CHAPTER 1: Economic Systems and Business
Values:
Business – an organization strives for a profit by providing
foods and services desired by its customers
Services and Goods – tangible and intangible items offered by
businesses in exchange of liquid money
Standard of living – of any country is measured by the output
of goods and services people can buy with the money they have
Quality of Life – general level of human happiness based on
such things as life expectancy, educational standards
Risk – potential to lose time and money or otherwise not be
able to accomplish an organization’s goals
Revenue, Cost, and Profit – money received, lost, and left
NOT-FOR-PROFIT ORGANIZATION
-an organization that exists to achieve some goal other than the
usual business goal of profit
Source of Income:
1. Donors and Grants
2. Registration and other fees
3. Merchandise
Factors of Production: The Building Blocks of Business
1. Natural Resources – farmland, forests, mineral and oil
deposits, and water; natural resources are simply
called land
2. Labor – economic contributions of people working
with their minds and muscles
3. Capital – tools, machinery, equipment, and buildings
used to produce goods and services and get them to
the consumer
4. Entrepreneurship – people who combine the inputs of
natural resources, labor, and capital to produce goods
or services with the intention of making a profit or
accomplishing a not-for-profit goal
Sectors of business environment:
 Capitalism – private enterprise system; based on
competition in the marketplace and private ownership
of the factors of production (resources)
 Communism – a communist economic system, the
government owns virtually all resources and controls
all markets
 Socialism – the basic industries are owned by the
government or by the private sector with strong
government control
 Macroeconomics and Microeconomics – the state of
the economy affects both people and business (how
you spend or save your money is a personal economic
decision
 Mixed economic systems – pure capitalism and
communism are extremes; real world economies fall
somewhere between the two
 Economics as a Circular Flow – the movement of
inputs and outputs among households, businesses,
and governments; a way of showing how the sectors
of the economy interact
MACROECONOMICS: How does economic growth, full
employment, price stability and inflation indicate a nation’s
economic health?
Striving for economic growth – the more the nation produces,
the higher its standard of living. An increase in a nation’s output
of goods and services is economic growth
Keeping People on the Job – another macroeconomic goal is full
employment or having jobs for all who want to and can work
Measuring unemployment – to determine how close we are to
full employment, the government measures the unemployment
rate
types of unemployment:
 Frictional – short-term unemployment that is not
related to the business cycle
 Structural – caused by a mismatch between available
jobs and the skills of the available workers in an
industry or region; not related to the business cycle
 Cyclical – occurs when a downturn in the business
cycle reduces the demand for labor throughout the
economy
Keeping Prices Steady – the third macroeconomic goal is to
keep overall prices of goods and services fairly steady
Types of inflation:
 Demand-pull – inflation that occurs when the demand
for goods and services is greater than the supply
 Cost-push – occurs when increases in production costs
push up the prices of final goods and services
How inflation is measured:
- The rate of inflation is most commonly by looking at
the changes in the consumer price index (CPI), an
index of the prices of a “market basket” of goods and
services purchased by typical urban consumers
MONETARY POLICY
 Contractionary policy – the Fed restricts, or lightens,
the money supply by selling government securities or
raising interest rates
 Expansionary Policy – the Fed increases, or loosens
growth in the money supply; an expansionary policy
stimulates the economy
FISCAL POLICY
- The taxing and spending actions of governments

BASIC MICROECONOMIC CONCEPTS OF DEMAND AND SUPPLY
 Demand – the quantity of a good or service that
people are willing to buy at various prices
 Supply – the quantity of a good or services that
businesses will make available at various prices
COMPETING IN FREE MARKET
Free Market – an economic system based on supply and
demand with little or no government control
CHAPTER 2: ETHICS
Factors that Influence our Choices:
1. JUSTICE
2. ULITARIANISM
3. DEONTOLOGY
4. INDIVIDUAL RIGHTS
Ethical Conduct:
 Conducting yourself with others (honesty, integrity,
fairness, and good-faith)
CODE of Ethics:
 Collection of guidelines
 Set of standards
 Individual’s personal values
Managing a socially responsible business:
 Corporate Social Responsibility (CSR) – concern of
businesses for the welfare of society as a whole;
Voluntary
Responsibility to Stakeholders:
 Responsibilities to employees – an organizations first
responsibility is to provide a job to employees
 Responsibilities to customer – to be successful in
today’s business environment, a company must satisfy
its customers
 Responsibility to Society – provides a community with
jobs, goods, and services
 Environmental Protection – responsible for protecting
and improving the world’s fragile environment
 Responsibilities to Investors – companies relationships
with investors also entail social responsibility
CHAPTER 3: COMPETING IN THE GLOBAL MARKETPLACE
Why nations trade?
Because they gain by doing so; can produce most readily and
cheaply; result is more goods at lower prices; free trade allows
trade among nations without government restrictions.
Barriers to Trade
Distance and language
 Tariff barriers
 Taxes on imported goods
 Non-tariff barriers
International economic communities
- Reduce trade barriers among themselves while often
establishing common tariffs and other trade barriers
toward nonmember countries
Participating in the global marketplace
 Exporting
 Licensing
 Contract manufacturing
 Joint ventures
 Direct investment
Threats and Opportunities
 Must fully understand the foreign environment in
which they plan to operate
 Political, cultural differences, and the economic
environment can represent both opportunities and
pitfalls in the global marketplace
The Impact of Multinational Corporations
- The corporations that move resources, goods, services,
and skills across national boundaries without regard to
the country in which their headquarters are located
Advantages:
 Sidestep restrictive trade and licensing restrictions
 Move their operations from one country to the next
depending on which location offers more favorable
economic conditions
 Multinationals can tap into a vast sources of
technological expertise by drawing upon the
knowledge of global marketplace
CHAPTER 4: FORMS OF BUSINESS OWNERSHIP  Limited Liability Company (LLC) – new type of business
1. Sole Proprietorship – a business that is established, entity; hybrid organization
owned, operated, and often financed by one person
Specialized Forms of Business Organization:
4. Cooperatives – a legal entity with several corporate
features
Types:
a. Buyer cooperatives – combine members’
purchasing power
b. Seller cooperatives – individual producers join
2. Partnership – an association of two or more individuals to compete more effectively with large
who agree to operate a business together for profit producers
5. Joint Ventures – two or more companies form an
alliance to pursue a specific project, usually for a
specified time period

6. Franchising – involves a franchisor and the franchisee

Two basic types of partnership:  Franchise agreement – a contract that allows
 General partnership – all partners share in the the franchisee to use the franchisor's business
management and profits; they co-own the name, trademark, and logo
asset, and each can act on behalf of the firm;
each partner also has unlimited liability for all
the business obligations of the firm
 Limited partnership – one or more general
partners (unlimited liability); one or more
limited partners – limited liability
3. Corporations – a legal entity subject to the laws of the 7. Mergers – occurs when two or more firms combine to
state in which it is formed, where the right to operate form one new company
as a business is issued by state charter Types:
 Horizontal merger
 Vertical merger
 Conglomerate merger
8. Acquisition – a corporation or investor group finds a
target company and negotiates with its board of
directors to purchase it

Types of Corporation:
 C Corporation – conventional or basic form
 S Corporation – hybrid entity, allowing smaller
corporations to avoid double taxation of corporate
profits