Session1 SIF0313

The
Dynamics of
Business
and
Economics
© 2016 by McGraw-Hill Education. This is proprietary material solely for

authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded,
distributed, or posted on a website, in whole or part.
1-2
The Nature of Business
Business
• Individuals or organizations who try to earn a
profit by providing products that satisfy people’s
needs
Products
• Goods or services with tangible and intangible
characteristics that provide satisfaction and
benefits
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
1-3
A Product Can Be…
Tangible
Services Ideas
Goods
• Automobile • Dry cleaning • Professionals
• Computer • Doctor’s generate
• Phone checkup ideas for
• Basketball solving
• Coat
game problems
• Concert
1-4
The Goal of Business
The goal of business is to earn a profit

$ The difference between what it costs to make and
sell a product and what a customer pays for it
$10 sale – $8 to make = $2 profit
$ Earning profits contributes to society by providing
employment, which in turn provides money that is
reinvested in the economy
$ Profits must be earned in a responsible manner
1-5
Nonprofit Organizations
Nonprofit Organizations
Engage in
Do not share
Provide management,
the purpose
goods and marketing and
of earning
services finance to
profits
reach goals
1-6
To Earn a Profit
Management
Skills
Acting Marketing
Ethically Expertise
Profit
Adapting to Financial
Change Resources
Abiding by
the Law
1-7
Stakeholders
~ Groups that have a stake in
the success and outcomes of
a business
~ Customers, employees,
investors, government
regulators, and community.
~ To achieve and maintain
profitability, businesses must
produce quality products,
operate efficiently, and be
Consumers are often willing
socially responsible and ethical to pay more for products
in dealing with stakeholders they perceive as
environmentally-friendly
1-8
Overview of the Business World
1-9
Management
Management is concerned with:

o Acquiring Plan
o Developing
o Using
resources (including
people) effectively and Control
Tasks Managers Organize
efficiently
Staff
1-10
Marketing
Determine Plan and
customer develop
needs product
Determine Determine
The focus of place distribution
all marketing
activities is
satisfying
customers Determine Determine
promotion price
1-11
Finance
The owner is primarily

responsible for obtaining
financial resources for the
operation of the business,
including:
 Obtaining money
 Using money effectively
1-12
Why Study Business?
• Develop skills Business career opportunities:

for career  Marketing
success  Human resources
management
• Become a  Information technology
well-informed  Finance
consumer and  Production and operations
member of  Wholesaling and retailing
society  And more
1-13
Economics
Economics
• The study of how

resources are distributed
for the production of
goods and services
within a social system
The Young Americans Bank
in Denver is the only bank
in the world that lends
money to individuals under
the age of 22
1-14
Economic Foundations of Business
Natural Resources
• Land, forests, mineral, water, and other things not made by
people
Human Resources – also called Labor
• The physical and mental abilities people use to produce
goods and services
Financial Resources – also called Capital
• The funds used to acquire the natural and human
resources needed to provide products
Intangible Resources
• Such as a good reputation for quality products or being
socially responsible
1-15
Economic Systems
Economic System
• A description of how a particular society distributes
its resources to produce goods and services
All economic systems must address these 3 important issues:

1. What goods and services, and how much of each, will
satisfy consumers’ needs?
2. How will goods and services be produced, who will
produce them, and with what resources will they be
produced?
3. How are the goods and services to be distributed to
consumers?
1-16
Communism
• First described by Karl Marx as a society in

which the people, without regard to class, own all
the nation’s resources
• On paper it appears efficient, but in practice,
Communism these economies suffer from:
• low standards of living
• critical shortages of consumer goods
• high prices
• corruption and little freedom
C
C
H
U
I
B
N
A
A
1-17
Socialism
• An economic system in which the government owns

and operates basic industries but individuals own
most businesses
• Most socialist countries are democratic and
Socialism recognize individual freedoms
• The socialist system may allow a higher standard of
living and is more stable; but taxes and
unemployment are generally higher in socialist
countries
S I I
W S N
E R D
D A I
E E A
N L
1-18
Capitalism
• An economic system in which individuals own and

