© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 1

Understanding the Understanding the Fundamentals of Fundamentals of

Business Business and Economicsand Economics

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 2

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

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 3

What Is a Business?What Is a Business?

• For-Profit–Money motive

• Not-for-profit– Social service

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 4

Categories of BusinessCategories of Business

• Producing goods– Capital intensive

• Providing services– Labor intensive

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 5

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

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 6

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

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 7

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

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

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 8

The New EconomyThe New Economy

GeneralCharacteristics

•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

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 9

Types of Economic Types of Economic SystemsSystems

• Free-market system– Capitalism–Mixed capitalism

• Planned system– Socialism– Communism

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 10

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

• Supply and demand

• Competition

• Government intervention

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 11

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

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 12

Supply and Demand Supply and Demand RelationshipRelationship

• High price reduces demand

• Low price reduces supply

• Right price balances supply and

demand

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 13

Free-Market CompetitionFree-Market Competition

• Pure competition

• Monopoly

• Oligopoly

• Monopolistic competition

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 14

Competitive AdvantageCompetitive Advantage

• Price

• Speed

• Quality

• Service

• Innovation

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 15

The Role of The Role of GovernmentGovernment

• Fosters competitionFosters competition

• Regulates industriesRegulates industries

• Deregulate industriesDeregulate industries

• Protects stakeholder’s rightsProtects stakeholder’s rights

• Contributes to economic stabilityContributes to economic stability

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 16

Fostering CompetitionFostering Competition

• Antitrust legislation

• Mergers and acquisitions

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 17

Regulating and Regulating and Deregulating IndustriesDeregulating Industries

• Fair competition

• Business ethics

• Working conditions

• Public safety

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 18

Protecting StakeholdersProtecting Stakeholders

• Federal Trade Commission (FTC)

• Food and Drug Administration (FDA)

• Federal Aviation Administration (FAA)

• Interstate Commerce Commission (ICC)

• Securities and Exchange Commission (SEC)

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 19

Contributing to Economic Contributing to Economic StabilityStability

• Business cycle– Economic expansion– Economic contraction

• Fiscal policy– Revenue and spending

• Monetary policy– Interest rates

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 20

Monitoring Major Monitoring Major Economic IndicatorsEconomic Indicators

• Interest rates

• Housing starts

• Unemployment statistics

• Durable-goods orders

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 21

Measuring Price ChangesMeasuring Price Changes

• Consumer Price Index

• Purchasing power– Inflation– Deflation

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 22

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

© Prentice Hall, 2004 Business In Action 2e Chapter 1 - 23

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