Business Review Chapter 1

Entrepreneurship

A person who organizes and operates a business or businesses

Business ownership under Capitalism

Businesses are privately owned with minimal government ownership or interference.

Why is Perfect Competition considered an ideal?

Buyers and sellers in the market have good information about prices, sources of supply, and easy new business to open.

What are the 2 broad categories of economic systems?

Capitalism and Socialism

Management of enterprises under capitalism

Each enterprise is managed by owners or professional mangers with little government interference.

What are the 3 macroeconomic goals?

Economic growth, full employment, and price stability

What makes social factors difficult to predict, define and measure?

Factors are difficult to predict because they are subjective.

How does the government correct this problem?

Federal budget deficit

Example of Socialism

Finland, India, Israel

What is fiscal policy, and how does it stimulate the economy?

Fiscal policy is the program of taxation and spending.

Why are economic influences considered the most important external influences on businesses?

Fluctuations in the level of economic activity create business cycles that affect businesses and individuals in many ways

What is the point of equilibrium and why is it important?

It important to create both a balanced market and an efficient market.

Land (significance)

It is the physical place where economic activity takes place.

4 traditional factors of production

Land, Labor, Capital, and Entrepreneurship

Business ownership under Communism

Government owns all or most enterprises

Example of Mixed economic system

Great Britain, France, Sweden, Canada

How is economic growth measured?

Gross Domestic Product (GDP)

Profit

Money left over after paying off its costs

Workers incentives under communism

No incentive to work hard or produce quality products.

What are we referring to when we say "external business environment?"

Outside forces

Labor (significance)

People that are available to transform resources into goods or services that can be purchased.

Business ownership under Mixed Economy

Private ownership of land and businesses but government control of some enterprises. The private sector is typically large.

Workers incentives under socialism

Private-sector incentives are the same as capitalism, and public sector incentives are the same as in a planned economy.

Workers incentives under mixed economy

Private-sector incentives are the same as capitalism. Limited incentives in the public sector.

Management of enterprises under mixed economy

Private-sector management similar to capitalism. Public sector similar to socialism.

What is the relationship between quality of life and risk?

Quality of life is the focus on human happiness and risk is the possibility of losing everything.

Management of enterprises under socialism

Significant government planning and regulation. Bureaucrats run government enterprises.

What are demographic factors, and why are they important?

Some factors are age, sex, social class, race, employment, and location. These factors are important because a business needs to plan who their consumers are and who is going to help their business in the future.

Market control under socialism

Some markets are controlled, and some are free. Significant central government planning. State enterprises are managed by bureaucrats. These enterprises are rarely profitable.

Market control under mixed economy

Some markets, such as nuclear energy and the post office, are controlled or highly regulated.

Workers incentives under capitalism

Strong incentive to work and innovate because profits are retained by owners.

Standard of living

Tangible items made by businesses

What is technology? Why is it important? How does it improve productivity?

Technology is the application of science and engineering skills and knowledge to solve production and organizational problems. It is important because technology is used to create change, improve efficiencies, and streamline operations.

Which industries come the closest to being considered Perfect Competition?

The agriculture industry

What role does government play in economics as a circular flow?

The governments levy taxes on households and businesses

Revenue

The money a company receives by providing services or selling goods to customers.

Capital

The money that companies use to buy resources, as well as physical assets that companies use when producing goods or services.

Risk

The potential to lose time and money or otherwise not be able to accomplish an organization's goals.

What is the significance of circular flow?

The significance is to understand how money moves within an economy

What is inflation?

The situation in which the average of all prices of goods and services is rising

What are the 2 types of inflation and their differences?

The two different types of inflation are demand-pull inflation and cost-push inflation. Demand-pull inflation occurs when the demand for goods and services is greater than the supply. Cost-push inflation triggered by increases in production costs, such as expenses for materials and wages

What happens when inflation is high?

The value of money goes down.

What is the purpose of not-for-profit organizations?

