Chapter 1 An Introduction To Business and Economics

Chapter 1
An Introduction to Business and Economics

MGT1101 Introduction to Business
Learning Objectives
For Chapter 1
1. Define business and discuss what you must do to be

successful in the world of business.
2. Define economics and describe two types of economic
systems: capitalism and command economy.
3. Identify the ways to measure economic performance.
4. Outline the four types of competition.
MGT1101 Introduction to Business Chapter 1

Refer to page 8
Business:
A Definition
Organized The organized effort

Effort
To produce of individuals to
products
that produce and sell, for
a profit, the goods
Business Satisfy
and services that
Profit Needs
satisfy society’s
needs
and sell
products for

Refer to page 8
Business:
A Definition
Combining Resources
1 Organized Efforts of A business must combine all four
Individual
resources (Human, material information,
and financial) effectively to be
2 Satisfying Needs successful.
3 Business Profit
Figure 1.2 Business Resources
Session 1-2
MGT1101 Introduction to Business Chapter
Page1 05
Refer to page 8
Business:
A Definition
Combining Resources
Individual
Material resources
3 Business Profit
• The raw materials
used in manufacturing
processes

Refer to page 8
Business:
A Definition
Combining Resources
Individual
Human resources
3 Business Profit
• People who furnish their
labor to the business in
return for wages

Refer to page 8
Business:
A Definition
Combining Resources
Individual
Financial resources
3 Business Profit
• The money required to
pay employees, purchase
materials, etc.

Refer to page 8
Business:
A Definition
Combining Resources
Individual
3 Business Profit Information resources

• tells the managers how
the other three resources
are being combined.

Refer to page 10
Business:
A Definition
Classification of Business
1 Organized Efforts of
Individual
• Manufacturing businesses
• Service businesses
2 Satisfying Needs • Marketing intermediaries
Manufacturing businesses
3 Business Profit – Process various
materials into
tangible goods.
(e.g., delivery trucks,
computers)

Refer to page 9
Business:
A Definition
Individual
Service businesses
3 Business Profit providing services
(e.g., haircuts,
legal advice)

Refer to page 9
Business:
A Definition
Individual
Marketing intermediaries
3 Business Profit Buy products from
manufacturers and
resell it.

Refer to page 9
Business:
A Definition
People buy goods and services not

Organized Efforts of just to own them, but to satisfy
1
Individual
particular needs
Businesses that understand
2 Satisfying Needs customer needs, and work to satisfy
those needs, are usually successful.
3 Business Profit

Refer to page 9-10
Business:
A Definition
1
Organized Efforts of Profit
Individual what remains after all business
expenses have been deducted from
sales revenue
2 Satisfying Needs
3 Business Profit

Refer to page 9-10
Business:
A Definition
Organized Efforts of The purposes of profit

1
Individual To reward business owners for
producing goods and services consumers
want
2 Satisfying Needs
Stakeholders
All of the different people or groups or
people who are affected by the policies
3 Business Profit and decisions made by an organization

Addition: page 9-10
Business:
A Definition
Stakeholders
Organized Efforts of Government taxation, VAT
1
Individual
Employees rates of pay, job security, compensation.
Customers value, quality, customer care,

2 Satisfying Needs
Suppliers providers of materials
Creditors Lenders, loan providers

3 Business Profit
Community environmental protection
Owner(s) have interest of the success of business.

Refer to page 10
Economics : A Definition
The study of how wealth (anything of value) is created
and distributed
2 Types of Economics
Microeconomics Macroeconomics
1 2
The study of the decisions The study of the national

made by individuals and economy and the global
businesses economy

Refer to page 19
Types of Competitions
Or Industry Structures
1 Perfect Competition
2 Monopolistic
3 Oligopoly
4 Monopoly
Session 1-2
Page1 21
Refer to page 19
• The market situation in which there are

1 Perfect Competition many buyers and sellers of a product, and
no single buyer or seller is powerful enough
to affect the price of that product
2 Monopolistic
3 Oligopoly
4 Monopoly
Commodity or Farm Products
Session 1-2
Page1 21
Refer to page 20-21
1 Perfect Competition • Prices are set based on demand and supply
Supply:
The quantity of a product that producers are
willing to sell at each of various prices
2 Monopolistic
Price
3 Oligopoly
4 Monopoly
Quantity
Session 1-2
Page1 21
Refer to page 20-21

