Principles of Business Flashcards

want
Desire for things that we may or may not actually require
economic want
When you need to spend money to satisfy a want
non-economic want
Wants that can be satisfied without spending money
good
Things you can touch
Useful, scarce, transferrable
services
Productive acts that satisfy economic wants
Act (want)
Healthcare (to get well)
Lawn care (tidy yard)
Dry cleaning (clean clothes)
Intangible activities performed by other people for money
consumer good
Goods and services that are purchased and actually used by the end consumer
industrial good
Goods and services purchased by producers – the people or businesses who make or provide goods and services
EX:
Steel
Plastic
Pizza oven
convenience products
Items purchased quickly and without thought
Usually low cost
EX:
Bottle of pop
Pack of gum
Gallon of milk
shopping products
When customers shop around for the best price or quality and want advice from salespeople
EX:
Camera
Computer
specialty products
Products that have special/unique characteristics – often have a specific brand name
People are willing to pay a higher price for these
EX: Designer clothes, exotic perfumes, limited-edition cars
Unsought products
Products bought out of adversity/need instead of desire
Coffin
Crutches
Insurance
Medicine
Economic resources
Used by businesses to produce goods and services
Land
Labor
Capital
Entrepreneurship
Also known as: Factors of production
natural resources
Examples of this type of resource are:
Land
Water
Coal
Oil
capital goods
Used in the production of goods and services
Examples of this type of resource are:
Buildings
Computers
Tools
human resources
The type of resource used when people produce goods and services
economy
Social system of production, exchange, distribution, and consumption of goods and services of a country
Notice the 4 economic activities listed above?!
How a country chooses to use its resources
economics
The social science that studies the production, exchange, distribution, and consumption of goods and services
The study of how to meet unlimited wants with limited resources
scarcity
What occurs when we have unlimited wants, but limited resources
I want, want, want, but I only have $20
economizing
Avoiding waste
An economic choice businesses must make
Opportunity costs
What you give up to gain something else
consumption
The utilization of economic goods in the satisfaction of wants or in the process of production resulting in their destruction, deterioration, or transformation
1 of the 4 economic activities
consumer
The person who uses a good or service
production
The act of making goods
1 of the 4 economic activities
producer
A business that produces goods
exchange
Economic transaction where goods or services are transferred from the provider in return for compensation from the receiver
1 of the 4 economic activities
distribution
Making goods and services available for use by consumers or businesses
1 of the 4 economic activities
Three factors that affect the value of resources
Resources / Factors of Production =
Natural (land)
Human (labor)
Capital (equipment)
Entrepreneurship

Productivity (if it produces more it’s worth more)

Availability of supply (the more scarce something is, the more valuable it may become)

Demand (if the supply of a resource is high, its demand is usually low; therefore, reducing it’s value)

utility
Adding usefulness to a product that is capable of satisfying wants and needs
form utility
Usefulness of a good created by altering or changing its form or shape to make it more useful to the consumer
EX: Turning trees into paper
place utility
Usefulness created by making sure that goods or services are available at the place where they are needed or wanted by consumers
EX: Having items available in the store so customers don’t have to get a rain check
time utility
Usefulness created when products are made available at the time they are needed or wanted by consumers
EX: Banks with extended hours or availability of online banking
possession utility
Usefulness created when ownership of a product is transferred from the seller to the user

