n this first chapter we will examine the basic concepts of business, product and profit. We will identify the main participants and activities of business and explain why studying business is important. We will consider the four types of economic systems, and describe the role of supply, demand, We will identify the main participants and activities of business and explain why studying business is important. We will consider the four types of economic systems, and



The plastic shoes from the company Crocs provide an excellent perspective on how businesses start, how products become popular, and how businesspeople learn to expand their operations and satisfy the needs of customers. Click on the Crocs link on


To do so. For example.The nature of all business is to try to earn a profit. 5 . a business must produce a product that satisfies some need of a customer. a Porsche Cayenne sport utility vehicle may satisfy the need for transportation. but is also satisfies the desire of a customer to present a certain image.

In either case.Businesses earn profits by providing products that satisfy customer needs. products must provides satisfaction to the customer and benefits that a customer desires. 6 . Products can be either goods or services and have either tangible or intangible characteristics.

photo processing. computers. Products may also be categorized by the services they provide. and so on. dry cleaning. food. 7 . but do provide an important benefit to you as a customer or client. and a check up at your doctor’s office are not products per se. cell phones. For example.Products may be categorized as tangible goods such as cars.

8 . When the price exceeds the business’ cost of producing and delivering it.As we know. the business earns a profit. When the price business is earning a profit. the company determines the difference between what it costs to make and sell the product and the price that a customer will pay for it. the primary goal of any business is to earn a profit. What does this mean? To gauge whether or not a business is earning a profit. the company determines the difference between what it costs to make and sell the product and the price that a customer will pay for it.

9 .Another way of looking at the concept of profit is to consider it as the reward for the risks that the business takes in providing products.

10 . do not have the fundamental purpose of earning profits. Nonprofit organizations such as Greenpeace and the Special Olympics. although they may provide goods or services to clients.Not all organizations are considered businesses.

11 . it must have excellent management skills and a high level of marketing expertise. Ensuring sustained profitability requires a business to be focused on the quality of its products. maintaining efficient operations.In order to ensure that a business remains profitable. and to be socially responsible and ensure that its employees practice sound business ethics.

government regulations. These groups all have a stake in the success of a business and are called stakeholders. employees. investors.Businesses have customers. 12 . and the interests of the community and society to consider.

13 .Today more than ever before. businesses are concerned about the environment and engage in environmentally friendly practices. Visit some of the companies on this slide by clicking on the company name to see examples of how different companies approach this important concern.

and customers. As you continue reading this and the following chapters.The figure on this slide shows the people and activities involved in business. employees. marketing and finance. keep in mind the people and activities that are involved in business important to its success. 14 . At the center of the figure are owners. The outer circle includes the primary business activities of management.

15 . The more effective management is. and motivating them to achieve the company’s goals. organizing people to work well. the more profitable and successful a business may be.Management involves coordinating employees’ actions to achieve the firm’s goals.

Production and manufacturing can be another key element of management. and control tasks that are required to successfully produce the work of the company or the services of the nonprofit organization. Managers must plan. organize. staff. 16 .

Research is conducted by marketers to determine what customers want. 17 . Marketing research provides information to help marketers develop new products.The focus of all marketing efforts in a business is satisfying customers. make pricing decisions about them. Marketing includes all the activities designed to provide goods and services that satisfy consumers’ needs and wants. and where to sell them.

personal selling. Nonprofit organizations increase sales. 18 . sales promotion. and publicity are all part of the marketing function called promotion. Nonprofit organizations also use promotion to reach the clients that they wish to serve. Marketers use promotion to communicate the benefits and advantages of their products to consumers with the goal being to increase sales. We will explore marketing in much more detail in part 5 of the text.Advertising.

19 . as shown in this slide. of course. Finance. have the most to lose if the business fails to make a profit. The owners.Management and marketing deal with financial considerations of the business. financial resources and accountability are within the primary responsibility of the owners. However. refers to all of the activities concerned with obtaining money and using it effectively to pursue the goals of the business.

to package it? To transport it? How much does the artist receive for her work? What about the store that is selling you the CD? 20 . Ask yourself the next time you buy a CD why it has the price that it does. Studying business also help you better understand the many business activities that go in to providing satisfying goods and services. In other words.This is an appropriate point in our discussion to ask a central question: “Why study business?” The answers include: helping you develop skills and acquire knowledge to prepare you for your future career. what does it cost to press the CD.

Businesses generate a profit so that they can purchase additional raw materials to produce more goods to satisfy customer needs.Studying business will help you learn about the impact that businesses have on your life and the lives of everyone around you. businesses help fuel the global economy. they hire employees. create products. and. attract investment. 21 . by doing all of this.

Economics studies how resources are distributed for the production of goods and services.Business is conducted within an economic environment that differs in various parts of the world. There are various types of resources to consider including natural resources such as land. minerals. and financial resources. 22 . and water. human resources.

These factors of production are carefully considered by economists in analyzing and explaining the various economic systems that exist globally. and financial resources are necessary to produce goods and services. human. These resources are often times referred to as the factors of production.Natural. 23 .

24 . The fact of the matter is that different economic systems attempt to resolve this central issue in numerous ways as we will soon discuss.An economic system is a description of how a particular society distributes its resources to produce goods and serves. A central issue of economics is not how to fulfill an unlimited demand for goods and services in a world with a limited supply of resources.

