1

Business in a
Changing World

Chapter 1
The Dynamics of Business and
Economics

McGraw-Hill/Irwin Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights reserved.
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Crocs focuses on core competencies
Market opportunities, timing, and
circumstances

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The Nature of Business

What is a business?
Individuals or organizations trying to
earn a profit by providing products that
satisfy people's needs.

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The Nature of Business

What is a product?
A good or service with tangible and
intangible characteristics that provide
satisfaction and benefits

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 Products
Tangible Goods & Services

Tangible Goods Services

Automobile Dry cleaning
Computer Photo processing
Loaf of bread Checkup at doctor’s
Television Movie star performance

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The Primary Goal of Business

Earn a Profit
The difference between what it costs
to make and sell a product and what a
customer pays for it.

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The Primary Goal of Business

PROFIT --
The reward for the risks that
businesses take in providing products.

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Non-Profit Organizations
Not all organizations are businesses.

Nonprofit organizations provide goods

and services but do not have the
fundamental purpose of earning
profits.

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Maintaining Profitability Quality products Efficient operations

Management skills
•Planning
•Organizing
•Controlling Profitability
•Leading

Marketing Expertise
•Products
•Price
Social responsibility Business ethics
•Promotion
•Distribution

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Stakeholders
Customers, employees, investors, government regulators,
community and society. Those that have a stake in the success
and outcomes of a business are considered stakeholders.

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Stakeholders & the Environment
Environmentally Friendly Practices
•Hewlett-Packard
•Cummins, Inc.
•Diversity Pipeline Alliance
•Home Depot
•U-Haul

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The People & Activities of Business

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The People & Activities of Business

Management – Focus on employees

•Coordinating employee’s actions
•Organizing people for efficiency
•Motivating employees toward business goals
.
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The People & Activities of Business

Management – Production and Manufacturing

•Plan activities
•Organize staff
•Control tasks
.
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The People & Activities of Business

Marketing – Focus on satisfying customers

•Determine what products customers want
•Plan and develop products
•Determine distribution
•Determine place
•Determine promotion
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The People & Activities of Business

Marketing & Promotion

•Advertising
•Personal selling
•Sales promotion
•Publicity
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The People & Activities of Business

Finance – Primary responsibility of owners

•Obtaining money
•Using money effectively
•Accountants, stockbrokers, bankers

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Why Study Business

•Develop Skills for career success

•Understand business activities
•Importance of profitability
•Individual businesses
•Local and regional economic impact
•Global economic impact

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Why Study Business

Business impact
•Purchase raw materials
•Hire employees
•Attract capital
•Create products
•Fuel the global economy
•Contribute to society

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The Economic Foundations of Business

Distribution of resources for the production of

goods and services within a social system.

Resources --
•Natural resources (land, forests, minerals, water)
•Human resources (labor)
•Financial resources (capital)

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 Factors of Production --

Natural, human, and financial resources used to produce

goods and services --

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Economic Systems

How a society distributes its resources to produce

goods and services

Central issue of economics –

•How to fulfill an unlimited demand for goods and

services with a limited supply of resources

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Economic Systems
How a society distributes its resources to produce
goods and services

Three Important questions –

1. What types and quantities of goods/services will
satisfy consumer needs?
2. How will goods/services be produced? By whom?
With what resources?
3. How are goods/services distributed to consumers?

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Comparison of Communism, Socialism, and Capitalism

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Economic Systems

Communism

A society in which the people without regard to

class, own all the nation’s resources.
•China
•North Korea
•Cuba

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Economic Systems

Socialism

System in which the government owns and operates

basic industries but individuals own most businesses.
•Sweden
•India
•Israel

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Economic Systems

Capitalism

Free Enterprise – individuals own and operate majority

of businesses providing goods and services
•United States
•Japan
•Australia
•Canada

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Economic Systems

Pure Capitalism
Modified Capitalism

Free Market -- All economic decisions made without

government intervention (pure capitalism)

Government intervenes and regulates business to

some extent (modified capitalism)
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Economic Systems

Mixed Economies

No country practices pure capitalism or pure

socialism/communism. Economic systems
contain various elements of government
intervention

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Supply & Demand

Distribution of resources and products

determined by supply and demand

Demand -- number of goods/services consumers

buy at given price at a specific time

Supply -- number of products businesses will sell

at different prices at a specific time
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 Forces of Supply & Demand

Price at which number of products supplied equal amount of products

consumers are willing to buy at a specific time = equilibrium price

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Nature of Competition

Rivalry among businesses for consumers’

dollars.

Pure competition – many small businesses in

same product market
Monopolistic competition – small number of
businesses little difference in products
Oligopoly– very few businesses selling a product
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Economic Cycles and Productivity

Expansion and Contraction

Economic Expansion – economy is growing and

consumers are spending money

Economic Contraction – spending declines,

layoffs, economy slows down
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Economic Cycles
•Inflation– condition characterized by continuing
rise in prices
•Recession– decline in production, employment,
and income
•Unemployment– % population wants to work
but unable to find jobs
•Depression– unemployment very high;
consumer spending low; business output sharply
reduced
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Overall Unemployment Rate

U.S. Civilian Labor Force 1920 - 2007

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Measuring the Economy
•Gross Domestic Product (GDP)

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Evaluating Our Nation’s Economy

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Entrepreneurship

Risk, innovation, creativity,

reward

Bill Gates
Michael Dell
Frederick Smith
Ben & Jerry’s
Sam Walton
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Ethics & Social Responsibility

Business reputation depends on profit AND

ethical conduct and responsibility

Enron
MCI WorldCom
Emission Standards
Global Warming
Going “Green”
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