EX: When a store accepts cash, check, or credit card for payment

Profit
Monetary reward a business owner receives for taking the risk involved in operating a business
Profit motive
One reason people become entrepreneurs – business owners want a reward for their efforts
The greater the reward, the more owners can do with it (build new facility, expand, produce additional products, give to charity, etc.)
Income
Amount of money, or its equivalent, received during a period of time in exchange for:
labor or services
the sale of goods, services, or property
profit from financial investments
Expenses
Money that a business spends
usually measured in financial terms
Cost of goods
Amount of money a business pays for the raw materials from which it produces goods to sell
EX – Hard hats
Raw material would be plastic
Amount of money a business pays for the products or parts of the product
Operating expenses
An on-going cost for running a business
Electric
Rent
Personnel
Gross profit
Sales income minus cost of goods =
Net profit
Gross profit minus
operating expenses =
Business risk
The possibility of
loss (failure) or
gain (success)
inherent in conducting business
Economic risks
The type of risk that involves changes in the market that cause prices to go up or down, products to change, and businesses to succeed or fail:
Competition
Shifts in customer demand
Obsolescence (outdated)
Government intervention
Natural risks
The type of risk that results from natural causes:
Floods
Tornado
Fires
Lightning
Blizzards
Human risks
The type of risk caused by human weaknesses and the unpredictability of employees or customers:
Dishonesty
Carelessness
Accidents
Pure risks
A characteristic of risks
Brings the possibility of loss or no loss (no gray area)
EX: Tornado
If it hits your building there will be loss
If the tornado misses your building, there will be no loss
Speculative risks
A characteristic of risks
Brings the possibility of loss, gain, or no change in business
EX: Thunderstorm
Any storm with lightning could cause electricity to go out
Guarantee
Promise to give customers their money back if something goes wrong

“Satisfaction guaranteed or your money back”

Example of a way to transfer risk

Warranties
Promise to repair or replace a faulty product
Car warranty
5 years/50,000 miles
Example of a way to transfer risk
Competition
Rivalry among two or more businesses to attract scarce or limited customer dollars
Direct competition
Type of competition that occurs among businesses that offer similar goods or services
Examples:
Wendy’s & Burger King
American Eagle & Abercrombie
Indirect competition
Type of competition that occurs among businesses that don’t offer the same or similar goods and services (Kroger & American Eagle)
When businesses compete for scarce customer dollars that might be spent on goods and services different from their own
Price competition
Type of rivalry between businesses that focuses on the use of price to attract scarce customer dollars
BOGO
Price matching
Rebates
Special sales (Back-to-School)
Nonprice competition
When businesses compete on a basis other than price to attract scarce customer dollars
Exceptional quality
Outstanding service
Convenience
Extra services (gift wrapping)
Monopoly
Exists when a market is controlled by one business
No substitutes are available
Very rare today
U.S. Postal Service
No one else can send “First-Class Mail”
Do have competition from FedEx & UPS
Regulated monopolies
An exception – allowed when it’s too expensive for another company to compete

Exclusive control of a good or service in a given market
Time Warner Cable
Columbia Gas
Hancock Wood Electric

Monopolistic competition
Type of competition you’re most likely to find in private enterprise economy

Lots of businesses selling similar products that have only a few differences:
Shampoo, running shoes

Sellers may lower their prices to increase sales (price competition)

Sellers try to differentiate their products from competitors’ products to attract customers

Monopoly (one business)

Oligopoly (a few businesses)

Perfect competition (many businesses, but price is set)

Monopolistic competition (lots of businesses)
Four market structures of businesses
Environments in which businesses operate

Government legislation affecting competition
Sherman Anti-Trust Act

Clayton Act

Federal Trade Commission Act

Robinson-Patman Act

Celler-Kefauver Anti-Merger Act

Competition
What forces producers (businesses) to make better and less expensive goods and services?
How do consumers benefit from competition?
Encourages development of new goods and services
Maintains or improves quality of existing products
Provides:
More goods & services
Better goods & services
Wider selection of goods & services
Keeps prices down
How does society benefit from competition?
Development of new products that make people’s lives easier
Convenience
Healthier
Safer

Provides jobs for people

oligopoly
When only a few businesses sell all the products
These businesses are usually large and have a lot of control over the market and product prices
Difficult for new businesses to enter the market and compete
Examples:
Cell phone service providers
Television industry (CBS, ABC, NBC, Viacom, Fox, etc.)
pure/perfect competitions
When many businesses sell the same product and there is a plentiful supply of that good or service
All businesses compete equally and charge about the same price
No seller has an ‘edge’ on the other sellers
Price is set – if you want to sell, you sell at the stated price
Example: Crops and livestock (Farm Market Report
monopolistic compeition
Type of competition you’re most likely to find in private enterprise economy

Lots of businesses selling similar products that have only a few differences:
Shampoo, running shoes

Sellers may lower their prices to increase sales (price competition)

Sellers try to differentiate their products from competitors’ products to attract customers