Demand:
The quantity of a product that buyers are
willing to purchase at each of various prices
2 Monopolistic
Price
3 Oligopoly
4 Monopoly
Quantity
Session 1-2
Page1 21
35
Refer to page 20-21

Market Price (Equilibrium):
The price at which the quantity demanded is
exactly equal to the quantity supplied
2 Monopolistic
Price
3 Oligopoly
4 Monopoly
Quantity
Session 1-2
Page1 21
Refer to page 20-21
PERFECT
• Prices are set based on demand and supply
• The market situation in which there are
Market Price (Equilibrium):
Perfect
1 The price Competition
at which the quantity
many demanded is exactly
buyers and sellersequal
of a to the
product, and
quantity supplied no single buyer or seller is powerful enough
to affect the price of that product
2 Monopolistic
3 Oligopoly
4 Monopoly
Commodity or Farm Products
Session 1-2
Page1 21
Refer to page 21
• A market situation where there are many
buyers along with a relatively larger number
1 Perfect Competition of sellers who differentiate their products
from the products of competitors.
Differentiation:
2 Monopolistic
• The process of developing and promoting
differences between one’s products and all
similar products
3 Oligopoly
4 Monopoly
Session 1-2
Page1 21
Refer to page 21
Differentiation:
1 Perfect Competition • The process of developing and promoting
differences between one’s products and all
similar products
2 Monopolistic
3 Oligopoly
4 Monopoly
Session 1-2
Page1 21
Refer to page 21
A market situation (or industry) in which there

1 Perfect Competition are few sellers.
2 Monopolistic
3 Oligopoly
4 Monopoly
Session 1-2
Page1 21
Refer to page 22
• A market (or industry) with only one

1 Perfect Competition seller
• Natural monopoly
• Because of a unique raw
material, technology, one firm can
supply a market's entire demand for a
2 Monopolistic good or service at a price lower than two
or more firms can.
3 Oligopoly
4 Monopoly
Session 1-2
Page1 21
Refer to page 22
• A market (or industry) with only one

1 Perfect Competition seller
• Legal monopoly (limited monopoly)
• A monopoly created when a government
entity issues copyright, patent, protecting
2 Monopolistic the owners of written materials, ideas, or
product brands from unauthorized use by
competitors
3 Oligopoly
National Lottery
4 Monopoly
Session 1-2
Page1 21
40
Refer to page 10-11
Economic Systems
Or Economy
The way in which individuals, business, government, and society deal

with managing limited resources determine the kind of
economic system
Capitalism Command Economy
Low Role of Government High

Answering four economic questions

Refer to page 11
Economic Systems
Or Economy
The economic systems are differed by

how four basic economic questions are answered
1. What goods and services will be produced?
2. How will these goods and services be produced?
3. For whom will these goods and services be produced?
4. Who owns and who controls the major factors of production?
Factors of production
– Land / Natural Resources
– Labor / Human Resources

– Capital (Money, Materials)
– Entrepreneurship
Refer to page 12
2 Types of Economic Systems

Or Economy
1. Capitalism “Limited role of government”

1.What goods and services will be produced?
2. How will these goods and services be produced?
Businesses and individuals decide what and how to produce; the
market determines quantities sold and prices
3. For whom will these goods and services be produced?
4. Who owns and who controls the major factors of production?
Individuals own and operate the majority of businesses that provide
goods and services.
In practice, the four questions are answered through

the interaction of individual, business and government
Session 1-2
Page1 21
Refer to page 14-15

Or Economy
2. Command Economies
• Economic systems in which the government decides what will be
The answers are determined through
produced, how it will be produced, who gets what is produced, and
centralized government planning
who owns and controls the major factors of production
Two types of economic systems served as command economy
Socialism Communism
1 2
Session 1-2
Page1 21
Refer to page 14-15

Or Economy
2.1 Socialism
• Key industries (e.g., transportation, utilities, and banking) are owned
and controlled by the government
• Small-scale private businesses may be permitted
2.2 Communism
• All factors of production are owned and controlled by the
government as proxy for ownership by all citizens
• Production is based on centralized state planning to meet the needs of the
state and not necessarily the needs of its citizens
Session 1-2
Page1 21
Refer to page 15-17
Measuring Economic Performance

