FerrellChap001 10e

Part 1
Business in
a Changing
World
© 2016 by McGraw-Hill Education. This is proprietary material solely for

authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded,
distributed, or posted on a website, in whole or part.
1-2
The Dynamics of Business and

CHAPTER 1
Economics
Guidelines for the Development of the

APPENDIX A
Business Plan
CHAPTER 2 Chapter Titles

Business Ethics and Social
Responsibility
APPENDIX B The Legal and Regulatory Environment
CHAPTER 3 Business in a Borderless World
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
1-3
Learning Objectives
LO 1-1 Define basic concepts such as business, product, and profit.
LO 1-2 Identify the main participants and activities of business and
explain why studying business is important.
LO 1-3 Define economics and compare the four types of economic
systems.
LO 1-4 Describe the role of supply, demand, and competition in a
free enterprise system.
LO 1-5 Specify why and how the health of the economy is
measured.
LO 1-6 Trace the evolution of the American economy and discuss
the role of the entrepreneur in the economy.
LO 1-7 Evaluate a small-business owner’s situation and propose a
course of action.
1-4
The Nature of Business
1-5
A Product Can Be…
1-6
The Goal of Business
The goal of business is to earn a profit

$ The difference between what it costs to make and
sell a product and what a customer pays for it
$10 sale – $8 to make = $2 profit
$ Earning profits contributes to society by providing
employment, which in turn provides money that is
reinvested in the economy
$ Profits must be earned in a responsible manner
1-7
Nonprofit Organizations
1-8
To Earn a Profit
1-9
Stakeholders
~ Groups that have a stake in
the success and outcomes of
a business
~ Customers, employees,
investors, government
regulators, and community.
~ To achieve and maintain
profitability, businesses must
produce quality products,
operate efficiently, and be
Consumers are often willing
socially responsible and ethical to pay more for products
in dealing with stakeholders they perceive as
environmentally-friendly
1-10
Sprint’s Buyback Program
Concerns about landfills becoming high-tech

graveyards plague many electronics firms
 Sprint was the first wireless company to have a
buyback program for customers to turn in their used
mobile devices in exchange for up to $300 in credit
 Cleans and updates the device
 Sells them as refurbished phones at a lower cost
 Reached developing markets because these devices
are in high demand for an affordable price
 Unusable devices are sent to a 3rd party for recycling
 The EPA has recognized the program as one of the
best
1-11
Overview of the Business World
1-12
Management
Management is concerned with:

o Acquiring
o Developing Plan
o Using
resources (including
people) effectively and Control
efficiently Tasks Managers Organize
Staff
1-13
Marketing
The focus of
all marketing
activities is
satisfying
customers
1-14
Finance
The owner is primarily

responsible for obtaining
financial resources for the
operation of the business,
including:
 Obtaining money
 Using money effectively
1-15
Why Study Business?
• Develop skills Business career opportunities:

for career  Marketing
success  Human resources
management
• Become a  Information technology
well-informed  Finance
consumer and  Production and operations
member of  Wholesaling and retailing
society  And more
1-16
Bill Daniels
Bill Daniels founded Cablevision, building his first

cable TV system in 1953 and is considered “the
father of cable television”
 He established a foundation that currently has funding
of $1.1 billion
 Supports diversity of causes from education to business
ethics
 Created Young Americans Bank for children to learn
about financial responsibility
 Remains the world’s only carter bank for young people
 Created Daniels College of Business through donation
of $20 million to University of Denver
1-17
Economics
The Young Americans Bank

in Denver is the only bank in
the world that lends money
to individuals under the age
of 22
1-18
Economic Foundations of Business
1-19
Economic Systems
All economic systems must address these 3 important issues:

