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Chap
ter
1
An In
trod
uctio
n to
Bus
ines
s an
d Ec
onom
ics
MG
T110
1 In
trod
uctio
n to
Bus
ines
s
1.D
efin
e bu
sine
ss a
nd d
iscu
ss w
hat y
ou m
ust d
o to
be
succ
essf
ul in
the
wor
ld o
f bus
ines
s.2.
Def
ine
econ
omic
s an
d de
scrib
e tw
o ty
pes
of e
cono
mic
sy
stem
s: c
apita
lism
and
com
man
d ec
onom
y.3.
Iden
tify
the
way
s to
mea
sure
eco
nom
ic p
erfo
rman
ce.
4.O
utlin
e th
e fo
ur ty
pes
of c
ompe
titio
n.
Lear
ning
Obj
ectiv
esFo
r Cha
pter
1
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
The
orga
nize
d ef
fort
of in
divi
dual
s to
pr
oduc
e an
d se
ll, fo
r a
prof
it, th
e go
ods
and
serv
ices
that
sa
tisfy
soc
iety
’s
need
s
Bus
ines
s:A
Def
initi
on
Org
aniz
ed
Effo
rt Satis
fyin
g
Nee
ds
Bus
ines
s
Prof
it
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Ref
er to
pag
e 10
fyin
g
A D
efin
ition
Bus
ines
s:
1O
rgan
ized
Effo
rts
of
Indi
vidu
alC
ombi
ning
Res
ourc
esA
busi
ness
mus
t com
bine
all
four
re
sour
ces
effe
ctiv
ely
to b
e su
cces
sful
.Sa
tisfy
ing
Nee
ds2
Bus
ines
s Pr
ofit
3
Sess
ion
1-2
Page
05
Figu
re 1
.2B
usin
ess
Res
ourc
es
Ref
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
1O
rgan
ized
Effo
rts
of
Indi
vidu
al
Com
bini
ng R
esou
rces
A bu
sine
ss m
ust c
ombi
ne a
ll fo
ur
reso
urce
s (H
uman
, mat
eria
l inf
orm
atio
n,
and
finan
cial
) effe
ctiv
ely
to b
e su
cces
sful
.Sa
tisfy
ing
Nee
ds2
Bus
ines
s Pr
ofit
3M
ater
ial r
esou
rces
The
raw
mat
eria
ls us
ed in
man
ufac
turin
g pr
oces
sesRef
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
1O
rgan
ized
Effo
rts
of
Indi
vidu
al
Com
bini
ng R
esou
rces
A bu
sine
ss m
ust c
ombi
ne a
ll fo
ur
reso
urce
s (H
uman
, mat
eria
l inf
orm
atio
n,
and
finan
cial
) effe
ctiv
ely
to b
e su
cces
sful
.Sa
tisfy
ing
Nee
ds2
Bus
ines
s Pr
ofit
3Hu
man
reso
urce
sPe
ople
who
furn
ish th
eir
labo
r to
the
busin
ess
in
retu
rn fo
r wag
es
Ref
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
1O
rgan
ized
Effo
rts
of
Indi
vidu
al
Com
bini
ng R
esou
rces
A bu
sine
ss m
ust c
ombi
ne a
ll fo
ur
reso
urce
s (H
uman
, mat
eria
l inf
orm
atio
n,
and
finan
cial
) effe
ctiv
ely
to b
e su
cces
sful
.Sa
tisfy
ing
Nee
ds2
Bus
ines
s Pr
ofit
3Fi
nanc
ial r
esou
rces
The
mon
ey re
quire
d to
pa
y em
ploy
ees,
pur
chas
e m
ater
ials,
etc
.
Ref
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
1O
rgan
ized
Effo
rts
of
Indi
vidu
al
Com
bini
ng R
esou
rces
A bu
sine
ss m
ust c
ombi
ne a
ll fo
ur
reso
urce
s (H
uman
, mat
eria
l inf
orm
atio
n,
and
finan
cial
) effe
ctiv
ely
to b
e su
cces
sful
.Sa
tisfy
ing
Nee
ds2
Bus
ines
s Pr
ofit
3In
form
atio
n re
sour
ces
tells
the
man
ager
s ho
w
the
othe
r thr
ee re
sour
ces
are
bein
g co
mbi
ned.
