BUSINESS ENVIRONMENT

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Describe the different types of global economic systems according to the means by which they control the factors of production through input and output markets. Show how markets, demand, and supply affect resource distribution. Identify the various degrees of competition in the economic system. Identify the factors used to evaluate the performance of an economic system.
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In business you get what you want by giving other people what they want. Alice Foote MacDougall

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 An

organization that provides goods and services to earn profits

Profits:
The positive difference between revenues and expenses
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o o o o

produce most of the goods & services we consume employ most working people Create most new innovations Provide a vast range of opportunities for new businesses

Enhanced personal incomes of owners and stockholders o Support for charities and community leadership
o
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 Domestic

business environment

Environment in which a firm conducts its

operations and derives its revenues (customers, suppliers, competitors)

Global

business environment

International forces that affect a business E.g. international trade agreements,

international economics conditions, political unrest

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 Technological

Environment

All the ways by which firms create value

for their constituents Includes human knowledge, work methods, physical equipment, electronics and telecommunications
Political-legal

environment

Relationship between business and

government
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 Sociocultural

Environment

Customs, values, and demographic

characteristics of the society in which an organization functions

Economic

Environment

Relevant conditions that exist in the

economic system in which a company operates

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 Nations

system for allocating its resources among its citizens

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Labor

Capital

Information Resources

Entrepreneurs
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Physical resources
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Planned Economy:
An economic system in which the

government owns and operates all sources of production

Market Economy:
Individuals control production and allocation

decisions through supply and demand

Mixed Economy:
include both planned and market elements Worldwide trend is toward more market

elements

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 Demand

means willingness and ability of buyers to purchase a product The law of demand states that buyers will purchase more of a product as its price drops and less as its price increases.
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 Supply

means willingness and ability of producers / sellers to offer a good for sale. The law of supply states that producers will offer more of a product for sale as its price rises and less as its price drops
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$20 18 -

Price of Pizzas

16 14 12 10 864200 -

d an m De rve Cu

Su p Cu ply r ve

Equilibrium Price

1200 -

600 -

800 -

1400 -

Quantity of Pizzas per Week

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2000 1 14

400 -

1000 -

1600 -

1800 -

2-

 Profits

motivate individuals to start business, competition motivates businesses to produce their products better or cheaper

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Table 11 Copyright 2005 Prentice Hall, Inc. All rights reserved.

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KEY CONCEPTS
Economic growth -- Aggregate output, standard of living, GDP, productivity Economic stability -- Inflation, unemployment

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Two related factors threaten stability:

INFLATION INFLATION

UNEMPLOYMENT UNEMPLOYMENT
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Recession:

Aggregate output

declines, unemployment increases

Depression: Expansion:

Severe and long-

lasting recession and jobs increase, the economy is in an expansion.

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When the production

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 Stabilization

Policy:

Government policy designed to smooth out

fluctuations in the economy

Fiscal Policies Monetary Policies

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Three Major Forces:

The information revolution will continue to boost productivity. Technological breakthroughs will create new industries. Increasing globalization will create larger markets and tougher competition.
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