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Chapter 1 The U.S. Business Environment

By Benjamin Cunningham,2014-06-15 11:27
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Chapter 1 The U.S. Business Environment

    Chapter 1: The U.S. Business Environment

Chapter Overview

    Many students come to an introduction to business class not quite sure what it’s all about. The

    course has something for everyone, from those who have been in the business world a while to those just getting started. As the book unfolds, you’ll develop an understanding of the foundations

    of business and will be able to apply what you already know (or what you are starting to learn) about business to many aspects of the course.

    This first chapter dives right into the world of business, explaining what business is, what its main goals and functions are, and how the external environments of business affect the success and failure of any organization. The chapter also:

    ; describes global economic systems according to the means by which they control the

    factors of production.

    ; shows how markets, demand, and supply affect resource distribution in the United States.

    ; discusses the elements of private enterprise and the degrees of competition in the U.S.

    economic system.

    ; explains the importance of the economic environment to business and identifies the factors

    used to evaluate the performance of an economic system.

    Learning Objectives

    A. Define the nature of U.S. business and identify its main goals and functions.

    B. Describe the external environments of business and discuss how these environments affect

    the success or failure of any organization.

    C. Describe the different types of global economic systems according to the means by which

    they control the factors of production.

    D. Show how markets, demand, and supply affect resource distribution in the United States.

    E. Identify the elements of private enterprise and explain the various degrees of competition

    in the U.S. economic system.

    F. Explain the importance of the economic environment to business and identify the factors

    used to evaluate the performance of an economic system.

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LIST OF IN-CLASS ASSIGNMENTS: AUTHOR’S CHOICE

    Instructors

    Activity Description Time Limit Edition Page

    Reference 1. Ice-Breaker: What Do Students assess their level of You Know About knowledge about business and set Business? their own learning goals for the class. 20 min. 1-3, 1-14 2. Small-Group Students consider how parts of the Discussion: Scanning the external environment affect businesses 25 min. 1-4, 1-15 Environment and industries.

    3. Up for Debate: Teams of students discuss types of Comparing Economic 30 min. 1-6, 1-16 economic systems. Systems

    4. Supplemental Case

    Study Discussion: Flying Students read a supplemental case into Trouble- The study and discuss how it applies to 30 min. 1-8, 1-17, 1-18 OneWorld Alliance and chapter concepts.

    Antitrust Laws

    Run time: Video Case: Helping Video show the work of the US 10:31 min. Business Do Business. Department of Commerce in helping Question 1-13, 1-25, 1-26 The US Department of businesses grow time: Commerce 30 min.

    Teams of students discuss competition 5. Up for Debate: Is and the role it plays in our economic 45 min. 1-9, 1-19 Competition Good? system.

    This activity asks students to read a 6. Business supplemental article and ponder Accountability Handout whether outsourcing is a detriment to 30 min. 1-10, 1-20, 1-21 Discussion: The social responsibility. Geography of Jobs

    Additional videos on this Viewing the Environment: MTV topic at: Europe

    www.mybizlab.com/

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LIST OF HOMEWORK ASSIGNMENTS: AUTHOR’S CHOICE

    Instructor’s At-Home Completion Description Deliverable Edition Page Activity Time Reference

    Application Students visit a shopping mall A brief paper Exercise 9: and determine the degree of detailing their Visit a 1 to 1.5 hours 1-10, 1-23 competition stores face in their responses to the Shopping immediate environment. activity. Mall

    Students interview a business

    owner or senior manager, find

    out how demand and supply Application A brief paper affect the business, determine Exercise 10: detailing the which essential factors of 1 to 2 hours 1-13, 1-23 Interview a outcome of the production are most important, Manager interview. and judge the impact of

    economic indicators on the

    business.

    TEACHING NOTES AND SUGGESTIONS

Section 1: Key Learning Objective A:

    Define the nature of U.S. business and identify its main goals and functions.

The Concept of Business and the Concept of Profit

    A business is an organization that provides goods and services to earn profits. Profits are the

    difference between a business’s revenues and expenses.

    1. Consumer Choice and Demand: In a capitalistic system like that of the United States,

    consumers have freedom of choice. In turn, businesses must take into account consumer

    demand in their pursuit of profits.

    2. Opportunity and Enterprise: Unmet consumer demands provide promising

    opportunities for potential business success.

    3. The Benefits of Business: Businesses produce most of the goods and services consumed,

    employ most working people, create new innovations, and provide opportunities for new

    businesses to serve as suppliers. Further, businesses contribute to the quality of life and the

    standard of living.

Use In-Class Activity 1: Ice Breaker

    Time Limit 20 minutes

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Section 2: Key Learning Objective B

    Describe the external environments of business and discuss how these environments affect the success or failure of any organization.

