1 chapter

The U. S. Business Environment

Business Essentials, 8th Edition Ebert/Griffin

Instructor Lecture PowerPoints

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PowerPoint Presentation prepared by Carol Vollmer Pope Alverno College

LEARNING OBJECTIVES

After reading this chapter, you should be able to:

1. Define the nature of U.S. business and identify its main goals and functions.

2. Describe the external environments of business and discuss how these environments affect the success or failure of any organization.
3. Describe the different types of global economic systems according to the means by which they control the factors of production.
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L E A R N I N G O B J E C T I V E S (cont.)
After reading this chapter, you should be able to:
4. Show how markets, demand, and supply affect resource distribution in the United States.

5. Identify the elements of private enterprise and explain the various degrees of competition in the U.S. economic system.
6. Explain the importance of the economic environment to business and identify the factors used to evaluate the performance of an economic system.

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The Concept of Business and Profit

Business An organized effort of individuals that provides (sells) goods or services to earn a profit. Profits The difference between a businesss revenues and its expenses. Consumer Choice and Demand Consumers choose how to satisfy their wants and needs. Opportunity and Enterprise Identify needs and capitalize on the opportunity.

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The Concept of Business and Profit (cont.)

The Benefits of Business
Provide goods and services
Employ workers which results in increased quality of life and standard of living

Innovation and opportunities

Enhanced personal incomes of owners and stockholders Support for charities and community leadership

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The External Environments of Business

External Environment
Everything outside an organizations boundaries that might affect it
Six areas: domestic business, global business, technological, political-legal, sociocultural, and economic environments

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The External Environments of Business (cont.)

1 of 6: Domestic Business Environment
The environment in which a firm conducts its operations and derives its revenues by:
Seeking to be close to customers

Building relationships with suppliers

Distinguishing itself from competitors

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The External Environments of Business (cont.)

2 of 6: Global Business Environment
The international forces that affect a business:
International trade agreements International economic conditions Political unrest International market opportunities Suppliers Cultures

Competitors
Currency values

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The External Environments of Business (cont.)

3 of 6: Technological Environment
All the ways by which firms create value for their constituents:
Human knowledge Work methods Physical equipment

Electronics and telecommunications

Various business activity processing systems
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The External Environments of Business (cont.)

4 of 6: Political-Legal Environment
The relationship between business and the government; laws regulate what an organization can and cannot do in many areas including: Products Advertising practices Safety and health considerations

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The External Environments of Business (cont.) 5 of 6: Sociocultural Environment

The customs, mores, values, and demographic characteristics of the society

The standards of business conduct a society is likely to accept

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The External Environments of Business (cont.)

6 of 6: Economic Environment
The relevant conditions that exist in the economic system in which a company operates
In a strong economy where many people have jobs, a growing company may find it necessary to pay higher wages and offer more benefits in order to attract workers. In a weaker economy where people are looking for jobs, a firm may be able to pay less and offer fewer benefits.
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Economic Systems
Economic System
A nations system for allocating its resources among its citizens, both individuals and organizations

Factors of Production
Labor Capital Entrepreneurs Physical resources Information resources

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Two Types of Economic Systems

Planned Economy
A centralized government controls all or most factors of production and makes all or most production and allocation decisions for the economy.

Market Economy
Individual producers and consumers control production and allocation by creating combinations of supply and demand.

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Types of Economic Systems

Planned Economy

- Communism individuals contribute according

to their abilities and receive benefits according to their needs.
The government owns and operates all factors of production. The government assigns people to jobs and owns all businesses and controls business decisions.

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Types of Economic Systems (cont.) Market Economics

Capitalism
The government supports private ownership and encourages entrepreneurship. Individuals choose where to work, what to buy, and how much to pay. Producers choose who to hire, what to produce, and how much to charge.

Market
A mechanism of exchange between buyers and sellers of a good or service.

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Types of Economic Systems (cont.)

Market Economics
Mixed Market Economy Features characteristics of both planned and market economies. Privatization: The process of converting government enterprises into privately owned companies. Socialism: The government owns and operates select major industries such as banking and transportation. Smaller businesses are privately owned.
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The Economics of Market Systems

Demand
The willingness and ability of buyers to purchase a product (a good or a service).

Supply
The willingness and ability of producers to offer a good or service for sale.

The Laws of Demand and Supply in a Market Economy

Demand: Buyers will purchase (demand) more of a product as its price drops and less of a product as its price increases. Supply: Producers will offer (supply) more of a product for sale as its price rises and less of a product as its price drops.

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SKIP Demand and Supply in a Market Economy

Demand and Supply Schedule
The relationships among different levels of demand and supply at different price levels
Demand curve: How much product will be demanded (bought) at different prices. Supply curve: How much product will be supplied (offered for sale) at different prices. Market price (equilibrium price): The price at which the quantity of goods demanded and the quantity of goods supplied are equal.

