CHAPTER 1 AND 2
Taking Risks and
Making Profits,
Understanding
Economic and Its
Affects
Kelompok 8
1. Fabian Immanuel / 2106712605
2. Khimi Aurelia Halim / 2106738075
3. Vanessa Carlene / 2106738485
Business and Wealth Profit
A business = any activity that seeks to
provide goods and services to others
while operating at a profit
Profit = the amount of money a business
earns above and beyond what it spends
Loss = when a business’s expenses are
more than its revenues
Bigger risk can mean bigger profits or
bigger loss
Standard of Living and Quality of Life
Standard of living = the amount of goods and services people can buy with
their money
Goods cost more in some countries because of higher taxes and stricter
regulations
Quality of life = general well-being of a society
BUSINESSES AND THEIR EMPLOYEES PAY TAXES
GOVERNMENT BUILD PUBLIC FACILITIES
CONTRIBUTES TO THE STANDARD OF LIVING AND
QUALITY OF LIFE FOR EVERYONE IN THE COUNTRY
Various Stakeholders and nonprofit
organization
A challenge for organizations in the 21st century is to
recognize and respond to the needs of their stakeholders
Stakeholders consist of :
customers,
employees,
stockholders,
suppliers,
dealers (retailers),
bankers,
community,
media,
environmentalists,
competitors,
government leaders
The knowledge and skills from business's course are useful for careers in any
organization, including nonprofits organization (organization whose focus on
social and educational goals).
Two ways to succeed in business
1
Rise through the ranks of a large company (less risky and the
company provides you benefits)
2
Become an entrepreneur (riskier and you provide benefits for yourself)
five factors of production
1
Land & other natural resources
2
Labor
3
Capital
4
Enterpreneurship (critical element)
5
Knowledge (critical element)
The Business
Environment
1. The economic and legal environment
What the governments
can do to help
businesses?
Allow private ownership of businesses
Minimize interference of free trade in
2. The technological environment
3. The competitive environment
4. The social environment
goods and services
Passing laws that enable entrepreneur
writes enforceable contracts
Establish a currency that is tradable in
world markets
5. The global business environment
Minimize corruption
The Technological
Environment
Technology makes business people do their job easier, more
effective, efficient, and productive
The more technology is used, the fewer workers are needed
E-commerce becomes so important, either the B2B or B2C markets
Technology helps businesses respond to customer needs by using
database for ads and subscription mail
Technology also opens the possibility of identity theft
The Competitive Environment
Every company's goals is no mistakes on
their product
Business nowadays is customer-driven
rather than management-driven
Company must give their frontline workers
the responsibility, freedom, and others to
respond quickly to customer requests
Company must allow workers to make
other decisions to producing high-quality
goods and services
The Social Environment
Demographic trends affect business and
career choices
Diversity nowadays not just about
minority and female employees
Some governments are making efforts
to adapt with diversity
Businesses that serve older consumers
needs will have the opportunity in the
future
Social Security for retire people will
reduce the economy wealth
Single-Parent Families effect businesses
to implement some programs
THE GLOBAL ENVIRONMENT
Two important modifications:
1. Increases the international competition
2. Makes bigger free trade among nations
World trade has grown because of the efficiency of distribution systems and
communication advances
THE BENEFITS AND COSTS
1. War and Terrorism: Make the government spend greater cash on spying and the
military.
2. How Global Changes Affect: As businesses enlarge to serve global markets and
new jobs will be created in manufacturing and service industries.
3. The Ecological Environment: Climate change, global warming, and few issues have
been captured by the international business community.
HOW PAST TRENDS ARE BEING REPEATED
1. Progress in the Agricultural and Manufacturing Industries
In the U.S. , since the 1800s, the agricultural industry has led the
way
The changes are small farms have been replaced by some huge
farms, some merely large farms, and some but highly specialized
farms.
The farmers who lost their job during the 19th and 20th
centuries work in factories.
The farms began using new technology, tools, and machines to
become more productive
Many workers in the industrial sector found jobs in the growing
service sector
People who can’t find work nowadays are people who need
retraining and education.
2. Progress in Service Industries
In this modern time, the fastest-growing companies provide
services
Services make up almost 80% of the value of U.S. economy
There are more high-paying jobs in the service sector than in
the goods-producing sector.
Basic Economic
Economics = The study of how society chooses to
appoint sources to produce items and offerings
and distribute them for consumption.