Ref
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
1O
rgan
ized
Effo
rts
of
Indi
vidu
al
Cla
ssifi
catio
n of
Bus
ines
s
Satis
fyin
g N
eeds
2
Bus
ines
s Pr
ofit
3
Man
ufac
turin
g bu
sine
sses
–Pr
oces
s va
rious
m
ater
ials
into
ta
ngib
le g
oods
.(e
.g.,
deliv
ery
truck
s,co
mpu
ters
)
Ref
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
1O
rgan
ized
Effo
rts
of
Indi
vidu
al
Satis
fyin
g N
eeds
2
Bus
ines
s Pr
ofit
3pr
ovid
ing
serv
ices
(e
.g.,
hairc
uts,
le
gal a
dvic
e)
Ref
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Cla
ssifi
catio
n of
Bus
ines
s
A D
efin
ition
Bus
ines
s:
1O
rgan
ized
Effo
rts
of
Indi
vidu
al
Satis
fyin
g N
eeds
2
Bus
ines
s Pr
ofit
3Bu
y pr
oduc
ts fr
om
man
ufac
ture
rs a
nd
rese
ll it.
Ref
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Cla
ssifi
catio
n of
Bus
ines
s
A D
efin
ition
Bus
ines
s:
Org
aniz
ed E
ffort
s of
In
divi
dual
Peo
ple
buy
good
s an
d se
rvic
es n
ot
just
to o
wn
them
, but
to s
atis
fy
parti
cula
r nee
ds
Bus
ines
ses
that
und
erst
and
cust
omer
nee
ds, a
nd w
ork
to s
atis
fy
thos
e ne
eds,
are
usu
ally
suc
cess
ful.
Satis
fyin
gN
eeds
2
Bus
ines
s Pr
ofit
31
Ref
er to
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
Org
aniz
ed E
ffort
s of
In
divi
dual
Prof
it w
hat r
emai
ns a
fter a
ll bu
sine
ss
expe
nses
hav
e be
en d
educ
ted
from
sa
les
reve
nue
Satis
fyin
g N
eeds
2
Bus
ines
s Pr
ofit
31
Ref
er to
pag
e 11
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
Org
aniz
ed E
ffort
s of
In
divi
dual
The
purp
oses
of p
rofit
To re
war
d bu
sine
ss o
wne
rs fo
r pr
oduc
ing
good
s an
d se
rvic
es c
onsu
mer
s w
ant
Stak
ehol
ders
All o
f the
diff
eren
t peo
ple
or g
roup
s or
pe
ople
who
are
affe
cted
by
the
polic
ies
and
deci
sion
s m
ade
by a
n or
gani
zatio
n
Satis
fyin
g N
eeds
2
Bus
ines
s Pr
ofit
31
Ref
er to
pag
e 11
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
A D
efin
ition
Bus
ines
s:
Org
aniz
ed E
ffort
s of
In
divi
dual
Satis
fyin
g N
eeds
2
Bus
ines
s Pr
ofit
31
Stak
ehol
ders
Gov
ernm
ent
taxa
tion,
VAT
Empl
oyee
sra
tes
of p
ay,j
ob s
ecur
ity,c
ompe
nsat
ion.
Cus
tom
ers
valu
e, q
ualit
y, c
usto
mer
car
e,
Supp
liers
prov
ider
s of
mat
eria
ls
Cre
dito
rsLe
nder
s, lo
an p
rovi
ders
Com
mun
ityen
viro
nmen
tal p
rote
ctio
n
Ow
ner(
s)ha
ve in
tere
st o
f the
suc
cess
of b
usin
ess.
Addi
tion:
pag
e 10
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
: A D
efin
ition
Econ
omic
s
1.M
acro
econ
omic
s1.
