chapter 1 Flashcards
Business definition
An activity that seeks to provide goods and services to
others while operating at a profit.
Businesses take in revenue in order to gain a profit
while avoiding a loss.
what purpose do entrepreneurs serve?
They earn money for themselves by taking risks.
They employ others.
They pay taxes and help their communities.
standard of living
the material well being of the average person in a given population. It is typically measured using gross domestic product (GDP) per capita
varies in different countries.
Affected by the level of taxation and regulation.
revenue
the total amount of income generated by the sale of goods and services related to the primary operations of the business.
Stakeholders
Are anyone who gains or loses from the business’s policies.
Businesses need to recognize and respond to the needs of their stakeholders.
employees, customers, shareholders, suppliers, communities, and governments.
Nonprofit organizations
Include public schools, civic
associations, charities, and others.
Their financial gains are used to meet their goals, not for personal profit.
difference between revenue and
profit?
Profit is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs.
Revenue, also known simply as “sales”, doesn’t deduct any costs or expenses associated with operating the business.
risk
the degree of uncertainty and/or potential financial loss inherent in an investment decision.
no risk no reward
how many elements of Business Environment and what?
5
- The economic and legal environment.
- The technological environment.
- The competitive environment.
- The social environment.
- The global business environment.
The Economic and Legal Environment
A country’s economic system and laws can have a strong
impact on the level of risk.
- Private ownership of business.
- The legal system.
The Technological Environment
Includes everything from phones to computers, mobile
devices, medical imaging machines, robots, the Internet,
social media, and various software programs and apps.
- Technology can make businesses more effective and efficient.
- Productivity is the amount of output generated vs. amount of
input.
The Competitive Environment
Companies need high-quality products and service at
competitive prices.
* Companies must understand their customers’ wants and
needs.
* Companies need strong relationships with suppliers.
* Companies must differentiate themselves.
The Social Environment
The population’s demography impacts buying patterns.
* Includes size, density, age, race, gender, and income.
* Population shifts create new opportunities for some, declining
opportunities for others.
The Global Environment
Includes trade agreements, international economic
conditions, pandemics, war and terrorism, climate
change.
- It surrounds all other environmental influences.
Diversity
The U.S. Equal Employment Opportunity
Commission prohibits laws discriminating against:
* Age.
* Disability.
* Genetic information.
* National origin.
* Pregnancy.
* Race.
* Religion.
* Sex.
What’s the difference between effectiveness,
efficiency, and productivity?
productivity is simply the correlation between input and output, efficiency denotes doing things well enough. Effectiveness, however, stands for doing the right things.
types of Economics
3
Macroeconomics
Microeconomics
Resource Development.
Macroeconomics
Example: What should the U.S. do to lower its national debt?
* Include gross domestic product (GDP), unemployment rate, and
price indexes.
Microeconomics
Example: Why do people buy smaller cars when gas prices go
up?
5 factors of production
Factors of production.
* Land.
* Labor.
* Capital.
* Entrepreneurship.
* Knowledge.
difference between Macroeconomics & Microeconomics
Microeconomics is concerned with the actions of individuals and businesses. Macroeconomics focuses on the actions that governments and countries take to influence broader economies.
5 factors of production
land
labor
capital
entrapanureship
knowledge
Command Economies
Socialism.
Communism.
about Free-Market Economies
Capitalism.
what to produce and what quantity is based on supply and demand
Capitalism defintion: an economic and political system in which a country’s trade and industry are controlled by private owners for profit.
benefits and more Socialism
Benefit is more social equality.
* Free education, healthcare, childcare, etc.
* Takes away businesspeople’s incentives.
* Leads to brain drain.
* Tends to result in fewer inventions and less innovation.
Understanding Communism
Intrudes further into people’s lives.
* Some communist countries do not allow their citizens to practice
certain religions, to change jobs, or move to another town.
* Government does not know what to produce because
prices do not reflect supply and demand.
* Doesn’t incentivize businesspeople to work hard.
Understanding Free-Market Capitalism
Businesses operated for profit, and businesspeople make
all decisions.
Government may determine minimum wages, set farm prices, and
lend money to businesses.
* But capitalism is foundation of U.S. economic system.
* Based on the theories of Adam Smith.
* The invisible hand
Adam Smith
the invislbe hand
a concept that was coined by economist Adam Smith to illustrate hidden economic forces.
basic rights of Free-Market Capitalism
Four basic rights:
1. The right to own private property.
2. The right to own a business and keep the profits.
3. The right to freedom of competition.
4. The right to freedom of choice.
Mixed Economies (continued)
U.S. has a mixed economy.
an economy organized with some free-market elements and some socialistic elements
Supply and Demand
The amount supplied will increase as price increases
because sellers can make more money with higher price.
The quantity demanded will increase as the price
decreases.
How are prices determined
market price
the price toward which the market
will trend.
Equilibrium Point
The place where quantity
demanded and quantity
supplied meet is called
the equilibrium point.
Competition within Free Markets, how many & what
4
- Perfect competition.
- Monopolistic competition.
- Oligopoly.
- Monopoly
Key Economic Indicators
Gross Domestic Product (GDP)
Both domestic and foreign-owned companies can produce the
goods and services included in GDP, as long as the companies are
located within the country’s boundaries.
* A major influence on the growth of GDP is productivity of the
workforce.
6 Key Economic Indicators
Unemployment rate.
Inflation and price indexes.
Disinflation.
Deflation
Stagflation
Inflation
Inflation is “too many dollars chasing too few goods.”
if prices of goods and services go up by just 6 percent a
year, they will double in about 12 years.
Disinflation
a decrease in the rate of inflation – a slowdown in the rate of increase of the general price level of goods and services in a nation’s gross domestic product over time
Deflation
when the general price levels in a country are falling
Stagflation
a situation in which the inflation rate is high or increasing, the economic growth rate slows, and unemployment remains steadily high
types of price indexes
The consumer price index.
The producer price index.
Business Cycle
4
- Economic boom – business is booming.
- Recession – high unemployment, increased business failures,
drop in living standards. - Depression – a severe recession; only one in 1930.
- Recovery – leads to an economic boom.
most important economic indicators
Product (GDP)
the unemployment rate,
the consumer price indexes. (CPI)
Fiscal Policy
use of government spending and taxation to influence the economy
ex; spending more or cutting taxes to stimulate an ailing economy or slashing spending or raising taxes to rein in inflation or reduce external vulnerabilities
Keynesian economic theory
is the theory that a government
policy of increasing spending and cutting taxes could stimulate the
economy in a recession.
Types of Competition in Free Markets
-perfect competition
-monopolistic competition
-oligopoly
-monopoly
perfect competition
occurs when all companies sell identical products, market share doesn’t influence price, companies can enter or exit without barriers, buyers have perfect or full information, and companies can’t determine prices.
monopolistic competition
when many companies offer competing products or services that are similar, but not perfect substitutes.
oligopoly
a state of limited competition, in which a market is shared by a small number of producers or sellers.
monopoly
a market structure that consists of a single seller or producer and no close substitutes.
