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).