Chapter 1 Flashcards
Free enterprise*
The system of business in which individuals are free to decide what to produce, how to produce it, and at what price to sell it
Cultural (or workplace) diversity*
A system that recognizes and respects the differences among people because of their age, race, ethnicity, gender, sexual orientation, and ability
Business*
The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs
The Organized Effort of Individuals
Material resources, human resources, financial resources, and informational resources
Today, businesses are organized into three specific types:
Service businesses: Produce services, such as haircuts, legal advice, or tax preparation (Example: H&R Block)
Manufacturing businesses: Process various materials into tangible goods (Example: Intel)
Marketing intermediaries: Buy products from manufacturers and then resell them (Example: Sony Corporation)
e-business*
The organized effort of individuals to produce and sell for a profit, the goods and services that satisfy society’s needs through the facilities available on the internet
Profit*
What remains after all business expenses have been deducted from sales revenue
A negative profit, which results when a firm’s expenses are greater than its sales revenue, is called a loss
Stakeholders*
All the different people or groups of people who are affected by an organization’s policies, decisions, and activities
Economics*
The study of how wealth is created and distributed
Microeconomics*
The study of the decisions made by individuals and businesses
Macroeconomics*
The study of the national economy and the global economy
Economy*
The way in which people deal with the creation and distribution of wealth
Factors of production*
Inputs and resources used to produce goods and services
Land and natural resources
Labor
Capitol
Entrepreneurship
Entrepreneur*
A person who risks time, effort, and money to start and operate a business
Today two different economic systems exist:
Command economies and Capitalism
Command economy*
An economic system in which the government decides what goods and services will be produced, how they will be produced, for whom available goods and services will be produced, and who owns and controls the major factors of production
Today, two types of economic systems serve as examples of command economies:
Socialism and Communism
Capitalism*
An economic system in which individuals own and operate the majority of businesses that provide goods and services
Invisible hand*
A term created by Adam Smith to describe how an individual’s own personal gain benefits others and a nation’s economy
Laissez-faire
Implies that there should be no government interference in the economy
Market economy*
An economic system in which businesses and individuals decide what to produce and buy, and the market determines prices and quantities sold (also known as a free-market economy)
Mixed economy*
An economy that exhibits elements of both capitalism and socialism - The US is a mixed economy
In a mixed economy, the four basic economic questions (what, how, for whom, and who) are answered through the interaction of:
Households, businesses, and governments
Productivity*
The average level of output per worker per hour
Gross domestic product (GDP)*
The total dollar value of all goods and services produced by all people within the boundaries of a country during a specified time period—usually a one-year period
Inflation*
A general rise in the level of prices
Deflation*
A general decrease in the level of prices
Unemployment rate*
The percentage of a nation’s labor force unemployed at any time
Consumer price index (CPI)*
A monthly index that measures the changes in prices of a fixed basket of goods purchased by a typical consumer in an urban area
Producer price index (PPI)*
A monthly index that measures prices that producers receive for their finished goods
Business cycle*
The recurrence of periods of growth and recession in a nation’s economic activity
Peak > Recession > Trough > Recovery
Recession*
Two or more consecutive three-month periods of decline in a country’s GDP
Depression*
A severe recession that lasts longer than a typical recession and has a larger decline in business activity when compared to a recession
Monetary policies*
Federal Reserve’s actions to promote maximum employment, stabilize prices, and increase or decrease interest rates
Fiscal policy*
Government influence on the amount of savings and expenditures; accomplished by altering the tax structure and by changing the levels of government spending
Federal deficit*
A shortfall created when the federal government spends more in a fiscal year than it receives
National debt*
The total of all federal deficits
Competition*
Rivalry among businesses for sales to potential customers
Four different types of Competition
Perfect - Number of Business Firms or Suppliers = Many
Monopolistic - Number of Business Firms or Suppliers = Many
Oligopoly - Number of Business Firms or Suppliers = Few
Monopoly - Number of Business Firms or Suppliers = One
Perfect (or pure) competition*
The market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product
The market is for a single product
There are no restrictions on firms entering the industry
All sellers offer essentially the same product for sale
All buyers and sellers know everything there is to know about the market
The overall market is not affected by the actions of any one buyer or seller
Supply*
The quantity of a product that producers are willing to sell at each of various prices
Demand*
The quantity of a product that buyers are willing to purchase at each of various prices
Market price*
The price (of any product) at which the quantity demanded is exactly equal to the quantity supplied
Monopolistic competition*
A market situation in which there are many buyers along with a relatively large number of sellers who differentiate their products from the products of competitors (Examples: Clothing, shoes, soaps, furniture)
Product differentiation*
The process of developing and promoting differences between a company’s products and all competitive products
Oligopoly*
A market (or industry) in which there are few sellers
(Examples: Automobile, airline, and car rental industries)
Monopoly*
A market (or industry) with only one seller, and customers can only buy the product or service from that seller
Except for natural monopolies and legal monopolies, federal antitrust laws discourage or prohibit both monopolies and attempts to form monopolies in order to ensure that competitive markets exist and customers have a choice for products they need or want to purchase
Natural Monopolies
Public utilities are a prime example, where each utility firm operates in a natural monopoly, an industry that requires a huge investment in capital and within which any duplication of facilities would be wasteful
Legal Monopolies
A limited (or legal) monopoly is created when a government entity issues a franchise, license, copyright, patent, or trademark
Standard of living*
A loose, subjective measure of how well off an individual or a society is, mainly in terms of want satisfaction through goods and services
Domestic system*
A method of manufacturing in which an entrepreneur distributes raw materials to various homes, where families process them into finished goods to be offered for sale by the entrepreneur
Factory system*
A system of manufacturing in which all the materials, machinery, and workers required to manufacture a product are assembled in one place
Specialization*
The separation of a manufacturing process into distinct tasks and the assignment of different tasks to different individuals
Service Economy
An economic system where the primary focus is on providing services to individuals and businesses, rather than producing tangible goods
Four Competitive Business Environments
The Competitive Environment, The Global Environment, The Technological Environment, and The Economic Environment
Social media*
The online interaction that allows people and businesses to communicate and share ideas, personal information, and information about products or services
Sustainability*
The ability to create and maintain conditions under which present and future generations can exist in productive harmony, and permit fulfilling the social, economic, and other requirements of future and present generations
