INTRODUCTION

INTRODUCTION TO
TO BUSINESS
BUSINESS

• 1st Lecture

• Assist. Prof. Dr. Ugur Ergun

• [email protected]

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 INTRODUCTION
INTRODUCTION TO
TO BUSINESS
BUSINESS

Class meets every Monday

Consultation by appointment
Text Book;
Ronald J. Ebert and Ricky W
Griffin, “Business Essentials”,
8th edition, Prentice Hall

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall

 INTRODUCTION
INTRODUCTION TO
TO BUSINESS
BUSINESS

Course objective;
This course is an introduction to what
a business is, how it operates, and
how it is managed. Students will
identify forms of ownership and the
processes used in production and
marketing, finance, personnel and
management in business operations.
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 INTRODUCTION
INTRODUCTION TO
TO BUSINESS
BUSINESS

Grading;
Mid-Term Exams %20
Presentation, Attendance, Participation,
Homework %30
Final Exam %50

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 1
chapter The U. S. Business Environment

Business Essentials, 8th Edition

Ebert/Griffin

Instructor Lecture PowerPoints

PowerPoint Presentation prepared by
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Carol Vollmer Pope Alverno College
 LL EE AA RR NN II NN GG OO BB JJ EE CC TT II VV EE SS

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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 LL EE AA RR NN II NN GG OO BB JJ EE CC TT II VV EE SS (cont.)
(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 organization that provides (sells) goods or services to
earn profits.
• Profits
– The difference between a business’s 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 organization’s 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.)
• 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.)
• 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.)

• 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.)

• 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.)
• 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.)

• 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 nation’s 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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 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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 Demand and Supply (cont.)

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 Demand and Supply (cont.)

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 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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 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

– Economic growth indicators

• Aggregate output, standard of living, gross domestic product, and
productivity
– Economic stability indicators
• Inflation and unemployment

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 Economic Indicators (cont.)

• Business Cycle
– The pattern of short-term ups and downs (expansions and
contractions) in an economy.
• Aggregate Output
– Growth during the business cycle is measured by the total
quantity of goods and services produced by an economic
system during a given period.
• Standard of Living
– The total quantity and quality of goods and services that
consumers can purchase with the currency used in their
economic system.

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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.

• Gross National Product (GNP)

– The total value of all goods and services produced by a
national economy within a given period, regardless of
where the factors of production are located.

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 Economic Indicators (cont.)

• Real Growth Rate

– The growth rate of GDP adjusted for inflation and
changes in the value of the country’s currency
• Growth depends on output increasing at a faster rate
than population.
• Real GDP
– GDP that has been adjusted to account for
changes in currency values and price changes.

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 Economic Indicators (cont.)

• Nominal GDP
– GDP measured in current dollars or with all
components valued at current prices.

• GDP per Capita

– A reflection of the standard of living: GDP per
capita means GDP per person.
– It is a better measure of the economic well-being
of the average person than GDP itself.

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 Economic Indicators (cont.)

• Purchasing Power Parity

• The principle that exchange rates are set so that the
prices of similar products in different countries are
about the same.
• Indicates what people can buy with the financial
resources allocated to them by their respective
economic systems

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 FIGURE 1.3 Purchasing Power Parity – Big Mac
Index

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 Economic Indicators (cont.)

• Productivity

– A measure of economic growth that compares

how much product a system produces with the
resources needed to produce that product.
• The standard of living in an economy improves through
increases in productivity.

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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.

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 FIGURE 1.4 Balance of Trade

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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).

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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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 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 demand curve

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

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 Key Terms (cont.)

global business environment mixed market economy

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

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 Key Terms (cont.)

political-legal environment stabilization policy

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

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All rights reserved. No part of this publication may be reproduced, stored in a
retrieval system, or transmitted, in any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written
permission of the publisher. Printed in the United States of America.

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