In economics, there are macroeconomics
(nation) and microeconomics (each person
and organization)
Businesses can contribute to an economic
system by inventing products that greatly
increase available resources
The Secret to Creating A Wealthy Economy
In developed countries, population growth are slower
than in developing countries
An educated large population can be a valuable
resource
Macroeconomists need to research what makes some
countries wealthy and the others don't and to
implement policies and programs that increase
prosperity.
Adam Smith and the Creation of Wealth
Freedom was necessary to the survival of
any economy (to own land and to preserve
profits)
People will work longer and harder if they
have incentives for doing it
How Businesses Benefits the Community
Business people's efforts are referred to an
“invisible hand” that helps the financial system
develop and prosper through the production of
needed goods, services, and ideas.
CAPITALISM AND HOW FREE MARKETS WORK
Free-Market Capitalism
In capitalism, most factors of manufacturing and distribution are
owned by individuals and for their own profit.
State capitalism: A mixture between freer markets and authorities
control
Four basic rights under free-market capitalism :
The right to own private property
The right to own a business and keep all that business's profit
The right to freedom of competition
The right to freedom of choice
The advantage of the four primary rights is people are willing to take
greater risks than they should.
How Free Markets Work
What and how much to produce are
made by the market
Prices are determined by buyers and
sellers in the marketplace
If something is wanted but isn’t available,
the price tends to go up
Goods rarely shortage in a long-term
Demand
The quantities of products that
people are willing to buy at different
prices in a specific time.
The lower the price, the more people
willing to buy.
Supply
The number of products that the owners
are willing to sell at different prices in a
specific time.
The higher the price, the more seller
willing to supply.
The equilibrium
The supply and demand curve
would cross where quantity and
price that are demanded and
supplied are equal
That price will be market price
COMPETITION WITHIN FREE
MARKETS
BENEFITS OF FREE MARKETS
Allows open competition among
Perfect Competition
(many sellers)
companies
Monopolistic Competition
(large number of sellers)
Encourages companies to be more
Gives opportunities for poor people to
work and get out of poverty
efficient
LIMITATIONS OF FREE MARKETS
Oligopoly
(few sellers)
Some people allow themselves to be
dictated by greed
The business owners and managers are
Monopoly
(1 seller)
getting richer, but the lower-level
workers not
Not all people can start a business
Socialism and
Communism
Socialism may be beneficial to social equity
Socialism may result in fewer inventions than in a
capitalist system
One of the disadvantages that may happen in a socialist
system is a condition called Brain Drain
Problems within communism include the lack of
knowledge the government has on knowing things to
produce.
Communism doesn't inspire businesses to work hard
TREND ABOUT MIXED
ECONOMIES
Free Market Economies: The market determines the
majority of sectors, usually called capitalism
Command Economies: The government takes control of
the whole sector, usually referred as socialism and
communism
The mix of the two systems hasn't resulted in
optimal economic conditions.
Mixed economics: allocation of resources are some
made by the market and some by government.
Comparisons
of Key
Economics
Systems
U.S. Economic System
Key Economic Indicators :
Gross Domestic Product (GDP)
Unemployment Rate
Price Indexes
GDP
Total value of final goods and services
produced in a country in a given year.
The growth and decline of GDP affects
businesses.
Gross Output (GO) is considered a
better indicator of business cycle than
GDP
The Unemployment Rate
Seasonal Unemployment : Demand for labor varies
Cyclical Unemployment : Caused by recession/downturn cycle
Structural Unemployment : Caused by the restructuring firms
Frictional Unemployment : Quit work and haven't found a new job
Price Indexes
Price indexes can be a gauge for the health of the
economy by measuring the levels of inflation,
disinflation, deflation, and stagflation
The Business Cycle
1
2
3
4
BOOM
RECESSION
DEPRESSION
RECOVERY
Business is
Booming
GDP Declines for
two or more
consequtive quarters
Severe recession with
deflation
Economy stabilizes
and grows
Fiscal and
Monetary Policy
TO STABILIZE THE
ECONOMY
Keynesian Economic Theory
The theory that a
government policy of
increasing spending and
cutting taxes could stimulate
the economy in a recession.
FISCAL
Lowering tax rates to give
economic boost
Cut government spending (if the
economy is in deficit)
MONETARY
Raising or lowering interest rates
Controls the money supply
Source
Nickels, William G., James M. McHugh, & Susan M.
McHugh. (2019). Understanding Business Twelfth
Edition. New York : McGraw-Hill Education
https://www.britannica.com/topic/supply-anddemand