BUS 151 Chapters 1 & 2

deontology

A philosophy in which a person will follow his or her obligations to an individual or society because upholding one's duty is what is ethically correct.

utilitarianism

A philosophy that focuses on the consequences of an action to determine whether it is right or wrong; holds that an action that affects the majority adversely is morally wrong.

capitalism

An economic system based on competition in the marketplace and private ownership of the factors of production (resources); also known as the private enterprise system.

communism

An economic system characterized by government ownership of virtually all resources, government control of all markets, and economic decision-making by central government planning.

socialism

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

economic growth

An increase in a nation's output of goods and services.

consumer price index (CPI)

An index of the prices of a "market basket" of goods and services purchased by typical urban customers.

producer price index (PPI)

An index of the prices paid by producers and wholesalers for various commodities, such as raw materials, partially finished goods, and finished products.

not-for-profit organization

An organization that exists to achieve some goal other than the usual business goal of profit.

business

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

How do businesses and not-for-profit organizations help create our standard of living?

Businesses attempt to earn a profit by providing goods and services desired by their customers. Not-for-profit organizations, though not striving for a profit, still deliver many needed services for our society. Our standard of living is measured by the output of goods and services. Thus, businesses and not-for-profit organizations help create our standard of living. Our quality of life is not simply the amount of goods and services available for consumers but rather the society's general level of happiness. Economists refer to the building blocks of a business as the factors of production. To produce anything, one must have natural resources, labor (human resources), capital, and entrepreneurship to assemble the resources and manage the business. Today's competitive business environment is based upon knowledge and learning. The companies that succeed will be those that learn fast, use knowledge efficiently, and develop new insights.

barriers to entry

Factors, such as technological or legal conditions, that prevent new firms from competing equally with an existing firm.

savings bonds

Government bonds issued in relatively small denominations.

national debt

The accumulated total of all of the federal government's annual budget deficits.

market structure

The number of suppliers in a market.

unemployment rate

The percentage of the total labor force that is not working but is actively looking for work.

equilibrium

The point at which quantity demanded equals quantity supplied.

factors of production

The resources used to create goods and services.

purchasing power

The value of what money can buy.

How can organizations encourage ethical business behavior?

Top management must shape the ethical culture of the organization. They should lead by example, offer ethics-training programs, and establish a formal code of ethics.

business cycles

Upward and downward changes in the level of economic activity.

knowledge workers

Workers who create, distribute, and apply knowledge.

strategic alliance

A cooperative agreement between business firms; sometimes called a strategic partnership.

standard of living

A country's output of goods and services that people can buy with the money they have.

recession

A decline in GDP that lasts for at least two or three consecutive quarters.

monetary policy

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

supply curve

A graph showing the quantity of a good or service that businesses will make available at various prices.

demand curve

A graph showing the quantity of a good or service that people are willing to buy at various prices.

oligopoly

A market structure in which a few firms produce most or all of the output and in which large capital requirements or other factors limit the number of firms.

perfect (pure) competition

A market structure in which a large number of small firms sell similar products, buyers and sellers have good information, and businesses can be easily opened or closed.

pure monopoly

A market structure in which a single firm accounts for all industry sales of a particular good or service and in which there are barriers to entry.

monopolistic competition

A market structure in which many firms offer products that are close substitutes and in which entry is relatively easy.

How do economic growth, full employment, price stability, and inflation indicate a nation's economic health?

A nation's economy is growing when the level of business activity, as measured by gross domestic product (GDP) is rising. GDP is the total value of all goods and services produced in a year. The goal of full employment is to have a job for all who can and want to work. How well a nation is meeting its employment goals is measured by the unemployment rate. There are four types of unemployment: frictional, structural, cyclical, and seasonal. With price stability, the overall prices of goods and services are not moving very much either up or down. Inflation is the general upward movement of prices. When prices rise, purchasing power falls. The rate of inflation is measured by changes in the consumer price index (CPI) and the producer price index (PPI). There are two main causes of inflation. If the demand for goods and services exceeds the supply, prices will rise. This is called demand-pull inflation. With cost-push inflation, higher production costs, such as expenses for materials and wages, increase the final prices of goods and services.

code of ethics

A set of guidelines prepared by a firm to provide its employees with the knowledge of what the firm expects in terms of their responsibilities and behavior toward fellow employees, customers, and suppliers.

ethics

A set of moral standards for judging whether something is right or wrong.

ethical issue

A situation where a person must choose from a set of actions that may be ethical or unethical.

What is corporate social responsibility?

Corporate social responsibility is the concern of businesses for the welfare of society as a whole. It consists of obligations beyond just making a profit and goes beyond what is required by law or union contract. Companies may engage in illegal and irresponsible behavior, irresponsible but legal behavior, or legal and responsible behavior. The vast majority of organizations act legally and try to be socially responsible.

