ch1_us business env't

8/17/2019 Ch1_US Business Env't

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1chapterBusiness Essentials, 7th Edition

Ebert/Griffin

© 2009 Pearson Education, Inc.

The U. S. Business Environment

Instructor Lecture

PowerPointsPowerPoint Presentation prepared byCarol Vollmer Pope Alverno College


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The Concept of Business and Prot

• Business – An organization that proides goods or serices that are then

so!d to earn prots.

• Prots –

The di"erence #et$een a #usiness%s reenues and itse&penses. The re$ards o$ners get for ris'ing their (one) andti(e.

• Consu(er Choice and *e(and – The freedo( of consu(ers to choose ho$ to satisf) their

$ants and needs.

– The freedo( of #usiness o$ners to decide ho$ to (eet those$ants and needs.

• +pportunit) and Enterprise – uccess in #usiness re-uires spotting a pro(ising opportunit)

and then dee!oping a good p!an for capita!izing on it.



3/38

The Concept of Business and Protcont./

• The Benets of Business

– Proision of goods and serices

– E(p!o)(ent of $or'ers

– Innoation and opportunities

– Increased -ua!it) of !ife and standard of !iing

– Enhanced persona! inco(es of o$ners and

stoc'ho!ders

– Ta& pa)(ents support goern(ent

– upport for charities and co((unit) !eadership



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The E&terna! Eniron(ents of Business

• E&terna! Eniron(ent

– Eer)thing outside an organization%s#oundaries that (ight a"ect it

• The do(estic #usiness eniron(ent

• The g!o#a! #usiness eniron(ent

• The techno!ogica! eniron(ent

• The po!itica!!ega! eniron(ent• The sociocu!tura! eniron(ent

• The econo(ic eniron(ent



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The E&terna! Eniron(ents of Businesscont./

• *o(estic Business Eniron(ent – The eniron(ent in $hich a r(

conducts its operations and deries its

reenues #)1• ee'ing to #e c!ose to its custo(ers

• Esta#!ishing strong re!ationships $ith its supp!iers

• *istinguishing itse!f fro( its co(petitors



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• !o#a! Business Eniron(ent – The internationa! forces that a"ect a

#usiness1

• Internationa! trade agree(ents

• Internationa! econo(ic conditions

• Po!itica! unrest

• Internationa! (ar'et opportunities

• upp!iers

• Cu!tures

• Co(petitors

• Currenc) a!ues



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• Techno!ogica! Eniron(ent

– A!! the $a)s #) $hich r(s create a!uefor their constituents1

• 3u(an 'no$!edge

• 4or' (ethods

• Ph)sica! e-uip(ent

• E!ectronics and te!eco((unications• 5arious #usiness actiit) processing s)ste(s



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• Po!itica!6ega! Eniron(ent – The regu!ator) re!ationship #et$een #usiness and the

goern(ent !ega! s)ste(/ and its agencies that dene$hat organizations can and can%t do1

• Product identication !a$s

• 6oca! zoning re-uire(ents• Adertising practices

• afet) and hea!th considerations

• Accepta#!e standards of #usiness conduct

– Pro or anti#usiness senti(ent in goern(ent and

po!itica! sta#i!it) are a!so i(portant considerations,especia!!) for internationa! r(s.



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• Econo(ic Eniron(ent

– The re!eant conditions that e&ist in theecono(ic s)ste( in $hich a co(pan) operates

– E&a(p!es1

• If an econo() is doing $e!! enough that (ost peop!ehae 7o#s, a gro$ing co(pan) (a) nd it necessar)to pa) higher $ages and o"er (ore #enets in order

to attract $or'ers fro( other co(panies.

• If (an) peop!e in an econo() are !oo'ing for 7o#s, ar( (a) #e a#!e to pa) !ess and o"er fe$er #enets.



