BUS C100 Ch 1

The producer price index is another indicator of inflation. How does the PPI differ from the CPI?

The producer price index (PPI) measures the prices paid by producers and wholesalers for various commodities, such as raw materials, partially finished goods, and finished products.

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.

What is the most common measure of inflation?

The rate of inflation is most commonly measured by looking at changes in the consumer price index (CPI)

Why is it important for a country to know the basis of their standard of living? What can a business gain by knowing this?

The standard of living of any country is measured by the output of goods and services people can buy with the money they have. The United States has one of the highest standards of living in the world. Although several countries, such as Switzerland and Germany, have higher average wages than the United States, their standards of living aren't higher, because prices are so much higher.

What is capital?

The tools, machinery, equipment, and buildings used to produce goods and services and get them to the consumer are known as capital. Sometimes the term capital is also used to mean the money that buys machinery, factories, and other production and distribution facilities. However, because money itself produces nothing, it is not one of the basic inputs.

These major components significantly affect all business organizations and they are ever changing.

These major components significantly affect all business organizations and they are ever changing.

What do we hope to gain from the study of microeconomics?

This field of economics is concerned with how prices and quantities of goods and services behave in a free market.

How do firms/organizations prevent other firms from competing equally with them? What is this called? Can you think of any examples?

This market structure is characterized by barriers to entry—factors that prevent new firms from competing equally with the existing firm.

What does CPI measure?

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

We know demand alone is not the only variable in setting prices. We must also look at supply. What is supply?

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

This demand curve shows

the relationship between pricing and quantity demanded.

The second type of inflation. How does cost-push inflation differ from demand-pull inflation?

Cost-push inflation is triggered by increases in production costs, such as expenses for materials and wages.

Global energy demands significantly impact pricing as related to the laws of supply and demand. What are some reasons?

Countries and companies worldwide are seeking additional sources of supply to prevent being held captive to one supplier.

What are some risks associated with creating quality of life? Why do you think it is important for businesses to understand the potential risks?

Creating a quality of life is not without risks, however. Risk is the potential to lose time and money or otherwise not be able to accomplish an organization's goals. Without enough blood donors, for example, the American Red Cross faces the risk of not meeting the demand for blood by victims of disaster.

It is important to be familiar with the definition of demand in order to understand the relationship between demand and various prices.

Demand is the quantity of a good or service that people are willing to buy at various prices. The higher the price, the lower the quantity demanded, and vice versa.

Inflation affects not only our personal decisions, but business decisions as well. Make sure you can describe demand-pull inflation.

Demand-pull inflation occurs when the demand for goods and services is greater than the supply. Would-be buyers have more money to spend than the amount needed to buy available goods and services.

Demographics help companies define their market, but what are demographic factors? Why are they considered significant to know?

Demographic factors are an uncontrollable factor in the business environment and extremely important to managers. Demography is the study of people's vital statistics, such as their age, gender, race and ethnicity, and location. Demographics help companies define the markets for their products and also determine the size and composition of the workforce.

Why did/do some countries choose communism as their economic system?

Early in the 20th century, countries that chose communism, such as the former Soviet Union and China, believed that it would raise their standard of living.

We hear the word business all the time. What is a business, and why is it important for individuals to know what we mean when we say business? What needs are businesses trying to meet?

A business is an organization that strives for a profit by providing goods and services desired by its customers. Businesses meet the needs of consumers by providing medical care, autos, and countless other goods and services.

This passage describes an example of a change and its subsequent impact on demand. Can you think of any other factors that might cause demand for a given product to shift?

A change in the price of related products can also influence demand. For example, if the average price of a snowboard rises to $1,000, people will quit snowboarding, and jacket demand will fall.

Economic systems of a country can greatly effect a business's success. What exactly is an economic system? Why are these system established?

A nation's economic system is 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.

Not all business strive to make a profit. How are not-for-profit and for-profit organizations similar? How are they different?

A not-for-profit organization is an organization that exists to achieve some goal other than the usual business goal of profit. Charities

What is the difference between goods and services? Why do you think it's important to know these differences?

Goods are tangible items manufactured by businesses, such as laptops. Services are intangible offerings of businesses that can't be held, touched, or stored.

Think back to the monopoly discussion above -- barriers to entry exist in oligopolies as well. What barriers exist for large aircraft manufacturing? Does a company need a small or enormous investment to enter the market?

