Chapter 1

Taking Risks and Making

Profits within the Dynamic
Business Environment

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 Learning Objectives
LO 1-1 Describe the relationship between profit and risk, and show
how businesses and nonprofit organizations can raise the
standard of living for all.
LO 1-2 Explain how entrepreneurship and the other factors of
production contribute to the creation of wealth.
LO 1-3 Analyze the effects of the economic environment and taxes on
businesses.
LO 1-4 Describe the effects of technology on businesses.
LO 1-5 Demonstrate how businesses can meet and beat competition.
LO 1-6 Analyze the social changes affecting businesses.
LO 1-7 Identify what businesses must do to meet global challenges,
including war and terrorism.
LO 1-8 Review how past trends are being repeated in the present and
what those trends mean for tomorrow’s college graduates.
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 Business and Wealth Building 1 of 7
Business — Any activity that seeks to provide goods and
services to others while operating at a profit.
Goods — Tangible products such as computers, food,
clothing, cars, and appliances.
Services — Intangible products (that can’t be held in your
hand) such as education, health care, insurance,
recreation, and travel.

LO 1-1
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 Business and Wealth Building 2 of 7
Successfully filling a market need means you could make
money for yourself.
Entrepreneur — A person who risks time and money to
start and manage a business.

LO 1-1
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 Business and Wealth Building 3 of 7
Revenues, Profits, and Losses
• Revenue — The total amount of money a business takes in
during a given period by selling goods and services.
• Profit — The amount of money a business earns above and
beyond what it spends for salaries and other expenses.
• Loss — When a business’s expenses are more than its
revenues.

LO 1-1
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 Business and Wealth Building 4 of 7
Matching Risk with Profit
• Risk — The chance an entrepreneur takes of losing time and
money on a business that may not prove profitable.
• Not all enterprises make the same amount of profit.
• Businesses take risks, but with big risks could come big profits.

LO 1-1
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 Business and Wealth Building 5 of 7
Standard of Living and Quality of Life
• Standard of living — The amount of goods and services people
can buy with the money they have.
• The United States has one of the highest standards of living in
the world.
• Workers in other countries may make more money, but prices for
products are higher.
• Quality of life — The general well-being of a society in terms of
its political freedom, natural environment, education, health care,
safety, amount of leisure, and rewards that add to the
satisfaction and joy that other goods and services provide.
• High quality of life requires combined efforts of businesses,
nonprofits, and government agencies.

LO 1-1
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 Business and Wealth Building 6 of 7
Responding to the Various Business Stakeholders
• Stakeholders — All the people who stand to gain or lose by the
policies and activities of a business and whose concerns the
business needs to address.
• A primary challenge is to recognize and respond to the needs of
stakeholders.
• Outsourcing — Contracting with other companies (often in
other countries) to do some of the functions of a firm, like
production or accounting.
• Many foreign companies are opening offices and factories in the
United States, which is called insourcing.

LO 1-1
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 Figure 1.1 A Business and Its
Stakeholders

Jump to long description in

appendix
LO 1-1
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Source: John Mackey and Raj Sisodia, Conscious Capitalism (Boston, MA:
 Business and Wealth Building 7 of 7
Using Business Principles in Nonprofit Organizations
• Nonprofit organization — An organization whose goals do not
include making a personal profit for its owners or organizers.
• Nonprofit organizations use financial gains to meet social or
educational goals.

LO 1-1
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 The Importance of Entrepreneurs to
the Creation of Wealth 1 of 2

The Positives to Being an Entrepreneur

• The freedom to succeed
• Make your own decisions
• Possible wealth

The Negatives to Being an Entrepreneur

• The freedom to fail
• No paid vacations
• No health insurance

LO 1-2
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 The Importance of Entrepreneurs to
the Creation of Wealth 2 of 2

The Five Factors of Production

• Factors of production — The resources used to create wealth.
• The five factors:
1. Land (or natural resources)
2. Labor (workers)
3. Capital
4. Entrepreneurship
5. Knowledge
• What makes rich countries rich today is entrepreneurship and
knowledge.

LO 1-2
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 Figure 1.2 The Five Factors
of Production

LO 1-2
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 The Business Environment 1 of 8
Business environment — The surrounding factors that
either help or hinder the development of businesses.
1. Economic and legal environment
2. Technological environment
3. Competitive environment
4. Social environment
5. Global business environment

LO 1-2
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 Figure 1.3 Today’s Dynamic Business
Environment

Jump to long description in

appendix
LO 1-2
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 The Business Environment 2 of 8
The Economic and Legal Environment
• Government can promote entrepreneurship by:
1. Allowing private ownership of businesses
2. Minimizing interference with the free exchange of goods and
services
3. Passing laws that enable businesspeople to write enforceable
contracts
4. Establishing a currency that’s tradable in world markets
5. Minimizing corruption

LO 1-3
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 The Business Environment 3 of 8
The Technological Environment
• Technology — Everything from phones to computers and the
various software programs that make business processes more
effective, efficient, and productive.
• How Technology Benefits Workers and You
• Effectiveness — Producing the desired result.
• Efficiency — Producing goods and services using the least amount
of resources.
• Productivity — The amount of output you generate given the
amount of input (e.g., hours worked).

