Free Enterprise

the system of
business in which individuals are
free to decide what to produce,
how to produce it, and at what
price to sell it

Why Study Business?

1. Economic Reasons

2. Help in Choosing a Carreer

3. To be a Successful Employee

4. To improve your management skills

5. To Start Your Own Business
6. To Become a Better Informed Consumer and Investor

Cultural (or workplace)
Diversity

differences among
people in a workforce owing to
race, ethnicity, and gender

Interpersonal skills

The ability to deal effectively
with individual employees,

other managers within the
firm, and people outside the firm.

Technical skills

—The skill required to accomplish a
specific kind of work being done in

an organization. Although managers

may not actually perform the technical

tasks, they should be able to train

employees and answer technical questions.

Conceptual skills

—The ability to think in abstract
terms in order to see the “big picture.” Conceptual
skills help managers understand how the various parts
of an organization or idea can fit together.

Besides the big three skills

that a successful manager

needs to be successfull,

what are some others?

• oral 
• written communication skills
• willingness to work hard
• time-management skills

Approximately ___  percent of
businesses fail within the first seven years.

70%

Business

is the organized effort of

individuals to produce and

sell, for a profit, the goods

and services that satisfy

society’s needs.

To be successful, a

business must perform

three activities.

• It must be organized
• It must satisfy needs
• It must earn a profit.

For a business to be

organized, it must

combine four kinds of

resources what are they?

• material

• human

• financial 

• informational

Material resources include

the raw materials
used in manufacturing

processes as well as

buildings and machinery.

Human resources are?

the people who furnish

their labor to the business

in return for wages.

The financial resource
is?

the money required to pay

employees, purchase materials,

and generally keep the
business operating.

Information is the?

resource that tells the

managers of the business
how effectively the other

three resources are being

combined and used

Today, businesses are

usually organized as one

of three specific types,

What are they?

• Manufacturing businesses
• Service businesses
• Marketing intermediaries
  
  
  
  
  

Manufacturing businesses

process various materials

into tangible goods, such
as delivery trucks, towels,

or computers. Intel, for example,

produces computer
chips that, in turn, are sold to

companies that manufacture

computers.

Service businesses

produce services, such

as haircuts, legal advice,

or tax preparation.

Marketing Intermediaries

buy products from manufacturers
and then resell them.

A business receives money

(sales revenue) from its

customers in exchange for?

goods or services.

A negative profit, which

results when ___  is called

____.

a firm’s expenses are greater than its
sales revenue,

a loss.

is used to describe all the

different people or groups

of people who are affected

by the policies, decisions,

and activities made by
an organization.

what remains after all

business expenses

have been deducted

from sales revenue.

Sales Revenue

Expenses/Profit

the study of how
wealth is created

and distributed

the study of the
decisions made by

individuals and
businesses

the study of the
national economy

and the global
economy

Economy

the way in which
people deal with the

creation and distribution

of wealth

resources
used to produce

goods and services

What are examples

of factors of production?

• Land and natural resources—elements 
• Labor
• Capital
• Entreprenuership
  
  
  
  
  
  

—elements that can be
used in the production process

to make appliances, automobiles,

and other products. Typical

examples include crude oil, forests,

minerals, land, water, and even air.

—the time and effort that we

use to produce goods and

services. It includes human

resources such as managers

and employees.

—the money, facilities,

equipment, and machines

used in the operation
of organizations.

—the activity that organizes

land, labor, and capital. It is the
willingness to take risks and the

knowledge and ability to use the

other factors of production efficiently.

a person who risks his or her

time, effort, and money to start

and operate a business.

• Capitalism
• Command Economies.

The way each system answers
the four basic economic

questions listed here determines

a nation’s economy.
 

1. What goods and services—and how much of each—will be produced?
2. How will these goods and services be produced?
3. For whom will these goods and services be produced?
4. Who owns and who controls the major factors of production?

is an economic system in

which individuals own and

operate the majority of

businesses that provide

goods and services.

the theories of the 18th-century

Scottish economist Adam Smith.

In his book Wealth of Nations,
published in 1776, Smith argued

that a society’s interests are best

served when the individuals within

that society are allowed to pursue

their own self-interest.

a term created by Adam

Smith to describe how an
individual’s personal gain

benefits others and a nation’s

economy

an economic system in which

businesses and individuals

decide what to produce and

buy, and the market determines

quantities sold and
prices

Adam Smith’s capitalism is based 

four fundamental issues, what are they?
 

The French term laissez faire

describes Smith’s capitalistic

system and implies that?

that there should be no

government interference
in the economy. Loosely

translated, this term means

“let them do” (as they see fit).

Adam Smith’s Laissez-Faire

capitalism is also based
on the concept of?

one that exhibits elements

of bothcapitalism and socialism.

In a mixed economy, the

four basic economic questions

discussed at the beginning of

this section (what, how, for whom, and who)

are answered through the interaction of?

• households
• businesses
• governments.

• made up of individuals
• are the consumers of goods and services
• owners of some of the factors of production.

As resource owners, the

members of households

provide what?

In return, businesses?

businesses with

• labor,
• capital,
• resources  

• pay wages,
• rent,
• dividends and interest,

which households receive as income.

As consumers, household members?

Today, approximately ___ of our nation’s
total production consists of consumer products.

• use their income to purchase the goods and
  services produced by business.

• 70 percent

Like households, businesses

are engaged in two different

exchanges. What are they?

They exchange money for

natural resources, labor, and

capital and use these resources

to produce goods and services.