Mic
roec
onom
ics
The
stud
y of
how
wea
lth (a
nyth
ing
of v
alue
) is
crea
ted
and
dist
ribut
ed
The
stud
y of
the
deci
sion
s m
ade
by in
divi
dual
s an
d bu
sine
sses
The
stud
y of
the
natio
nal
econ
omy
and
the
glob
al
econ
omyR
efer
to p
age
12
2 Ty
pes
of E
cono
mic
s
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Eco
nom
ic S
yste
ms
Or E
cono
my
Ref
er to
pag
e 12
-13
Cap
italis
mC
omm
and
Eco
nom
y
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Low
Rol
e of
Gov
ernm
ent
Hig
h
The
way
in w
hich
ind
ivid
uals
, bus
ines
s, g
over
nmen
t, an
d so
ciet
y de
al
with
man
agin
g lim
ited
reso
urce
s de
term
ine
the
kind
of
econ
omic
sys
tem
Ans
wer
ing
four
eco
nom
ic q
uest
ions
The
econ
omic
sys
tem
s ar
e di
ffere
d by
ho
w fo
ur b
asic
eco
nom
ic q
uest
ions
are
ans
wer
ed1.
Wha
t goo
ds a
nd s
ervi
ces
will
be p
rodu
ced?
2.H
ow w
ill th
ese
good
s an
d se
rvic
es b
e pr
oduc
ed?
3.Fo
r who
m w
ill th
ese
good
s an
d se
rvic
es b
e pr
oduc
ed?
4.W
ho o
wns
and
who
con
trols
the
maj
or fa
ctor
s of
pro
duct
ion?
Fact
ors
of p
rodu
ctio
n 1. 2. 3. 4.
Eco
nom
ic S
yste
ms
Or E
cono
my
Ref
er to
pag
e 12
-13
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
1. C
apita
lism
2Ty
pes
of E
cono
mic
Sys
tem
sO
r Eco
nom
y
Sess
ion
1-2
Page
21
1.W
hat g
oods
and
ser
vice
s w
ill be
pro
duce
d?2.
How
will
thes
e go
ods
and
serv
ices
be
prod
uced
?
3.Fo
r who
m w
ill th
ese
good
s an
d se
rvic
es b
e pr
oduc
ed?
4. W
ho o
wns
and
who
con
trols
the
maj
or fa
ctor
s of
pro
duct
ion?
Ref
er to
pag
e 13
-14
In p
ract
ice,
the
four
que
stio
ns a
re a
nsw
ered
thro
ugh
the
inte
ract
ion
of in
divi
dual
, bus
ines
s an
d go
vern
men
t
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Two
type
s of
eco
nom
ic s
yste
ms
serv
ed a
s co
mm
and
econ
omy
2. C
omm
and
Econ
omie
s
2Ty
pes
of E
cono
mic
Sys
tem
sO
r Eco
nom
y
•Ec
onom
ic s
yste
ms
in w
hich
the
gove
rnm
ent d
ecid
es w
hat w
ill be
pr
oduc
ed, h
ow it
will
be p
rodu
ced,
who
get
s w
hat i
s pr
oduc
ed, a
nd
who
ow
ns a
nd c
ontro
ls th
e m
ajor
fact
ors
of p
rodu
ctio
nRef
er to
pag
e 16
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
2Ty
pes
of E
cono
mic
Sys
tem
sO
r Eco
nom
y
Ref
er to
pag
e 16
2.1
Soci
alis
m•
Key
indu
strie
s (e
.g.,
trans
porta
tion,
util
ities
, and
ban
king
) are
ow
ned
and
cont
rolle
d by
the
gove
rnm
ent
•Sm
all-s
cale
priv
ate
busi
ness
es m
ay b
e pe
rmitt
ed
2.2
Com
mun
ism
•Al
l fac
tors
of p
rodu
ctio
n ar
e ow
ned
and
cont
rolle
d by
the
gove
rnm
ent a
s pr
oxy
for o
wne
rshi
p by
all
citiz
ens
•Pr
oduc
tion
is b
ased
on
cent
raliz
ed s
tate
pla
nnin
g to
mee
t the
nee
ds o
f the
st
ate
and
not n
eces
saril
y th
e ne
eds
of it
s ci
tizen
s
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Mea
surin
g Ec
onom
ic P
erfo
rman
ce
•Gro
ssD
omes
ticP
rodu
ct(G
DP)
•Une
mpl
oym
ent
•Inf
latio
n/D
efla
tion
Econ
omic
Indi
cato
rs•a
ratio
ofpr
oduc
tion
outp
utto
wha
tis
requ
ired
topr
oduc
eit
(inpu
ts).
