Business for a Changing World Chapter 1

8/4/2019 Business for a Changing World Chapter 1

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n this first chapter we

will examine the basic

concepts of business,

product and profit. Wewill identify the main

participants and

activities of business and

explain why studying

business is important.

We will consider the four

types of economic

systems, and describe

the role of supply,

demand, We will identify

the main participants

and activities of business

and explain why

studying business is

important. We will

consider the four types

of economic systems,

and



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The plastic shoes

from the company

Crocs provide anexcellent

perspective on how

businesses start,

how products

become popular,

and how

businesspeople

learn to expand

their operationsand satisfy the

needs of customers.

Click on the Crocs

link on



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The nature of all

business is to try

to earn a profit.

To do so, abusiness must

produce a

product that

satisfies some

need of a

customer. For

example, a

Porsche

Cayenne sportutility vehicle

may satisfy the

need for

transportation,

but is also

satisfies the

desire of a

customer to

present a certain

image.



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Businesses

earn profits by

providing

products that

satisfy

customer

needs.

Products can

be either goods

or services and

have either

tangible or

intangible characteristics.

In either case,products must

provides

satisfaction to

the customer

and benefits

that a

customer

desires.



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Products may

be categorized

as tangible

goods such as

cars,computers,

food, cell

phones, and so

on. Products

may also be

categorized by

the services

they provide.

For example,

dry cleaning,photo

processing, and

a check up at

your doctor’s

office are not

products per se,

but do provide

an important

benefit to you

as a customeror client.



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As we know, the

primary goal of any

business is to earn a

profit. What does this

mean? To gaugewhether or not a

business is earning a

profit, the company

determines the

difference between

what it costs to make

and sell the product

and the price that a

customer will pay for it.

When the pricebusiness is earning a

profit, the company

determines the

difference between

what it costs to make

and sell the product

and the price that a

customer will pay for it.

When the price

exceeds the business’cost of producing and

delivering it, the

business earns a profit.



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Another way

of looking at

the concept

of profit is to

consider it as

the reward

for the risks

that the

business

takes in

providingproducts.



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Not all

organizations

are

considered

businesses.

Nonprofit

organizations

such as

Greenpeace

and the

Special

Olympics, donot have the

fundamental

purpose of

earning

profits,

although they

may provide

goods or

services to

clients.



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In order to ensure

that a business

remains profitable,

it must haveexcellent

management skills

and a high level of

marketing

expertise. Ensuring

sustained

profitability requires

a business to be

focused on thequality of its

products,

maintaining

efficient operations,

and to be socially

responsible and

ensure that its

employees practice

sound business

ethics.



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Businesses

have

customers,

employees,investors,

government

regulations,

and the

interests of

the

community

and society

to consider.These groups

all have a

stake in the

success of a

business and

are called

stakeholders.



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Today more than

ever before,

businesses areconcerned about

the environment

and engage in

environmentally

friendly

practices. Visit

some of the

companies on

this slide byclicking on the

company name

to see examples

of how different

companies

approach this

important

concern.



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The figure on this

slide shows the

people and

activities involved inbusiness. At the

center of the figure

are owners,

employees, and

customers. The

outer circle includes

the primary

business activities

of management,marketing and

finance. As you

continue reading

this and the

following chapters,

keep in mind the

people and

activities that are

involved in business

important to its

success.



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Management

involves

coordinating

employees’actions to

achieve the

firm’s goals,

organizing

people to work

well, and

motivating

them to

achieve thecompany’s

goals. The

more effective

management

is, the more

profitable and

successful a

business may

be.



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Production and

manufacturing

can be another

key element of management.

Managers must

plan, organize,

staff, and control

tasks that are

required to

successfully

produce the

work of thecompany or the

services of the

nonprofit

organization.



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The focus of all

marketing efforts in a

business is satisfying

customers. Marketingincludes all the activities

designed to provide

goods and services that

satisfy consumers’ needs

and wants. Research is

conducted by marketers

to determine what

customers want.

Marketing researchprovides information to

help marketers develop

new products, make

pricing decisions about

them, and where to sell

them.