What are the basic microeconomic concepts of demand and supply, and how do they establish prices?

Demand is the quantity of a good or service that people will buy at a given price. Supply is the quantity of a good or service that firms will make available at a given price. When the price increases, the quantity demanded falls, but the quantity supplied rises. A price decrease leads to increased demand but a lower Chapter 1 Understanding Economic Systems and Business 53 supply. At the point where the quantity demanded equals the quantity supplied, demand and supply are in balance. This equilibrium point is achieved by market adjustments of quantity and price.

What are the primary features of the world's economic systems, and how are the three sectors of the U.S. economy linked?

Economics is the study of how individuals, businesses, and governments use scarce resources to produce and distribute goods and services. Today there is a global trend toward capitalism. Capitalism, also known as the private enterprise system, is based upon marketplace competition and private ownership of the factors of production. Competition leads to more diverse goods and services, keeps prices stable, and pushes businesses to become more efficient. In a communist economy, the government owns virtually all resources, and economic decision-making is done by central government planning. Governments have generally moved away from communism because it is inefficient and delivers a low standard of living. Socialism is another centralized economic system in which the basic industries are owned by the government or by the private sector under strong government control. Other industries may be privately owned. The state is also somewhat influential in determining the goals of business, the prices and selection of products, and the rights of workers. Most national economies today are a mix of socialism and capitalism. The two major areas in economics are macroeconomics, the study of the economy as a whole, and microeconomics, the study of households and firms. The individual, business, and government sectors of the economy are linked by a series of two-way flows. The government provides public goods and services to the other two sectors and receives income in the form of taxes. Changes in one flow affect the other sectors.

mixed economies

Economies that combine several economic systems; for example, an economy where the government owns certain industries but others are owned by the private sector.

What philosophies and concepts shape personal ethical standards?

Ethics is a set of moral standards for judging whether something is right or wrong. A utilitarianism approach to setting personal ethical standards focuses on the consequences of an action taken by a person or organization. According to this approach, people should act so as to generate the greatest good for the greatest number. Every human is entitled to certain rights such as freedom and the pursuit of happiness. Another approach to ethical decision-making is justice, or what is fair according to accepted standards.

costs

Expenses incurred from creating and selling goods and services.

stakeholders

Individuals or groups to whom a business has a responsibility; include employees, customers, the general public, and investors.

cost-push inflation

Inflation that occurs when increases in production costs push up the prices of final goods and services.

demand-pull inflation

Inflation that occurs when the demand for goods and services is greater than the supply.

services

Intangible offerings of businesses that can't be held, touched, or stored.

What are the four types of market structure?

Market structure is the number of suppliers in a market. Perfect competition is characterized by a large number of buyers and sellers, very similar products, good market information for both buyers and sellers, and ease of entry into and exit from the market. In a pure monopoly, there is a single seller in a market. In monopolistic competition, many firms sell close substitutes in a market that is fairly easy to enter. In an oligopoly, a few firms produce most or all of the industry's output. An oligopoly is also difficult to enter, and what one firm does will influence others.

How does the government use monetary policy and fiscal policy to achieve its macroeconomic goals?

Monetary policy refers to actions by the Federal Reserve System (the Fed) to control the money supply. When the Fed restricts the money supply, interest rates rise, the inflation rate drops, and economic growth slows. By expanding the money supply, the Fed stimulates economic growth. The government also uses fiscal policy— changes in levels of taxation and spending—to control the economy. Reducing taxes or increasing spending stimulates the economy; raising taxes or decreasing spending does the opposite. When the government spends more than it receives in tax revenues, it must borrow to finance the deficit. Some economists favor deficit spending as a way to stimulate the economy; others worry about our high level of national debt.

entrepreneurs

People who combine the inputs of natural resources, labor, and capital to produce goods or services with the intention of making a profit or accomplishing a not-for-profit goal.

frictional unemployment

Short-term unemployment that is not related to the business cycle.

How do businesses meet their social responsibilities to various stakeholders?

Stakeholders are individuals or groups to whom business has a responsibility. Businesses are responsible to employees. They should provide a clean, safe working environment. Organizations can build employees' selfworth through empowerment programs. Businesses also have a responsibility to customers to provide good, safe products and services. Organizations are responsible to the general public to be good corporate citizens. Firms must help protect the environment and provide a good place to work. Companies also engage in corporate philanthropy, which includes contributing cash, donating goods and services, and supporting volunteer efforts of employees. Finally, companies are responsible to investors. They should earn a reasonable profit for company owners.

goods

Tangible items manufactured by businesses.

productivity

The amount of goods and services one worker can produce.

technology

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

Federal Reserve System (the Fed)

The central banking system of the United States.

economic system

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

knowledge

The combined talents and skills of the workforce.

corporate social responsibility (CSR)

The concern of businesses for the welfare of society as a whole; consists of obligations beyond those required by law or contracts.

federal budget deficit

The condition that occurs when the federal government spends more for programs than it collects in taxes.

full employment

The condition when all people who want to work and can work have jobs.

