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Assessing Economic and Global

Conditions

Jeff Madura, 4th Edition, Introduction


to Business. South Western

Impact of Economic Growth on Business


Performance

Economic growth represents the change in the general


level of economic activity.
When the economic growth is stronger than normal, the
total income level of all workers is relatively high, so
there is a higher volume of spending on products and
services.
Since the demand for products and services is high,
firms that sell products and services should generate
higher revenue.
Good Economy Higher Incomes Higher Demands
for Products/Services More Profits for Companies
Increase Production Capacities More Jobs Created
National Economy Grows More Exports/Imports
Activities Global Economy Grows
Jeff Madura, 4th Edition, Introduction
to Business. South Western

Consider the Alternative

Whereas strong economic growth enhances a


firms revenue, slow economic growth results in
low demand for products and services, which can
reduce a firms revenue.
Even firms that provide basic products or services
are adversely affected by a weak economy
because customers tend to reduce their demand.
Gross Domestic Product (GDP) is the total market
value of all final products and services produced
by domestic and foreign firms in a country.
An alternative indicator of economic growth is the
unemployment level.
Jeff Madura, 4th Edition, Introduction
to Business. South Western

How Market Prices are Determined

The performance of firms is affected by changes


in the prices they charge for products (which
influence their revenue) and the prices they pay
for supplies and materials (which influence their
operating expenses).
The market price of a product is influenced by
the total demand for that product by all
customers.
It is also affected by the supply of that product
produced by firms.
The interaction between demand and supply
determines the price.
Jeff Madura, 4th Edition, Introduction
to Business. South Western

Interaction between Supply and Demand

Jeff Madura, 4th Edition, Introduction


to Business. South Western

The Effect of Shift in Demand

Jeff Madura, 4th Edition, Introduction


to Business. South Western

The Effect of Shift in Supply

Jeff Madura, 4th Edition, Introduction


to Business. South Western

Factors that Influence Market Prices

Consumer Income
Consumer Preferences
Production Expenses

Jeff Madura, 4th Edition, Introduction


to Business. South Western

Motives for Going International


Motives
Conducting
Barriers
Characteristic
s
Exchange
Rate

Foreign Demand
Technology
Resources
Diversification
Combination of Motives

Importing & Exporting


Motives
Conducting
Barriers
Characteristic
s
Exchange
Rate

Importing
Tarif
Quota

Exporting
Internet

Balance of Trade
Motives
Conducting
Barriers
Characteristic
s
Exchange
Rate

Reasons for Direct Foreign Investment


Motives
Conducting
Barriers
Characteristic
s
Exchange
Rate

Transportation
Barriers
Technology
Lower Costs

Strategic Alliances
Motives
Conducting
Barriers
Characteristic
s
Exchange
Rate

Strategic Alliances

(shared resources)

Joint Venture

(project based)

International
Licensing (foreign
producer)

Trade Barriers
Motives
Conducting
Barriers
Characteristic
s
Exchange
Rate

Protection

Punishment

Foreign Characteristics
Motives
Conducting
Barriers
Characterist
ics
Exchange
Rate

Culture

Economic Systems
Motives
Conducting
Barriers
Characterist
ics
Exchange
Rate

Capitalism
(private ownership)
Communism
(public ownership)
Socialism
(mix both)

Value of the Dollar


Motives
Conducting
Barriers
Characteristic
s
Exchange
Rate

Weaker
Depreciate

Stronger
Appreciate