Business Economics
Pre-Project 5 & Project 5 Notes
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Analyze the impact of specialization /division of labor on productivity (remember the
box making game)
o
Specialization is the process of making the best use of resources in the production of
goods and services.
 Natural resources: we locate businesses where they can be the most
successful (i.e., ski lodge in the mountains close to the slopes, orange groves
in states with warm climates)
 Capital resources: specialized capital goods contribute to increased
productivity (i.e., use of robots on assembly lines)
 Human resources: this occurs when people use their different skills and
abilities in jobs for which they are best suited. People should do what they do
best so that the most goods and services can be produced.
 Specialization by trade or profession: doctor, plumber, artist
 Specialization by stage of production: assembler, finisher
 Specialization by task: also known as division of labor; occurs when
jobs are so specialized that a worker does only one small part of the
total job (i.e., in a textile mill, one worker cleans the wool, another
spins it into yarn, another dyes the yarn, and another weaves)
 Scope of jobs: the number of different operations you do on the job and
the frequency with which you do them; the lower the task, the lower the
scope of the job (i.e., low scope – put doors on cars on an assembly line;
high scope – put doors on cars, put seats in cars, and check the steering
mechanism)
 Depth of jobs: the amount of control you have over the tasks that you do
(i.e., low depth – there are strict guidelines you must follow, and you
make very few decisions; high depth – you follow general guidelines and
set your own pace)
 Advantages of specialization: simplified worker training, increased
employee interest and satisfaction, increased production rates, increased
level of skill, increased quality of work, and ease of transferring to a
similar job.
 Disadvantages of specialization: increased interdependency, increased
boredom on the job, decreased pride in work, decreased morale and
enthusiasm for the job, increased chance of obsolescence because of
technological advances, high degree of specialization may cause difficulty
transferring or obtaining another job.
 Ways to combat disadvantages: job enlargement – management may
combine job tasks; job rotation – managers may rotate employees
periodically so that they learn new tasks; job enrichment – managers add
interest to a task to increase a job’s depth; job satisfaction: managers may
ask for and use employee suggestions, allow flexible work schedules,
praise work done well, provide incentives, contests, bonuses.
o
We specialize in the production of certain goods and services and exchange them for
other goods and services.
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Business Economics
o
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If you decided to produce all the goods and services you needed, rather than
producing some and trading for others, you would have less time to devote to the
production of any one item, resulting in production of fewer items than if you’d
specialized.
Explain the nature of business processes
o
Business processes are a sequence of activities followed to achieve business goals;
often manual tasks that employees do; can be expedited by software tools.
o
Business processes expedites workflow by making sure that the right things are done
in the right order. Streamlined processes help to create a competitive advantage.
Their goal is to create value that exceeds the cost of providing the good or service.
 Types of business processes: quality management, risk management,
communication management, performance management, human resources
management, configuration management, procurement management,
requirement management, information management/IT, program/portfolio
management
 Characteristics of business processes: they are large and complex; they
are dynamic and changing (in response to the economy); they are widely
distributed and customized across boundaries within and between
businesses; they are long running for months or years; they are automated
to handle routine activities whenever possible; they address both business
and IT activities; they rely on human judgment and intelligence; and they
are difficult to make visible.
o
A process begins with inputs and ends with output; therefore, they mark the
boundaries of a process.
o
In economic terms, processes involve human resources and capital goods or
“human-made” resources. Resources are the things that do the work or are required
for the work to be done. They do not, in the case of processes, include items that are
undergoing changes or are moving from one process to the next.
Describe the nature of taxes
o Know definitions: tax, income tax, sales tax, excise tax, property tax, revenue,
expenditure.
o Taxes are the primary source of revenue for the government sector.
 Services such as national defense, roads, and education can be produced
more efficiently by the government instead of private individuals.
 The government is responsible for creating the infrastructure necessary for
commerce: banking system, national defense, transportation
o Sources and uses of taxes
 Federal Government
 Sources: income taxes, excise taxes
 Uses: national defense, education, transportation systems, judicial
system, social security and Medicare, Medicaid, Veterans services
 State Government
 Sources: income taxes, sales taxes, excise taxes
 Uses: state police protection, education, operation of state
government
 Local Government
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Business Economics
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Sources: property taxes, sales taxes, income taxes
Uses: education, public health and safety (fire and police),
sanitation
o Government expenditures
 Roads, highways, and bridges are financed through the gasoline excise tax
 Social Security system, which provides income to retired workers,
receives its monies from retirement taxes
o Internal Revenue Service
 Collects federal income taxes
 Enforces federal revenue law
 Helps taxpayers with tax law
 Pursues taxpayers who are not in compliance with tax law
o Types of tax structures
 Proportional: everyone pays the same percentage of income in taxes,
regardless of income level
 Progressive: those who earn more pay a higher percentage of income in
taxes. As the income increases, the tax rate increases.
 Regressive: those who earn more income pay a lower percentage of
income taxes. As the income increases, the tax rate decreases.
o Circular flow of income model
 Illustrates the constant movement of production inputs, goods, services,
and money in the economy.
 The government is in the middle of the flow.
Describe the determinants of exchange rates and their effects on the domestic
economy
o Determinants: trade, interest rates, inflation, and speculation
o A strong dollar also means that U.S. companies can export less since their products
cost more relative to foreign products. Over time, this slows economic growth. It
also causes companies to source jobs overseas, where foreign workers cost less since
they are paid in relatively weaker currencies.
o If the dollar declines, this erodes the value of your personal finances. That is because
import prices will start to rise, causing inflation that will lower the value of your
cash holdings. On the other hand, a weak dollar could help exports, which would
strengthen the economy and bring jobs back to the U.S. in the long run.
Discuss how incentives influence the economic behavior of individuals
o Financial
 Money, profit sharing, merit pay raises
o Non-financial
 Praise, gifts, "warm fuzzy feeling"
Explain the impact of the law of diminishing returns
o In the short run, as an increasing amount of a variable factor is added to a fixed
factor, the marginal product may at first rise, but must eventually fall (i.e. Waldo's
TacoWorld exercise)
o Business must find the stage of production when output peaks and work to maintain
that level of production.
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