Boeing and Airbus Industries (aircraft manufacturers)

Economic systems today fall into one of two major categories. It is important for businesses to understand these broad categories because they impact their operations.

Businesses and other organizations operate according to the economic systems of their home countries. Today the world's major economic systems fall into two broad categories: free market, or capitalism; and planned economies, which include communism and socialism.

Why is important for businesses to monitor changes in the business cycle? What may happen if they ignore the changing phases?

Businesses must monitor and react to the changing phases of business cycles. When the economy is growing, companies often have a difficult time hiring good employees and finding scarce supplies and raw materials. When a recession hits, many firms find they have more capacity than the demand for their goods and services requires.

The primary goal for profit businesses is to make a profit. Understanding the relationship between revenue, costs, profits and risk is important for a business to be successful.

Businesses such as Microsoft face the risk of falling short of their revenue and profit goals. Revenue is the money a company receives by providing services or selling goods to customers. Costs are expenses for rent, salaries, supplies, transportation, and many other items that a company incurs from creating and selling goods and services.

Define a mixed economy.

Canada, Sweden, and the UK, among others, are also called mixed economies; that is, they use more than one economic system.

Understanding capitalism and how it operates is important. Why do you think more countries have shifted toward free-market economic systems and away from planned economies? Why is capitalism appealing to countries?

Capitalism, also known as the private enterprise system, is based on competition in the marketplace and private ownership of the factors of production (resources).

(Basic Economic Systems of World) Ownership of Business

Capitalism: Businesses are privately owned with minimal government ownership or interference Communism: Government owns all or most enterprises 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. Mixed Economy: Private ownership of land and businesses but government control of some enterprises. The private sector is typically large

(Basic Economic Systems of World) Control of Markets

Capitalism: Complete freedom of trade. No or little government control Communism: Complete government control of markets Socialism: Some markets are controlled, and some are free. Significant central-government planning. State enterprises are managed by bureaucrats. These enterprises are rarely profitable Mixed Economy: Some markets, such as nuclear energy and the post office, are controlled or highly regulated

(Basic Economic Systems of World) Forecast for 2020

Capitalism: Continued steady growth. Communism: No growth and perhaps disappearance. Socialism: Stable with probable slight growth. Mixed Economy: Continued growth.

(Basic Economic Systems of World) Management of Enterprises

Capitalism: Each enterprise is managed by owners or professional managers with little government interference. Communism: Centralized management by the government bureaucracy. Little or no flexibility in decision-making at the factory level. Socialism: Significant government planning and regulation. Bureaucrats run government enterprises. Mixed Economy: Private-sector management similar to capitalism. Public sector similar to socialism.

(Basic Economic Systems of World) Worker Incentives

Capitalism: Strong incentive to work and innovate because profits are retained by owners. Communism: No incentive to work hard or produce quality products. Socialism: Private-sector incentives are the same as capitalism, and public-sector incentives are the same as in a planned economy. Mixed Economy: Private-sector incentives are the same as capitalism. Limited incentives in the public sector.

(Basic Economic Systems of World) Examples

Capitalism: United States Communism: Cuba, North Korea Socialism: Finland, India, Israel Mixed Economy: Great Britain, France, Sweden, Canada

What does an increase in economic activity mean? What do you think a decrease in economic activity means?

Changes in GDP trace the patterns as economic activity expands and contracts. An increase in business activity results in rising output, income, employment, and prices.

What are the characteristics of perfect (pure) competition? Why is it considered ideal?

Characteristics of perfect (pure) competition include: A large number of small firms are in the market. The firms sell similar products; that is, each firm's product is very much like the products sold by other firms in the market. Buyers and sellers in the market have good information about prices, sources of supply, and so on. It is easy to open a new business or close an existing one.

Describe commodities that organizations use.

Commodities that are useful inputs in their natural state are known as natural resources. They include farmland, forests, mineral and oil deposits, and water.

As previously stated with demand, change is a result of factor that influence something? What factors influence supply? What is the result of these influences?

Other factors influence the supply side of the picture.

What is economic growth?

An increase in a nation's output of goods and services is economic growth and is perhaps the most important way to judge a nation's Economic health.

An oligopoly is limited by what? Why must one oligopoly watch another closely?

An oligopoly has two characteristics: A few firms produce most or all of the output. Large capital requirements or other factors limit the number of firms.

Make sure you can describe what a strategic alliance is and how these partnerships can benefit businesses.

