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Exploring Business © 2009 FlatWorld Knowledge
1-1The FoundationsThe FoundationsOf BusinessOf Business
Exploring Business © 2009 FlatWorld Knowledge
1-2
Chapter ObjectivesChapter Objectives
1.1. Identify participants, functions and Identify participants, functions and external forces of businessexternal forces of business
2.2. Define Define economicseconomics & explain key & explain key questions of economicsquestions of economics
3.3. Describe perfect competition & explain Describe perfect competition & explain supply/demand interaction with pricesupply/demand interaction with price
4.4. Describe monopolistic competition, Describe monopolistic competition, oligopoly, and monopolyoligopoly, and monopoly
5.5. Understand criteria to assess economyUnderstand criteria to assess economy6.6. Discuss government’s role in Discuss government’s role in
economyeconomy
Exploring Business © 2009 FlatWorld Knowledge
1-3BusinessBusiness
•“…“…any activity that provides any activity that provides goods or services for the goods or services for the
purpose of making a profit.”purpose of making a profit.”
Exploring Business © 2009 FlatWorld Knowledge
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For ProfitFor Profit
Vs.Vs.
Not-for-profitNot-for-profit
Exploring Business © 2009 FlatWorld Knowledge
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Business ParticipantsBusiness Participants
OwnersOwners
EmployeesEmployees
CustomersCustomers
Exploring Business © 2009 FlatWorld Knowledge
1-6Functional AreasFunctional Areasof Businessof Business
ManagementManagementOperationsOperationsMarketingMarketingAccountingAccountingFinanceFinance
Exploring Business © 2009 FlatWorld Knowledge
1-7ManagementManagement
•“…“…planning, organizing, planning, organizing, staffing, directing, and staffing, directing, and
controlling a company’s controlling a company’s resources so it can achieve resources so it can achieve
its goals.”its goals.”
Exploring Business © 2009 FlatWorld Knowledge
1-8
OperationsOperations• “…“…convert(s) convert(s)
resources…into goods or resources…into goods or services…to services…to
ensur(e)...products ensur(e)...products are...high quality.”are...high quality.”
Exploring Business © 2009 FlatWorld Knowledge
1-9MarketingMarketing
•““...everything that a ...everything that a company does to identify company does to identify
customers’ needs and customers’ needs and design products to meet design products to meet
those needs.” those needs.”
Exploring Business © 2009 FlatWorld Knowledge
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AccountingAccounting
“…“…measure(s), measure(s), summarize(s), and summarize(s), and
communicate(s) financial communicate(s) financial and managerial and managerial
information...and advise information...and advise other managers on other managers on financial matters.”financial matters.”
Exploring Business © 2009 FlatWorld Knowledge
1-11
Fields of AccountingFields of Accounting
Financial AccountantsFinancial Accountants1)1) Prepare financial statementsPrepare financial statements
2)2) Assess financial strengthAssess financial strength Managerial Accountants-Managerial Accountants-
Prepare internal reportsPrepare internal reports
Exploring Business © 2009 FlatWorld Knowledge
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FinanceFinance
•“…“…planning for, planning for, obtaining, and managing obtaining, and managing
a company’s funds.”a company’s funds.”
Exploring Business © 2009 FlatWorld Knowledge
1-13Business andBusiness andIts EnvironmentIts Environment
Exploring Business © 2009 FlatWorld Knowledge
1-14
EconomicsEconomics
“…“…study of how scarce study of how scarce resources are used to resources are used to
produce outputs...to be produce outputs...to be distributed among distributed among
people.”people.”
Exploring Business © 2009 FlatWorld Knowledge
1-15Resources orResources orInputs and OutputsInputs and Outputs
LandLand
LaborLabor CapitalCapital
EntrepreneurshipEntrepreneurship
BusinessBusiness
OutputsOutputs
GoodsGoods ServicesServices
Exploring Business © 2009 FlatWorld Knowledge
1-16Circular FlowCircular FlowOf Inputs & OutputsOf Inputs & Outputs
Exploring Business © 2009 FlatWorld Knowledge
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Economists’ QuestionsEconomists’ Questions
1)1) Goods & Services Should Be Goods & Services Should Be Produced...?Produced...?
2)2) How Goods & Services Produced?How Goods & Services Produced?
3)3) Who...Receive(s) The Goods & Who...Receive(s) The Goods & Services Produced?Services Produced?
Exploring Business © 2009 FlatWorld Knowledge
1-18Spectrum ofSpectrum ofEconomic SystemsEconomic Systems
Exploring Business © 2009 FlatWorld Knowledge
1-19
PrivatizationPrivatization
“…“…converting converting previously previously
government-owned government-owned businesses to private businesses to private
ownership...”ownership...”
