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CHAPTER 1
Understanding The Contemporary
Business Environment
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The Meaning of Business
Business: Organization that provides
goods or services that are then sold to
earn profits.
Profits: The difference between a
business's revenues and expenses is
what encourages people to open and
expand businesses.


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The Evolution of Business
Industrial Revolution: in the middle
of the eighteenth century - change in
production characterized by a shift to
the factory system, mass production,
and the specialization of labor.
- The factory system reduced
duplication of equipment and allowed
firms to buy raw materials at better
prices by buying in large lots.
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The Evolution of Business
Entrepreneurial Era: Starting/Opening up
of businesses due to improvements in
transportation and the liberalization of
markets.
Production Era: Period during the early 20
th

century in which business focused primarily
on improving productivity and manufacturing
efficiency.
Marketing Era: After World War II, idea
that a business must focus on identifying and
satisfying consumer wants in order to be
profitable.

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The Evolution of Business
The Global Era: Continuation of
technological advances in production,
computer technology, information
systems, and communications
capabilities enable businesses to
expand into foreign markets.
The Information Era: Characterized
mostly by the internet expanded
rapidly after 2005.
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Factors of Production
Labor: Physical and mental capabilities
of people as they contribute to
economic production.
Capital: Funds needed to create and
operate a business enterprise.
Entrepreneur: is an individual who
accepts the risks and opportunities
entailed in creating and operating a
new business
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Factors of Production
Physical resources: Tangible items
organizations use in the conduct of their
businesses; include natural resources,
raw materials offices, production
facilities, computers etc.
Information Resources: Data and
other information used by businesses.
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The Economics of a Market
System
Market: Mechanism for exchange
between buyers and sellers of a
particular good or service.
Demand: The willingness and ability of
buyers to purchase a good or a service.
Supply: The willingness and ability of
producers to offer a good or a service
for sale.

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The Economics of a Market
System
Law of Demand: Principle that buyers will
purchase (demand) more of a product as its
price drops and less as its price increases.
Law of Supply: Principle that producers will
offer (supply) more of product for sale as its
price rises and less as its price drops.
Surplus: Situation in which quantity supplied
exceeds quantity demanded.
Shortage: Situation in which quantity
demanded exceeds quantity supplied.

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The Economics of a Market
System
Private Enterprise system: one that allows
individuals to pursue their own interests with
minimal government restriction.
Competition: occurs when two or more
businesses vie for the same resources or
customers.
Perfect Competition: Market or Industry
characterized by numerous small firms
producing an identical product.

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The Economics of a Market
System
Monopolistic Competition: Market or
Industry characterized by numerous buyers
and relatively numerous sellers trying to
differentiate their products from those of
competitors.
Oligopoly: Market or Industry characterized
by a generally large sellers with the power to
influence the prices of their products.
Monopoly: Market or Industry, in which
there is only one producer, which can
therefore set the prices of its products.