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The Foundations
Of Business
1-1
Chapter Objectives
1.
2.
3.
4.
5.
6.
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Identify participants, functions and
external forces of business
Define economics & explain key
questions of economics
Describe perfect competition & explain
supply/demand interaction with price
Describe monopolistic competition,
oligopoly, and monopoly
Understand criteria to assess economy
Discuss government’s role in
economy
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Business
1-3
1-4
For Profit
• “…any activity that provides
goods or services for the purpose
off making
k
a profit.”
f ”
Vs
Vs.
Not--forNot
for-profit
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Exploring Business © 2009 FlatWorld Knowledge
Business Participants
Owners
1-5
Functional Areas
of Business
1-6
™Management
™Operations
™Marketing
Customers
™Accounting
™Finance
Employees
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Management
1-7
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¾ Financial Accountants
1) Prepare financial statements
2) Assess financial strength
¾ Managerial AccountantsAccountants-Prepare
internal reports
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Accounting
1-10
“…measure(s),
summarize(s), and
communicate(s)
financial and managerial
information...and advise
other managers on
financial matters.”
• “...everything that a company
does to identify customers’
needs and design products to
meet those needs.”
Fields of Accounting
1-8
• “…convert(s)
resources…into goods or
services…to
ensur(e)...products are...high
quality.”
• “…planning, organizing,
staffing, directing, and
controlling
t lli a company’s
’
resources so it can achieve its
goals.”
Marketing
Operations
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Finance
1-12
•“…planning for, obtaining,
and managing a company
company’ss
funds.”
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Business and
Its Environment
1-13
Economics
1-14
“…study of how scarce
resources are used to
produce outputs...to be
distributed among
people.”
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Resources or
Inputs and Outputs
Entrepreneurship
1-15
Circular Flow
Of Inputs & Outputs
1-16
Land
Business
Capital
Labor
Outputs
Goods
Services
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Economists’ Questions
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1-17
Spectrum of
Economic Systems
1-18
1) Goods & Services Should Be Produced...?
2) How Goods & Services Produced?
3) Who...Receive(s) The Goods & Services
Produced?
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Privatization
Adam Smith
1-19
1-20
ƒ Wealth of Nations (1776)
ƒ “Invisible Hand”
ƒ Laissez
Laissez--faire
“…converting
previously
government--owned
government
businesses to private
ownership...”
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Exploring Business © 2009 FlatWorld Knowledge
Perfect Competition Exists
Supply & Demand
1-21
1-22
$0.70
Numerous Sellers
$0.60
$0.50
Price
e
$0.40
Standardized Product
Supplied
Demanded
$0.30
Equilibrium
$0.20
Point
$0.10
$0.00
Many Consumers
0
10
20
30
40
50
Units
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Monopolistic Competition
Differentiated Product
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Consumers
Group B
Oligopoly
Seller A
Many Sellers
Consumers
Group A
1-23
Consumers
Group C
1-24
Seller B
Similar Product
Consumer
Group A
Consumer
Group B
Consumer
Group C
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Monopoly
World’s Main
Economic Goals & Measures
1-25
Seller
1-26
1) Growth
Growth-- Gross
Domestic Product
2) High Employment
Employment-U
Unemployment
l
t Rate
R t
Consumer Consumer Consumer
B
C
A
3) Price StabilityStabilityConsumer Price
Index
Consumer Consumer
E
D
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Gross Domestic Product
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Business Cycle
1-27
15
• “…market value of all goods and
services produced by...economy in a
given y
g
year…includes only...goods
y g
and
services produced domestically.”
Prosperity
1-28
Recovery
GDP % Ch
hange
10
5
0
-5
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15
-10
-15
Recession
Depression
Years
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U.S. Unemployment Rate
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1-29
Price Stability
1-30
9Inflation
9Deflation
9Consumer Price Index (CPI)
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U.S. Inflation Rate
Economic Indicators
1-31
1-32
•“…statistic(s) that provide
valuable information about
the economy.”
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Lagging
Economic Indicators
Leading
Economic Indicators
1-33
•“Statistics that report the
status of the economy a few
months in the past....”
1-34
• “...predict the status of the economy three to
twelve months in the future....”
1)
2)
3)
4)
5)
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Unemployment Claims
Average Weekly Manufacturing Hours
Building Permits
U.S. Leading Index
Consumer Confidence Index
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Government &
Economic Management
1-35
National Debt
1-36
w Monetary Policy
9 Control = Federal Reserve
9 Contractionary
9 Expansionary
Fiscal Policy
9Control = government
9Taxation
9Spending
9National Debt
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Areas of Economics
1-37
• Macroeconomic
Macroeconomicss- Study of the economy
as a whole
Microeconomics- Study of the
Microeconomics
economic choices of
individual consumers &
businesses
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