Another important way companies stay competitive is through strategic alliances (also called strategic partnerships).

We continually hear about employment rates in the news. What is considered full employment?

Another macroeconomic goal is full employment, or having jobs for all who want to and can work.

There are many elements/sectors that influence the economy. One way to examine this influence it known as the circular flow. What is the significance of circular flow of inputs and outputs. Importance of knowing how one flow change affect others?

Another way to see how the sectors of the economy interact is to examine the circular flow of inputs and outputs among households, businesses, and governments

Decreasing and increasing the amount of money in circulation causes the economy to contract or expand. It is important to understand why this happens and what results when the monetary policy contacts or expands.

As you can see, the Fed can use monetary policy to contract or expand the economy.

What does the equilibrium represent? In a real situation, what happens when the supply equals the demand?

At that point, labeled E, the quantity demanded equals the quantity supplied. This is the point of equilibrium

As we mentioned earlier, economics affects both people and businesses. Economics is divided into two main subareas. Knowing and understand the differences between these two main subareas, macroeconomics and microeconomics, is important.

Economics has two main subareas. Macroeconomics is 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. In contrast, microeconomics focuses on individual parts of the economy, such as households or firms.

What is economics the study of? Why is it important to know? How do businesses use this to their advantage?

Economics is the study of how a society uses scarce resources to produce and distribute goods and services. The resources of a person, a firm, or a nation are limited. Hence, economics is the study of choices—what people, firms, or nations choose from among the available resources.

It takes people to combine all the factors of production in order for an organization to be successful. Why is understanding what an entrepreneur is and what they do important?

Entrepreneurs are the 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. These people make the decisions that set the course for their businesses; they create products and production processes or develop services.

Why are economic influences considered one of the most important external influences on business? Understanding how fluctuations in economic activity affect businesses and people is beneficial for us all.

Fluctuations in the level of economic activity create business cycles that affect businesses and individuals in many ways. When the economy is growing, for example, unemployment rates are low, and income levels rise. Inflation and interest rates are other areas that change according to economic activity.

Resources are an important input for both for-profit and not-for-profit businesses. Make sure you can describe the four traditional factors of production.

Four traditional factors of production are common to all productive activity: natural resources, labor (human resources), capital, and entrepreneurship.

Important to know the 4 types of unemployment and describe examples of each.

Frictional, Structural, Cyclical, Seasonal

Sometimes when the government spends more on public organizations it will result in a decrease in the private sector (see examples below). This is known as crowding out.

Here are three examples of crowding out: 1. The government spends more on public libraries, and individuals buy fewer books at bookstores. 2. The government spends more on public education, and individuals spend less on private education. 3. The government spends more on public transportation, and individuals spend less on private transportation.

What happen when prices prices go up but income doesn't follow? Understanding why this happens is important.

If prices go up but income doesn't rise or rises at a slower rate, a given amount of income buys less, and purchasing power falls.

If the government spends more money on programs than they have collected in taxes it is known as a federal budget deficit. How does the government go about balancing the budget so there is no deficit?

If the government spends more for programs (social services, education, defense) than it collects in taxes, the result is a federal budget deficit.

This passage describes some negative effects of inflation on businesses and people. Understanding inflation's impact is important and enables countries to take proactive measures.

Inflation has several negative effects on people and businesses. For one thing, inflation penalizes people who live on fixed incomes. Let's say that a couple receives $2,000 a month retirement income beginning in 2018. If inflation is 10 percent in 2019, then the couple can buy only about 91 percent (100 ÷ 110) of what they could purchase in 2018.

Characteristics of the different market structures include:

Number of firms in the market., Firm's ability to control price, Barriers to entry, Product differentiation.

The third economic goal is for overall prices to be fairly steady, but why is this important?

Inflation's higher prices reduce purchasing power, the value of what money can buy.

What happens after a recession?

It is followed by a recovery period when economic activity once again increases.

This passage describes "knowledge" in a little more detail than above. What would you consider your knowledge base? Why do you think it is beneficial to recognize knowledge as a factor of production?

Knowledge refers to the combined talents and skills of the workforce and has become a primary driver of economic growth. Today's competitive environment places a premium on knowledge and learning over physical resources.

What are the major CPI components?

Major components of the CPI, which are weighted by importance, are food and beverages, clothing, transportation, housing, medical care, recreation, and education. There are special indexes for food and energy.

