Understanding the Fundamentals of Business and Economics

© Prentice Hall, 2005 Business In Action 3e Chapter 1 - 1

Understanding the Understanding the Fundamentals of Fundamentals of

Business and EconomicsBusiness and Economics


Why Study Business?Why Study Business?• Learn what it takes to run a businessLearn what it takes to run a business

• Build business vocabularyBuild business vocabulary

• Develop workplace skillsDevelop workplace skills

• Learn about a variety of jobsLearn about a variety of jobs

• Appreciate today’s business careerAppreciate today’s business career


What Is a Business?What Is a Business?

• For-Profit–Money motive

• Not-for-profit– Social service


Categories of BusinessCategories of Business

• Producing goods– Capital intensive

• Providing services– Labor intensive


Growth in Growth in the Service Sectorthe Service Sector

• Manufacturing• Construction• Agriculture• Mining

• Wholesale and retail• Transportation and

utilities• Finance and insurance• Other services

Goods-Producing Sector

Service-Producing Sector


Why Is the Why Is the Service Sector Service Sector

Growing?Growing?• More disposable income

• Changing demographics and lifestyles

• Complex goods and technologies

• Need for professional advice

• Low barriers to entry


What Is an Economic What Is an Economic System?System?

• Five production factors– Human resources– Capital– Entrepreneurs– Knowledge– Natural resources


The New EconomyThe New EconomyGeneral

Characteristics•Physical Assets•Cost Control

•Intellectual Assets•Adding Value

Technology •Mechanical •Information

Workforce •Job-Specific Skills•Transferable Skills•Lifelong Learning

Geography •Close to Resources•Near to Collaborators •Near to Competitors

Capital •Debt Financing •Venture Capital

New EconomyOld Economy


Types of Economic Types of Economic SystemsSystems

• Free-market system– Capitalism–Mixed capitalism

• Planned system– Socialism– Communism


How Does a Free-Market How Does a Free-Market System Work?System Work?

• Supply and demand• Competition• Government intervention


Effects of Higher Airfare on Effects of Higher Airfare on DemandDemand

• Increase use of corporate or chartered aircraft• Reduce attendance at conventions and conferences• Use alternative airports• Reduce number of employees traveling• Reduce number of domestic trips• Increase Saturday-night stayovers• Promote teleconferencing and videoconferencing


Supply and Demand Supply and Demand RelationshipRelationship

• High price reduces demand• Low price reduces supply• Right price balances supply and

demand


Free-Market CompetitionFree-Market Competition

• Pure competition• Monopoly• Oligopoly• Monopolistic competition


Competitive AdvantageCompetitive Advantage

• Price• Speed• Quality• Service• Innovation


The Role of The Role of GovernmentGovernment

• Foster competitionFoster competition• Regulate industriesRegulate industries• Deregulate industriesDeregulate industries• Protect stakeholder’s rightsProtect stakeholder’s rights• Contribute to economic stabilityContribute to economic stability


Fostering CompetitionFostering Competition

• Antitrust legislation• Mergers and acquisitions


Regulating and Regulating and Deregulating IndustriesDeregulating Industries• Fair competition• Business ethics• Working conditions• Public safety


Protecting StakeholdersProtecting Stakeholders• Consumer Product Safety Commission (CPSC)• Environmental Protection Agency (EPA)• Equal Opportunity Employment Commission

(EEOC)• Federal Communications Commission (FCC)• Federal Aviation Administration (FAA)• Federal Energy Regulation Commission (FERC)


Protecting StakeholdersProtecting Stakeholders• Federal Highway Administration (FHA)• Federal Trade Commission (FTC)• Food and Drug Administration (FDA)• Interstate Commerce Commission (ICC)• Occupational Safety and Health Administration

(OSHA)• Securities and Exchange Commission (SEC)


Contributing to Economic Contributing to Economic StabilityStability

• Business cycle– Economic expansion– Economic contraction

• Fiscal policy– Revenue and spending

• Monetary policy– Interest rates


The FED and Money The FED and Money SupplySupply

• Reserve requirements• Discount rate• Open-market operations• Selective credit controls


Fiscal Policy: RevenuesFiscal Policy: Revenues

• Income taxes• Real property taxes• Sales taxes• Excise taxes• Payroll taxes


Fiscal Policy: Fiscal Policy: ExpendituresExpenditures

• Increasing purchases• Creating new programs


Monitoring Economic Monitoring Economic PerformancePerformance

• Interest rates• Housing starts• Unemployment statistics• Durable-goods orders


Measuring Price ChangesMeasuring Price Changes

• Consumer Price Index• Purchasing power– Inflation– Deflation


Measuring National Measuring National OutputOutput

Gross NationalGross NationalProduct (GNP)Product (GNP)

Gross DomesticGross DomesticProduct (GDP)Product (GDP)Dollar ValueDollar Value

YesYesYesYesFinal Goods Final Goods and Servicesand Services

YesYesYesYesDomestic BusinessesDomestic Businesses

NoNoYesYesForeign-Owned Foreign-Owned BusinessesBusinesses

YesYesNoNoOverseas OperationsOverseas Operations


Challenges of Challenges of GlobalizationGlobalization

• Products and servicesProducts and services

• Managing a small businessManaging a small business

• Globalization and workforce diversityGlobalization and workforce diversity

• Ethics and social responsibilityEthics and social responsibility

• Technology and electronic commerceTechnology and electronic commerce

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Understanding the Fundamentals of Business and Economics