Exam 1 Flashcards
Business
Organization that provides goods or services to earn profit
Profit
Revenue - Expenses = Profit
Difference in revenue and expenses
What are the dimensions of the external environment of business?
Economic Environment
Technological Environment
Sociocultural Environment
Domestic Business Environment
Global Business Environment
Political/Legal Environment
Explain the economic dimension of the external environment of business
GDP, growth, inflation, unemployment
Relevant conditions that exist in the economic system which a company operates
Explain the technological dimension of the external environment of business
Ways by which firms create value for their constituents
Creation of technological companies, way technology transforms companies
Explain the sociocultural dimension of the external environment of business
Customs, morals, values, and demographic characteristics of the society
Determines business standards that a society will likely value and accept
Explain the political-legal dimension of the external environment of business
Relationship between government and business
Explain the global dimension of the external environment of business
International forces that affect a business and include international trade agreements, international economic conditions, and political unrest
Explain the domestic dimension of the external environment of business
Environment which a firm conducts operation and derives revenues
What are the five factors of production
Labor
Capital (money)
Entrepreneurs
Physical Resources
Informational Resources
What are factors of production? (define)
Resources that a country’s businesses use to produce goods and services
What is economic system
Nation’s system for allocating its resources among its citizens, both individuals and organizations
Labor
Human resources - Physical/intellectual contributions people make while engaged in economic production
Capital
Financial resources needed to operate business
Entrepreneur
Person who accepts risks and opportunities entailed in creating new business opportunities
Physical resources
Tangible things organizations use to conduct business - Include natural resources
Informational resources
data, such as market forecasts and economic data
Planned economy
Economy that relies on central government to control all/most factors of production and make all or most production and allocation decisions
What are successful economies moving towards as the most important factors of production?
entrepreneurial and informational technology skills
Communism
Political system which government owns and operates all factors of production
Socialism
Planned economic system which government owns and operates only selected major sources of production
Market economy
Individual producers and consumers control production/allocation by creating combinations of supply/demand (Political basis is often capitalism)
Capitalism
System that sanctions private ownership of factors of production; encourages entrepreneurship by offering products as incentive
Mixed market
Features characteristics of both planned and market (political basis often socialism) ex: China is moving towards socialism
Privatization
Process of converting government enterprises to privately owned companies
demand
willingness/ability of buyers to purchase a product (good/service)
what is the driving force of a free market economy
customers
law of demand
buyers purchase more as price drops
surplus
situation which supplied exceeds quantity demanded
supply
willingness of/ability of producers to offer a good/service for sale
Law of supply
Producers offer more for sale as price increases
Shortage
situation which quantity demanded exceeds quantity supplied
Equilibrium price
point at which price that suppliers can charge is the same price as the number that is the maximum number of customers is willing to pay (supply matches demand)
Private enterprise system
Ownership of resources used to create wealth in the hands of individuals
Freedom of choice
You can sell labor to employer of your choice
Private property rights
one that allows individuals to pursue their own interests with minimal government restriction
Profits
lure of profits leads some people to abandon security of working for someone else and assume risks of entrepreneurship
Critical to innovation and creativity
Competition
occurs when 2 or more businesses vie for the same resources/customers; motivates firms to be more efficient
Economic indicators
statistics that show whether economic system is strengthening, weakening, stable
assess performance of economy
what are the characteristics of competition
perfect competition
monopolistic competition
oligopoly
monopoly
Describe a perfect competition
local farmer
many competitors
relatively easy entry into industry
identical goods offered by competing firms
no control of price by individual firms
Describe a monopolistic competition
Stationery store
many competitors, but fewer than in perfect competition
fairly easy ease of entry to industry
similar goods offered by competing firms
some control over price by individual firms
Describe an oligopoly
Steel industry
few competitors
difficult ease of entry to industry
can be similar or different goods offered by competing firms
some level of control over price by individual firms
Describe a monopoly
public utility
no competitors
ease of entry into industry is regulated by government
no directly competing goods or services
considerable level of control over price by individual firms
business cycle
pattern of short-term ups and downs (expansions and contractions) in economy
Aggregate output
total quantity of goods and services produced by economic system during given period