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skip Demand and Supply (cont.)

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skip Demand and Supply (cont.)

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skip Demand and Supply (cont.)

Surplus
A situation in which the quantity supplied exceeds the quantity demanded

Shortage
A situation in which the quantity demanded will be greater than the quantity supplied

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skip Private Enterprise in a Market Economy

Private Enterprise System
Allows individuals to pursue their own interests with minimal government restriction.

Elements of a Private Enterprise System

Private property rights Freedom of choice Profits Competition
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Degrees of Competition
Perfect Competition
No single firm is powerful enough to influence the price of its product.
All firms in an industry are small. The number of firms in the industry is large.

Four Principles:
Buyers view all products as identical. Buyers and sellers know the prices that others are paying and receiving in the marketplace. Firms easily enter or leave the market. Prices are set exclusively by supply and demand.
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Degrees of Competition (cont.)

Monopolistic Competition
Numerous sellers try to differentiate their products from those of competitors in an attempt to influence price.

There are many sellers, though fewer than in pure competition.

Sellers can enter or leave the market easily. The large number of buyers relative to sellers applies potential limits to prices.

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Degrees of Competition (cont.)

Oligopoly
An industry with only a few large sellers.
Entry by new competitors is hard because large capital investment is needed.

The actions of one firm can significantly affect the sales of every other firm in the industry.
The prices of comparable products are usually similar. As the trend toward globalization continues, most experts believe that oligopolies will become increasingly prevalent.

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Degrees of Competition (cont.)

Monopoly
An industry or market that has only one producer (or else is so dominated by one producer that other firms cannot compete with it).
Natural monopolies: Industries in which one firm can most efficiently supply all needed goods or services. Example: Electric company

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Economic Indicators
Economic Indicators
Statistics that show whether an economic system is strengthening, weakening, or remaining stable GDP GNP Balance of trade Trade deficit National Debt Inflation CPI Unemployment

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Economic Indicators (cont.)

Gross Domestic Product (GDP) An aggregate output measure of the total value of all goods and services produced within a given period by a national economy through domestic factors of production. http://www.tradingeconomics.com/Econom ics/GDP-Growth.aspx?Symbol=USD

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Economic Indicators (cont.)

Balance of Trade
The economic value of all the products a country exports minus the economic value of its imported products. Positive balance of trade: When a country exports (sells to other countries) more than it imports (buys from other countries). Negative balance of trade: When a country imports more than it exports. Commonly called a trade deficit. http://www.bea.gov/newsreleases/international/transa ctions/transnewsrelease.htm
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Economic Indicators (cont.)

National Debt
The amount of money that the government owes its creditors. Financed by borrowing in the form of bonds (government promises to pay buyers certain amounts of money by specified future dates). http://www.usdebtclock.org/

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Economic Indicators (cont.)

Stability
A condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate.

Inflation
Inflation occurs when the amount of money injected into an economy exceeds the increase in actual output, resulting in price increases exceeding purchasing power increases.

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Economic Indicators (cont.)

Consumer Price Index (CPI)
A measure of the prices of typical products purchased by consumers living in urban areas

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Economic Indicators (cont.)

Unemployment
The level of joblessness among people actively seeking work in an economic system
Low unemployment results in higher wages. Higher wages increases unemployment.

Cyclical Unemployment
Businesses continuing to eliminate jobs during a business cycle downturn cause more reduced revenues and further job losses.

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Economic Indicators (cont.)

Recession
A period during which aggregate output, as measured by real GDP, declines

Depression
A prolonged and deep recession

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==END= Managing the U.S. Economy

Fiscal Policy
The ways in which a government collects (taxes) and spends revenues.

Monetary Policy
The manner in which a government controls its money supply.

Stabilization Policy
Coordinating fiscal and monetary policies to smooth fluctuations in output and unemployment and to stabilize prices.

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Key Terms
aggregate output balance of trade business business cycle capital capitalism communism competition consumer price index demand demand and supply schedule demand curve depression domestic business environment economic environment economic indicators economic system entrepreneur external environment factors of production fiscal policies

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Key Terms (cont.)

global business environment gross domestic product (GDP) gross national product (GNP) inflation information resources labor (human resources) law of demand law of supply market market economy market price (equilibrium price) mixed market economy monetary policies monopolistic competition monopoly national debt natural monopoly nominal GDP oligopoly perfect competition physical resources planned economy

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Key Terms (cont.)

political-legal environment private enterprise privatization productivity profits purchasing power parity real GDP recession shortage socialism sociological environment stability stabilization policy standard of living supply supply curve surplus technological environment unemployment

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