chapter 1 notes

Chapter 1: The US Business Environment Businesses- organizations that provide goods or services that are then sold to earn profit Profits- the difference between a business?s revenues and its expenses Businesses can help society Produce goods and services we consume Employ most working people Create most new innovations Provide vast range of opportunities for new businesses Contribute to quality of life and standard of living Enhance personal incomes of owners and stockholders Taxes help support government Technological environment- all the ways by which firms create value for their constituents Economic environment- relevant conditions that exist in the economic system in which a company operates Labor (aka human resources)- physical and mental capabilities of people as they contribute to economic production Physical Resources- tangible items that organizations use in the conduct of their businesses Planned economy- economy that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions Market economy- economy in which individuals control production and allocation decisions through supply and demand Socialism- planned economic system in which the government owns and operates only selected major sources of production Supply- willingness and ability of producers to offer a good or service for sale Law of supply- producers will offer more of a product for sale as its price rises and less of a product as its price drops Supply curve- graph showing how many units of a product will be supplies at different prices Demand- the willingness and ability of buyers to purchase a product Law of demand- buyers will purchase more of product as its price drops and less of a product as its price increases Demand curve- graph showing how many units of a product will be demanded at different prices Equilibrium Price (market price)- profit- maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal Perfect competition- market or industry characterized by numerous small firms producing an identical product 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 handful of generally large sellers with the power to influence the prices of their products Business cycle- short- term pattern of economic expansions and contractions Gross domestic product (GDP)- total value of all goods and services produced within a given period by a national economy through domestic factors of production Real GDP- gross domestic product (GDP) adjusted to account for changes in currency values and price changes Inflation- occurs when widespread price increases occur throughout an economic system Consumer price index- a measure of the prices of typical products purchased by consumers living in urban areas Depression- a prolonged and deep recession Recession- a period during which aggregate output, as measured by GDP, declines