1. What goods and services, and how much of each, will
satisfy consumers’ needs?
2. How will goods and services be produced, who will
produce them, and with what resources will they be
produced?
3. How are the goods and services to be distributed to
consumers?
1-20
Communism
C
C
H
U
I
B
N
A
A
1-21
Socialism
S I I
W S N
E R D
D A I
E E A
N L
1-22
Capitalism
C J
A U A
N S P
A A A
D N
A
1-23
Comparison of Communism, Socialism,

and Capitalism
1-24
Mixed Economies
No country practices pure capitalism, socialism, or
communism
China and Russia have used state capitalism to

advance the economy, integrating the powers of the
state with the advantages of capitalism
1-25
Modified Capitalism
► Modified capitalism differs from pure capitalism in that
the government intervenes and regulates business to
some extent
► One way of regulating
business is through laws
► Federal Trade
Commission Act created
the Federal Trade
Commission
► Importance of
government’s role in
Enforces antitrust laws and
monitors businesses to ensure economy
fair competition
1-26
The Free-Enterprise System
Many large economies are free-enterprise – including

the U.S., Canada and Japan
Many communist and

socialist countries apply
free-enterprise principles
– including China and
Russia
Free enterprise allows
a company to succeed
An entrepreneur presents his idea for a or fail on the basis of
new product. Entrepreneurs are more market demand
productive in free-enterprise systems.
1-27
Individual and Business Rights

Basic individual and business rights which must
exist in order to motivate companies to succeed
► Right to own property
► Right to earn profits and use them as one wishes
► Right to determine business operations
► Right to choose
 Career to pursue
 Where to live or where to locate a business
 What goods/services to purchase and more
1-28
The Forces of Supply and Demand
Supply
Demand
1-29
Equilibrium Price
Equilibrium
price is the
price at which
the number of
products that
businesses are
willing to
supply equals
the amount of
products that
consumers are
willing to buy at
a specific point
in time
1-30
Supply and Demand
 Critics of supply and demand

say the system does not
distribute resources equally
 The forces prevent sellers
who have to sell at higher
prices and buyers who
cannot afford to buy goods at
the equilibrium price from
participating in the market
1-31
Marriott International
Competition should improve the quality of the goods

and services available or reduce prices
 Marriott International went from small root beer stand
in 1927 to its current status of 3,900 high-quality hotels
in 72 countries
 If treat employees well then they would provide good
service to customers
 Competing to attract younger travelers with:
 Reinvented lobbies with amenities
 Convenient ways to check in and out
 Significantly expanding in Africa and Asia capitalizing
on new market opportunities
1-32
The Nature of Competition

Competition is the rivalry among businesses for consumer’s dollars
1-33
Economic Cycles and Productivity
May lead to
inflation – a
continuing rise
in prices
May lead to
recession – a
decline in
production,
employment
and income
1-34
Economic Cycles and Productivity (cont.)
Recessions are often characterized by rising levels of

 Unemployment – the condition in which a percentage of
the population wants to work but is unable to find jobs
Deflation occurs when rising unemployment stifles demand,
forcing prices down
Severe recession may turn into a
 Depression – a condition of the
economy in which unemployment is
very high, consumer spending is low,
and business output is sharply
reduced
1-35
Hyperinflation
Inflation can be harmful if individuals’ incomes do not
increase at the same pace as rising prices, reducing
their buying power
 The worst case of hyperinflation occurred in Hungary
in 1946
 At one point, prices were doubling every 15.6 hours
 One of the most recent cases of hyperinflation
occurred in Zimbabwe
 Suffered from hyperinflation so severe that its inflation
percentage rate rose into the hundreds of million
 The elimination of the Zimbabwean dollar and certain price
controls, the inflation rate began to decrease
1-36
Measuring the Economy
1-37
Gross Domestic Product (GDP)

 In 2008 the System of National Accounts (SNA) serves
as a set of standards by which to measure economic
activity in every country
 Overseen by the United Nations (UN)
 Broadened the definition of assets to include intellectual
property (IP) such as patents
 Over the last decade investments in research and
development have spurred new products that have
contributed to the GDP making them an important asset
 While the calculations are still difficult, Canada and the
United States have included IP in their GDP
 Other countries are expected to follow
1-38
Evaluating Our Economy
See the U.S. Pu

blic Debt to th
e Penny
1-39
The American Economy
Early Industrial Manufacturin Service and

Economy Revolution g and Digital
Marketing Economy
Economies
• Agricultural • New • Assembly • The U.S. is
economy technologie line a service
s and production economy
• People factories and concern and
produced with technology
everything • Factories customer is leading
they needed combined needs us into a
at home material, new digital
machines economy
and workers
DID YOU KNOW?