(Lab
or) P
rodu
ctiv
ity
Bus
ines
s C
ycle
and
Eco
nom
ic P
olic
y
Ref
er to
pag
e 17
-18
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Econ
omic
Indi
cato
rs
•The
tota
lval
ueof
allg
oods
and
serv
ices
prod
uced
byal
lpe
ople
with
inth
ebo
unda
ries
ofa
coun
tryfo
ragi
ven
perio
dof
time
•Per
cent
age
chan
gein
GD
Pis
calle
dG
DP
grow
thra
te
1. G
ross
Dom
estic
Pro
duct
(GD
P)
Ref
er to
pag
e 18
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Econ
omic
Indi
cato
rs
•Th
e pe
rcen
tage
of a
nat
ion’
s la
bor f
orce
une
mpl
oyed
at a
ny ti
me
•La
bor f
orce
: Nor
mal
ly, th
e la
bor f
orce
of a
cou
ntry
con
sist
s of
eve
ryon
e of
w
orki
ng a
ge
2. U
nem
ploy
men
t Rat
e
Ref
er to
pag
e 18
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Econ
omic
Indi
cato
rs
–In
flatio
n•
A ge
nera
l ris
e in
the
leve
l of p
rices
–D
efla
tion
•A
gene
ral d
ecre
ase
in th
e le
vel o
f pric
es
3. In
flatio
n R
ate
and
Def
latio
n R
ate
Ref
er to
pag
e 18
-19
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Con
sum
er p
rice
inde
x (C
PI)
aver
age
of p
rices
of a
bas
ket o
f con
sum
er
good
s an
d se
rvic
es
•The
recu
rrin
gan
dflu
ctua
ting
leve
lsof
econ
omic
activ
ityth
atan
econ
omy
expe
rienc
esov
era
long
perio
dof
time.
•The
four
stag
esof
the
busi
ness
cycl
ear
epr
ospe
rity
(pea
k),
rece
ssio
n(c
ontra
ctio
n),
troug
h(d
epre
ssio
n),a
ndre
cove
ry
Bus
ines
s C
ycle
Ref
er to
pag
e 20
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
•M
onet
ary
polic
ies
–C
entr
al b
ank’
s de
cisi
ons
that
det
erm
ine
the
size
of t
he
supp
ly o
f mon
ey in
the
natio
n an
d th
e le
vel o
f int
eres
t rat
es
•Fi
scal
pol
icy
–G
over
nmen
tinf
luen
ce o
n th
e am
ount
of s
avin
gs a
nd
expe
nditu
res;
acc
ompl
ishe
d by
alte
ring
the
tax
stru
ctur
e an
dby
cha
ngin
g th
e le
vels
of g
over
nmen
t spe
ndin
g.
