Chapter One

The Dynamics of
Business and Economics
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The Nature of Business

To create profits by:
Selling products Cars, food, clothing
Providing services Healthcare,
insurance

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Business vs. Nonprofit

Organization
Business
An individual or
organization that tries to
earn a profit by
providing products that
satisfy peoples needs,
ex. IBM, Coca-Cola.

Nonprofit
Organization
Provides products,
especially services, for
some purpose other
than profits, ex. The
Salvation Army, 4300
American colleges &
universities.

The Goals of Business

For-Profit Sector:
PROFIT the
difference between
what it costs to
make and sell a
product and what
the customer pays
for it.

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Nonprofit Sector:
GOALS may
provide goods or
services but not for
the purpose of
earning profits.

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The People and

Activities of Business
People:
Owners
Employees
Customers
Other
stakeholders:

Activities:
Management
Marketing
Finance

Investors
Regulatory Agencies

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Management Hiring Issues

Issues Considered by Job Seekers Before Switching Jobs
Salary

32%

Location

25%
24%

Opportunity for Growth

15%

Chance to learn new technology

Perks 2%
Personal contacts 2%

Source: Survey of 970 job seekers by CareerEngine.com, New York in

Kemba J. Dunham, The Jungle, Wall Street Journal, July 3, 2001, p. B6.

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Why Study Business?

It provides employment for most people.
It provides the majority of products needed
to survive and enjoy life.
It will help prepare you for your future
career.
It will help you become a better informed
consumer and member of society.

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Education Pays
Average Annual Salary By Education Level
$63,229
$40,478
$22,895

Advanced
Degree

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Bachelors
Degree

High School
Diploma

$16,124

No
Diploma

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Types of Resources
Used by Business
Natural
land, forests, etc. (not made by people)

Human
physical/mental abilities used by people
to produce goods and services

Financial
funds necessary to acquire needed
natural and human resources
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What Is An Economic System?

The way a society distributes its
resources to produce goods and
services.
Addresses the issue of how to fulfill
unlimited demand with limited supply
of resources.

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Basic Questions to Be Asked of

Economic Systems
1. What goods and services and what
quantity will satisfy the needs of
the consumer?
2. How will the goods and services be
produced? Who will produce
them
and with what resources?
3. How are the goods and services to
be distributed to the consumer?
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Types of Economic Systems

Communism
Socialism
Capitalism

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Comparison of Communism,
Socialism, and Capitalism
Communism

Socialism

Capitalism

Business
Ownership

Most businesses are

owned and operated
by the government.

The government owns and

operates major industries;
individuals own small
businesses.

Individuals own and

operate all businesses.

Competition

None. The
government owns and
operates everything.

Restricted in major
industries; encouraged in
small business.

Encouraged by market
forces and
government
regulations.

Profits

Excess income goes to

the government.

Profits earned by small

businesses may be
reinvested in the business;
profits from governmentowned industries go to the
government.

Individuals are free to

keep profits and use
them as they wish.

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Comparison of Communism,
Socialism, and Capitalism
Communism

Socialism

Capitalism

Product
availability
and price

Consumers have a
limited choice of
goods and services;
prices are usually
high.

Consumers have
some choice of
goods and
services; prices
are determined by
supply and
demand.

Consumers have a
wide choice of
goods and
services; prices
are determined by
supply and
demand.

Employment
options

Little choice in
choosing a career;
most people work
for governmentowned industries or
farms.

Some choice of
careers; many
people work in
government jobs.

Unlimited choice
of careers.

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Economic Systems and

Where They Occur
Communism:

Socialism:

Capitalism:

China

Sweden

United States

North Korea

India

Canada

Cuba

France

Australia

Viet Nam

Israel

Japan

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Mixed Economies
Most countries of the
world have elements of
more than one economic
system.

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The Free-Enterprise System

Individuals can own property and pass it on
to their heirs.
People and businesses can earn profits and
use them as they wish.
Individuals and businesses can determine
how their businesses operate.
Individuals can choose their career, where to
live, and what to buy.

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Supply and Demand

Supply:
The number of
products business
is willing to sell at
different prices at a
specific time.
An upward sloping
curve on a graph.

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Demand:
The number of
goods and services
that customers are
willing to buy at
different prices at a
specific time.
A downward
sloping curve on a
graph.

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Equilibrium Price
of Handmade Rugs
Prices of Rugs
(dollars)
$800
Equilibrium
Price

$650
$500
$350
$200
0

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3
5
4
Handmade Rugs

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Four Competitive Environments

Pure Competition

Many small businesses sell one

standardized product.

Monopolistic
competition

There are fewer businesses than in a

pure-competition system, and the
differences between the goods they
sell are small.

Oligopoly

Very few businesses sell a product;

the product they sell can be similar or
different.

Monopoly

There is only one producer of a

product in a given market.

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Economy

Economic Cycles

on
i
t
c
a
r
t
n
Co

n
o
i
s
n
a
Exp
Time

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Growth of The
American Economy

The Early
Economy
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The Industrial
Revolution

The Manufacturing
and
Marketing Economies

The Service &

Internet-based
Economy

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Explore Your Career Options

What are some of the changes in the
work environment that contribute to the
transformation of the traditional career
track?
FAST FACT:
Enterprise Leasing is one of the nations largest
employers of college graduates, hiring over
5000 graduates a year.

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Additional Discussion Questions

and Exercises
1. Which economic system provides for central
government planning to determine what goods
and services will satisfy needs of citizens?
2. How did the Industrial Revolution affect the
agricultural economy in the United States?
3. What characteristics of modern American
entrepreneurs are similar to those of early
American entrepreneurs?

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Chapter 1 Quiz
1. The activities designed to provide goods and services that
satisfy customers are knowm as:
a. management.
b. marketing.
c. finance.
d. gross national product.
2. Which of the following best describes inflation?
a. a continuing decrease in product prices
b. a moderate decrease in demand
c. a continuing increase in unemployment
d. a continuing increase in prices

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Chapter 1 Quiz
3. The airline business in the United States is an example of
what form of competition?
a. pure competition
b. monopolistic competition
c. oligopoly
d. monopoly
4. The quantity of products and services that consumers are
willing to buy at different prices at a specific time is
a. supply.
b. demand.
c. competition.
d. gross national product.

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