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| the study of how society employs resources to produce goods and services for consumption among various groups and individuals |
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| concentrates on the operation of a nation’s economy as a whole |
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| concentrates on the behavior of people and organization in markets for particular products or services |
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“The Father of Economics”
Freedom was vital to any economy’s survival
Freedom to own land of property and the right to keep the profits of a business is essential
People will work hard if they believe they’ll be rewarded. |
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| The Invisible Hand Theory: |
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| As people improve their own situation in life, they help the economy prosper through the production of goods, services, and ideas |
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| When self-directed gain leads to social and economic benefits for the whole community |
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| All of most of the land, factories and stores are owned by individuals, not the government, and operated for profit |
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| Four Basic Rights of Capitalism |
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Definition
| the right to own private property, the right to own a business and keep the profits, the right to freedom of competition, the right to freedom of decision. |
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Decision about what and how much to produce are made by the market.
Consumers send signals about what they like and how they like it.
Price tells companies how much of a product they should produce. |
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| price on vertical (y axis), quantity on horizontal (x axis). |
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| the quantities of products businesses are willing to sell at different prices |
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| the quantities of product consumers are willing to buy at different prices |
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| Four Degrees of Competition: |
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1. Perfect competition- unlimited number of competitors (thousands of companies)(Ex: agriculture)
2. Monopolistic competition- several competitors (hundreds) (Ex: clothing industries)
3. Oligopoly- a few competitors (dozens) (Ex: autos, beverages, pharmaceuticals)
4. Monopoly- essentially one company (Ex: DeBeers, Microsoft) |
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| an economic system based on the premise that some basic business should be owned by the government in order to more evenly distribute profits among the people. |
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| an economic system in which the government makes almost all economic decisions and owns almost all the major factors of production. |
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| the market largely determines what goods and services are produced, who gets them, and how the economy grows. |
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| the government largely determines what goods and services are produced, who gets them, and how the economy will grow. |
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| some allocation of resources is made by the market and some by the government. |
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| total value of all final goods and services produced in a country in a given year |
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| the percentage of civilians at least 16 years old who are unemployed and tried to find a job within the prior four weeks. |
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| measures the pace of inflation or deflation |
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periodic rises and falls that occur in economies over time
1. Economic Boom: period of significant growth and prosperity
2. Recession: two or more consecutive quarters of decline in the GDP
3. Depression: a severe recession
4. Recovery: when the economy stabilizes and starts to grow. This leads to economic boom. |
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the federal government’s efforts to keep the economy stable by increasing or decreasing taxes or government spending
Tools of Fiscal Policy: taxation, government spending |
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| the management of the money supply and interest rates by the Federal Reserve Bank (the Fed) |
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| the amount of money the federal government spends beyond what it gathers in taxes in a year |
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| the sum of government deficits over time |
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| when government takes in more than it spends |
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| a business owned and usually managed by one person |
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| two or more people legally agree to become co-owners of a business |
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| a legal entity with authority to act and have liability apart from its owners |
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| Major Benefits of Sole Proprietorship |
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Definition
Ease of starting and ending the business
Being your own boss
Pride of ownership
Leaving a legacy
Retention of company profit
No special taxes |
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| Disadvantages of Sole Proprietorship |
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Definition
Unlimited liability: any debts or damages incurred by the business are your debts, even if it means selling your home, car, or anything else
Limited financial resources
Management difficulties
Overwhelming time commitment
Few fringe benefits
Limited growth
Limited life span |
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| all owners share in operating the business and in assuming liability for the business’s debts. |
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| a partnership with one or more general partners and one or more limited partners |
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| an owner who has unlimited liability and is active in managing the firm |
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| an owner who invests money the business but enjoys limited liability |
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| that liability for the debts of the business is limited to the amount the limited partner puts into the company: personal assets are not at risk |
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| Master Limited Partnership |
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| a partnership that looks much like a corporation but is taxed like a partnership and thus avoids the corporate income tax |
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| Limited Liability Partnership |
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| limits partners risk of losing their personal assets to the outcomes of only their own acts and omissions and those of people under their supervision |
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| Advantages of Partnerships |
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Definition
More financial resources
Shared management and pooled skills and knowledge
Longer survival
No special taxes |
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| Disadvantages of Partnerships |
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Definition
Unlimited liability
Division of profits
Difficult to terminate
Disagreements among partners |
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| a state-chartered legal entity with authority to act and have liability separate from its owners (stockholders) |
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| Advantages of Corporations |
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Definition
Limited liability
Ability to raise more money for investment
Size
Perpetual life
Ease of ownership change
Ease of attracting talented employees
Separation of ownership from management |
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| Disadvantages of Corporations |
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Definition
Initial cost
Extensive paperwork
Two tax returns
Size
Difficulty of termination
Possible conflict with stockholders and board of directors |
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| Disadvantages of Corporations |
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Definition
Initial cost
Extensive paperwork
Two tax returns
Size
Difficulty of termination
Possible conflict with stockholders and board of directors |
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Term
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Definition
a unique government creation that looks like a corporation but is taxed like a sole proprietorships and partnerships
Have shareholders, directors and employees, plus the benefit of limited liability
Profits are taxed only as the personal income of the shareholder |
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| Limited Liability Companies: |
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Definition
similar to a S corporation but without the eligibility requirements. Very popular.
Advantages: limited liability, no double taxation, flexible ownership rules, flexible distribution of profit and losses, operating flexibility.
