Business Essentials Ch. 1

Law of Demand

Principle that buyers will purchase (Demand) more of a product as its price drops and less as its price increases.

Law of Supply

Principle that producers will offer (Supply) more of a product for sale as its price rises and less as its price drops.

Privatization

Process of converting government enterprises into privately owned companies.

Capitalism

The political basis of market processes is called _______.

Government regulation of business.

The political-legal environment between business and government is usually in what form?

Purchasing Power Parity

The principle that exchange rates are set so that the prices of similar products in different countries are about the same.

Output per capita goes up and the system provides more of the goods and services that people want.

The quantity of goods and services per person-goes up when aggregate output grows more quickly than the population.

Political-Legal Environment

The relationship between business and government.

Economic Indicator

A statistic that helps assess the performance of an economy.

Depression

A prolonged and deep recession.

negative

A _________ balance of trade results when a country imports more than it exports.

positive

A ___________ balance of trade results when a country export (sells to other countries) more than it imports (buys from other countries).

Monopoly

A ______________ exists when an industry or market has only one producer (or else is so dominated by one produce that other firms cannot compete with it).

Factors of Production

A basic difference between economic systems is the way in which a system manages its ________________.

productivity

A major factor in the growth of an economic system is ____________, which is a measure of economic growth that compares how much a system produces with the resources needed to produce it.

Productivity

A measure of economic growth that compares how much a system produces with the resources needed to produce it.

Consumer Price Index (CPI)

A measure of the prices of typical products purchased by consumers living in urban areas.

Economic System

A nation's system for allocating its resources among its citizens.

trade deficit

A negative balance of trade is commonly called a __________.

Recession

A period during which aggregate output, as measured by GDP, declines.

Technological Environment

All the ways by which firms create value for their constituents.

Demand and Supply Schedule

Assessment of the relationships among different levels of demand and supply at different price levels.

Stability

Condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate.

Information Resources

Data and other information used by businesses.

Profits

Difference between a business's revenues and its expenses.

Private enterprise system

Market economies rely on _____________.

Mixed Market Economy

Economic system featuring characteristics of both planned and market economies.

Private Enterprise

Economic system that allows individuals to pursue their own interests without undue government restriction.

Market Economy

Economy in which individuals control production and allocation decision through supply and demand.

Planned Economy

Economy that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions.

External Environment

Everything outside an organization's boundaries that might affect it.

International trade agreements, international economic conditions, political unrest, and so forth.

Factors affecting the global environment.

1. all firms in an industry must be small, and 2. the number of firms in the industry must be large.

For perfect competition to exist, what two conditions must prevail?

Capital

Funds needed to create and operate a business enterprise.

Real GDP

GDP adjusted to account for changes in currency values and price changes.

1%

GDP and GNP usually differ by less than _______, but economists argue that _________ is a more accurate indicator of domestic economic performance.

Nominal GDP

GDP measured in current dollars or with all components valued at current prices.

Stabilization Policy

Government economic policy intended to smooth out fluctuations in output and unemployment and to stabilize prices.

Demand Curve

Graph showing how many units of a product will be demanded (Bought) at different prices.

Supply Curve

Graph showing how many units of a product will be supplied (Offered for Sale) at different prices.

GDP Per Capita

Gross domestic product divided by total population.

Nominal GDP : GDP measure in current dollars or with all components valued at current prices.

If GDP is not adjusted, local GDP is ____________.

Economic growth

If aggregate output is going up, the nation is experiencing ______________.

Monopolistic competition

In ____________ competition, there are numerous sellers trying to make products at least seem to be different from those of competitors.

Entrepreneur

Individual who accepts the risks and opportunities involved in creating and operating a new business venture.

Natural Monopoly

Industry in which one company can most efficiently supply all needed goods or services.

Oligopoly

Market or industry characterized by a handful of (Generally Large) sellers with the power to influence the prices of their products.

Monopolistic Competition

Market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors.

Perfect Competition

Market or industry characterized by numerous small firms producing an identical product.

Monopoly

Market or industry in which there is only one producer that can therefore set prices of its products.

Market

Mechanism for exchange between buyers and seller of a particular good or service.

Economic indicators

Most experts look to various ___________ statistics that show whether an economic system in strengthening, weakening, or remaining stable-to help assess the performance of an economy.

Inflation

Occurs when widespread price increases occur throughout an economic system.

Business

Organization that provides goods or services to earn profits.

Aggregate Output goes up

People living in an economic system benefit from a high standard living when what happens?

Labor (Human Resources)

Physical and mental capabilities of people as they contribute to economic production.

Socialism

Planned economic system in which the government owns and operates only selected major sources of production.