12/38

Econo(ic )ste(s

• Econo(ic )ste( – A nation%s s)ste( for a!!ocating its resources

a(ong its citizens, #oth indiidua!s andorganizations

• 8actors of Production – 6a#or1 3u(an resources

– Capita!1 8inancia! resources

– Entrepreneurs1 Persons $ho ris' starting a #usiness

– Ph)sica! resources1 Tangi#!e things used to conduct#usiness

– Infor(ation resources1 *ata and other infor(ationused #) #usinesses



13/38

T)pes of Econo(ic )ste(s

• P!anned Econo() – A centra!ized goern(ent contro!s a!! or (ost

factors of production and (a'es a!! or (ostproduction and a!!ocation decisions for the

econo().• ar'et Econo()

– Indiidua! producers and consu(ers contro!production and a!!ocation #) creating

co(#inations of supp!) and de(and.• ar'et

– A (echanis( of e&change #et$een #u)ers andse!!ers of a good or serice.



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P!anned Econo(ies

• Co((unis(

– A s)ste( :ar! ar& enisioned in $hichindiidua!s $ou!d contri#ute according to

their a#i!ities and receie #enetsaccording to their needs.

• The goern(ent o$ns and operates a!!

factors of production.• The goern(ent assigns peop!e to 7o#s and

o$ns a!! #usinesses and contro!s #usinessdecisions.



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ar'et Econo(ics

• Capita!is( – The goern(ent supports priate o$nership and encourages

entrepreneurship.

– Indiidua!s choose $here to $or', $hat to #u), and ho$ (uchto pa).

– Producers choose $ho to hire, $hat to produce, and ho$ (uchto charge.

• i&ed ar'et Econo()

– 8eatures characteristics of #oth p!anned and (ar'et econo(ies.

– Privatization: The process of conerting goern(ent

enterprises into priate!) o$ned co(panies. – Socialism1 The goern(ent o$ns and operates se!ect (a7or

industries such as #an'ing and transportation. (a!!er#usinesses are priate!) o$ned.



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The Econo(ics of ar'et )ste(s

• *e(and

– The $i!!ingness and a#i!it) of #u)ers to purchase a product agood or a serice/.

• upp!)

– The $i!!ingness and a#i!it) of producers to o"er a good orserice for sa!e.

• The 6a$s of *e(and and upp!) in a ar'et Econo()

– Demand: Bu)ers $i!! purchase de(and/ (ore of a product

as its price drops and !ess of a product as its price increases. – Supply: Producers $i!! o"er supp!)/ (ore of a product for

sa!e as its price rises and !ess of a product as its price drops.



17/38

*e(and and upp!) in a ar'etEcono()

• *e(and and upp!) chedu!e

– The re!ationships a(ong di"erent !ee!s ofde(and and supp!) at di"erent price !ee!s as

o#tained fro( (ar'eting research, historica!data, and other studies of the (ar'et.

• Demand curve: 3o$ (uch product $i!! #e de(anded#ought/ at di"erent prices.

• Supply curve: 3o$ (uch product $i!! #e supp!ied

o"ered for sa!e/ at di"erent prices.

• Market price e-ui!i#riu( price/1 The price at $hich the-uantit) of goods de(anded and the -uantit) of goodssupp!ied are e-ua!.



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urp!uses and hortages

• urp!us

– A situation in $hich the -uantit) supp!iede&ceeds the -uantit) de(anded

• Causes !osses

• hortage

– A situation in $hich the -uantit) de(anded

$i!! #e greater than the -uantit) supp!ied• Causes !ost prots

• Inites increased co(petition



19/38

Priate Enterprise in a ar'etEcono()

• Priate Enterprise )ste(

– A!!o$s indiidua!s to pursue their o$ninterests $ith (ini(a! goern(ent

restriction.• E!e(ents of a Priate Enterprise )ste(

– Priate propert) rights

– 8reedo( of choice

– Prots

– Co(petition



20/38

*egrees of Co(petition

• Perfect Co(petition – Prices are deter(ined #) supp!) and de(and

#ecause no sing!e r( is po$erfu! enough toin;uence the price of its product.

• A!! r(s in an industr) are s(a!!.• The nu(#er of r(s in the industr) is !arge.

– Princip!es of perfect co(petition1• Bu)ers ie$ a!! products as identica!.• Bu)ers and se!!ers 'no$ the prices that others are

pa)ing and receiing in the (ar'etp!ace.• It is eas) for r(s to enter or !eae the (ar'et.• Prices are set e&c!usie!) #) supp!) and de(and and

accepted #) #oth se!!ers and #u)ers.