Disadvantages: no stock, therefore ownership is transferable, limited life span requirement, fewer incentives, paperwork. |
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| the result of two firms joining to form one company |
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| one company’s purchase of the property and obligations of another company |
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| joins two firms in different stages of related business |
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| joins 2 firms in the same industry and allows them to diversify or expand their products |
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| unites firms in completely unrelated industries in order to diversify business operations and investments |
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| an attempt by employees, management, or a group of investors to buy out the stockholders in a company. |
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| an arrangement whereby someone with a good idea for a business (franchisor) sells the rights to use the business name and sell a product or service (franchise) to others (franchisees) in a given territory |
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| the process used to accomplish organizational goals through planning, organizing, leading, and controlling people and other organizational resources. |
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| more than a goal, it’s a broad explanation of why the organization exists and where it’s trying to go |
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| outlines the organizations fundamental purposes |
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| Analyzes the organizations Strengths (internal +), Weaknesses (internal -), Opportunities (external +), and Threats (external -). |
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| done by top management and determines major goals of the organization and the policies, procedures, strategies and resources it will need to achieve them |
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| usually done by middle management. The process of developing detailed, short-term statements about what is to be done, who is to do it and how. |
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| the process of setting work standards and schedules necessary to implement the company’s tactical objectives |
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| process of preparing alternative courses of action the firm can use if its primary plans don’t work out (disaster planning) |
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| A visual device, shows relationships among people, divides the organizations work, shows who reports to whom |
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| making managerial decisions without consulting others |
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| the presentation of the company’s facts and figures in a way that is clear and apparent to all stakeholders. |
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| progressive leaders give employees the authority to make decisions on their own without consulting a manager. Customer needs are handled quickly. Manager’s role becomes less of a boss and more of a coach. |
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| Structuring an Organization |
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Definition
| creating a division of labor, set up teams and departments, allocate resources, assign tasks, establish procedures, and adjust to new realities. |
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| system in which one person is at the top of an organization and there is a ranked or sequential ordering from top down |
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| the line of authority that moves from the top of the hierarchy to the lowest level. |
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| when decision-making is concentrated at the top level of management |
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| when decision-making is delegated to lower-level managers and employees more familiar with local conditions than headquarters. |
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| the optimal number of subordinate a manager supervises or should supervise. (how many people report to a manager) When work is standardized, large spans of control are possible. Appropriate span narrows at higher levels or organization. The trend today is to reduce middle managers and hire better lower level employees. |
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| Tall Organization Structures: |
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| an organizational structure in which organization chart would be tall because of many levels of management. |
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| Flat Organization Structures: |
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| an organizational structure that has few layers of management and broad span of control. |
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| divides organizations into separate units. Workers are grouped by skills and expertise to specialize their skills. (by product, by function) (by customer group, by geographic location, by process) |
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| Four Ways to Structure and Organization: |
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Definition
| line organization, line and staff organizations, matrix style organization, cross functional self-managed teams. |
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| redesigning an organization so it can more effectively and efficiently serve its customers |
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| an organization that has contact people at the top and the CEO at the bottom of the organizational chart |
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| Organizational or Corporate Culture |
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| the widely shared values within an organization that foster untiy and cooperation to achieve common goals |
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| details lines of responsibility, authority, and position |
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| the system of relationships that develop spontaneously as employees meet and form relationships |
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| the creation of goods using land, labor, capital, entrepreneurship, and knowledge (the factors of production) |
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| the value producers add to materials in the creation of finished goods and services. |
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| production runs are short and the producer adjusts machines frequently to make different products (smaller quantities, more customized) |
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| long production runs turn out finished goods over time (large quantities of standardized products) |
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| designing machines to do multiple tasks so they can produce a variety of products. |
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using less of everything in production
Take half the human effort, have half the defects in finished products, require one-third the engineering effort, use half the floor space, carry 90% less inventory. |
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| tailoring products to meet the needs of a large number of individual customers |
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the process of selecting a geographic location for a company’s operations
Labors costs, availability of skilled labor force, access to transportation/shipping, availability of utilities, proximity of suppliers, proximity to customers, quality of life, cost of living. |
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Definition
the physical arrangement of resources, including people, to most efficiently produce goods and provide services
Facility layout depends on the processes performed:
Service: help customers find products
Manufacturing: improve efficiency |
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| Materials Requirement Planning |
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Definition
| : a computer based operations management system that uses sales forecasts to make sure parts and materials are available when needed |
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| Enterprise Resource Planning: |
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| newer version of MRP, combines computerized functions into a single comprehensive and integrated software application. |
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| the function that searched for high-quality material resources, finds the best suppliers and negotiates the best price for goods and services |
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| Just in time Inventory Control: |
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| the production process in which minimum of inventory is kept and parts, supplies and other needs are delivered just in time to go on the assembly line |
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| consistently producing what the customer wants while reducing error before and after delivery |
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| a quality measure that allows only 3.4 defects per million opportunities |
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| International Organization for Standardization is a worldwide federation of national standard bodies |
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| a bar graph that shows what projects are being worked on and how much has been completed |
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| a method for analyzing the tasks involved in completing a given project and estimating the time needed |
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| Human Resource Management |
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Definition
| the process of determining human resource needs and the recruiting, selecting, developing, motivating, evaluating, compensating and scheduling employees to achieve organizational goals |
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