The External Environments of Business

    The external environment consists of everything outside an organization’s boundaries that might

    affect it. Economists examine six major dimensions of the external environment.

    1. Domestic Business Environment. The domestic business environment refers to the

    environment in which a firm conducts its operations and derives its revenues.

    2. Global Business Environment. The global business environment refers to the

    international forces that affect a business; various factors affect the global environment at

    both the general and immediate levels.

    3. Technological Environment. The technological environment generally includes all the

    ways by which firms create value for their constituents; technology includes human

    knowledge, work methods, physical equipment, electronics and telecommunications, and

    various processing systems.

    4. Political-Legal Environment. The political-legal environment reflects the relationship

    between business and government, usually in the form of government regulation of

    business.

    5. Sociocultural Environment. The sociocultural environment includes the customs,

    mores, values, and demographic characteristics of the society in which an organization

    functions.

    6. Economic Environment. The economic environment refers to relevant conditions that

    exist in the economic system in which a company operates.

Use In-Class Activity 2: Small Group Discussion Scanning the Environment

    Time Limit 25 minutes

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Section 3: Key Learning Objective C:

    Describe the different types of global economic systems according to the means by which they control the factors of production.

Economic Systems

    An economic system is a nation’s system for allocating its resources among its individual citizens and organizations.

A. Factors of Production

    A basic difference between economic systems is the way in which they manage their resources, known as factors of production. Economists focus on five factors of production:

    1. Labor: The human resource element in businesses, labor includes the physical and

    intellectual contributions people make while engaged in economic production.

    2. Capital: The financial resources needed to operate an enterprise are known as capital.

    3. Entrepreneurs: An entrepreneur is an individual who accepts the risks and

    opportunities entailed by creating and operating a new business.

    4. Physical Resources: The tangible things that organizations use to conduct their business

    are physical resources.

    5. Information Resources: Businesses rely on information resources, such as

    market forecasts, the specialized knowledge of people, and economic data.

KEY TEACHING TIPS

    ; The most important factors of production are entrepreneurial skills and informational

    resources. The more a country can create an environment that promotes entrepreneurship

    and harnesses knowledge and information, the better of it will be.

    ; Remind students that inputs used to produce outputs are also called factors of production;

    they include physical resources, labor, capital, entrepreneurship, and information

    resources.

QUICK QUESTIONS

    ; What are the factors of production used to produce orange juice?

    ; Entrepreneurship involves tremendous risk-taking and is a welcome ingredient in a

    free-market system. What characteristics of our free-market system encourage risk taking? B. Types of Economic System

    Economic systems vary, depending on how the factors of production are managed.

    1. Planned Economies: These systems rely on partial or total government control

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    of all or most of the factors of production and allocation decisions. With communismas

    currently operating in North Korea all sources of production are owned and operated by

    the government.

    2. Market Economies. Producers and consumers control production and allocation

    decisions through supply and demand. The political basis of a market economy is

    capitalism, which allows the private ownership of the factors of production and

    encourages entrepreneurship by offering profits as incentives.

    3. Mixed Market Economies: This type of economy features characteristics of both

    planned and market economies; many countries are moving from planned systems

    to mixed market systems through privatization, which involves the transformation of

    government-controlled businesses into privately owned enterprises. In the

    partially planned system called socialism, the government owns and operates

    selected major industries. The U.S. Government’s bailout of U.S. banks and other

    financial institutions in 2009 involved the government taking an ownership to keep tabs on

    how tax dollars (used to bailout the banks and financial institutions) were being used.

    Critics of government intervention were quick to label the bailout as a move towards

    socialism.

    KEY TEACHING TIPS

    ; Remind students that a government’s level of control distinguishes capitalism from

    socialism. If you have foreign students in your class, you may want them to say a bit about

    the economic system in their native country.

    ; Make sure students understand that a mixed market economy is characterized by

    government ownership of major industries working alongside privately owned industries

    that smooth out fluctuations in output and unemployment and to stabilize prices.

; Remind students that an economic system is defined by how it allocates factors of

    production. In a planned economy, the government owns and controls these factors; in a

    market economy, producers/consumers buy and sell what they choose.

; Make sure students understand that a mixed market economy is characterized by

    government ownership of major industries working alongside privately owned industries

    ; Ask students to give their opinions about the government bailout of banks and financial

    institutions. In addition, you could ask students to research and report on any new stories

    concerning the bailout that appear in publications such as The Wall Street Journal. It is

    never too early to get students to regularly read the business news!.

    Use In-Class Activity 3: Class Discussion Up for Debate Comparing Economic Systems

    Time Limit 30 Minutes

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QUICK QUESTIONS

    ; Give an example of a country with a planned economy.

