Chapter 1

Spring 2023
Introduction to
Business
Let's reflect on what
went well and what did
not go well to improve
the way we work.
Copyright © 2022, 2019, 2016 Pearson Education, Inc.

About me:
ROGER ROYO
Telephone: 010-5691-3393
EMail: rogerroyo@solbridge.ac.kr
Nationality: Spanish
4 Years as Secretary General at the

Spanish Chamber of Commerce in Korea (ESCCK)
Professor at
SolBridge International School of Business
Head of the Global Startup Center at

SolBridge International School of Business
Researcher at
Kaist University
Advisor for Investment Promotion for Daejeon City

Daejeon City Government

Academia
Teaching Entrep, International Business, Tech

Management, Finance retc.
Things that make me happy
Ph.D. Candidate at KAIST University
and motivated
International Business
What Keeps Me Spain/Europe Representative at KAIST GCC

Connecting international partners
Busy
Research / Startup
Understanding the incubator system in Korea.
Working in an AI R&D Project between Korea and Spain
Collaborating with Born2Global and other startups
agencies Copyright © 2022, 2019, 2016 Pearson Education, Inc.
Assessment methods (POSTCOVID)
4
207

ROGER’S LESSONS SWOT
Strengths Weaknesses
Very Motivated Not just a Scholar
Business Experience Young
VeryReachable Nonnative speaker
Opportunities Threats
Connecting People No time
Survivor in Korea Evaluation needed
Different One space

7
Business Essentials 1-1

Thirteenth Edition
Chapter 1
The Business
Environment

What is the most
important thing to do
here?
Let's Start!
1-3
Learning Objectives (1 of 2)
1-1 Define the nature of business, describe the external

environments of business, and discuss how these environments
affect the success or failure of organizations.
1-2 Describe the different types of global economic systems

according to the means by which they control the factors of
production.

1-4
Learning Objectives (2 of 2)
1-3 Show how markets, demand, and supply affect
resource distribution in the United States, identify
the elements of private enterprise, and explain the
various degrees of competition in the U.S. economic
system.
1-4 Explain the importance of the economic
environment to business and identify the factors
used to evaluate the performance of an economic
system.
1-5 Learn about the skills you will gain through this
text.

1-5
The Concept of Business and Profit
Business
organization that provides goods or
services to earn profits
Profits
difference between a business’s revenues
and its expenses

The External Environment of Business 1-6
What is External
External
Environment is? It is everything outside an
Environment?
organization’s boundaries that might
affect it!

Dimensions of the External Environment 1-7
Examples:
Competition Regulation Political-Legal Environment
Exchange rates Economic Environment

The External Environments of Business (1 of 2) 1-8
Domestic Business Environment - the environment in which a

firm conducts operations and derives revenues
Global Business Environment - international forces that affect a
business and includes international trade agreements,
international economic conditions, and political unrest
Technological Environment - ways by which firms create value
for their constituents

The External Environments of Business 2 of 2 1-9
Political-Legal Environment - the relationship between

business and government
Sociocultural Environment - includes the customs,
mores, values, and demographic characteristics of the
society and determines the business standards that a
society is likely to value and accept
The Economic Environment - includes relevant
conditions that exist in the economic system in which
a company operates

Economic
Systems
Economic system - a nation’s system for

allocating its resources among its citizens,
both individuals and organizations
Why Korea? Miracle on the Han River

Factors of Production (1 of 2) 1-11
Labor (Human Resources) includes the physical and intellectual

contributions people make while engaged in economic
production and is also called human resources or human
capital.
Capital is the term used to describe the financial resources
needed to operate a business.
An Entrepreneur is a person who accepts the risks and
opportunities entailed in creating and operating a new business
venture.

1-12
Factors of Production (2 of 2)
Physical resources - tangible things that organizations use to

conduct their business and include natural resources and raw
materials
Information resources - data and other information used by

businesses and include market forecasts, the specialized
knowledge of people, and economic data

Political Systems (1 of 6)
Political system refers to the system of government in a nation.
1. Individualism vs Collectivism

2. Democratic vs.Totalitarian

Collectivism and Individualism

Collectivism
The needs of society as a whole are generally viewed as being more important
than individual freedoms
Socialism
Karl Marx: The few benefit at the expense of the many in a capitalist society where
individual freedoms are not restricted
Communists vs. social democrats
Privatization

Collectivism and Individualism continued
Individualism
An individual should have freedom in his or her economic and political pursuits
The interests of the individual should take precedence over the interests of the
state
Two tenets
Guarantee of individual freedom and self-expression
Welfare of society best served by letting people pursue their own economic self-interest