To achieve some goal other than the usual business goal of profit.

Why would the Federal Reserve use the expansionary policy?

To expand the economy

Example of Capitalism

United States

Microeconomics

focuses on individual parts of the economy, such as households or firms.

What is the downside of Oligopolies?

oligopoly can block new entrants, slow innovation, and increase prices

Social

our attitudes, values, ethics, and lifestyles—influence what, how, where, and when people purchase products or services.

What is monetary policy?

refers to a government's programs for controlling the amount of money circulating in the economy and interest rates.

Quality of life

refers to the general level of human happiness based on such things as life expectancy, educational standards, health, sanitation, and leisure time.

Technological

the application of science and engineering skills and knowledge to solve production and organizational problems.

What is the Federal Reserve System's role?

the central banking system of the United States, prints money and controls how much of it will be in circulation.

Economic system

the combination of policies, laws, and choices made by its government to establish the systems that determine what goods and services are produced and how they are allocated.

Communism

the government owns virtually all resources and controls all markets.

Economic

the study of how a society uses scarce resources to produce and distribute goods and services.

Economics

the study of how a society uses scarce resources to produce and distribute goods and services.

Demographic

the study of people's vital statistics, such as their age, gender, race and ethnicity, and location.

Macroeconomics

the study of the economy as a whole. It looks at aggregate data for large groups of people, companies, or products considered as a whole.

How long must a decline in GDP last to be called a recession?

two consecutive quarters (each a three-month period)

What makes up the internal business environment?

Day to day operations

What are the four types of market structures?

(1) perfect competition, (2) pure monopoly, (3) monopolistic competition, and (4) oligopoly.

What are two characteristics of Oligopoly?

1. A few firms produce most or all of the output. 2. Large capital requirements or other factors limit the number of firms

What are the four types of unemployment, and how do they differ?

1. Frictional unemployment - short-term unemployment that is not related to the business cycle. 2. Structural unemployment - It is caused by a mismatch between available jobs and the skills of available workers in an industry or a region. 3. Cyclical unemployment - occurs when a downturn in the business cycle reduces the demand for labor throughout the economy. 4. Seasonal Unemployment - occurs during specific times of the year in certain industries.

What factors increase or decrease demand?

1. Individual Income Increases / Decreases 2. Changes in fashion/ taste 3. Related product prices increase/ decrease 4. Expectations on future prices 5. Changes in the number of buyers

What three characteristics define monopolistic competition?

1. Many firms are in the market 2. The firms offer products that are close substitutes but still differ from one another. 3. It is relatively easy to enter the market.

Political/Legal

3 components of political climate: - Amount of government activity - Types of law it passes - Political stability

What is the difference between goods and services?

A good is an item being sold and a service is a service provided.

Business

An organization that strives for a profit by providing goods and services desired by customers

Business ownership under Socialism

Basic industries such as railroads and utilities are owned by government. Very high taxation as government redistributes income from successful private businesses and entrepreneurs.

Why are pure monopolies allowed?

Because the businesses have barriers to entry.

Why is product differentiation important?

Because the competition is high so a business needs their product to be unique

Regarding their daily operations, why should managers take into consideration the political climate of a country?

Because the economic system can change suddenly and it have a huge affect on their business.

Management of enterprises under communism

Centralized management by the government bureaucracy. Little or no flexibility in decision making at the factory level.

Market control under capitalism

Complete freedom of trade. No or little government control.

Market control under communism

Complete government control of markets.

What are the results if government spending is not managed well?

Crowding out

Example of Communism

Cuba, North Korea

Mixed Economy

an economic system combining private and public enterprise.

Socialism

an economic system in which the basic industries are owned by the government or by the private sector under strong government control.

Costs

are expenses for rent, salaries, supplies, transportation, and many other items that a company incurs from creating and selling goods and services.

Capitalism

based on competition in the marketplace and private ownership of the factors of production (resources).