operate the majority of businesses that provide goods and
services
Capitalism, • Pure capitalism or free-market system happens when
or Free all economic decisions are made without government
Enterprise intervention; also called laissez-faire capitalism
• Modified capitalism differs from pure capitalism in that the
government intervenes and regulates business to some
extent
C J
A U A
N S P
A A A
D N
A
1-19
Comparison of Communism, Socialism,

and Capitalism
1-20
Mixed Economies
No country practices pure capitalism, socialism, or
communism
• Economies made up of elements

from more than one economic
Mixed system
Economies • No country practices a pure form of
any economic system, although
most favor one system over others
China and Russia have used state capitalism to

advance the economy, integrating the powers of the
state with the advantages of capitalism
1-21
Modified Capitalism
► Modified capitalism differs from pure capitalism in that
the government intervenes and regulates business to
some extent
► One way of regulating
business is through laws
► Federal Trade
Commission Act created
the Federal Trade
Commission
► Importance of
government’s role in
Enforces antitrust laws and
monitors businesses to ensure economy
fair competition
1-22
The Free-Enterprise System
Many large economies are free-enterprise – including

the U.S., Canada and Japan
Many communist and

socialist countries apply
free-enterprise principles
– including China and
Russia
Free enterprise allows
a company to succeed
An entrepreneur presents his idea for a or fail on the basis of
new product. Entrepreneurs are more market demand
productive in free-enterprise systems.
1-23
Individual and Business Rights

Basic individual and business rights which must
exist in order to motivate companies to succeed
► Right to own property
► Right to earn profits and use them as one wishes
► Right to determine business operations
► Right to choose
 Career to pursue
 Where to live or where to locate a business
 What goods/services to purchase and more
1-24
The Forces of Supply and Demand
The number of
products businesses
are willing to sell at
Supply different prices at a
specific time
The number of
products consumers Demand
are willing to buy at
different prices at a
specific time
1-25
Equilibrium Price
Equilibrium
price is the
price at which
the number of
products that
businesses are
willing to
supply equals
the amount of
products that
consumers are
willing to buy at
a specific point
in time
1-26
Supply and Demand
 Critics of supply and demand

say the system does not
distribute resources equally
 The forces prevent sellers
who have to sell at higher
prices and buyers who
cannot afford to buy goods at
the equilibrium price from
participating in the market
1-27
The Nature of Competition

Competition is the rivalry among businesses for consumer’s dollars
Pure Monopolistic
Oligopoly Monopoly
Competition Competition
• The market • Fewer • The market • The market
structure that businesses structure that structure that
exists when than in a exists when exists when
there are pure there are there is only
many small competition very few one business
businesses and the businesses providing a
selling one differences selling a product in a
standardized among the product given market
product goods they
sell are small
1-28
Economic Cycles and Productivity
Economic expansion occurs then

an economy is growing and people
May lead to
are spending more money; their
inflation – a
continuing rise
purchases stimulate the production
in prices of goods and services, which in turn
stimulates employment
May lead to Economic contraction is a

recession – a slowdown of the economy
decline in characterized by a decline in
production, spending and during which
employment businesses cut back on
and income production and lay off workers
1-29
Economic Cycles and Productivity (cont.)
Recessions are often characterized by rising levels of

 Unemployment – the condition in which a percentage of
the population wants to work but is unable to find jobs
Deflation occurs when rising unemployment stifles demand,
forcing prices down
Severe recession may turn into a
 Depression – a condition of the
economy in which unemployment is
very high, consumer spending is low,
and business output is sharply
reduced
1-30
Hyperinflation
Inflation can be harmful if individuals’ incomes do not
increase at the same pace as rising prices, reducing
their buying power
 The worst case of hyperinflation occurred in Hungary
in 1946
 At one point, prices were doubling every 15.6 hours
 One of the most recent cases of hyperinflation
occurred in Zimbabwe
 Suffered from hyperinflation so severe that its inflation
percentage rate rose into the hundreds of million
 The elimination of the Zimbabwean dollar and certain price
controls, the inflation rate began to decrease
1-31
Measuring the Economy
Gross • The sum of all goods and services

