Principal of Business by Mariana Hernandez

Needs

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things that are required in order to live. Everyone needs food, water, clean air, clothing, and shelter.

Wants

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things that add comfort and pleasure to your life.

Goods

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are things that you can see and touch

Services

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activities provided for the satisfaction of others that are consumed at the same time they are produced

Goods and services

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are purchased by businesses as well as by individual consumers

The United States

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is the largest producer of goods and services in the world

Economic resources

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are the things available to be used to produce goods and services

Economic resources

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are also known as factors of production

Raw materials

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supplied by nature are natural resources

human resources

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The people who produce goods and services are known as

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Factory workers and managers use equipment designed by engineers and manufactured by the employees of other businesses to process the food

An entrepreneur

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is the risk taker who uses resources to create a new product or service

capital resources

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The products and money used in the production of goods and services

Capital resources

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include buildings, equipment, and supplies

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The mismatch of unlimited wants and needs and limited economic resources is known as the basic economic problem

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Scarcity means not having enough resources to satisfy every need

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Scarcity forces you to make choices or decisions among the alternatives

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Economic decision making is the process of choosing which needs and wants will be satisfied

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When you give up something to have something else, you are making a trade-off

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The opportunity cost is the value of the next-best alternative that you were not able to choose

The Decision-Making Process

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Define the Problem

For every decision, the problem must be clearly defined in order to make a decision that will lead to a satisfying solution. If you only have two hours available to study for three tests, your problem is how to best use the limited amount of time to prepare for the tests.

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Identify the Choices

It is common for you to face choices with many alternatives. Earlier we identified a problem deciding on the best use of $75. Along with spending money on shoes or the movies and pizza, some other choices you might face are covering your normal daily expenses and the need to save money for college. In fact, there are many ways you might choose to spend or save your $75. It is important to identify and then consider all of the alternatives when making a decision.

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Evaluate the Advantages and Disadvantages of Each Choice

You might find it helpful to write down your choices and then list the advantages and disadvantages of each. If you buy the shoes, you will be able to wear them many times. It means you will miss the fun of pizza and a movie with friends on the weekend. If you choose to save some of the money, you may be able to make a larger purchase later. You and your friends may determine a less expensive way to spend your time on the weekend.

The Three Economic Questions

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What goods and services will be produced?
How will the goods and services be produced?
What needs and wants will be satisfied with the goods and services produced?

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An economic system is the method a country uses to answer the three economic questions

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In a command economy, the resources are owned and controlled by the government. Government officials decide what and how goods are produced and how they will be distributed and consumed.

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In a market economy, the resources are owned and controlled by the people of the country

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The marketplace is anywhere that goods and services exchange hands

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In a traditional economy, goods and services are produced the way it has always been done

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A mixed economy combines elements of the command and market economies

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For more than 70 years, the Soviet Union operated under a command economic system called communism

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Capitalism refers to the private ownership of economic resources by individuals, rather than by the government

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This economic freedom lends itself to other names often associated with the U.S. economy—free enterprise or private enterprise

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The right of private property means you can own, use, or dispose of things of value

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Freedom of choice means that you can make economic decisions independently and must accept the consequences of those decisions

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Profit is the money left from sales after all of the costs of operating a business have been paid

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The rivalry among businesses to sell their goods and services is known as competition

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A consumer is a person who buys and uses goods and services

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Producers are individuals and organizations that determine what products and services will be available for sale

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Demand is the quantity of a good or service that consumers are willing and able to buy

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Supply is the quantity of a good or service that businesses are willing and able to provide

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The demand curve illustrates the relationship between the price of a product or service and the quantity demanded by consumers

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the supply curve illustrates the relationship between the price of a product and the quantity businesses are willing to supply

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Competitors are businesses offering very similar products to the same customers

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The market price is the point where supply and demand are equal

GDP (Gross Domestic Product)

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Total value of all final goods and services produced in a country during one year.

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GDP major categories of economic activity;

Consumer spending for food, clothing, housing, and other goods and services

Business spending for buildings, equipment, and inventory items

Government spending to pay employees and to buy supplies and other goods and services

The exports of a country less the imports into the country

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Another way to measure economic-growth is GDP per capita, or output per person
GDP per capita is calculated by dividing GDP by the total population

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An increase in GDP per capita means that an economy is growing. A decrease usually means that an economy is struggling.

