THE DYNAMICS OF

BUSINESS AND ECONOMICS

CHAPTER 1
 THE NATURE OF BUSINESS

• To create profits by:

• Selling products – Cars, food, clothing
• Providing services – Healthcare, insurance
• Tell me more services -
 BUSINESS VS. NONPROFIT
ORGANIZATION
• Business • Nonprofit
• An individual or Organization
organization that • Provides products,
tries to earn a profit especially services,
by providing products for some purpose
that satisfy people’s other than profits,
needs, ex. IBM, Coca- ex. The Salvation
Cola Army, 4300
American colleges &
universities.
 THE GOALS OF BUSINESS

• For-Profit Sector: • Nonprofit Sector:

• PROFIT – the • GOALS – may
difference between provide goods or
what it costs to services but not for
make and sell a the purpose of
product and what earning profits
the customer pays
for it.
 THE PEOPLE AND
ACTIVITIES OF BUSINESS
People: Activities:
Owners Management
Employees Marketing
Customers Finance
Other stakeholders:
Investors
Regulatory
Agencies
 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.
• You get to have me as a teacher!
 EDUCATION PAYS
MEDIAN WEEKLY SALARY & UNEMPLOYMENT RATE BY EDUCATION
LEVEL
 ECONOMICS

• Economics is the study of how scarce resources

are used to produce outputs—goods and services,
in other words the study of how individuals and
groups of individuals strive to satisfy their needs
and wants by making decisions within a social
system
 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
 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.
(Scarcity)
 ECONOMIC SYSTEMS ATTEMPT TO
ANSWERS 3 QUESTIONS
• What should be produced?

• How should it be produced?

• Who should share in what is produced?

TYPES OF ECONOMIC
SYSTEMS

• Communism
• Socialism
• Capitalism
• Mixed
 COMMUNISM:

• Communism: every person will work according to

his ability till his needs. (China & Vitneam)
i. Moneyless society
ii. Stateless society means no class system
iii. There is no single owner of the factory or land;
but the public
iv. No private ownership’s concept
v. Everyone gets everything
Karl Marx
 SOCIALISM

• Everyone works according to his ability and get

according to his contribution
• The people who works harder will get more
reward
• Works on social justice and social interest
• Promote CSR among organization owner
 CAPITALISM

• Everyone will work according to his ability but will

get according to his capital
i. Promote privatization
ii. Less government interference in the market
iii. Free market and competition
iv. E.g. employees of any company working but in
return getting a limited salary rather than large
profits
 COMPARISON OF COMMUNISM,
SOCIALISM, AND CAPITALISM
Communism Socialism Capitalism
Business Most businesses are The government owns and Individuals own and
Ownership owned and operated operates major industries; operate all businesses.
by the government. individuals own small
businesses.

Competition None. The Restricted in major Encouraged by market

government owns and industries; encouraged in forces and
operates everything. small business. government
regulations.
Profits Excess income goes to Profits earned by small Individuals are free to
the government. businesses may be keep profits and use
reinvested in the business; them as they wish.
profits from government-
owned industries go to the
government.
 COMPARISON OF COMMUNISM,
SOCIALISM, AND CAPITALISM
Communism Socialism Capitalism
Product Consumers have a Consumers have Consumers have a
availability limited choice of some choice of wide choice of
and price goods and services; goods and goods and
prices are usually services; prices services; prices
high. are determined by are determined by
supply and supply and
demand. demand.

Employment Little choice in Some choice of Unlimited choice

options choosing a career; careers; many of careers.
most people work people work in
for government- government jobs.
owned industries or
farms.
 ECONOMIC SYSTEMS AND
WHERE THEY OCCUR

Communism: Socialism: Capitalism:

China Sweden United States
North Korea Germany Canada
Cuba France Australia
Viet Nam Israel Japan
Laos Denmark Brazil
 MIXED ECONOMIES

• Most countries of the world have

elements of more than one economic
system.
 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.
 SUPPLY AND DEMAND

• Supply: • Demand:
• The number of • The number of
products goods and
business is services that
customers are
willing to sell at
willing to buy at
different prices different prices at
at a specific a specific time.
time. • A downward
• An upward sloping curve on
sloping curve on a graph.
a graph.
 EQUILIBRIUM PRICE
OF HANDMADE RUGS
Prices of Rugs
(dollars)
$800

$650 Equilibrium
Price
$500

$350

$200

0
1 2 3 4 5 6 7
Handmade Rugs
 EQUILIBRIUM PRICE

• 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 moment in time
FOUR COMPETITIVE ENVIRONMENTS

Pure Competition Many small businesses sell

one standardized product.
Monopolistic There are fewer businesses than
in a competition 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.
 BUSINESS CYCLE

• The rise and fall of the economic activity

over time (Draw)
• Prosperity – is a peak of economic activity
• Recession – economic activity slows, Decline
in GDP for 2 quarters
• Depression – Deep recession that affects the
entire economy & lasts for several years
• Recovery – Economic activity picks up and
consumer confidence rises, which leads to more
spending
• Contractions vs. Expansions
• Inflation – Rise in the price of goods/services
 ECONOMIC INDICATORS

• What is an economic indicator?

• Why do they matter?
• What are some?