Democracy and
Totalitarianism
At different ends of a political dimension
Democracy and individualism go hand in hand, as do

the communist version of collectivism and
totalitarianism, with exceptions
Democracy and Totalitarianism continued

How about
your country?
Democracy
Representative democracy
Totalitarianism
Communist totalitarianism
Theocratic totalitarianism
Tribal totalitarianism
Right-wing totalitarianism

Democracy and Totalitarianism continued
Pseudo-democracies
Lie between pure democracies and complete totalitarianism systems
Authoritarian elements have captured some or much of the machinery of state
and use this in an attempt to deny basic political and civil liberties

Economic Systems (1 of 3)
A nation’s system for allocating its resources

among its citizens, both individuals and
organizations
Market Economy
All productive activities are privately owned

Production is determined by supply and demand
Government encourages vigorous free and fair competition

Command Economy
Government plans the good and services, quantity and price, then
allocates them for “the good of society”
All businesses are state owned
Historically found in communist economies
No incentive for individuals to look for better ways to serve needs
Such countries as Cuba, North Korea

1-15
Mixed market economy

features characteristics of
both command and
market economies
Privatization
process of converting
government enterprises
into privately owned
The People’s Republic of China is moving
companies towards a mixed market economy

An Asian Perspective

1-16
Demand and Supply in a Market Economy
Demand
the willingness and ability of buyers to purchase a product (a good or a
service)
Supply
the willingness and ability of producers to offer a good or service for sale

1-17
Surpluses and Shortages
Surplus
a situation in which quantity supplied exceeds quantity demanded
Shortage
a situation in which quantity demanded exceeds quantity supplied

Demand and Supply (1 of 2) 1-18

Demand and Supply (2 of 2) 1-19

Thailand 4.0 is an economic model that
aims to unlock the country from several
economic challenges resulting from past
economic development models

Private Enterprise and Competition in a Market 1-20
Economy (1 of 3 )
Private property rights

one that allows individuals to pursue their own interests with minimal
government restriction
private property rights, freedom of choice, profits, and competition

Economy (2 of 3)
1. Private enterprise system

ownership of the resources used to create wealth is in the hands of
individuals
This system minimizes government interference in economic activity.
2. Freedom of choice
you can sell your labor to any employer you choose

Economy (3 of 3)
1. Profits
the lure of profits leads some people to
abandon the security of working for
someone else and assume the risks of
entrepreneurship
2. Competition
occurs when two or more businesses vie
for the same resources or customers

Degrees of Competition (1 of 5) 1-23
Table 1.1 Degrees of Competition

Perfect Monopolistic
Characteristic Oligopoly Monopoly
Competition Competition
Example Local farmer Stationery store Steel industry Public utility
Many, but fewer

Number of competitors Many than in perfect Few None
competition
Ease of entry into Relatively Regulated by

Fairly easy Difficult
industry easy government
Similarity of goods or No directly

Can be similar or
services offered by Identical Similar competing
different
competing firms goods or services
Level of control over

None Some Some Considerable
price by individual firms

1-24
Degrees of Competition (2 of 5)
For perfect competition to exist, two conditions must prevail:
1 all firms in an industry must be small
2 the number of firms in the industry must be large

1-25
Perfect Competition
1. The products of each firm are so similar that buyers view them as
identical to those of other firms.
2. Both buyers and sellers know the prices that others are paying and
receiving in the marketplace.
3. Because each firm is small, it is easy for firms to enter or leave the
market.
4. Going prices are set exclusively by supply and demand and
accepted by both sellers and buyers.

Examples
A farmers market where each vendor sells the same In agricultural industry, there are numerous small
type of jam at an equal price. At the same time, sellers producers of similar crops, such as wheat, corn, or
are few and free to participate in the market without soybeans, each producing a small fraction of the total
any barrier. output. No single producer has the power to influence the
market price, and all producers have access to the same
technology and resources.
1-26
Degrees of Competition 3 of 5
Monopolistic Competition
market or industry characterized by numerous buyers and relatively
numerous sellers trying to differentiate their products from those of
competitors

Examples
FastFood Chains
Smartphones
1-27
Degrees of Competition (4 of 5)
Oligopoly
market or industry characterized by a handful of (generally large)
sellers with the power to influence the prices of their products

Degrees of Competition (5 of 5) 1-28
Monopoly
market or industry in which there is only one producer that can
therefore set the prices of its products

Degrees of Competition 1-28
Natural Monopoly
industry in which one company can most efficiently supply all needed
goods or services