primary measure of growth in business cycle
Standard of living
total quantity of goods and services that can be produced with the currency used in an economic system
GNP
Gross national profit
Total value of all goods/services produced by national economy within given period regardless of location of factors of production
GDP
Gross domestic profit
Total value of all goods/services produced within given period by national economy through domestic production factors
measure of aggregate output
Nominal GDP
GDP measured in current dollars or with components valued at current prices
Purchasing Power Parity
Principle that exchange rates are set so the prices of similar products in different countries are about the same (can compare to standard of living globally)
What happens when output grows faster than population
output per capita increases
system provides more of goods/services people want
Productivity
inputs divided by outputs
measure of economic growth that compares to how much a system produces with resources needed to produce it
standard of living improves only through productivity increases
Balance of trade
economic value of all products that a country exports minus economic value of inputs
can be positive or negative
National debt
amount of money government owes creditors
financed through debts (bonds)
tax dollars pay interest not tother government needs
investor money is taken out of market where it would be invested in productive enterprises
stability
condition which amount of money available in an economic system and the quantity of money available in an economic system and the quantity of goods and services produced are growing at same rate
inflation
occurs when widespread price increases occur through economic system
too many dollars chasing too few goods
consumer price index (CPI)
measure of 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
(2 successive quarters)
depression
deep, prolonged recession
fiscal policy
used by government regarding how it collects and spends revenue
tax rates
monetary policy
used by government to control size of its money supply
federal reserve injects capital into economy
stabilization
government economic policy intended to smooth out fluctuations in output and unemplyment and stabilize prices
import
product made or grown abroad but sold domestically
Export
product made or grown domestically but sold abroad
globalization
process by which the world economy is becoming a single interdependent system
NAFTA
North American Free Trade Agreement
Agreement to gradually eliminate tariffs and trade barriers among U.S., Canada, and Mexico
What replaced NAFTA
USMCA
EU
European Union
Agreement among major European nations to eliminate or make uniform most trade barriers affecting group members
ASEAN
Association of southeast Asian nations
Organization for economic, political, cultural, and social cooperation among Southeast Asian nations
GATT
General Agreement on Tariffs and Trade
To encourage multilateral reduction or elimination of trade barriers
WTO
World trade organization
Member nations negotiate trade agreements and resolve disputes about trade policies and practices (amendments to GATT)
Trade deficit
Imports exceed esports, creating negative balance of trade
Trade surplus
exports exceed imports, creating positive trade balance
balance of payments
flow of all money into or out of a country (balance of trade, but also includes tourists, foreign aid, buying/selling currency by governments in foreign markets)
euro
common currency shared among most members of EU
absolute advantage
ability to produce something more efficiently than any other country can
comparative advantage
ability to produce some products more efficiently than others
individualism
interests of individual
collectivism
interests of group
power respect
authority is inherent in position of hierarchy
power tolerance
authority assessed by personal investment
uncertainty acceptance
positive response to change/opportunity
uncertainty avoidance
prefer structure and routine
aggressive goal behavior
value material possessions, money, and assertiveness
passive goal behavior
value quality of life, welfare, social relevance
long term outlook
value dedication and hard work
short term outlook
value social obligations
social orientation
person’s beliefs about relative importance of individual vs. groups to which they belong
uncertainty orientation
feeling individuals have regarding uncertain and ambiguous situations
goal orientation
manner in which people are motivated to work towards different kinds of goals
power orientation
beliefs that people in culture hold about appropriateness of power and authority differences in hierarchies such as business organizations
time orientation
extent to which members of a culture adopt a long-term vs. short-term outlook on work, life, and elements of society
quota
restriction on number of products of a certain type that can be imported
embargo
government order banning exportation and or importation of particular product or all products from particular country
tariff
tax levied on imported products
subsidy
government payment to help a domestic business compete with foreign firms
business practice law
law or regulation governing business practices in different countries
cartel
association of producers whose purpose is to control supply and prices
ex: oil in the middle east
legal content law
law requiring that products sold in a particular country be at least partly made there
dumping
practice of selling a product abroad for less than the cost of production
protectionism
practice of protecting domestic business at the expense of free market competition