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These members of the labor force are employed in thousands of different jobs
All above 16 years of age

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One economic statistic of concern is the unemployment rate

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Productivity is the production output in relation to a unit of input, such as a worker

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Specialization of labor is the training of workers to do a specific task

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division of labor, in which workers are assigned specific elements of a manufacturing process to improve efficiency and productivity

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Personal income refers to salaries and wages as well as investment income and government payments to individuals

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retail sales, or the sales of durable and nondurable goods bought by consumer

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Increasing retail sales usually points toward economic growth

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The main items whose sales are measured for estimating retail sales include automobiles, building materials, furniture, gasoline, and clothing, as well as purchases from restaurants, department stores, food stores, and drug stores

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This movement of the economy from one condition to another and back again is called a business cycle

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Prosperity is a period in which most people who want to work are working, businesses produce goods and services in record numbers, wages are good, and the rate of GDP growth increases

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Recession is a period in which demand begins to decrease, businesses lower production, unemployment begins to rise, and GDP growth slows for two or more quarters of the calendar year

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Depression is a long period of high unemployment, weak consumer sales, and business failure

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Recovery is the phase in which unemployment begins to decrease, demand for goods and services increases, and GDP begins to rise again

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Inflation is an increase in the general level of prices. In times of inflation, buying power decreases

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One type of inflation occurs when the demand for goods and services is greater than the supply. When a large supply of money, earned or borrowed, is spent for goods that are in short supply, prices increase

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In the United States, one of the most watched measures of inflation is called the Consumer Price Index (CPI)

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A price index is a number that compares prices in one year with prices in some earlier base year. There are different types of price indexes

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Deflation means a decrease in the general level of prices, it usually occurs in periods of recession and depression

Different types of Interest Rates

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The prime rate is the rate banks make available to their best business customers, such as large corporations

The discount rate is the rate financial institutions are charged to borrow funds from Federal Reserve banks

The T-bill rate is the yield on short-term (13-week) U.S. government debt obligations

The treasury bond rate is the yield on long-term U.S. government debt obligations of up to 30 years

The mortgage rate is the amount individuals pay to borrow for the purchase of a new home

The corporate bond rate is the cost of borrowing for large U.S. corporations

The certificate of deposit rate is the rate for time deposits at savings institutions

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Capital spending refers to money spent by a business for an item that will be used over a long period

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Capital projects involve spending by businesses for items such as land, buildings, equipment, and new product development

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The money for capital projects comes from three main sources: personal savings, stock investments, and bonds

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The savings rate of a country is an important factor for economic growth

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Stock represents ownership in a corporation. Stock ownership is commonly called equity. This term means “ownership"

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A bond represents debt for an organization

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If you purchase a corporate or government bond, you are a creditor

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A government may spend less than it takes in. When this occurs, a budget surplus is the result. If a surplus exists, government may reduce taxes or increase spending on various programs

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The phrase cleantech refers to goods and services that are environmentally friendly

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Global business growth happens in emerging markets, places where consumer incomes and buying power are increasing because of economic expansion

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The phrase cleantech refers to goods and services that are environmentally friendly

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During a mildly inflationary period, producers make higher profits and tend to expand production and hire more people

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Global business growth happens in emerging markets

Domestic business

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The making, buying, and selling of goods and services within a country

International business

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refers to business activities needed for creating, shipping, and selling goods and services across national borders

International business

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frequently referred to as foreign or world trade

Absolute advantage

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exists when a country can produce a good or service at a lower cost than other countries

Comparative advantage

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is a situation in which a country specializes in the production of a good or service at which it is relatively more efficient

Imports

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are items bought from other countries./ goods and services bought from other countries

Exports

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Goods and services sold to other countries

Foreign debt

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the amount a country owes to other countries

the balance of trade

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The difference between a country’s total exports and total imports

trade surplus

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If a country exports (sells) more than it imports (buys)

trade deficit

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If it imports more than it exports, its trade position is unfavorable

The balance of payments

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the difference between the amount of money that comes into a country and the amount that goes out of it

favorable balance of payments

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occurs when a nation receives more money in a year than it pays out

negative balance of payments

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is unfavorable

In every economy, money serves three functions

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a store of value for future buying;
a medium of exchange for business transactions
a unit of measure to value goods and services.

Currency differences

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Russia uses the ruble; the European Union, the euro; Brazil, the real; India, the rupee; and Saudi Arabia, the riyal

The exchange rate

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is the value of a currency in one country compared with the value in another

Factors Affecting Currency Values

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Balance of Payments

When a country has a favorable balance of payments, the value of its currency is usually constant or rising. An increased demand for both the nation’s products and its currency influences this situation. When a nation has an unfavorable balance of payments, its currency usually declines in value

Economic Conditions

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When prices increase and the buying power of the country’s money declines, its currency is not as appealing. Inflation reduces the buying power of a currency. High inflation in Brazil, for example, would reduce the demand for the real.