Econ
omic
Pol
icy
Ref
er to
pag
e 21
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
1Pe
rfec
t Com
petit
ion
Mon
opol
istic
2
Olig
opol
y3
Mon
opol
y4
Ref
er to
pag
e 22
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
1Pe
rfec
t Com
petit
ion
•Th
em
arke
tsi
tuat
ion
inw
hich
ther
ear
em
any
buye
rsan
dse
llers
ofa
prod
uct,
and
nosi
ngle
buye
rors
elle
ris
pow
erfu
leno
ugh
toaf
fect
the
pric
eof
that
prod
uct
Mon
opol
istic
2
Olig
opol
y3
Mon
opol
y4
Ref
er to
pag
e 22
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
1Pe
rfec
t Com
petit
ion
•Pr
ices
are
setb
ased
onde
man
dan
dsu
pply
Mon
opol
istic
2
Olig
opol
y3
Mon
opol
y4
Supp
ly:
The
quan
tity
of a
pro
duct
that
pro
duce
rs a
re
willi
ng to
sel
l at e
ach
of v
ario
us p
rices
Pric
e
Qua
ntity
Qua
ntity
Ref
er to
pag
e 22
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
1Pe
rfec
t Com
petit
ion
•Pr
ices
are
setb
ased
onde
man
dan
dsu
pply
Mon
opol
istic
2
Olig
opol
y3
Sess
ion
1-2
Page
35
Mon
opol
y4
Dem
and:
The
quan
tity
of a
pro
duct
that
buy
ers
are
willi
ng to
pur
chas
e at
eac
h of
var
ious
pric
es
Pric
e
Qua
ntity
Qua
ntity
Ref
er to
pag
e 23
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
1Pe
rfec
t Com
petit
ion
•Pr
ices
are
setb
ased
onde
man
dan
dsu
pply
Mon
opol
istic
2
Olig
opol
y3
Mon
opol
y4
Mar
ket P
rice
(Equ
ilibr
ium
):Th
e pr
ice
at w
hich
the
quan
tity
dem
ande
d is
ex
actly
equ
al to
the
quan
tity
supp
lied
Pric
e
Qua
ntity
Qua
ntity
Ref
er to
pag
e 23
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
Perf
ect C
ompe
titio
n
•A
mar
ket
situ
atio
nw
here
ther
ear
em
any
buye
rsal
ong
with
are
lativ
ely
larg
ernu
mbe
rof
selle
rsw
hodi
ffere
ntia
teth
eir
prod
ucts
from
the
prod
ucts
ofco
mpe
titor
s.
Diff
eren
tiatio
n:
•Th
epr
oces
sof
deve
lopi
ngan
dpr
omot
ing
diffe
renc
esbe
twee
non
e’s
prod
ucts
and
all
sim
ilarp
rodu
cts
Mon
opol
istic
2
Olig
opol
y3
Mon
opol
y41
Ref
er to
pag
e 23
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
Perf
ect C
ompe
titio
nA
mar
ket s
ituat
ion
(or i
ndus
try) i
n w
hich
ther
e ar
e fe
w s
elle
rs.
Mon
opol
y41
Olig
opol
y3
Mon
opol
istic
2
Ref
er to
pag
e 23
-24
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
Perf
ect C
ompe
titio
n•A
mar
ket (
or in
dust
ry) w
ith o
nly
one
selle
r•N
atur
al m
onop
oly
•A
n in
dust
ry re
quiri
ng h
uge
inve
stm
ents
in
cap
ital a
nd w
ithin
whi
ch d
uplic
atio
n of
fa
cilit
ies
wou
ld b
e w
aste
ful a
nd th
us n
ot
in th
e pu
blic
inte
rest
.
1
Mon
opol
y4
Mon
opol
istic
2
Olig
opol
y3
Ref
er to
pag
e 24
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
Or I
ndus
try S
truct
ures
Type
s of
Com
petit
ions
Perf
ect C
ompe
titio
n•A
mar
ket (
or in
dust
ry) w
ith o
nly
one
selle
r•L
egal
mon
opol
y (li
mite
d m
onop
oly)
•A
mon
opol
y cr
eate
d w
hen
a go
vern
men
t en
tity
issu
es c
opyr
ight
, pat
ent,
prot
ectin
g th
e ow
ners
of w
ritte
n m
ater
ials
, ide
as, o
r pr
oduc
t bra
nds
from
una
utho
rized
use
by
com
petit
ors
Sess
ion
1-2
Page
40
1
Mon
opol
y4
Mon
opol
istic
2
Olig
opol
y3
Ref
er to
pag
e 24
Nat
iona
l Lot
tery
Sess
ion
1-2
Page
21
MG
T110
1 In
trod
uctio
n to
Bus
ines
sC
hapt
er 1
