© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 1

Chapter 1: Exploring the World of Business and Economics

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 2

Learning Objectives

1. Discuss what you must do to be successful in the world of business.

2. Define business and identify potential risks and rewards.

3. Define economics and describe the two types of economic systems: capitalism and command economy.

4. Identify the ways to measure economic performance.

5. Examine the four different phases in the typical business cycle.

6. Outline the four types of competition.

7. Summarize the factors that affect the business environment and the challenges American businesses will encounter in the future.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 3

Tips for Studying Business

1. Prepare before you go to class.2. Read the chapter.3. Underline or highlight important concepts.4. Take notes.5. Apply the concepts.6. Practice critical thinking.7. Prepare for exams.

• These study outlines will help.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 4

Key Terms and Ideas

Define free enterprise. Know the definition of business.

• Understand why studying business is important.

What are the four resources that businesses combine in order to be successful?

Know the difference between manufacturing businesses and service businesses.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 5

Satisfying Needs

Why do people buy goods and services? What must businesses understand about

customer needs to help them be successful?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 6

Sales Revenue and Profit

What is profit?• How is it calculated?

Know the purposes of profit. Who/What are stakeholders?

• Know the difference between primary and secondary stakeholders.

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 7

Types of Economic Systems

Be able to define and explain:• Economics• Microeconomics• Macroeconomics• Economy• Factors of production• Entrepreneur

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 8

Differences in Economic Systems

List and define principle characteristics of the major economic systems.

How do these systems differ? What are the four basic economic questions

that economic systems seek to address?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 9

Capitalism

How is capitalism defined? What does Adam Smith’s laissez-faire

capitalism have to do with modern capitalism? What are the basic assumptions and principal

tenets of Smith’s laissez-faire capitalism?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 10

Capitalism (cont.)

What are distinguishing characteristics of capitalism in the United States?

What role do the following groups play in a U.S.-style capitalist system? • Households• Businesses• Governments

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 11

Types of Economic Systems

Define command economy.• What are the two major command

economies? • What are their key characteristics? • How do the two command economies differ?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 12

Measuring Economic Performance

Define productivity. What are major economic indicators of

productivity?• How are they calculated?• What do they tell us about the economy?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 13

Economic Performance: Key Terms

Be able to define and explain the significance of:• Gross domestic product (GDP)• Inflation• Deflation• Unemployment rate• Consumer price index (CPI)• Producer price index (PPI)

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 14

Evaluating a Nation’s Economic Health

Why is it important to occasionally evaluate a nation’s economic health?

Be able to define the following terms and explain what they tell us about economic health:• Balance of trade• Bank credit• Corporate profits• Inflation rate• National income• New housing starts• Prime interest rate

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 15

The Business Cycle

What is the business cycle? Define recession and depression. What are monetary policies?

• What role does the Federal Reserve play in the United States’ monetary policies?

Be able to define:• Fiscal policy• Federal deficit• National debt

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 16

Types of Competition

What is competition?• Know the different types of competition.

Be able to define:• Perfect (or pure) competition

– Supply– Demand – Equilibrium (market) price

– Where does the equilibrium price occur on the supply and demand curves?

• Monopolistic competition– What can firms do to gain a competitive

advantage in a monopolistic competition situation?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 17

Types of Competition (cont.)

Define and identify key characteristics of the following types of competition:• Oligopoly• Monopoly

Know the difference between: • Natural monopoly and• Legal (limited) monopoly

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 18

American Business Today

What is a standard of living? • How is it measured?

Know the basic stages of business development in the United States.

Explain the differences between the four stages of early business development:• Barter system• Domestic system• Factory system• Specialization

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 19

American Business Today (cont.)

Know the key characteristics of business development in the 1900s.• How did industries change?• Major economic events that shaped business

development and economic policy. • Changes in the late 20th century and early 21st

century that altered standards of living and consumption patterns.

• What is e-business and how has it changed businesses?

© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 1 | Slide 20

American Business Today (cont.)

What are the defining issues and innovations of the 21st century so far?• The role played by technology • Service businesses

Why are many pessimistic about the U.S.’s future economic prosperity?

Be able to discuss the current business environment.