Chapter One – Exploring the World of Business and Economics

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Chapter One – Exploring the World of Business and Economics • Learning objectives

o Discuss your future in the world of business.

o Define business and identify potential risks and rewards.

o Define economics and describe two types of economic systems: capitalism and command economy.

o Identify the ways to measure economic performance.

o Outline the four types of competition.

o Summarize the factors that affect the business environment and the challenges that American businesses will encounter in the future.

• Why Study Business?

o For help in choosing a career

o To be a successful employee

o To start your own business

o The become a better informed consumer and investor

• Your future in the changing world of business

o Free enterprise

▪ Individuals are free to decide what to produce, how to produce it, and at what price to sell it

o What does it take to succeed in business?

▪ Have a dream—know what you want

▪ Adapt to changes in the environment—work hard to turn your dreams into reality

o Why study business?

▪ For help in choosing a career

▪ To be a successful employee

▪ To start your own business

▪ To become a better informed consumer and investor

• Business: a definition - The organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs

• Combining resources

o Business

▪ Human resources

• Qualified and trained workers who are treated well

o This will provide highest possible production

▪ Material resources

• Work space, machines

▪ Financial resources

• Outside investors or loans

▪ Informational resources

• Getting the best price, hiring industry, industry trends, competitors, ads/promotions

• Classifications of business

o Manufacturing businesses

▪ Process various materials

o Service businesses

▪ Produce services (e.g., haircuts, legal advice, tax preparation)

o Marketing intermediaries

▪ Buy products from manufacturers and resell

o Service industries are going up while marketing is going down (technology and outsourcing)

• Satisfying needs

o People buy goods and services not just to own them, but to satisfy particular needs

o Businesses that understand customer needs, and work to satisfy those needs, are usually successful

• Profit

o The relationship between sales revenue and profit

▪ Profit is what remains after all business expenses have been deducted from sales revenue. A loss (negative profit) results when a firm’s expenses are greater than its revenues.

▪ Purposes

• To reward business owners for producing goods and services consumers want

• As payment for business owners assuming the risks of ownership

▪ Risks

• Not being paid (employees, suppliers, and lenders)

• Losing whatever was invested in the business

o Stakeholders

▪ All of the different people or groups or people who are affected by the policies and decisions made by an organization

• Economic systems

o Economics

▪ The study of how wealth (anything of value) is created and distributed

o Microeconomics

▪ The study of the decisions made by individuals and businesses

o Macroeconomics

▪ The study of the national economy and the global economy

o Economy

▪ The system through which a society creates and distributes wealth

o Factors of Production

▪ Land and natural resources

▪ Labor

▪ Capital

▪ Enterprise

o Entrepreneur

▪ A person who risks time, effort, and money to start and operate a business

o Differences in economic systems

▪ How they answer the four basic economic questions

• What...
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