Fiscal Policies

Policies used by a government regarding how it collects and spends revenue.

Monetary Policies

Policies used by a government to control the size of its money supply.

Communism

Political system in which the government owns and operates all factors of production.

Market Price (Equilibrium Price)

Profit-Maximizing price at which the quantity of goods demanded and he quantity of goods supplied are equal.

Economic Environment

Relevant conditions that exist in the economic system in which a company operates.

Factors of Production

Resources used in the production of goods and services-labor, capital, entrepreneurs, physical resources,and information resources.

balance of trade and national debt

Several factors can inhibit the growth of an economic system, including __________ and the _______.

Business Cycle

Short-term pattern of economic expansions and contractions.

Shortage

Situation in which quantity demanded exceeds quantity supplied.

Surplus

Situation in which quantity supplied exceeds quantity demanded.

Goods and services, as well as the standards of business conduct, that a society is likely to value and accept.

Sociocultural processes also determine what?

productivity

Standard on living improves only through increases in ____________.

Capitalism

System that sanctions the private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive.

stabilization policy

Taken together, fiscal policy and monetary policy make up ____________, government economic policy in which the goal is to smooth out fluctuations in output and unemployment and to stabilize prices.

Physical Resources

Tangible items that organizations use in the conduct of their businesses.

Human knowledge, work methods, physical equipment, electronics and telecommunications, and various processing systems that are used to perform business activities.

Technology Includes...

National Debt

The amount of money the government owes its creditors.

Sociocultural Environment

The customs, mores, value, and demographics characteristics of the society in which an organization functions.

Balance of Trade

The economic value of all products that a country exports minus the economic value of all the products it imports.

Domestic Business Environment

The environment in which a firm conducts its operations and derives its revenues.

fiscal and monetary

The government acts to manage the U.S. economic system through two sets of polices: ______ and ______.

fiscal policies

The government manages the collection and spending of its revenues through _________.

Global Business

The international forces that affect a business.

Unemployment

The level of joblessness among people actively seeking work in an economic system.

Standard of Living

The total quantity and quality of goods and services people can purchase with the currency used in their economic system.

Aggregate Output

The total quantity of goods and services produced by an economic system during a given period.

Shared Value

The underlying premise of a Market Economy is to create what?

Demand

The willingness and ability of buyers to purchase a good or service.

Supply

The willingness and ability of producers to offer a good or service for sale.

Gross Domestic Product (GDP)

Total value of all good s and services produced within a given period by a national economy through domestic factors of production.

Gross National Product (GNP)

Total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located.

Communism

Under what system would the government assign people jobs?

Competition

Vying among businesses for the same resources or customers.

Karl Marx

What 19th century economist envisioned communism?

Natural resources and raw materials, offices, storage and production facilities, parts and supplies, computers and peripherals, and a variety of other equipment.

What are included as physical resources?

Perfect competition, monopolistic competition, oligopoly, and monopoly.

What are the four degrees of competition?

Labor, capital, entrepreneurs, and physical resources. Information resources.

What are the traditional four factors of production? What do economists also include in this list?

Communism and Socialism

What are the two basic forms of planned economies?

Planned economies, Market Economies, and Mixed Market Economies.

What are the types of economic systems?

Capitalism and free enterprise

What do Market Economies rely on to create an environment in which producers and consumers are free to sell and buy what they choose?

Market forecasts, the specialized knowledge of people, and economic data.

What information resources do businesses rely on?

GDP per capita

What is a reflection of the standard of living?

Aggregate output

What is the primary measure of growth in the business cycle?

Privatization

When a government is making a change from a planned economy to a market economy, it usually begins to adopt market mechanisms through _______________.

Oligopoly

When an industry has only a handful of sellers, an _______________ exists.

Market price or equilibrium price

When demand and supply curves are plotted on the same graph, the point at which they intersect is the _________________.

Real GDP

_______ means that GDP has been adjusted to account for changes in currency values and price changes.

instability

_______ results when the amount of money injected into an economy exceeds the increase in actual output, so people have more money to spend but the same quantity of products available to buy.

stability

________ is a condition in which the amount of money available in an economic system and the quantity of goods and services produced in it are growing at about the same rate.

unemployment

________ is the level of joblessness among people actively seeking work in an economic system.

inflation

________ occurs when an economic system experience widespread price increases.

consumer price index

_________ measures the prices of typical products purchased by consumers living in urban areas.

monetary policies

__________ focus on controlling the size of the nation's money supply.

national debt

__________ is the amount of money that the government owes its creditors.

External Environment

___________ Plays a major role in determining the success or failure of any organization.

Purchasing power parity

_____________ gives us a much better idea of what people can actually buy with the financial resources allocated to them by their respective economic systems.