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Advertising, personal

selling, sales promotion,

and publicity are all part

of the marketingfunction called

promotion. Marketers

use promotion to

communicate the

benefits and

advantages of their

products to consumers

with the goal being to

increase sales.Nonprofit organizations

increase sales.

Nonprofit organizations

also use promotion to

reach the clients that

they wish to serve. We

will explore marketing

in much more detail in

part 5 of the text.



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Management and

marketing deal with

financial

considerations of the business.

However, financial

resources and

accountability are

within the primary

responsibility of the

owners. The owners,

of course, have the

most to lose if thebusiness fails to

make a profit.

Finance, as shown in

this slide, refers to

all of the activities

concerned with

obtaining money

and using it

effectively to pursue

the goals of the

business.



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This is an appropriate point

in our discussion to ask a

central question: “Why

study business?” Theanswers include: helping

you develop skills and

acquire knowledge to

prepare you for your future

career. Studying business

also help you better

understand the many

business activities that go in

to providing satisfyinggoods and services. Ask

yourself the next time you

buy a CD why it has the

price that it does. In other

words, what does it cost to

press the CD, to package it?

To transport it? How much

does the artist receive for

her work? What about the

store that is selling you the

CD?



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Studying business

will help you learn

about the impact

that businesses haveon your life and the

lives of everyone

around you.

Businesses generate

a profit so that they

can purchase

additional raw

materials to produce

more goods tosatisfy customer

needs; they hire

employees, attract

investment, create

products, and, by

doing all of this,

businesses help fuel

the global economy.



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Business is

conducted within

an economic

environment thatdiffers in various

parts of the

world. Economics

studies how

resources are

distributed for the

production of

goods and

services. Thereare various types

of resources to

consider including

natural resources

such as land,

minerals, and

water, human

resources, and

financial

resources.



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Natural, human,

and financial

resources are

necessary toproduce goods

and services.

These resources

are often times

referred to as the

factors of

production. These

factors of

production arecarefully

considered by

economists in

analyzing and

explaining the

various economic

systems that exist

globally.



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An economic

system is a

description of how

a particular societydistributes its

resources to

produce goods and

serves. A central

issue of economics

is not how to fulfill

an unlimited

demand for goods

and services in aworld with a limited

supply of resources.

The fact of the

matter is that

different economic

systems attempt to

resolve this central

issue in numerous

ways as we will

soon discuss.



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The table on

this slide

provides a side

by sidecomparison of

the three major

economic

systems:

communism,

socialism, and

capitalism. Each

of the three

systems arecompared on

the basis of

ownership,

competition,

profits, product

and price, and

employment.



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Communism was first

described by Karl Marx

in the 19th century. He

defined communisms

as a society in which

the people, without

regard to class, won all

the nation’s resources.

This is an ideal political

economic system

where everyone

contributes according

to their ability butreceives benefits

according to their

needs. While there are

no pure communistic

economic systems in

the world today, three

countries still adhere

to the ideology. These

countries are China,

North Korea, and Cuba.



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Socialism is closely related

to communism. It is an

economic system in which

the government owns and

operates basic industries

such as the postal service,

telephone services,

utilities, transportation,

and health care, but

individuals own most of the

businesses. Socialism relies

on central planning to

determine what basicgoods and services are

produced and distributed.

Today nations such as

Sweden, India and Israel

are considered socialistic

but are democratic and

recognize individual

freedoms.



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Capitalism is often

called free enterprise

and is an economic

system where

individuals own and

operate the majority of

businesses that provide

goods and services.

Rather than the

government

determining product

mix, competition,

supply and demand,determine which goods

and services are

produced and

distributed. The United

States, Japan, Australia,

and Canada are

examples of economic

systems based on free

enterprise.



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The two forms of

capitalism are free market

and modified capitalism.

In the free market system,

all economic decisions are

made without

government intervention.

Sometimes this is called

laissez faire capitalism

because the government

does not interfere in

business. Modified

capitalism differs frompure capitalism because

the government

intervenes and regulates

business to some extent.

Antitrust laws and the

Federal Trade

Commission are examples

of the government’s role

in the economy.



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In reality today, there is

no country that

practices a pure form

of any of the economic

systems we have

discussed thus far.

