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FHF - CH 1
FHF - CH 1
FHF - CH 1
Business and
Economics
Chapter 1
©McGraw-Hill
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Education.
Learning Objectives
1-1 Define basic concepts such as business, product, and profit.
1-2 Identify the main participants and activities of business and
explain why studying business is important.
1-3 Define economics and compare the four types of economic
systems.
1-4 Describe the role of supply, demand, and competition in a free-
enterprise system.
1-5 Specify why and how the health of the economy is measured.
1-6 Trace the evolution of the American economy and discuss the
role of the entrepreneur in the economy.
1-7 Evaluate a small-business owner’s situation and propose a
course of action.
©McGraw-Hill Education.
The Nature of Business 1
Businesses try to earn profits by providing
products that satisfy people’s needs
Products include:
• Tangible goods
• Automobile, smartphone, pair of jeans
• Service
• Dry cleaning, doctor’s visit, movie
• Idea
• Accountants and attorneys provide ideas for solving problems
©McGraw-Hill Education.
The Nature of Business 2
The Goal of a Business: to earn a profit
Nonprofit organizations
• Do not share the purpose of earning profits
• May provide goods or services
• Engage in fund-raising
• Engage in management, marketing, and finance to
reach goals
Stakeholders
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The Nature of Business 3
The People and Activities of Business
• Management
• Involves the functions of planning, organizing, leading, and
controlling
• Marketing
• Focus of all marketing activities is satisfying customers
• Finance
• Refers to all activities concerned with obtaining money and
using it effectively
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Figure 1.1 Overview of the Business World
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POLLING QUESTION What do you feel is the most significant macro-
environmental factor that impacts businesses?
A. Technology
B. Politics/Legal Issues
C. Sociocultural
D. Economic
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The Economic Foundations of Business 1
What is economics?
Resources
• Natural resources
• Human resources (also called labor)
• Financial resources (also called capital)
• Intangible resources
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The Economic Foundations of Business 2
Economic Systems
• Communism
• Socialism
• Capitalism (or free enterprise)
• Pure capitalism
• Modified capitalism
• Mixed economies
©McGraw-Hill Education.
Table 1.1a Comparison of Communism,
Socialism, and Capitalism
Topic Communism Socialism Capitalism
Business Most businesses The government owns Individuals own
ownership are owned and and operates some and operate all
operated by the basic industries; businesses.
government. individuals own small
businesses.
Competition Government Restricted in basic Encouraged by
controls competition industries; encouraged market forces and
and the economy. in small business. government
regulations.
Profits Excess income Profits earned by Individuals and
goes to the small businesses may businesses are
government. The be reinvested in the free to keep
government business; profits from profits after
supports social and government-owned paying taxes.
economic industries go to the
institutions. government.
©McGraw-Hill Education.
Table 1.1b Comparison of Communism,
Socialism, and Capitalism
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POLLING QUESTION Inman, the Prime Minister of Bowen,
recognizes the need for health care reform and
sets about passing regulations to see his goals
achieved. Which form of government does he
represent?
A. Socialist
B. Capitalist
C. A hybrid
D. Communist
E. Mercantile
©McGraw-Hill Education.
The Economic Foundations of Business 3
The Free-Enterprise System
• Many large economies are free-enterprise, such as
U.S., Canada, and Japan
• Many communist and socialist countries apply free-
enterprise principles, such as China and Russia
• Allows a company to succeed or fail on the basis of
market demand
©McGraw-Hill Education.
The Economic Foundations of Business 4
The Free-Enterprise System continued
• Basic individual and business rights must exist in
order for free enterprise to work
• Right to own property
• Right to earn profits and use them as one wishes
• Right to determine business operations
• Right to choose a career, where to live or locate a business,
what goods/services to purchase, and more
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The Economic Foundations of Business 5
The Forces of Supply and Demand
• Demand
• Supply
• Equilibrium price
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Figure 1.2 Equilibrium Price of Handmade Rugs
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POLLING QUESTION The airline industry is part of what type of
competitive environment?
A. Pure competition
B. Monopolistic competition
C. Oligopoly
D. Monopoly
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The Economic Foundations of Business 7
Economic Cycles and Productivity
• Economic expansion
• Inflation
• Economic contraction
• Recession
• Unemployment
• Depression
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Figure 1.3 Annual Average Unemployment
Rate, Civilian Labor Force, 16 Years and Over
Sources: Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey,”
http://data.bls.gov/timeseries/LNS14000000 (accessed March 25, 2018).
©McGraw-Hill Education.
Figure 1.4 Growth in U.S. Gross Domestic Product
Source: U.S. Department of Commerce Bureau of Economic Analysis, “National Economic Accounts,”
www.bea.gov/national/index.htm#gdp (accessed March 25, 2018).
©McGraw-Hill Education.
The American Economy 1
United States economy
• Mixed economy
• Foundation based on capitalism
• Standard of living is high
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The American Economy 2
The Importance of the American Economy
• Open economy
• Economy assessed on several factors
• Growth in GDP and jobs
• Government public policy
• Tax revenue from individuals and businesses
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Figure 1.5 Individual Income Tax Statistics
by Income Group
Source: Internal Revenue Service, Individual Income Tax Rates and Tax Shares, (accessed March 25, 2018).
©McGraw-Hill Education.
Figure 1.6 Online Retailing and E-Commerce
Source: Aaron Smith and Monica Anderson, “Online Shopping and E-Commerce,” Pew Research Center, December
19, 2016, http://www .pewinternet.org/2016/12/19/online-shopping-and-e-commerce/ (accessed March 25, 2018).
©McGraw-Hill Education.
The American Economy 4
The Role of the Entrepreneur
• Risk their wealth, time, and effort to develop for profit
an innovative product or way of doing something
• Let the free-enterprise system help them to succeed
• Change business practices through new technology
and innovative management techniques
©McGraw-Hill Education.
POLLING QUESTION Agree or Disagree: It’s important for the United
States to empower its entrepreneurs to be
successful through funding and tax credits.
A. I agree. Entrepreneurs bring new vision and
products to the U.S. market.
B. I disagree. This funding should be used to foster
growth in other countries.
C. I agree. Entrepreneurs encourage research and
development.
D. I disagree. Entrepreneurs take away from the
research and development conducted at large
businesses.
©McGraw-Hill Education.
Mobile Payment Systems
Apple Pay is a mobile payment system that allows users to store their
credit card or debit card information. When checking out at stores,
users can bring up their credit card with two taps and use the
information to pay for their purchases.
©McGraw-Hill Education.
The American Economy 6
The Role of Ethics and Social Responsibility in
Business
• Promote public confidence in corporate America
• Foster business ethics
• Encourage socially responsible behavior
• Push for diversity in workforce
• Enhance reputation and drive profits
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Socially Responsible Behavior
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Solve the Dilemma
Mrs. Acres Homemade Pies 1
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Solve the Dilemma
Mrs. Acres Homemade Pies 2
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Solve the Dilemma
Mrs. Acres Homemade Pies 3
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