Course: BF10: Principles of Business

Objective: NC CTE 5.02: Understand economic systems to be able to recognize

the environments in which businesses function. (EC:007, EC LAP 17)
(EC:009, EC LAP 15) (EC:010, EC LAP 2) (EC:011, EC LAP 3)
(EC:012, EC LAP 8)

Unpacked Content
A) Types of economic systems
1) Define the following terms: economic system, traditional economic system,
command economic system, communism, and socialism
2) Describe the characteristics, strengths and weaknesses of:
a) Traditional economic systems
b) Communism
c) Socialism
d) Market economic system
3) The three economic questions
a) What to produce?
b) How to produce?
c) For whom to produce?
B) Private enterprise
1) Define the term private enterprise
2) Describe the characteristics, advantages and disadvantages of a private enterprise
system
C) Factors affecting a business’s profit
1) Define the following terms: profit, profit motive, income, expenses, cost of goods,
operating expenses, gross profit, and net profit
2) Profit
a) Calculation: Revenues-Expenses
b) Importance of profit
D) Business risk
1) Define the following terms: business risk, economic risks, natural risks, human
risks, pure risks, speculative risks, guarantees, and warranties (see key terms)
2) Managing risk:
a) Control risks
b) Transfer risks
c) Retain risks
d) Avoid risks
E) Competition
1) Define the following terms: competition, direct competition, indirect competition,
price competition, non-price competition, monopoly, oligopoly, perfect competition,
and regulated monopolies (see key terms)
2) Government legislation affecting competition
a) Competition
b) Freedom of Choice
c) Private Property
d) Profit

BF10 Principles of Business and Finance Summer 2017 215

 Key Terms
Key Term Definition
Business risk The possibility of loss (failure) or gain (success) inherent in
conducting business (EC LAP 3)
Command An economic system in which all or many of the means of
economic production and distribution are owned and controlled by the
system government. (EC LAP 17)
Communism A command economic system in which the government controls
the economic system and does not allow private ownership of the
means of production and distribution (EC LAP 17)
Competition The rivalry among two or more businesses to attract scarce
customer dollars (EC LAP 8)
Cost of goods The amount of money a business pays for the products it sells or
for the raw materials from which it produces goods to sell; the
amount of money a business pays for the products (or for any
part of the products) it sells. (EC LAP 2, FI LAP 5)
Direct Rivalry between or among businesses that offer similar types of
competition goods or services. (EC LAP 8)
Economic risks Risks that result from changes in overall business conditions.
Economic The organized way in which a country handles its economic
system decisions and solves its economic problems. (EC LAP 15, EC
LAP 17)
Expenses Money spent or cost incurred in an organization's efforts to
generate revenue, representing the cost of doing business. (FI
LAP 11, EI LAP 19)
Guarantee A promise made to the consumer that a product’s purchase price
will be refunded if the product is not satisfactory (SE LAP 115)
Human risk Perils caused by human errors as well as the unpredictability of
customers, employees, or the work environment.
Income The money received by resource owners and by producers for
supplying goods and services to customers (EC LAP 2, EC LAP
6, EC LAP 19, FI LAP 3, FI LAP 4, IM LAP 7, MP LAP 2)
Indirect Rivalry between or among businesses that offer dissimilar goods
competition or services. (EC LAP 8)
Monopoly A type of market structure in which a market is controlled by one
supplier, and there are no substitute goods or services readily
available. (EC LAP 8, EC LAP 16, SE LAP 129)
Natural risks Perils resulting from environmental causes.
Non-price A type of rivalry between or among businesses that involves
competition factors other than price (e.g., customer services, modern
facilities, trained personnel, and variety of products) (EC LAP 8)
Operating All of the expenses involved in running a business. (EC LAP 2, FI
expenses LAP 4, FI LAP 5, FI LAP 6, PI LAP 3, QS LAP 38, QS LAP 44)
Oligopoly A market structure in which there are relatively few sellers, and
industry leaders usually determine prices. (EC LAP 8, PI LAP 3)

BF10 Principles of Business and Finance Summer 2017 216

 Perfect A market structure in which there are many businesses selling a
competition lot of identical products for about the same price to many buyers;
also known as pure competition. (EC LAP 8, EI LAP 15)
Price A type of rivalry between or among businesses that focuses on
competition the use of price to attract scarce customer dollars. (EC LAP 8)
Private An economic system in which individuals and groups, rather than
enterprise government, own or control the means of production–the human
system and natural resources and capital goods used to produce goods
and services. Also known as free market economy, private
profit system, market system, capitalistic system, or free
enterprise system (BL LAP 1, EC LAP 2, EC LAP 3, EC LAP 16,
MK LAP 1, SE LAP 117)
Profit Monetary reward a business owner receives for taking the risk
involved in investing in a business; income left once all expenses
are paid. (BL LAP 2, EC LAP 2, EC LAP 3, EC LAP 12, EC LAP
14, EC LAP 15, EC LAP 17, EC LAP 19, EI LAP 4, FI LAP 5, HR
LAP 19, HR LAP 25, IM LAP 7, MK LAP 1, MP LAP 2, OP LAP 5,
PI LAP 3, SE LAP 130, SM LAP 1)
Profit motive The desire to make a profit which moves people to invest in
business (EC LAP 2, EC LAP 15)
Pure risks The possibility of loss to a business without any possibility of
gain.
Regulated Monopoly that the government allows to exist legally. (EC LAP 8)
monopoly
Socialism A modified command economic system in which government
owns the basic means of production and allows private
ownership of businesses as well. (EC LAP 17)
Speculative Chances of loss that may result in loss, no change, or gain. (EC
risks LAP 3, FI LAP 8)
Traditional An economic system in which people produce only what they
economy must have in order to exist; all economic decisions are based on
habit and tradition. (EC LAP 17)
Warranty A promise made by the seller to the customer that the seller will
repair or replace a product that does not perform as expected.
(EC LAP 3, FI LAP 10, IM LAP 7, MP LAP 2, OP LAP 2, PM LAP
4, PP LAP 7, SE LAP 115, SE LAP 119, SE LAP 130, SE LAP
131)
A promise to the purchaser that a product will be repaired or
replaced if it proves to be defective (PM LAP 7)

BF10 Principles of Business and Finance Summer 2017 217