Many experts believe there is a fifth factor of production. What is it, and why do you think experts recognize knowledge as a fifth factor of production?

Many experts now include knowledge as a fifth factor, acknowledging its key role in business success. By using the factors of production efficiently, a company can produce more goods and services with the same resources.

We have a tendency to think money will solve all our problems, but that is not always the case. Why is it important that the government controls the amount of money in circulation? What is this program called?

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

This passage describes a factor -- new technology that lowered production costs -- and its impact on supply. Can you think of any other factors that might impact supply?

New technology typically lowers the cost of production. For example, North Face, a supplier of ski and snowboard jackets, purchased laser-guided pattern-cutting equipment and computer-aided pattern-making equipment. Each jacket was cheaper to produce, resulting in a higher profit per jacket.

Benefit of improving productivity. How does technology improve productivity?

Productivity is the amount of goods and services one worker can produce.

What is quality of life? What role does business play in determining our quality of life? Contrast quality of life with standard of living, as defined above.

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. Building a high quality of life is a combined effort of businesses, government, and not-for-profit organizations.

What is the key difference between supply chain management and relationship marketing?

Relationship management includes both supply chain management, which builds strong bonds with suppliers, and relationship marketing, which focuses on customers.

What social factors influence the products you purchase or services you use? How do social and demographic factors differ? Why are social factors difficult to predict, define and measure?

Social factors—our attitudes, values, ethics, and lifestyles—influence what, how, where, and when people purchase products or services. They are difficult to predict, define, and measure because they can be very subjective. They also change as people move through different life stages.

Why would a country choose socialism as their economic system? What are the advantages and disadvantages of socialism? Understand the role government plays in socialism is a determining factor in whether a country adopts this economic system.

Socialism is an economic system in which the basic industries are owned by the government or by the private sector under strong government control. A socialist state controls critical, large-scale industries such as transportation, communications, and utilities. Smaller businesses and those considered less critical, such as retail, may be privately owned. To varying degrees, the state also determines the goals of businesses, the prices and selection of goods, and the rights of workers.

In the case of a utility, the barrier to entry is partly the government law and partly the high cost of entry. For example, adding new water mains (pipes) to an existing city is prohibitively expensive and disruptive. So the utility that owns the existing mains is protected from competition.

Some monopolies are created by a government order that outlaws competition.

Important to know the external environments and the internal environments of a business.

Technological, Economic, Political/Legal, Demographic, Social, Competitive, Global

Technology is used in the majority of organizations today in one way or another. Why is it important to understand how technology improves productivity? How can organizations use this information to their advantage?

Technology is the application of science and engineering skills and knowledge to solve production and organizational problems. New equipment and software that improve productivity and reduce costs can be among a company's most valuable assets.

In general, a bond is a certificate of debt that someone owes the bond holder, and the debt earns interest, increasing the revenue. Companies and governments issue bonds to raise money.

That's also why the Treasury created savings bonds. Because these bonds are issued in relatively small denominations, they allow more people to buy and hold government debt.

Typically in programs that exert control there must be someone who manages that control. Who controls the amount of money circulating in the economy and ultimately the interest rates?

The Federal Reserve System (the Fed), the central banking system of the United States, prints money and controls how much of it will be in circulation.

What is the national debt and how is it calculated?

The U.S. government has run budget deficits for many years. The accumulated total of these past deficits is the national debt

What are the three main macroeconomic goals held by the U.S. and most other countries?

The United States and most other countries have three main macroeconomic goals: economic growth, full employment, and price stability.

Communism is the complete opposite of capitalism. In what way are they different? It is important to understand the differences between capitalism and communism.

The complete opposite of capitalism is communism. In a communist economic system, the government owns virtually all resources and controls all markets. Economic decision-making is centralized: the government, rather than the competitive forces in the marketplace, decides what will be produced, where it will be produced, how much will be produced, where the raw materials and supplies will come from, who will get the output, and what the prices will be.

Government involvement is a key component on how economic systems affect businesses. Why is it important for business owners to know how the economic systems differ and the level of government involvement?

The major differentiator among economic systems is whether the government or individuals decide: How to allocate limited resources—the factors of production—to individuals and organizations to best satisfy unlimited societal needs What goods and services to produce and in what quantities How and by whom these goods and services are produced How to distribute goods and services to consumers

Profit

The money left over after all costs are paid.

The GDP is considered the basic measure of economic growth. How is the GDP used to compare trends in national output?

