a
national economy through domestic factors of production
 GNP (national) total value of goods and services produced by national
economy
 Real growth rate is growth rate of GDP adjusted for inflation
 GDP per capita GDP/total population
 Real GDP is when GDP is adjusted for changes in currency value and
prices
 Nominal GDP is GDP measured in currency, all components valued at
current prices
 Purchasing power parity is a principle that exchange rates are set so
products cost the same across countries
 Productivity is a measure of economic growth that compares how much a system
produces with production resources
 More products produced with less resources allows price to drop and
standard of living to go up
 Balance of trade and national debt can inhibit growth
 Balance of trade is economic value of all exports – imports
o Positive when X>I
o Negative when X<I
o Negative balance often called trade deficit, harms growth
because imports have interest
o National debt is amount of money nation owes creditors
 US sells bonds, or IOUs, which lowers amount of
private borrowing
o Economic Stability
 Stability is when money in economy and Q of goods and services produced at
same rate
 Inflation is when economic system experiences widespread price increases
 CPI is measure of prices of typical products purchased by consumers in urban
areas
 Unemployment is level of jobless people among those actively seeking work
 If wages got too high, companies stop hiring as many workers and rate of
unemployment goes up
 Businesses raise prices to account for increased labor cost, but sales drop
and they have to cut back, and unemployment goes up

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 lOMoARcPSD|5689164

Connor DiAngelo
Professor Demarco
BUA 101- 0007
11 September 2018

 Government intervention through lowering taxes, lowering interest rate,

spending increase, inflation may set in
o Purchasing power parity allows us to compare similar items between countries and
analyze economies
 Recession, GDP declines
 Depression, GDP long term decline
 Fiscal Policy – policies of govt. and how it collects/spends revenue
o Stabilization policy
 Monetary Policy – control by govt. of money supply
o Smooth fluctuations

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