Introduction to Business: Key Concepts and Definitions
Chapter 1: Economic Fundamentals
Basic Concepts
Profits: The difference between a business’s revenues and its expenses.
External Environment: Everything outside an organization’s boundaries that might affect it.
Economic System: A nation’s system for allocating its resources among its citizens.
Factors of Production: Resources used in the production of goods and services.
Entrepreneur: An individual who accepts the risks and opportunities involved in creating and operating a new business venture.
Types of Economic Systems
- Planned Economies
- Market Economies
- Mixed Market Economies
Economic Systems in Detail
Communism: A political system in which the government owns and operates all factors of production.
Socialism: A planned economic system in which the government owns and operates only selected major sources of production.
Market: A mechanism for exchange between buyers and sellers of a particular good or service.
Market Economy: An economic system in which goods and services are made, sold, and shared, and prices are set by the balance of supply and demand.
Privatization: The process of converting government enterprises into privately owned companies.
Supply and Demand
Demand: The willingness and ability of buyers to purchase a good or service.
Supply: The willingness and ability of producers to offer a good or service for sale.
Law of Demand: The principle that buyers will purchase (demand) more of a product as its price drops and less as its price increases.
Law of Supply: The principle that producers will offer (supply) more of a product for sale as its price rises and less as its price drops.
Private Enterprise and Competition
Private Enterprise: An economic system that allows individuals to pursue their own interests without undue governmental restriction.
Four Degrees of Competition:
- Private property rights
- Freedom of choice
- Profits
- Competition
Oligopoly: A market or industry characterized by a handful of sellers with the power to influence the prices of their products.
Monopoly: A market or industry in which there is only one producer that can therefore set the prices of its products.
Monopolistic Competition: A market or industry characterized by numerous buyers and relatively numerous sellers trying to differentiate their products from those of competitors.
Measuring Economic Performance
Gross Domestic Product (GDP): The total value of all goods and services produced within a given period by a national economy through domestic factors of production.
Gross National Product (GNP): 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.
Aggregate Output:
Purchasing Power Parity: The principle that exchange rates are set so that the prices of similar products in different countries are the same.
Stability: A 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.
Fiscal Policies: Policies used by a government regarding how it collects and spends revenue.
Monetary Policies: Policies used by a government to control the size of its money supply.
Chapter 2: Business Ethics and Social Responsibility
Ethical Considerations
Ethics: Beliefs about what is right and wrong or good and bad in actions that affect others.
Ethical Behavior: Behavior conforming to generally accepted social norms concerning beneficial and harmful actions.
Managerial Ethics: Standards of behavior that guide individual managers in their work.
Non-owner Cooperation:
Written Codes:
Social Responsibility
Social Responsibility: The attempt of a business to balance its commitments to groups and individuals in its environment, including customers, other businesses, employees, investors, and local communities.
Organizational Stakeholders: Those groups, individuals, and organizations that are directly affected by the practices of an organization and who therefore have a stake in its performance.
Environmental Issues
Pollution: Results when several factors combine to lower air quality.
Acid Rain: Occurs when sulfur is pumped into the atmosphere.
Toxic Waste in Florida:
Ethical Challenges in Business
Collusion: An illegal agreement between two or more companies to commit a wrongful act.
Whistle-Blower: An employee who discovers and tries to put an end to a company’s unethical, illegal, or socially irresponsible actions by publicizing them.
Price Gouging: Responding to increased demand with overly steep price increases.
Insider Trading: The illegal practice of using special knowledge about a firm for profit or gain.
Chapter 3: Small Business and Entrepreneurship
Entrepreneurial Spirit
Small Business: An independently owned business that has relatively little influence in its market.
Entrepreneur: A businessperson who accepts both the risks and the opportunities involved in creating a new business venture.
Entrepreneurship: The process of seeking business opportunities under conditions of risk.
Business Plan: A document in which the entrepreneur summarizes her or his business strategy for the proposed new venture and how that strategy will be implemented.
Venture Capital Company: A group of small investors who invest money in companies with rapid growth potential.
Business Ownership
Sole Proprietorship: A business owned and usually operated by one person who is responsible for all of its debts.
Unlimited Liability: A legal principle holding owners responsible for paying off all debts of a business.
General Partnership: A business with two or more owners who share in both the operation of the firm and the financial responsibility for its debts.
Limited Liability: A legal principle holding investors liable for a firm’s debts only to the limits of their personal investments in it.
Corporate Structure and Operations
Tender Offer: An offer to buy shares made by a prospective buyer directly to a target corporation’s shareholders, who then make individual decisions about whether to sell.
Dividend: Profits are distributed among stockholders in the form of dividends.
Stockholder: An owner of shares of stock in a corporation.
CEO: Chief Executive Officer: The person with the most important position in a company.
Spin-off: A strategy of setting up one or more corporate units as new, independent corporations.
Chapter 4: International Business: Competing in the Global Marketplace
Globalization and Trade
Globalization: The process by which the world economy is becoming a single interdependent system.
Import: A product made or grown abroad but sold domestically.
Export: A product made or grown domestically but shipped and sold abroad.
North American Free Trade Agreement (NAFTA): An agreement to gradually eliminate tariffs and other trade barriers among the United States, Canada, and Mexico.
Trade Deficit: A situation in which a country’s imports exceed its exports, creating a negative balance of trade.
Trade Surplus: A situation in which a country’s exports exceed its imports, creating a positive balance of trade.
Competitive Advantage
Absolute Advantage: The ability to produce something more efficiently than any other country can.
Comparative Advantage: The ability to produce some products more efficiently than others.
International Business Strategies
Outsourcing: The practice of paying suppliers and distributors to perform certain business processes or to provide needed materials or services.
Independent Agent: A foreign individual or organization that represents an exporter in foreign markets.
Strategic Alliance: A company finds a partner in the country in which it wants to do business.
Foreign Direct Investment (FDI): Involves buying or establishing tangible assets in another country.
Trade Barriers and Protectionism
Quota: A restriction on the number of products of a certain type that can be imported into a country.
Subsidy: A government payment to help a domestic business compete with foreign firms.
Protectionism: The practice of protecting domestic businesses against foreign competition.
Business Practice Law: A law or regulation governing business practices in given countries.