Domestic produced in a country during a year
Product • Does not include profits from
(GDP) companies’ overseas operations
• The condition in which a nation

spends more than it takes in from
Budget taxes
Deficit • U.S. budget deficit has recently grown
to record levels; remedies include
raising taxes or reduce spending
1-32
Gross Domestic Product (GDP)

 In 2008 the System of National Accounts (SNA) serves
as a set of standards by which to measure economic
activity in every country
 Overseen by the United Nations (UN)
 Broadened the definition of assets to include intellectual
property (IP) such as patents
 Over the last decade investments in research and
development have spurred new products that have
contributed to the GDP making them an important asset
 While the calculations are still difficult, Canada and the
United States have included IP in their GDP
 Other countries are expected to follow
1-33
Evaluating Our Economy
See the U.S.

Public Debt to
the Penny
1-34
Mobile Payment Systems

Google Wallet is a mobile
payments system
 Allows users to store their
credit card or debit card
information
When checking out at stores,
users can bring up the app
and use the information to pay
for their purchases
Apple Inc. has released its
version of a mobile payment
system called Apple Pay
1-35
The Role of the Entrepreneur
Entrepreneur
• An individual who risks his/her wealth, time and effort
to develop for profit an innovative product or way of
doing something.
Entrepreneurship requires:
 Risk
 Innovation
 Creativity
 Reward
1-36
The Role of Government in the

American Economy
The U.S. economy is best described as modified
capitalism because:
◄ The government regulates industry to encourage
competition and protect stakeholders like
consumers, employees, or the environment
◄ Laws force businesses to adhere to government
standards
◄ Government agencies like the U.S. Department of
Commerce or the Federal Reserve Board
occasionally intervene to regulate the economy and
spur growth
1-37
The Role of Ethics and Social

Responsibility in Business
Business ethics
are standards set
by society
Stakeholders Reputation
demand ethical depends on
and socially profit and ethics
responsible and social
behavior responsibility
1-38
Can You Learn Business in a Classroom?
Absolutely!
To be successful in business, you need:
 Knowledge
 Skills
 Experiences and
 Good judgment
1-39
Discussion
? What is the fundamental goal of business? Do all
organizations share this goal?
? Who are the main participants of business? What are the
main activities? What other factors have an impact on the
conduct of business in the United States?
? Explain the terms supply, demand, equilibrium price, and
competition. How do these forces interact in the American
economy?
? List and define the various measures governments may
use to gauge the state of their economies. If
unemployment is high, will the growth of GDP be great
or small?

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Session1 SIF0313

Uploaded by

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The

© 2016 by McGraw-Hill Education. This is proprietary material solely for

The Nature of Business

A Product Can Be…

The Goal of Business

The goal of business is to earn a profit

Overview of the Business World

Management is concerned with:

The owner is primarily

Why Study Business?

• Develop skills Business career opportunities:

• The study of how

Economic Foundations of Business

All economic systems must address these 3 important issues:

• First described by Karl Marx as a society in

• An economic system in which the government owns

• An economic system in which individuals own and

Comparison of Communism, Socialism,

• Economies made up of elements

China and Russia have used state capitalism to

The Free-Enterprise System

Many large economies are free-enterprise – including

Many communist and

Individual and Business Rights

The Forces of Supply and Demand

Supply and Demand

 Critics of supply and demand

The Nature of Competition

Economic Cycles and Productivity

Economic expansion occurs then

May lead to Economic contraction is a

Economic Cycles and Productivity (cont.)

Recessions are often characterized by rising levels of

Measuring the Economy

Gross • The sum of all goods and services

• The condition in which a nation

Gross Domestic Product (GDP)

Evaluating Our Economy

See the U.S.

Mobile Payment Systems

The Role of the Entrepreneur

The Role of Government in the

The Role of Ethics and Social

Can You Learn Business in a Classroom?

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