Interest rates
are the cost of using someone else’s money. These rates can affect the value of a country’s currency. Higher interest rates usually create lower consumer demand. This usually results in a reduced demand for a nation’s currency, causing a decline in its value

Political Stability

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Companies and individuals want to avoid risk when they do business in other nations. If a government changes suddenly, this may create an unfriendly setting for foreign business. A company could lose its buildings, equipment, or money on deposit in banks

Political instability

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may also occur when new laws are created. These laws may not allow foreign businesses to operate as freely as they did under the old laws. Uncertainty in a country reduces the confidence that businesspeople have in its currency

Business activity

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Geography, the location, climate, terrain, seaports, and natural resources of a country influence business activity

Culture

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the accepted behaviors, customs, and values of a society

The key factors that affect a country’s level of economic development are

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Literacy Level
Countries with better education systems usually provide more and better goods and services for their citizens.

Technology Automated
production, distribution, and communications systems allow companies to create and deliver goods, services, and ideas quickly.

Agricultural Dependency
An economy where most workers are involved in agriculture does not have the manufacturing base to provide citizens with great quantity and high quality of a product.

Infrastructure

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is a factor that supports international trade in industrialized countries, including a nation’s transportation, communication, and utility systems

Trade barriers

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Government actions can create trade barriers, which are restrictions to free trade. These political actions are formal trade barriers. Three common formal trade barriers are quotas, tariffs, and embargoes

informal trade barriers

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The culture, traditions, and religion of a country can create informal trade barriers. These situations are not related to formal government actions but they can still restrict trade

Quota

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a government-set limit on the quantity of a product that may be imported or exported within a given period

Tariff

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a tax that a government places on certain imported products

Embargo

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an action imposed by the government to stop the export or import of a product completely

free-trade zone

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a selected area where products can be imported duty-free and then stored, assembled, and/or used in manufacturing

common market

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In a common market, members do away with duties and other trade barriers

economic community

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A common market is also called an economic community

MNC

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Multinational company (MNC) is an organization that does business in several countries. It usually consists of a home country and divisions or separate companies in one or more host countries

MNC

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MNCs usually consist of a parent company in a home country and divisions or separate companies in one or more other countries

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The different country in which the MNC conducts business activities is called the host country

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A global strategy uses the same product and marketing strategy worldwide

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A multinational strategy treats each country's market differently

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Licensing is selling the right to use some intangible property (production process, trademark, or brand name) for a fee or royalty

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Another method often used to expand into other countries is the franchise. A franchise is the right to use a company name or business process in a specific way

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Joint venture is a unique business organized by two or more other businesses to operate for a limited time and for a specific project. It is a type of partnership

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The World Trade Organization (WTO) was created in 1995 to promote trade around the world. With 160 member countries representing 95 percent of world trade, WTO settles trade disputes and enforces free-trade agreements between its members

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Lowering tariffs that discourage free trade

Eliminating import quotas

Reducing barriers for banks, insurance companies, and other financial services

Assisting poor countries with economic growth

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The International Monetary Fund (IMF), with more than 180 member nations, helps to promote economic cooperation. It maintains an orderly system of world trade and exchange rates. The IMF was established in 1946 when the economic interdependence among nations was growing at a greater pace than ever before in history

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The International Bank for Reconstruction and Development is commonly called the World Bank. It was created in 1944 to provide loans for rebuilding after World War II

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The World Bank, with nearly 190 member countries, has two main divisions: the International Development Association and the International Finance Corporation

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The International Development Association (IDA) makes loans to help developing countries

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The International Finance Corporation (IFC) provides capital and technical help to private businesses in nations with limited resources

Baby Boomers

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A wave of retirements started in 2011 as the first group of baby boomers, the people born between 1946 and 1964, turned 65

Contingent Worker

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A contingent worker is one who has no explicit or implicit contract for long-term employment

Generating idea

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A business begins with a new idea. Someone must have an idea for a new product or service or a new way to carry out a business process. A business must continue to improve and develop new ideas in order to remain successful. Businesses must remain competitive with other firms that sell similar goods and services.

Raising Capital

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A business needs more capital as it develops and grows. Some of that capital will come from reinvested profits. A business will need to continue to borrow from banks and attract additional investors to have enough money for ongoing operations.