What are the sectors of the business environment, and how do changes in them influence business decisions?

The external business environment consists of economic, political and legal, demographic, social, competitive, global, and technological sectors. Managers must understand how the environment is changing and the impact of those changes on the business. When economic activity is strong, unemployment rates are low, and income levels rise. The political environment is shaped by the amount of government intervention in business affairs, the types of laws it passes to regulate both domestic and foreign businesses, and the general political stability of a government. Demographics, or the study of people's vital statistics, are at the heart of many business decisions. Businesses today must deal with the unique preferences of different generations, each of which requires different marketing approaches and different goods and services. The population is becoming increasingly diverse: currently minorities represent more than 38 percent of the total U.S. population, and that number will continue to increase over the next several decades. Minorities' buying power has increased significantly as well, and companies are developing products and marketing campaigns that target different ethnic groups. Social factors—our attitudes, values, and lifestyles—influence what, how, where, and when people purchase products. They are difficult to predict, define, and measure because they can be very subjective. They also change as people move through different life stages.

quality of life

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

fiscal policy

The government's use of taxation and spending to affect the economy.

capital

The inputs, such as tools, machinery, equipment, and buildings, used to produce goods and services and get them to the customer.

revenue

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

profit

The money left over after all costs are paid.

circular flow

The movement of inputs and outputs among households, businesses, and governments; a way of showing how the sectors of the economy interact.

risk

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

relationship management

The practice of building, maintaining, and enhancing interactions with customers and other parties to develop long-term satisfaction through mutually beneficial partnerships.

corporate philanthropy

The practice of charitable giving by corporations; includes contributing cash, donating equipment and products, and supporting the volunteer efforts of company employees.

social investing

The practice of limiting investments to securities of companies that behave in accordance with the investor's beliefs about ethical and social responsibility to encourage businesses to be more socially responsible.

strategic giving

The practice of tying philanthropy and corporate social responsibility efforts closely to a company's mission or goals and targeting donations to the communities where a company does business.

supply

The quantity of a good or service that businesses will make available at various prices.

demand

The quantity of a good or service that people are willing to buy at various prices.

inflation

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

crowding out

The situation that occurs when government spending replaces spending by the private sector.

economics

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

demography

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

microeconomics

The subarea of economics that focuses on individual parts of the economy, such as households or firms.

macroeconomics

The subarea of economics that focuses on the economy as a whole by looking at aggregate data for large groups of people, companies, or products.

gross domestic product (GDP)

The total market value of all final goods and services produced within a nation's borders each year.

expansionary policy

The use of monetary policy by the Fed to increase, or loosen, the growth of the money supply.

contractionary policy

The use of monetary policy by the Fed to tighten the money supply by selling government securities or raising interest rates.

Which trends are reshaping the business, microeconomic, and macroeconomic environments and competitive arena?

To remain competitive, businesses must identify and respond to trends in the various sectors of the business environment. As the population ages, large numbers of baby boomers are approaching retirement age. Companies must plan for this exodus of employees and find ways to retain the vast amounts of knowledge they represent. Many older workers are choosing to continue working after traditional retirement age, creating a five-generation workforce. Worldwide demand for energy, especially from China and India, is challenging oil companies to increase supplies or to find alternative technologies to produce more oil, such as fracking. U.S. vulnerability to disruptions in energy supply became painfully apparent when Hurricane Katrina put Gulf Coast refineries and offshore drilling rigs out of commission. Companies are using relationship management and strategic alliances to compete effectively in the global economy.

What are the trends in ethics and corporate social responsibility?

Today, corporate philanthropy is shifting away from simply giving to any needy group and is focusing instead on strategic giving, in which the philanthropy relates more closely to the corporate mission or goals and targets donations to areas where the firm operates. A second trend is toward a new social contract between employer and employee. Instead of the employer having the sole responsibility for maintaining jobs, now the employee must assume part of the burden and find ways to add value to the organization. As the world increasingly becomes a global community, multinational corporations are now expected to assume a global set of ethics and responsibility. Global companies must understand local customs. They should also involve local stakeholders in decision-making. Multinationals must also make certain that their suppliers are not engaged in human rights violations.

structural unemployment

Unemployment that is caused by a mismatch between available jobs and the skills of available workers in an industry or region; not related to the business cycle.

seasonal unemployment

Unemployment that occurs during specific seasons in certain industries.

cyclical unemployment

Unemployment that occurs when a downturn in the business cycle reduces the demand for labor throughout the economy.

justice

What is considered fair according to the prevailing standards of society; an equitable distribution of the burdens and rewards that society has to offer.