(Labor) Productivity Other Economic Indicators
• a ratio of production output to 1. Gross Domestic Product
what is required to produce it (GDP)
(inputs).
2. Unemployment
• The average level of output
per worker per hour 3. Inflation / Deflation
Business Cycle and Economic Policy
Session 1-2
Page1 21
Refer to page 16
Economic Indicators
1. Gross Domestic Product (GDP)
•The total value of all goods and services produced by all people within
the boundaries of a country for a given period of time
•Percentage change in GDP is called GDP growth rate
Flooding
25 July 2011 – 16 January 2012
(175 days)
Session 1-2
Page1 21
Earthquake and Tsunami Disaster
Fukuchima Daiichi Nuclear Disaster
March 11, 2011
Global Financial Crisis in 2008

Triggered by
the burst of US housing bubble
35
Refer to page 16
Economic Indicators
2. Unemployment Rate
• The percentage of a nation’s labor force unemployed at any time

• Labor force: Normally, the labor force of a country consists of everyone of
working age
World Financial Crisis
Session 1-2
Page1 21
Refer to page 16-17
Economic Indicators
3. Inflation Rate and Deflation Rate
– Inflation
• A general rise in the level of prices
– Deflation
• A general decrease in the level of prices
Consumer price index (CPI)

average of prices of a basket of consumer
goods and services
Session 1-2
Page1 21
Refer to page 17-19
Business Cycle
• The recurring and fluctuating levels of GDP Growth Rate
economic activity that an economy
experiences over a long period of time. Economic Economic
Expansion Contraction
• The four stages of the business cycle PEAK

are prosperity (peak), recession
(contraction), trough (depression), and
recovery
Time
DEPRESSION
Session 1-2
Page1 21
Refer to page 17-19
Economic Problems
Economic Boom GDP Growth Rate
Contraction
A strong and rising level of
demand –driven by household
consumption, government
spending, investment and exports. PEAK
Inflationary
Expansion
Time
A contraction in
level of demand
Recessionary
Economic Downturn DEPRESSION
Session 1-2
Page1 21
Refer to page 18-19
Managing Economy
Economic Policy
• Monetary policies
– Central bank’s decisions that determine the size of the
supply of money in the nation and the level of interest rates
• Fiscal policy
– Government influence on the amount of savings and
expenditures; accomplished by altering the tax structure and
by changing the levels of government spending.
Session 1-2
Page1 21
Recessionary Our Economy
$
$
$
$ $
$ $
Tax
Government Spending Interest Rate
Government Central Bank

THANK YOU!
THANK YOU!

Chapter 1 An Introduction To Business and Economics

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Chapter 1 An Introduction To Business and Economics

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Chapter 1

An Introduction to Business and Economics

1. Define business and discuss what you must do to be

MGT1101 Introduction to Business Chapter 1

Organized The organized effort

MGT1101 Introduction to Business Chapter 1

Figure 1.2 Business Resources

MGT1101 Introduction to Business Chapter 1

MGT1101 Introduction to Business Chapter 1

MGT1101 Introduction to Business Chapter 1

3 Business Profit Information resources

MGT1101 Introduction to Business Chapter 1

MGT1101 Introduction to Business Chapter 1

MGT1101 Introduction to Business Chapter 1

MGT1101 Introduction to Business Chapter 1

People buy goods and services not

MGT1101 Introduction to Business Chapter 1

MGT1101 Introduction to Business Chapter 1

Organized Efforts of The purposes of profit

MGT1101 Introduction to Business Chapter 1

Customers value, quality, customer care,

Creditors Lenders, loan providers

Owner(s) have interest of the success of business.

MGT1101 Introduction to Business Chapter 1

The study of the decisions The study of the national

MGT1101 Introduction to Business Chapter 1

• The market situation in which there are

1 Perfect Competition • Prices are set based on demand and supply

1 Perfect Competition • Prices are set based on demand and supply

1 Perfect Competition • Prices are set based on demand and supply

A market situation (or industry) in which there

• A market (or industry) with only one

• A market (or industry) with only one

The way in which individuals, business, government, and society deal

Capitalism Command Economy

Low Role of Government High

MGT1101 Introduction to Business Chapter 1

The economic systems are differed by

– Labor / Human Resources

2 Types of Economic Systems

1. Capitalism “Limited role of government”

In practice, the four questions are answered through

2 Types of Economic Systems

Two types of economic systems served as command economy

2 Types of Economic Systems

Measuring Economic Performance

Business Cycle and Economic Policy

Global Financial Crisis in 2008

• The percentage of a nation’s labor force unemployed at any time

Consumer price index (CPI)

• The four stages of the business cycle PEAK

Government Central Bank

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