Employing and Training Personnel

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Businesses need human resources. Even businesses that begin with no employees other than the owner will add part- and full-time employees as they grow. Businesses have procedures for recruiting, hiring, and training employees. They pay wages, benefits, and employment taxes. New employees receive training in order to perform their jobs correctly.

Buying Goods and Services

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All businesses buy goods and services. Businesses use many of the purchases for their own operations. Other purchases are resold. They will also purchase tires, batteries, airbags, and air conditioning units that will be installed on the production line.

Marketing Goods and Services

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Marketing refers to the activities directed at providing the goods and services wanted by a business’s customers

Maintaining Business Records

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All businesses must have some type of record-keeping system. Owners and managers need records to track performance and make decisions. Customers need information about orders and payments. Businesses are required by government to keep records and submit information.

Producers

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Producers create the products and services used by individuals and other businesses. They are responsible for using resources to make something that is needed by others

Extractors

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Businesses that take resources from nature for direct consumption or for use in developing other products are extractors. Extractors pump oil, mine coal, or cut timber.

Farmers

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Farmers cultivate land and use other natural resources to grow crops and raise livestock for consumption.

Manufacturers

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Manufacturers get supplies from other producers and convert them into products. They sell their products to consumers and other businesses.

Intermediaries

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Intermediaries are businesses involved in selling the goods and services of producers to consumers and other businesses.

Service Business

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A service business carries out activities that are consumed by its customers.

Propietorship

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A proprietorship is a business owned and run by just one person. It is the easiest form of business to start and end.

Partnership

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A partnership is a business owned and controlled by two or more people who have entered into an agreement

Corportation

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A corporation is a separate legal entity formed by documents filed with a state. It is owned by one or more shareholders and managed by a board of directors

Partnership Agreement

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partnership agreement, a written agreement among all owners detailing the rules and procedures that guide ownership and operations.

Articles of Incorporation

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articles of incorporation, a written legal document that defines ownership and operating procedures and conditions for the business.

Corporate bylaws

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The business must create corporate bylaws, or the operating procedures for the corporation

Board of Directors

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It must name a board of directors, the people who will make the major policy and financial decisions for the business

Limited Liability

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A limited liability partnership identifies some investors who cannot lose more than the amount of their investment, but they are not allowed to participate in the day-to-day management of the business

Joint Venture

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A joint venture is a unique business organized by two or more other businesses to operate for a limited time and for a specific project. It is a type of partnership.

S Corporation

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A corporate form that is favored by many small businesses is the S corporation. An S corporation offers the limited liability of a corporation. All income is passed through to the owners based on their investment and is taxed on their individual tax returns

Limited Liability

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A limited liability company provides liability protection for owners. It has a simpler set of organizing and operating requirements than a corporation

Nonprofit Corporation

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A nonprofit corporation is a group of people who join to do some activity that benefits the public. They work in areas such as education, health care, charity, or the arts

Cooperative

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Sometimes a group of people forms a cooperative to provide goods and services that they all need. A cooperative is owned by members, serves their needs, and is managed in their interest.

Franchise

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franchise, a written contract granting permission to operate a business to sell products and services in a set way.

Franchiser

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The company that owns the product or service and grants the rights to another business is known as the franchiser

Franchisee

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The company or person purchasing the rights to run the business is the franchisee.

Mission Statement

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mission statement, short, specific written statement of the reason a business exists and what it wants to achieve.

Goal

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goal, a precise statement of results the business expects to achieve.

Policies

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Policies, guidelines used in making consistent decisions.

Procedures

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Procedures, a list of steps to be followed for performing a particular work activity; a description of the way work is to be done.

Responsibility, Authority, Accountability

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Responsibility is the obligation to complete specific work. Authority is the right to make decisions about how responsibilities should be accomplished. Accountability is taking responsibility for the results achieved.

Unity of Command

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Unity of command means there is a clear reporting relationship for all staff of a business

Span of Control

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Span of control is the number of employees who are assigned to a particular work task and manager.

Organization Chart

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organization chart, a diagram that shows the structure of an organization, classifications of work and jobs, and the relationships among those classifications.

Functional Organization Structure

LaVillanelle — 2023-11-02 20:01:41 UTC

functional organizational structure. In this type of organization, work is arranged within main business functions such as production, operations, marketing, and human resources. All of the people with jobs related to one of the functions will work together

Matrix Organizational Structure

LaVillanelle — 2023-11-02 20:02:15 UTC

In a matrix organizational structure, work is structured around specific projects, products, or customer groups. People with varied backgrounds are assigned together because their expertise is required for the project or to serve the customer

Social Responsbility

LaVillanelle — 2023-11-03 20:03:12 UTC

Social responsibility refers to the duty of a business to contribute to the well-being of a community

Conservation

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Conservation is saving scarce natural resources.

