Chapter 1 Flashcards
business
organization that provides goods or services to earn profits
profit
difference between an business’s revenues and its expenses
external environment
everything outside and organization’s boundaries that might affect it
domestic business environment
environment in which a firm conducts its operations and derives its revenues
global business environment
international forces that affect a business
technological environment
all the ways by which firms create value for their constituents
political-legal environment
relationship between business and government
sociocultural environment
customs, mores, values, and demographic characteristics of the society in which an organization functions
economic environment
relevant conditions that exist in the economic system in which a company operates
economic system
nation’s system for allocating its resources among its citizens
factors of production
resources used in the production of goods and services - labor, capital, entrepreneurs, physical resources, and information resources
labor (human resources)
physical and mental capabilities of people as they contribute to economic production
capital
funds needed to create and operate a business enterprise
entrepreneur
individual who accepts the risks and opportunities involved in creating and operating a new business venture
physical resources
tangible items that organizations use in the conduct of their businesses
information resources
data and other information that businesses use
planned economy
economy that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions
communism
political system in which the government owns and operates all factors of production
market economy
economy in which individuals control production and allocation decisions through supply and demand
market
mechanism for exchange between buyers and sellers of a particular good or service
capitalism
system that sanctions the private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive
mixed market economy
economic system featuring characteristics of both planned and market economies
privatization
process of converting government enterprises into privately owned companies
socialism
planned economic system in which the government owns and operates only selected major sources of production
demand
willingness and ability of buyers to purchase a good or service
supply
willingness and ability of producers to offer a good or service for sale
law of demand
principle that buyers will purchase (demand) more of a product as its prices drops and less as its price increases
law of supply
principle that producers will offer (supply) more of a product for sale as its price rises and less as its price drops
demand and supply
schedule assessment of the relationships among different levels of demand and supply at different price levels
demand curve
graph showing how many units of a product will be demanded (bought) at different prices
supply curve
graph showing how many units of a product will be supplied (offered for sale) at different prices
market price (equilibrium)
profit-maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal
surplus
situation in which quantity supplied exceeds quantity demanded
shortage
situation in which quantity demanded exceeds quantity supplied
private enterprise
economic system that allows individuals to pursue their own interests without undue governmental restriction
competition
vying among businesses for the same resources or customers
perfect competition
market or industry characterized by numerous small firms producing an identical product
monopolistic competition
market or industry characterized by numerous sellers trying to differentiate their products from those of competitors
oligopoly
market or industry characterized by a handful of (generally large) sellers with the power to influence the prices of their products
monopoly
market or industry in which there is only one producer that can therefore set the prices of its products
natural monopoly
industry in which one company can most efficiently supply all needed goods or services
economic indicator
statistic that helps assess the performance of an economy
business cycle
short-term pattern of economic expansions and contractions
aggregate output
total quantity of goods and services produced by an economic system during a given period
standards of living
total quantity and quality of goods and services people can purchase with the currency used in their economic system
gross domestic product (GDP)
total value of all goods and services produced within a given period by a national economy through domestic factors of production
gross national product (GNP)
total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located
real GDP
GDP adjusted to account for changes in currency values and price changes
nominal GDP
GDP measured in current dollars or with all components valued at current prices
purchasing power parity
principle that exchange rates are set so that the prices of similar products in different countries are about the same price
productivity
measure of economic growth that compares how much a system produces with the resources needed to produce it
balance of trade
economic value of all the products that a country exports minus the economic value of all the products it imports
national debt
amount of money the government owes its creditors
stability
condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are rowing at about the same rate
inflation
situation that occurs when widespread price increases occur throughout an economic system
consumer price index (CPI)
measure of the prices of typical products purchased by consumers living in urban areas
unemployment
level of joblessness among people actively seeking work in an economic system
recession
period during which aggregate output, as measured by GDP, declines
depression
prolonged and deep recession
fiscal policies
policies that a government uses to direct how it collects and spends revenue
monetary policies
policies that a government uses to control the size of its money supply
stabilization policy
government economic policy intended to smooth out fluctuations in output and unemployment and to stabilize prices