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*egrees of Co(petition Cont./

• onopo!istic Co(petition

– There are nu(erous se!!ers tr)ing todi"erentiate their products fro( those ofco(petitors so as to hae so(e contro! oerprice.

– There are (an) se!!ers, though fe$er than inpure co(petition.

– e!!ers can enter or !eae the (ar'et easi!).

– The !arge nu(#er of #u)ers re!atie to se!!ersapp!ies potentia! !i(its to prices.



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• +!igopo!)

– An industr) $ith on!) a fe$ !arge se!!ers.

– Entr) #) ne$ co(petitors is hard #ecause !arge

capita! inest(ent is needed. – The actions of one r( can signicant!) a"ect

the sa!es of eer) other r( in the industr).

– The prices of co(para#!e products are usua!!)

si(i!ar. – As the trend to$ard g!o#a!ization continues,

(ost e&perts #e!iee that o!igopo!ies $i!!#eco(e increasing!) prea!ent.



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• onopo!)

– An industr) or (ar'et that has on!) one produceror e!se is so do(inated #) one producer thatother r(s cannot co(pete $ith it/.

• The so!e supp!ier en7o)s co(p!ete contro! oer theprices of its products< its on!) constraint is a decrease inconsu(er de(and due to increased prices.

– Natural monopolies: Industries in $hich one

r( can (ost e=cient!) supp!) a!! needed goodsor serices< t)pica!!) a!!o$ed and regu!ated #)!egis!ated acts and goern(enta! agencies.

• E&a(p!e1 E!ectric co(pan)



24/38

Econo(ic Indicators

• Econo(ic Indicators

– tatistics that sho$ $hether an econo(ic s)ste(is strengthening, $ea'ening, or re(aining sta#!e

– easure 'e) goa!s of the >.. econo(ic s)ste(1econo(ic gro$th and econo(ic sta#i!it)

– Econo(ic gro$th indicators

• Aggregate output, standard of !iing, gross do(estic

product, and productiit) – Econo(ic sta#i!it) indicators

• In;ation and une(p!o)(ent



25/38

Econo(ic ro$th, Aggregate +utput,and tandard of 6iing

• Business C)c!e – The pattern of shortter( ups and do$ns or,

#etter, e&pansions and contractions/ in anecono().

• Aggregate +utput – ro$th during the #usiness c)c!e is (easured #)

the tota! -uantit) of goods and serices produced#) an econo(ic s)ste( during a gien period.

• tandard of 6iing – The tota! -uantit) and -ua!it) of goods and

serices that consu(ers can purchase $ith thecurrenc) used in their econo(ic s)ste(.



26/38

Econo(ic Indicators cont./

• ross *o(estic Product *P/ – An aggregate output (easure of the tota! a!ue

of a!! goods and serices produced $ithin a gienperiod #) a nationa! econo() through do(estic

factors of production.• If *P is going up, aggregate output is going up< if

aggregate output is going up, the nation is e&periencingeconomic growth.

• ross ?ationa! Product ?P/

– The tota! a!ue of a!! goods and sericesproduced #) a nationa! econo() $ithin a gienperiod, regard!ess of $here the factors ofproduction are !ocated.



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• @ea! ro$th @ate

– The gro$th rate of *P ad7usted forin;ation and changes in the a!ue of the

countr)%s currenc)• ro$th depends on output increasing at a

faster rate than popu!ation.

• @ea! *P

– *P that has #een ad7usted to account forchanges in currenc) a!ues and pricechanges.



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• ?o(ina! *P – *P (easured in current do!!ars or $ith

a!! co(ponents a!ued at current prices.

• *P per Capita – A re;ection of the standard of !iing1

*P per capita (eans *P per person.

–It is a #etter (easure of the econo(ic$e!!#eing of the aerage person than*P itse!f.



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• Purchasing Po$er Parit) – The princip!e that e&change rates are set so

that the prices of si(i!ar products in di"erentcountries are a#out the sa(e.