Then they exchange their goods

and services for sales
revenue.

When business profits are

distributed to business owners,

these profits become?

Typical Government services

include? .

To pay for them the Government?

• national defense
• police
• fire protection
• education
• construction of roads and highways

governments collect a variety
of taxes from households

is an economic system in

which the government decides

• what goods and services will be produced
• how they will be produced
• for whom available goods and services will be produced
• who owns and controls the major factors of production.

the key industries are owned

and controlled by the government.

• transportation
• utilities
• communications
• banking
• industries producing important materials such as steel.

a classless society whose citizens

together owned all economic resources.

All workers would then contribute to

this communist society according to

their ability and would receive benefits

according to their need.

One way to measure a

nation’s economic performance
is to assess its?

is the average level

of output per worker per hour.

An increase in
productivity results

in economic growth

because?

a larger number of goods and

services are produced by

a given labor force.

Question: How does productivity

growth affect the economy?

Question: How does a nation

improve productivity?

Answer: Reducing costs and

enabling employees to work

more efficiently are at the core

of all attempts to improve productivity.

Not always.

Fewer workers producing

more goods and services

can lead to higher unemployment

rates.

In addition to productivity,

a measure called ___ can be used
to measure the economic well-being

of a nation.

is the total dollar value of all

goods and services produced by

all people within the boundaries

of a country during a one-year period.

the percentage of a

nation’s labor force
unemployed at any time

is a monthly index that

measures the changes in

prices of a fixed basket of

goods purchased by a typical

consumer in an urban area.

Goods listed in the CPI include?

• food and beverages
• transportation
• housing
• clothing
• medical care
• recreation
• education
• communication
• other goods and services.

the effect of inflation on not

only the nation’s economy

but also individual consumers.

measures prices that

producers receive for

their finished goods.

The PPI reflects 

the PPI is

price increases or decreases

at the wholesale level

an accurate predictor of both

changes in the CPI and prices

that consumers will pay for many

everyday necessities.

The total value of a nation’s exports

minus the total value of its imports

over a specific period of time.

A statistic that measures the

lending activity of commercial

financial institutions.

The total amount of profits

made by corporations over

selected time periods.

An economic statistic that

tracks the increase in prices

of goods and services over a

period of time. This measure
is usually calculated on a monthly

or an annual basis.

The total income earned by

various segments of the population,

including employees, self-employed

individuals, corporations, and other

types of income.

The total number of new

homes started during a

specific time period.

The lowest interest rate

that banks charge their

most credit-worthy customers.

Common Measures Used to

Evaluate a Nation’s Economic

Health are?

1. Balance of trade
2. Bank credit
3. Corporate Profits
4. Inflation Rate
5. National Income
6. New Housing Starts
7. Prime Interest Rate
   
   
   
   

Fluctuations in a nations

economy are commonly

referred to as?

the recurrence of periods of

growth and recession in
a nation’s economic activity.

a severe recession that
lasts longer than a typical

recession

• extremely high unemployment rate
• slow wages
• reduced purchasing power
• lack of confidence in the economy
• lower stock values
• a general decrease in business activity.

To offset the effects of recession

and depression the federal
government uses

• monetary policies
• fiscal policies

are the Federal Reserve’s

decisions that  determine 

the  size of the supply of

money in the nation and the
level of interest rates.

rivalry among
businesses for

sales to potential
customers

Economists recognize four

different degrees of competition

What are they?

1. perfect
2. monopolistic 
3. oligopoly
4. monopoly

Real world examples of

1. Perfect Competion
2. Monopolistic Competion
3. Oligopoly Competion
4. Monopoly Competion

1. Corn, wheat, peanuts (many business firms or suppliers)
2. Clothing, shoes (many business firms or suppliers)
3. Automobiles, cereals (few business firms or suppliers)
4. Software protected by copyright, many local public utilities (one business firm or supplier)
   
   
   
   
   
   
   
   
   

is a market situation in which

there are many buyers along

with a relatively large number

of sellers.

The various products available in
a monopolistically competitive market

are very similar in nature, and they are all
intended to satisfy the same need.

is a market (or industry)

situation in which there

are few sellers.

• automobile
• airline
• car rental
• cereal
• farm implement industries.

is a market (or industry)

with only one seller, and

there are barriers to
keep other firms from

entering the industry.

Classic examples of monopolies

in the United States are?

• public utilities

an industry that requires

a huge investment in capital

and within which any duplication

of facilities would be wasteful.

Natural monopolies are

permitted to exist because

the public interest is best

served by their existence

but they operate under the

scrutiny and control of various

state and federal agencies.

A legal monopoly

sometimes referred

to as a limited monopoly is

created when?

 a government entity issues

a franchise, license, copyright,

patent, or trademark.

a system of manufacturing in

which all the materials, machinery,

and workers required to manufacture

a product are assembled in one place

the separation of a manufacturing

process into distinct tasks and the

assignment of the different tasks to

different individuals

the organized effort of

individuals to produce

and sell through the

Internet, for a profit, the
products and services

that satisfy society’s needs

Service businesses employ

approximately ___ percent of the

nation’s workforce,

is an economy in which more effort
is devoted to the production of

services than to the production

of goods.

• restaurants
• laundries and dry cleaners
• real estate
• movie theaters
• repair companies

In today’s competitive business world, which of the following environments
affects business?

1. The competitive environment
2. The global environment
3. The technological environment
4. The economic environment
5. All of the above
   
   
   
   

meeting the needs of the present

without compromising the ability

of future generations to meet their

own needs