1-29
Economic Indicators
Economic indicators
statistics that show whether an economic system is strengthening,
weakening, or remaining stable
help assess the performance of an economy

Economic Growth, Aggregate Output, and Standard 1-30
of Living (1 of 2)
Business cycle
the pattern of short-term ups and downs (or expansions and
contractions) in an economy
Aggregate output
the total quantity of goods and services produced by an economic
system during a given period
primary measure of growth in the business cycle

Economic Growth, Aggregate Output, and Standard 1-31
of Living (2 of 2)
Standard of living
the total quantity and quality of goods and services that they can
purchase with the currency used in their economic system

Gross Domestic Product (1 of 3) 1-32
Gross domestic product (GDP)

refers to the total value of all goods and services produced within a
given period by a national economy through domestic factors of
production
measure of aggregate output

Table 1.2 U.S. GDP and GDP per Capita

2021 GDP 2021 GDP: Real 2021 GDP per Capita:
($ Trillion) Growth Rate (%) Purchasing Power Parity
$23,315 5.9% $70 248

GDP (gross domestic product)
Table 1.3 South Korea GDP and GDP per Capita

2021 GDP 2021 GDP: Real 2021 GDP per Capita:
($ Trillion) Growth Rate (%) Purchasing Power Parity
$1,811 4,1% $34 997

Gross National Product 1-34
Gross national product (GNP)

refers to the total value of all goods and services produced by a
national economy within a given period regardless of where the factors
of production are located
Example:
The GNP of Country A would be calculated as follows:
GNP = (Value of goods and services produced by citizens and
businesses in Country A) + (Value of goods and services produced by
citizens of Country A living abroad)

GDP and GDP per Capita 1-35

Nominal GDP
gross domestic product (GDP) measured in current dollars or with all
components valued at current prices
Purchasing Power Parity
the principle that exchange rates are set so that the prices of similar
products in different countries are about the same

World Prices of a Big Mac 1-37

1-38
Productivity (1 of 2)
Productivity
measure of economic growth that
compares how much a system
produces with the resources
needed to produce it

Productivity (2 of 2) 1-39
Balance of trade
the economic value of all the products that a country exports minus
the economic value of its imported products
Positive or negative balance
National Debt
the amount of money the government owes its creditors
South Korea National Government Debt reached 718.8 USD bn in Sep 2022.

The Balance of Trade 1-40

Economic Stability (1 of 2) 1-41
Stability
condition in which the amount of money available in
an economic system and the quantity of goods and
services produced in it are growing at about the
same rate
Inflation
occurs when widespread price increases occur
throughout an economic system
Consumer Price Index (CPI)
a measure of the prices of typical products
purchased by consumers living in urban areas

1-42
Economic Stability (2 of 2)
Unemployment
the level of joblessness among people actively seeking work in an
economic system
Recession
a period during which aggregate output, as measured by GDP, declines
Depression
a prolonged and deep recession

Managing the U.S. Economy (1 of 2) 1-43
Fiscal Policies
policies used by a government regarding how it collects and spends
revenue
example: implement tax cuts
Monetary Policies
policies used by a government to control the size of its money supply
example: raising interest rates

Managing the U.S. Economy (2 of 2) 1-44
Stabilization Policy
government economic policy intended to smooth out
fluctuations in output and unemployment and to
stabilize prices

Post-Pandemic Recovery 1-45

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Spring 2023

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

4 Years as Secretary General at the

Head of the Global Startup Center at

Advisor for Investment Promotion for Daejeon City

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Teaching Entrep, International Business, Tech

What Keeps Me Spain/Europe Representative at KAIST GCC

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Business Essentials 1-1

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

1-1 Define the nature of business, describe the external

1-2 Describe the different types of global economic systems

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Competition Regulation Political-Legal Environment

Exchange rates Economic Environment

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Domestic Business Environment - the environment in which a

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Political-Legal Environment - the relationship between

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Economic system - a nation’s system for

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Labor (Human Resources) includes the physical and intellectual

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Physical resources - tangible things that organizations use to

Information resources - data and other information used by

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Collectivism and Individualism

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Collectivism and Individualism continued

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

At different ends of a political dimension

Democracy and individualism go hand in hand, as do

Democracy and Totalitarianism continued

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Democracy and Totalitarianism continued

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

A nation’s system for allocating its resources

All productive activities are privately owned

Copyright © 2022, 2019, 2016 Pearson Education, Inc.

Such countries as Cuba, North Korea

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Mixed market economy

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Private property rights

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1. Private enterprise system

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Table 1.1 Degrees of Competition