Approximately 59 percent of adult women are engaged in the workforce
1-40
Mobile Payment Systems

 Google Wallet is a mobile
payments system
 Allows users to store their
credit card or debit card
information
 When checking out at stores,
users can bring up the app and
use the information to pay for
their purchases
 Apple Inc. has released its
version of a mobile payment
system called Apple Pay
1-41
The Role of the Entrepreneur
Entrepreneur
• An individual who risks his/her wealth, time and effort
to develop for profit an innovative product or way of
doing something.
Entrepreneurship requires:
 Risk
 Innovation
 Creativity
 Reward
1-42
The Role of Government in the

American Economy
The U.S. economy is best described as modified
capitalism because:
◄ The government regulates industry to encourage
competition and protect stakeholders like
consumers, employees, or the environment
◄ Laws force businesses to adhere to government
standards
◄ Government agencies like the U.S. Department of
Commerce or the Federal Reserve Board
occasionally intervene to regulate the economy and
spur growth
1-43
The Role of Ethics and Social

Responsibility in Business
Business ethics
are standards set
by society
Stakeholders Reputation
demand ethical depends on profit
and socially and ethics and
responsible social
behavior responsibility
1-44
Can You Learn Business in a

Classroom?
Absolutely!
To be successful in business,
you need:
 Knowledge
 Skills
 Experiences and
 Good judgment
1-45
Solve the Dilemma

Mrs. Acres Homemade Pies
Produces specialty pies and sells them in local
supermarkets and family restaurants
► In each of the first six months sold 2,000 pies for $4.50
each netting $1.50 profit/pie
► Had problems keeping up with demand
♦ To meet demand expanded operations, borrowed money,
and increased staff
♦ Production and sales increased to 8,000 pies/month, and
profits soared to $12,000 per month
1-46
Solve the Dilemma

Mrs. Acres Homemade Pies (cont.)
Shelly has several

options:
• Maintain current production Discussion Questions
levels and raises prices
• Expand the facility and staff • Explain and demonstrate
while maintaining the the relationship between
current price supply and demand for
• Contract the production of Mrs. Acres Pies.
the pies to a national chain, • What challenges does
giving Shelly a percentage Shelly face as she
of profits with minimal considers the 3 options?
involvement • What would you do in
Shelly’s position?
1-47
Discussion
? What is the fundamental goal of business? Do

all organizations share this goal?
? Who are the main participants of business?
What are the main activities? What other factors
have an impact on the conduct of business in
the United States?
? Explain the terms supply, demand, equilibrium
price, and competition. How do these forces
interact in the American economy?
? List and define the various measures
governments may use to gauge the state of
their economies. If unemployment is high, will
the growth offorwarded,
duplicated, GDPdistributed,
be orgreat or insmall?
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Part 1

© 2016 by McGraw-Hill Education. This is proprietary material solely for

The Dynamics of Business and

Guidelines for the Development of the

CHAPTER 2 Chapter Titles

APPENDIX B The Legal and Regulatory Environment

CHAPTER 3 Business in a Borderless World

The Nature of Business

A Product Can Be…

The Goal of Business

The goal of business is to earn a profit

Sprint’s Buyback Program

Concerns about landfills becoming high-tech

Overview of the Business World

Management is concerned with:

The owner is primarily

Why Study Business?

• Develop skills Business career opportunities:

Bill Daniels founded Cablevision, building his first

The Young Americans Bank

Economic Foundations of Business

All economic systems must address these 3 important issues:

Comparison of Communism, Socialism,

China and Russia have used state capitalism to

The Free-Enterprise System

Many large economies are free-enterprise – including

Many communist and

Individual and Business Rights

The Forces of Supply and Demand

Supply and Demand

 Critics of supply and demand

Competition should improve the quality of the goods

The Nature of Competition

Economic Cycles and Productivity

Economic Cycles and Productivity (cont.)

Recessions are often characterized by rising levels of

Measuring the Economy

Gross Domestic Product (GDP)

Evaluating Our Economy

See the U.S. Pu

The American Economy

Early Industrial Manufacturin Service and

DID YOU KNOW?

Mobile Payment Systems

The Role of the Entrepreneur

The Role of Government in the

The Role of Ethics and Social

Can You Learn Business in a

Solve the Dilemma

Solve the Dilemma

Shelly has several

? What is the fundamental goal of business? Do

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