LO 1-4
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 The Business Environment 4 of 8
The Technological Environment continued
• The Growth of E-Commerce
• E-commerce — The buying and selling of goods over the Internet.
• Business-to-consumer (B2C)
• Business-to-business (B2B)

• Using Technology to Be Responsive to Customers

• Database — An electronic storage file for information.
• Identity theft — The obtaining of individuals’ personal information,
such as Social Security and credit card numbers, for illegal
purposes.

LO 1-4
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 The Business Environment 5 of 8
The Competitive Environment
• Customers want good quality products at low prices with great
customer service.
• Because business is more customer-driven, some managers
give frontline employees more decision-making power.
• Empowerment — Giving frontline workers the responsibility,
authority, freedom, training, and equipment they need to respond
quickly to customer requests.

LO 1-5
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 The Business Environment 6 of 8
The Social Environment
• Demography — The statistical study of the human population
with regard to its size, density, and other characteristics such as
age, race, gender, and income.
• Managing Diversity
• Diversity has grown from just recruiting minority and female workers.
• The Increase in the Number of Older Citizens
• People aged 65 to 74 are currently the richest demographic group.
• Retired people will be draining the economy of wealth due to Social
Security.
• The Increase in the Number of Single-Parent Families
• Growth of single-parent households has encouraged businesses to
implement programs such as family leave and flextime.

LO 1-6
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 The Business Environment 7 of 8
The Global Environment
• Globalization has grown due to efficient distribution systems and
communication systems such as the Internet.
• War and Terrorism
• They have drained trillions of dollars from the U.S. economy.
• Money was diverted to the war effort.
• Adds to the cost of insurance and security.
• How Global Changes Affect You
• As businesses expand to serve global markets, new jobs will be
created.
• Rapid changes create a need for continuous learning.

LO 1-7
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 The Business Environment 8 of 8
The Global Environment continued
• The Ecological Environment
• Climate change — The movement of the temperature of the planet
up or down over time.
• Greening — The trend toward saving energy and producing
products that cause less harm to the environment.
• Many companies say the evidence for climate change is
overwhelming.
• General Electric, Coca-Cola, Shell, Nestlé, DuPont, Johnson &
Johnson, British Airways, Shanghai Electric

LO 1-7
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 The Evolution of U.S. Business 1 of 2
Progress in the Agricultural and Manufacturing Industries
• In the 1800s, the agricultural industry led economic
development.
• Technology, like the harvester and cotton gin, made large-scale
farming successful.
• This led to fewer farmers with larger farms.
• Industrialization in the 19th and 20th centuries moved jobs from
farms to factories.
• As technology improved productivity, fewer workers were
needed in factories.

LO 1-8
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 The Evolution of U.S. Business 2 of 2
Progress in Service Industries
• Services make up over 80 percent of the value of the U.S.
economy.
• Since the mid-1980s, the service industry generated almost all
the increases in employment.
• There are more high-paying jobs in service industries.

Your Future in Business

• We’re in the midst of an information-based global and technical
revolution.

LO 1-8
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 Appendix of Long Image
Descriptions

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 Appendix 1 Figure 1.1 A Business and Its
Stakeholders
Typical U.S. business stakeholders are:
Stockholders
Customers
Surrounding community
Environmentalists
Dealers (retailers)
Employees
Government leaders
Suppliers
Media
Bankers
Return to original slide

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 Appendix 2 Figure 1.3 Today’s Dynamic
Business Environment
A circle shows Business Management and Job Creation in the center. Surrounding this are four
quadrants for the four environments.
The Economic and Legal Environment:
1. Freedom of ownership
2. Contract laws
3. Elimination of corruption
4. Tradable currency
5. Minimum taxes and regulation
The Technological Environment:
6. Information technology
7. Databases
8. Bar codes
9. The Internet
The Social Environment:
10. Diversity
11. Demographic changes
12. Family changes
The Competitive Environment:
13. Customer service
14. Stakeholder recognition
15. Employee service
16. Concern for the environment
The global business environment affects the economic, legal, and technological environments.
Global competition and free trade affect the competitive environment.
The quality imperative affects the social environment.
Return to original slide

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