– Indicates $hat peop!e can #u) $ith thenancia! resources a!!ocated to the( #) theirrespectie econo(ic s)ste(sa #etter senseof standards of !iing across the g!o#e.



30/38

Econo(ic ro$th

• Productiit)

– A (easure of econo(ic gro$th thatco(pares ho$ (uch product a s)ste(

produces $ith the resources needed toproduce that product.

• If (ore product is produced $ith fe$erfactors of production, the price of theproduct decreases.

• The standard of !iing in an econo()i(proes through increases in productiit).



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Econo(ic ro$th cont./

• Ba!ance of Trade

– The econo(ic a!ue of a!! the products acountr) e&ports (inus the econo(ic a!ue of

its i(ported products.• Positive balance of trade: 4hen a countr) e&ports

se!!s to other countries/ (ore than it i(ports #u)sfro( other countries/.

• Neative balance of trade: 4hen a countr)i(ports (ore than it e&ports. Co((on!) ca!!ed atrade decit.



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Ba!ance of Trade

• !ow does a trade de"cit a#ecteconomic rowt$% – The decit e&ists #ecause the a(ount of

(one) spent on foreign products has not #een

paid in fu!!. In e"ect, therefore, it is #orro$ed(one), and #orro$ed (one) costs (ore(one) in the for( of interest.

– The (one) that ;o$s out of the countr) to pa)o" the decit cannot #e used to inest in

productie enterprises, either at ho(e oroerseas.



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• ?ationa! *e#t

– The a(ount of (one) that the goern(ento$es its creditors.

• 8inanced #) #orro$ing in the for( of #onds1ecurities through $hich the goern(ent pro(ises topa) #u)ers certain a(ounts of (one) #) speciedfuture dates.

• oern(ent co(petition $ith potentia! #orro$ers foraai!a#!e !oan (one) reduces priate #orro$ing forinest(ents that $ou!d increase productiit).



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• ta#i!it)

– A condition in $hich the a(ount of (one)aai!a#!e in an econo(ic s)ste( and the -uantit)of goods and serices produced in it are gro$ing

at a#out the sa(e rate.

• In;ation

– In;ation occurs $hen the a(ount of (one)in7ected into an econo() e&ceeds the increase in

actua! output, resu!ting in price increasese&ceeding purchasing po$er increases.

• In&ation rate1 The percentage change in a price inde&such as the CPI.



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Econo(ic Indicators

• Consu(er Price Inde& CPI/

– A (easure of the prices of t)pica!products purchased #) consu(ers !iingin ur#an areas

• Co(pared against #ase periodanar#itrari!) se!ected ti(e period against

$hich other ti(e periods are co(pared.



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• >ne(p!o)(ent

– The !ee! of 7o#!essness a(ong peop!e actie!)see'ing $or' in an econo(ic s)ste(

•6o$ une(p!o)(enta shortage of !a#or aai!a#!e for#usinesses to hire< resu!ts in higher $ages.

• 3igher $ages reduce hiring, $hich increasesune(p!o)(ent< resu!ts in !o$er $ages.

• C)c!ica! >ne(p!o)(ent

– Businesses continuing to e!i(inate 7o#s duringa #usiness c)c!e do$nturn cause (ore reducedreenues and further 7o# !osses.



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• @ecession

– A period during $hich aggregate output,as (easured #) rea! *P, dec!ines

• *epression

– A pro!onged and deep recession



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anaging the >.. Econo()

• 8isca! Po!ic) – The $a)s in $hich a goern(ent co!!ects and spends

reenues.• Ta& rates can p!a) an i(portant ro!e in sca! po!ic).

• onetar) Po!ic) – The (anner in $hich a goern(ent contro!s its (one)supp!).

– 4or'ing (ain!) through the 8edera! @esere )ste(, thegoern(ent can in;uence #an's% $i!!ingness to !end(one) and pro(pt interest rates to go up or do$n.

• ta#i!ization Po!ic) – Coordinating sca! and (onetar) po!icies to s(ooth

;uctuations in output and une(p!o)(ent and to sta#i!izeprices.

© 2009 Pearson Education Inc

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