Business: Individuals or organizations who try to earn a profit by providing products that satisfy people’s needs. Product: a good or service with tangible or intangible characteristics that provide satisfaction and benefits Profit: the difference between what it costs to make and sell a product and what a customer pays for it Nonprofit organizations: organizations that may provide goods or services but do not have the fundamental purpose of earning profits Stakeholders: groups that have a stake in the success and outcomes of a business Economics: the study of how resources are distributed for the production of goods and services within a social system Factors of production (the resources that are used to produce goods and services): Natural resources, human resources and financial resources. Natural resources: land, forests, minerals, water, and other things that re not made by people. Human resources: the physical and mental abilities that people use to produce goods and services also called labor. Financial resources: the funds used to acquire the natural and human resources needed to provide products; also called capital. Economic system: a description of how a particular society distributes its resources to produce goods and services. (Includes: communism, socialism, and capitalism) An economic system is the combination of policies and choices made by a nation regarding the ownership of capital and where economic decisions are made. Communism: first described by Karl Marx as a society in which the people, without regard to class, own all the nation’s resources. In his ideal political-economic system, everyone contributes according to ability and receives benefits according to need. Private property is eliminated and government owns all the major forms of production and makes all economic decisions. Ex. North Korea, Cuba, China is transitioning. Socialism: an economic system in which the government owns and operates basic industries but individuals own most business. Ex. France, Sweden and India. Capitalism (Free Enterprise) (Market Economy): an economic system in which individuals own and operate the majority of business that provides goods and services. Driven by profit motive and competition. Principle of “laissez faire”: Let the markets balance themselves based on supply and demand. Two forms of capitalism: Pure capitalism (Free-market system) in which all economic decisions are made without government intervention. Modified capitalism that government intervenes and regulates business to some extent. Ex. US and Canada thru laws, like Federal Trade Commission Act. Mixed Economies: Economies made up of elements from more than one economic system. Private enterprise and government involvement. Ex. US and UK have mixed economic. The Free-Enterprise System: Ex. US, Canada and Japan. Companies that can efficiently manufacture and sell products that consumers desire will probably succeed. Within the free-enterprise system there are 4 types of competitive environments: Pure competition: the market structure that exists when there are many small businesses selling one standardized product, like wheat, corn and cotton. There are no differences in the products; prices are determined solely by the forces of supply and demand. Monopolistic competition: the market structure that exists when there are fewer businesses than in a pure-competition environment and the differences among the goods they sell are small. Ex. Aspirin, soft drinks, and vacuum cleaners. These products differ slightly in packaging, warranty, name, and other characteristics, but all satisfy the same consumer need. Oligopoly: the market structure that exists when there are very few businesses selling a product. Business has control over their products’ price and price change from one company and trigger price change from other companies. Ex. Airline companies. Monopoly: the market structure that exists when there is only one business providing...
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