Nonrenewable resource

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A nonrenewable resource is a natural resource that cannot be replaced when used up. Examples are gas, oil, and minerals, such as copper and iron ore.

Pollution

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Pollution occurs when the environment is tainted with the by-products of human actions.

Environmental Protection Agency

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The federal government has set measurable standards for water and air quality. The Environmental Protection Agency (EPA) monitors and enforces those standards. Businesses and the EPA work together to reduce pollution. They try to make the environment healthier.

Americans with Disabilities Act

LaVillanelle — 2023-11-03 20:06:47 UTC

Employers also have taken steps to accommodate individuals who are physically challenged. Passage and enforcement of the Americans with Disabilities Act (ADA), along with other federal and state legislation, has resulted in major improvements in accommodating workers who are physically challenged. Buildings must have access for wheelchairs. People with sight or hearing limitations must be accommodated on the job.

Conditions of Work

LaVillanelle — 2023-11-03 20:07:12 UTC

Clauses that relate to employee well-being are often included in labor contracts and company policy manuals. These clauses are conditions of work that pertain to the health and safety of employees while on the job.

Socially Responsible Activities

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Expanded justice for groups of a society

Enhanced company image

Reduced need for government actions

Improved quality of life in a community and around the world

Increased awareness of social issues among workers, consumers, and others

Ethics

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Ethics are principles of morality or rules of conduct.

Business Ethics

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Business ethics are rules about how businesses and their employees ought to behave.

Code of Ethics

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A code of ethics is a set of rules for guiding the actions of employees or members of an organization.

management

LaVillanelle — 2024-02-01 20:36:54 UTC

the process of accomplishing the goals of an organization through the effective use of people and other resources.

planning

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the function of a manager that involves analyzing information, setting goals, and making decisions about what needs to be don

organizing

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the function of a manager involving identifying and arranging the work and resources needed to achieve the goals that have been set.

staffing

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the function of a manager including all of the activities involved in obtaining, preparing, and compensating the employees of a business.

implementing

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a manager’s effort to direct and lead people to accomplish the planned work of the organization.

controlling

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determines to what extent the business is accomplishing the goals it set out to reach in the planning stage.

management style

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the way a manager treats and involves employees.

Executive

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top-level managers with responsibilities for the direction and success of the entire business.

Middle Managers

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specialists with responsibilities for specific parts of a company’s operations

Supervisors

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the first level of management in a business

Tactical Management

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a style in which the manager is more directive and controlling

Strategic Management

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Strategic management is a style in which managers are more collaborative and involve employees in decision making

Mixed Management

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The combined use of tactical and strategic management is known as

Leadership

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the ability to motivate individuals and groups to accomplish important goals.

human relations

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the way people get along with each other.

influence

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power enabling a person to affect the actions of others.

informal influence

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power resulting from the personal characteristics of a leader rather than the formal structure of an organization.

formal influence

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power based on a leader’s position within the formal structure.

The important human relations skills needed by leaders

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self-understanding, understanding others, communication, team building, and developing job satisfaction.

Formal or informal

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Formal communications methods are the established and approved ways for information to move between managers, employees, customers, and others in the business. Informal communications are commonly used but unofficial ways that information moves in an organization.

Internal or external

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Internal communications occur between managers, employees, and work groups. External communications occur between people inside the organization and people outside the organization such as customers, suppliers, and other businesses.

Vertical or horizontal

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Vertical communications move up or down in an organization between management and employees. Horizontal communications move across the organization at the same level—employee to employee or manager to manager.

Oral or written

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Oral communications are spoken directly or using technology. Written communications include notes, letters, reports, and text or graphics sent via technology.

Position influence

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the ability to get others to accomplish tasks because of the position the leader holds

Reward influence

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results from the leader’s ability to give or withhold rewards.

Expert influence

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exists when group members recognize and appreciate a leader’s expertise in a specific area

Identity influence

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stems from the personal trust and respect members have for the leader.

ethical business practices

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practices that ensure the appropriate standards of conduct are observed in a company’s relationships with everyone who is a part of the business or affected by the business’ activities.

core values

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the important principles that guide decisions and actions in the company.

mission statement

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describes the reason a business exists and what it wants to accomplish