Most nations operate

as mixed economies

that have elements

form more than one

economic system. For

example, In Sweden

which is socialistic,most businesses are

owned and operated

by private individuals.

In the U.S which is

considered capitalistic,

the federal

government owns and

operates the postal

service the TVA, which

is an electric utility in

Tennessee.



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Globally, there are many

economies that are based

on free enterprise including

the United States, Japan,

Australia, and Canada.

Many socialist countries

including China and Russia

are applying more

principles of free

enterprise. The distribution

of resources and products

in a free enterprise system,is determined by supply and

demand. Demand is the

number of goods or

services that consumers are

willing to buy at different

prices at a given time.

Supply is the number of

products that businesses

are willing to sell at

different prices at a specific

time.



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In the figure on this

slide, the forces of

supply and demand

are shown as the

supply curve and

the demand curve.

Where the two

intersect, the price

at which the

number of products

that businesses are

willing to supply

equals the amountof products that

consumers he

amount of products

that consumers are

willing to by at a

specific point in

time. This is called

the equilibrium

price.



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Businesses compete or are rivals for

consumers’ dollars. This competition is a vital

element in the free enterprise system.

Competition should improve the quality of

goods and services available or reduce prices.

There are four types of competitive

environments within a free enterprise

system. Pure competition exists when there

are many small businesses competing by

selling one standardized product such as a

commodity like wheat or corn. There is little

or no differentiation in product so prices aredetermined solely on the basis of supply and

demand. In monopolistic competition, there

are a small number of businesses competing.

The differences in the products they sell is

small such as aspirin, soft drinks and vacuum

cleaners. In an oligopoly, there are very few

businesses selling a product. Individual

businesses have control over their products’

price because the business supplies a large

portion of the products sold in the

marketplace.



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As you know,

economies are quite

dynamic; they are

not stagnant. They

expand and they

contract. When an

economy is growing

and people are

spending more

money, we have

economic

expansion. Purchase

stimulateproduction which in

turn stimulates

employment and

the economy grows

and expands. When

spending declines,

businesses cut back

and lay off workers

and we experience

economic

contraction.



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Within economic cycles of

expansion or contraction,

changes may trigger negative

reactions in the economy.

Inflation may occur when prices

continue to rise regardless of

supply which can be harmful if

individuals incomes do not rise

accordingly. Recession is a

decline in production,

employment, and income.

Recessions usually involve rising

levels of unemployment which ismeasured as the percentage of

the population that want to work

but cannot find jobs. If left

unchecked, a severe recession

can lead to depression where

unemployment is very high,

consumer spending is low, and

business output is greatly

diminished.



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The graph in this slide

depicts the overall

unemployment rate

among the United

States civilian labor

force between 1920

and 2007. As you can

see, the relative level

of unemployment has

been quite low since

2000.



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Most nations

measure the health

or state of their

economies to

determine whether

they are expanding

or contracting. A

commonly used

metric is Gross

Domestic Product,

or GDP, which is

the sum of all

goods and servicesproduced in a

country during a

year.



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In addition to GDP,

economies are

gauged by metrics

as shown in this

slide. Trade balance,

consumer price

index, per capita

income, the

unemployment rate,

the rate of inflation,

and worker

productivity all help

assess the overallhealth of the

economy and

indicate whether it

is expanding or

contracting and at

what rate.



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Today, a significant

part of the overall

economy in the U.S. is

based on the efforts of

successful

entrepreneurs. Usually

these individuals start

small and, if very

successful, build

powerful businesses.

A few of these

successful individuals

are listed on this slide.Feel free to click on

one or more of these

names to see the

companies that have

been built by these

successful

entrepreneurs. Do you

recognize any of these

names and thebusinesses they have

built?



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In the recent years, you

have no doubt heard

about a number of

scandals in the business

world. Companies such as

Enron, WorldCom, Tyco,

and Arthur Andersen are

probably familiar to you.

In many cases, misconduct

by individuals within the

firm had an adverse effect

on employees, investors,

and other stakeholders of these firms. Today, a

significant part of the

overall profitability and

success of a company is

based on its reputation for

practicing sound ethics

and being socially

responsible. In a later

chapter we will return tothe importance of this

topic.

Documents

Business for a Changing World Chapter 1