25 . Each of the three systems are compared on the basis of ownership. product and price.The table on this slide provides a side by side comparison of the three major economic systems: communism. profits. and capitalism. competition. socialism. and employment.

While there are no pure communistic economic systems in the world today. This is an ideal political economic system where everyone contributes according to their ability but receives benefits according to their needs. three countries still adhere to the ideology. North Korea. He defined communisms as a society in which the people. 26 . These countries are China. without regard to class. won all the nation’s resources.Communism was first described by Karl Marx in the 19th century. and Cuba.

Today nations such as Sweden. India and Israel are considered socialistic but are democratic and recognize individual freedoms. utilities. transportation. Socialism relies on central planning to determine what basic goods and services are produced and distributed. It is an economic system in which the government owns and operates basic industries such as the postal service. telephone services. but individuals own most of the businesses. 27 .Socialism is closely related to communism. and health care.

and Canada are examples of economic systems based on free enterprise. Rather than the government determining product mix. Japan.Capitalism is often called free enterprise and is an economic system where individuals own and operate the majority of businesses that provide goods and services. 28 . The United States. supply and demand. determine which goods and services are produced and distributed. Australia. competition.

all economic decisions are made without government intervention. Modified capitalism differs from pure capitalism because the government intervenes and regulates business to some extent. Sometimes this is called laissez faire capitalism because the government does not interfere in business. Antitrust laws and the Federal Trade Commission are examples of the government’s role in the economy.The two forms of capitalism are free market and modified capitalism. In the free market system. 29 .

For example. Most nations operate as mixed economies that have elements form more than one economic system.S which is considered capitalistic. most businesses are owned and operated by private individuals. In the U. 30 .In reality today. which is an electric utility in Tennessee. there is no country that practices a pure form of any of the economic systems we have discussed thus far. In Sweden which is socialistic. the federal government owns and operates the postal service the TVA.

Demand is the number of goods or services that consumers are willing to buy at different prices at a given time. and Canada. Many socialist countries including China and Russia are applying more principles of free enterprise. Supply is the number of products that businesses are willing to sell at different prices at a specific time. is determined by supply and demand. The distribution of resources and products in a free enterprise system. 31 . Japan.Globally. there are many economies that are based on free enterprise including the United States. Australia.

32 .In the figure on this slide. Where the two intersect. the forces of supply and demand are shown as the supply curve and the demand curve. This is called the equilibrium price. the price at which the number of products that businesses are willing to supply equals the amount of products that consumers he amount of products that consumers are willing to by at a specific point in time.

In an oligopoly. The differences in the products they sell is small such as aspirin. There are four types of competitive environments within a free enterprise system. In monopolistic competition. Competition should improve the quality of goods and services available or reduce prices. Individual businesses have control over their products’ price because the business supplies a large portion of the products sold in the marketplace. there are a small number of businesses competing. soft drinks and vacuum cleaners. This competition is a vital element in the free enterprise system. 33 . Pure competition exists when there are many small businesses competing by selling one standardized product such as a commodity like wheat or corn.Businesses compete or are rivals for consumers’ dollars. there are very few businesses selling a product. There is little or no differentiation in product so prices are determined solely on the basis of supply and demand.

we have economic expansion. businesses cut back and lay off workers and we experience economic contraction. They expand and they contract. When spending declines. economies are quite dynamic. When an economy is growing and people are spending more money.As you know. Purchase stimulate production which in turn stimulates employment and the economy grows and expands. they are not stagnant. 34 .

consumer spending is low. employment. a severe recession can lead to depression where unemployment is very high. and business output is greatly diminished. 35 . If left unchecked. changes may trigger negative reactions in the economy. and income.Within economic cycles of expansion or contraction. Inflation may occur when prices continue to rise regardless of supply which can be harmful if individuals incomes do not rise accordingly. Recession is a decline in production. Recessions usually involve rising levels of unemployment which is measured as the percentage of the population that want to work but cannot find jobs.

the relative level of unemployment has been quite low since 2000.The graph in this slide depicts the overall unemployment rate among the United States civilian labor force between 1920 and 2007. As you can see. 36 .

37 . which is the sum of all goods and services produced in a country during a year.Most nations measure the health or state of their economies to determine whether they are expanding or contracting. or GDP. A commonly used metric is Gross Domestic Product.

38 . consumer price index. the rate of inflation. the unemployment rate. economies are gauged by metrics as shown in this slide. per capita income.In addition to GDP. Trade balance. and worker productivity all help assess the overall health of the economy and indicate whether it is expanding or contracting and at what rate.

Do you recognize any of these names and the businesses they have built? 39 . Feel free to click on one or more of these names to see the companies that have been built by these successful entrepreneurs. a significant part of the overall economy in the U.S. is based on the efforts of successful entrepreneurs. A few of these successful individuals are listed on this slide. if very successful. Usually these individuals start small and.Today. build powerful businesses.

Tyco. 40 . and other stakeholders of these firms. Today. you have no doubt heard about a number of scandals in the business world. and Arthur Andersen are probably familiar to you. WorldCom. a significant part of the overall profitability and success of a company is based on its reputation for practicing sound ethics and being socially responsible.In the recent years. misconduct by individuals within the firm had an adverse effect on employees. investors. In a later chapter we will return to the importance of this topic. Companies such as Enron. In many cases.

Master your semester with Scribd & The New York Times

Special offer for students: Only $4.99/month.

Master your semester with Scribd & The New York Times

Cancel anytime.