Exploring Business © 2009 FlatWorld Knowledge
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Adam SmithAdam Smith
Wealth of Nations (1776)Wealth of Nations (1776) ““Invisible Hand”Invisible Hand” Laissez-faireLaissez-faire
Exploring Business © 2009 FlatWorld Knowledge
1-21Perfect Competition Perfect Competition ExistsExists
Standardized ProductStandardized Product
Numerous SellersNumerous Sellers
Many ConsumersMany Consumers
Exploring Business © 2009 FlatWorld Knowledge
1-22Supply & Supply & DemandDemand
Supplied
Demanded
Pri
ceP
rice
UnitsUnits
00 1010 2020 3030 4040 5050
$0.00$0.00
$0.10$0.10
$0.20$0.20
$0.30$0.30
$0.40$0.40
$0.50$0.50
$0.60$0.60
$0.70$0.70
EquilibriumEquilibrium
PointPoint
Exploring Business © 2009 FlatWorld Knowledge
1-23Monopolistic Monopolistic CompetitionCompetition
Differentiated ProductDifferentiated Product
Many SellersMany Sellers
Consumers Consumers Group AGroup A Consumers Consumers
Group BGroup B
Consumers Consumers Group CGroup C
Exploring Business © 2009 FlatWorld Knowledge
1-24OligopolyOligopoly
Similar ProductSimilar Product
Seller ASeller A
Consumer Consumer Group AGroup A Consumer Consumer
Group BGroup B
Consumer Consumer Group CGroup C
Seller BSeller B
Exploring Business © 2009 FlatWorld Knowledge
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MonopolyMonopolySellerSeller
Consumer Consumer AA
Consumer Consumer DD
Consumer Consumer BB
Consumer Consumer EE
Consumer Consumer CC
Exploring Business © 2009 FlatWorld Knowledge
1-26World’s MainWorld’s MainEconomic Goals & MeasuresEconomic Goals & Measures
1)1) Growth- Gross Growth- Gross Domestic Domestic ProductProduct
2)2) High Employment- High Employment- Unemployment Unemployment RateRate
3)3) Price Stability- Price Stability- Consumer Price Consumer Price IndexIndex
Exploring Business © 2009 FlatWorld Knowledge
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Gross Domestic ProductGross Domestic Product
• “…“…market value of all goods and market value of all goods and services produced by...economy services produced by...economy
in a given year…includes in a given year…includes only...goods and services only...goods and services produced domestically.”produced domestically.”
Exploring Business © 2009 FlatWorld Knowledge
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Business CycleBusiness Cycle
-15
-10
-5
0
5
10
15
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Years
GD
P
% C
han
ge
ProsperityProsperity
DepressionDepressionRecessionRecession
RecoveryRecovery
Exploring Business © 2009 FlatWorld Knowledge
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U.S. Unemployment RateU.S. Unemployment Rate
Exploring Business © 2009 FlatWorld Knowledge
1-30Price StabilityPrice Stability
InflationInflationDeflationDeflationConsumer Price Index Consumer Price Index
(CPI)(CPI)
Exploring Business © 2009 FlatWorld Knowledge
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U.S. Inflation RateU.S. Inflation Rate
Exploring Business © 2009 FlatWorld Knowledge
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Economic IndicatorsEconomic Indicators
•“…“…statistic(s) that statistic(s) that provide valuable provide valuable
information about the information about the economy.”economy.”
Exploring Business © 2009 FlatWorld Knowledge
1-33LaggingLaggingEconomic IndicatorsEconomic Indicators
•““Statistics that report Statistics that report the status of the the status of the
economy a few months economy a few months in the past....”in the past....”
Exploring Business © 2009 FlatWorld Knowledge
1-34LeadingLeadingEconomic IndicatorsEconomic Indicators
• ““...predict the status of the economy ...predict the status of the economy three to twelve months in the future....”three to twelve months in the future....”
1)1) Unemployment ClaimsUnemployment Claims
2)2) Average Weekly Manufacturing HoursAverage Weekly Manufacturing Hours
3)3) Building PermitsBuilding Permits
4)4) U.S. Leading IndexU.S. Leading Index
5)5) Consumer Confidence IndexConsumer Confidence Index
Exploring Business © 2009 FlatWorld Knowledge
1-35Government &Government &Economic ManagementEconomic Management
Monetary PolicyMonetary Policy Control = Federal ReserveControl = Federal Reserve ContractionaryContractionary ExpansionaryExpansionary
Fiscal PolicyFiscal PolicyControl = governmentControl = governmentTaxationTaxationSpendingSpendingNational DebtNational Debt
Exploring Business © 2009 FlatWorld Knowledge
1-36National DebtNational Debt
Exploring Business © 2009 FlatWorld Knowledge
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Areas of EconomicsAreas of Economics
• MacroeconomicMacroeconomics- Study of the s- Study of the economy as a wholeeconomy as a whole
MicroeconomicMicroeconomics- Study of the s- Study of the economic choices of economic choices of
individual consumers & individual consumers & businessesbusinesses