    ; What makes this economy planned? Give an example of a country with a market economy.

; How is the economic system different in this country?

    ; In retrospect do you think the government bailout of banks and financial institutions was a

    wise move? Why or Why not?

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Section 4: Key Learning Objective D

    Show how markets, demand, and supply affect resource distribution in the United States.

The Economics of Market Systems

    Market systems allow businesses the flexibility to decide what to produce, how much to produce, and what price to charge; customers are a driving force in market systems since they decide what to buy and at what price. Demand and supply are the predominant forces that guide decisions about what to buy and what to sell.

A. Demand and Supply in a Market Economy

    Billions of exchanges take place every day between businesses and individuals; between businesses; and among individuals, businesses, and governments. Exchanges conducted in one area often affect exchanges elsewhere.

    1. The Laws of Demand and Supply: Demand is the willingness and ability of buyers

    to purchase a product; supply is the willingness and ability of producers to offer a good or

    service for sale. The law of demand states that buyers will purchase more of a product as

    its price drops; the law of supply states that producers will offer more of a product for sale

    as its price increases.

    a. The Demand and Supply Schedule: The demand and supply schedule indicates

    how much of a product will be sold at various prices. Generally speaking, the more

    consumers are willing to pay for a good, the more producers are likely to divert

    resources to make more of the good. Conversely, as the price at which consumers

    are willing to pay for a produce falls, production becomes less profitable and

    producers cut back on production to divert resources to more profitable areas.

    b. Demand and Supply Curves: A demand curve shows how many products will

    be demanded at different prices; a supply curve shows how many products will

    be supplied at various prices. The point at which the curves intersect is the

    market price (or equilibrium price).

    c. Surpluses and Shortages: With a surplus, the quantity supplied exceeds the

    quantity demanded; quantity demanded exceeds quantity supplied with a shortage.

    Use In-Class Activity 4: Supplemental Case Study - Flying into Trouble- The OneWorld Alliance and Antitrust Laws - Time Limit 30 minutes

QUICK QUESTION

    What is equilibrium price? What happens if incomes rise and demand increases? What happens if producers have a surplus and supply increases?

Section 5: Key Learning Objective E

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    Identify the elements of private enterprise and explain the various degrees of competition in the U.S. economic system.

    Private Enterprise and Competition in a Market Economy: Individuals pursue their own interests with minimal government restriction in a private enterprise system; such a system requires:

    ; private property rights the ability of individuals to own factors of production,

    ; freedom of choice the ability to chose where to work and what to buy,

    ; profits - the ability to take risk to earn profit, and

    ; competition the ability to compete for customers and scarce resources. Competition

    occurs when two or more businesses vie for the same resources or customers.

    1. Degrees of Competition. Economists have identified four degrees of competition

    in a private enterprise system:

    a. Perfect Competition. Many small firms exist in an industry; no single firm is

    powerful enough to influence price.

    b. Monopolistic Competition. Few sellers, but many buyers exist, so buyers focus

    on numerous differentiation strategies, such as brand names, design, and

    advertising.

    c. Oligopoly. An industry has only a handful of sellers; market entry is difficult

    because large capital investment is needed.

    d. Monopoly. An industry or market has only one producer; that producer enjoys

    complete control over price.

KEY TEACHING TIPS

    ; Remind students that perfect competition is characterized by (a) many buyers, (b) many

    sellers, and (c) buyers and sellers who accept a going price.

    ; Remind students that monopolistic competition is characterized by (a) many buyers, (b)

    many sellers, and (c) products that are differentiated.

    ; Reinforce that oligopoly is characterized by (a) many buyers, (b) few sellers, (c) products

    that are quite similar, and (d) a change in price by one seller often meaning a change in

    price by all sellers.

    ; Remind students that a monopoly is characterized by (a) many buyers, (b) only one seller,

    and (c) prices being set by the one seller.

Use In-Class Activity 5: Up For Debate Is Competition Good?

    Time Limit 45 minutes

Use In-Class Activity 6: Business Accountability Handout Discussion The Geography of

    Jobs

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Time Limit 30 Minutes

QUICK QUESTIONS

    ; Which level of competition best describes the market in each of the following scenarios?

    o your local Pizza Hut (monopolistic competition)

    o a local farmer selling apples for applesauce (perfect competition)

    o cell phone service (oligopoly)

    o Gap jeans (monopolistic competition)

HOMEWORK

    Visit a Shopping Mall!

    Now is a good time to assign Application Exercise 9 from the end-of-chapter materials as homework. This assignment asks students to visit a local shopping mall and determine the degree of competition stores in the mall face in their immediate environment.

For the complete assignment instructions, see Page 19 of the textbook.

    At-Home Completion Time: 1 to 1.5 hours

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