The most basic measure of economic growth is the gross domestic product (GDP). GDP is the total market value of all final goods and services produced within a nation's borders each year.

Monetary policy isn't the only economic tool used by the government. Sometimes it is necessary to cut taxes and increase spending to stimulate the economy. This is known as fiscal policy. It is important to understand the relationship between when to use monetary and fiscal policies.

The other economic tool used by the government is fiscal policy, its program of taxation and spending.

What is the political climate of a country, and why is it considered a critical factor? Regarding their daily operations, why do you think it is important for managers take into consideration the political climate of a country?

The political climate of a country is another critical factor for managers to consider in day-to-day business operations. The amount of government activity, the types of laws it passes, and the general political stability of a government are three components of political climate. For

Risks

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

It is important to understand how the business world is built, and particularly how the organizational structure of a business is influenced by outside sources. Keep this in mind as you read through the book.

This module provides the basic structures upon which the business world is built: how it is organized, what outside forces influence it, and where it is heading.

What method is used to determine how close we are to full employment? What is the significance of the unemployment rate?

This rate indicates the percentage of the total labor force that is not working but is actively looking for work. It excludes "discouraged workers," those not seeking jobs because they think no one will hire them.

What type of market structure takes advantage of differences among firms? What does this allow them to do?

Three characteristics define the market structure known as monopolistic competition: - Many firms are in the market. - The firms offer products that are close substitutes but still differ from one another. - It is relatively easy to enter the market.

Why are there concerns about the use of commodities today?

Today urban sprawl, pollution, and limited resources have raised questions about resource use. Conservationists, environmentalists, and government bodies are proposing laws to require land-use planning and resource conservation.

Demographics is data related to the population and the people in it. Understanding the changing workforce demographic is important in relation to how businesses will adapt and remain competitive. In what ways might workforce demographics impact organizational environments?

Today's workforce spans five generations: recent college graduates (Generation Z); people in their 30s and 40s (millennials and Generation X); baby boomers; and traditionalists (people in their 70s).

Why is understanding demand critical to businesses? What does demand tell a business? Why is it difficult to gauge demand?

Understanding demand is critical to businesses. Demand tells you how much you can sell and at what price—in other words, how much money the firm will take in that can be used to cover costs and hopefully earn a profit.

Business Cycles I(n order to make plans/goals for a business to be successful we must understand economic activity and the changes it goes through.)

Upward and downward changes in the level of economic activity.

What methods does the Fed use to control the amount of money in circulation? How do these actions affect interest rates? It is important to know the process by which the Fed makes and implements these decisions and the result of these decisions.

When the Fed increases or decreases the amount of money in circulation, it affects interest rates (the cost of borrowing money and the reward for lending it). The Fed can change the interest rate on money it lends to banks to signal the banking system and financial markets that it has changed its monetary policy. These changes have a ripple effect.

Contraction is the act of restricting or tightening of something. How does contracting the money supply affect the economy? What is the purpose of contractionary policy?

With contractionary policy, the Fed restricts, or tightens, the money supply by selling government securities or raising interest rates. The result is slower economic growth and higher unemployment.

Since expansion is the opposite of contraction, what does expansionary policy do? How does this stimulate the economy? What happens?

With expansionary policy, the Fed increases, or loosens, growth in the money supply. An expansionary policy stimulates the economy. Interest rates decline, so business and consumer spending go up.

This passage describes behavior of firms in an oligopoly. Why would oligopolies illegally coordinate their pricing and output decisions? What has resulted from this arrangement?

With so few firms in an oligopoly, what one firm does has an impact on the other firms. Thus, the firms in an oligopoly watch one another closely for new technologies, product changes and innovations, promotional campaigns, pricing, production, and other developments. Sometimes they go so far as to coordinate their pricing and output decisions, which is illegal. Many antitrust cases—legal challenges arising out of laws designed to control anticompetitive behavior—occur in oligopolies.

What does relationship management involve? Why might building relationships with others be beneficial?

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

A decline is GDP for a specific period of time is known as what?

recession

Finding a sound economic balance is challenging. What are the main tools that government has to achieve macroeconomic goals?

the government must try to guide the economy to a sound balance of growth, employment, and price stability. The two main tools it uses are monetary policy and fiscal policy.

What is a pure monopoly? What types of firm/organization would be considered a monopoly?

the market structure in which a single firm accounts for all industry sales of a particular good or service.