Who benefits from competition?
Businesses
Consumers
Society
Why is competition important in a private enterprise economy?
Keeps profits up
Keeps prices down
Keeps standard of living high
Keeps production efficient
Maintains quality products
Social responsibility
When businesses have a duty to contribute to the well-being of society
List two ways businesses can be socially responsible
Maximize profits for the business
Offer quality product at competitive prices
Meet needs of consumer
Minimize business costs and expenses
Contribute to public interests
Create goodwill
Support community events
Provide educational workshops
To whom should businesses be socially responsible?
The people who use their products

The communities where they are located

The employees of the business

Producers
People who make or provide goods and services
Three types:
Raw-goods producers
Manufacturers
Builders
Raw-goods producers
Type of producer
Provide goods in their natural, or raw, states
EX: Farms, mines, fisheries, and lumber companies
Manufacturers
Type of producer
Change the shapes or forms of materials so that they will be useful to consumers
Trade industries
Businesses that buy and sell goods to others
Two types:
Retailers
Wholesalers
Retailers
Type of trade industry
Sell to end consumers
People who actually use the product
Brick & Mortar
Physical store only
Click & Mortar
Physical store & website
E-tailers
Website only
Wholesalers
Type of trade industry
They usually sell to other businesses
May sell to end consumers, but usually only in very large quantities
Sam’s Club
Service businesses
These businesses perform intangible activities that satisfy the needs and wants of consumers and industrial users

If a good is used in performing the service, ownership of the good isn’t given to the customer
If you ride in a taxi you don’t get the taxi, you just get a ride to your destination

List classifications of service businesses
Housing (real estate agent)
Household operations (lawn care)
Recreation (amusement park)
Personal care (salon)
Health care (doctor)
Private education (tutoring)
Insurance & financial (bank)
Transportation (taxi)
Business services (website development)
Communications (cell phone company)
Sole proprietorship
Business owned by one individual
Advantage:
Don’t have to share profits
Disadvantage:
Requires long hours and lots of work
Partnership
Business owned by two or more people
Advantage:
Share financial responsibility with others
Disadvantage:
May not always agree with other people’s decisions
two types of partnership arrangements
General Partnership
Limited Partnership
General Partnership
Each partner has unlimited liability
Limited Partnership
Amount of financial liability is limited to the amount each person has invested
Corporation
Owned by stockholders
Artificial being, invisible, intangible *
Exists only in law
Functions independently of its owners
Advantage:
Only liable for amount you’ve invested
Disadvantages:
Little personal control
Decisions take longer to make
four types of corporations
Closed – small group of investors

Open – shares are publicly traded

S – Pass income & losses on to shareholders. Done for tax purposes to benefit corporation

Non profit – not intended to provide profit to owners or members

Limited-liability company
Owners enjoy advantages of corporations while still being a sole proprietorship or partnership
Provides protection of your personal assets
three ways corporations can grow
Sell more stock

Mergers

Consolidations

Merger
Combining of two or more companies
Goods and services of the companies may be unrelated
Disney & ABC
Consolidation
Acquiring smaller companies and combining them into one larger company
Alltel & Verizon
Expansion
Growing your business
Franchise
Method of distributing recognized goods and services through a legal agreement between two parties
Product trade-name franchise
Independent sales relationship between a supplier (franchisor) and a dealer (franchisee) to sell a specific line of products
Commonly referred to as dealerships (Ford)
Business-format franchise
Subway, Coldstone Creamery, Taco Bell

Usually available to anyone who has the capital to invest
Franchisor (company) and franchisee (individual) work together closely
Franchisors often provide training, financial guidance, and supply channels for franchisees
Franchisee benefits from national advertising campaigns and this can reduce the risk of failure
Economic system
How a country uses its resources
Traditional economic system
Stems from tradition
Economic decisions are determined by habits and customs
In this economic system, people ‘know their place’
Command economic system
Two variations of this economic system
Socialism
Communism
Small group of people are in ‘command’ of all the others
Limited or no competition
Limited consumer influence in marketplace
Communism
In this type of command economic system, the govt. does all the economic planning
Govt. makes all economic decisions
Capital for business investment is provided by govt.
Comes from taxes collected from people and from the profits of state-owned businesses
Socialism
In this type of command economic system, the govt. meets the basic needs of all

Govt. owns some businesses

Private ownership of businesses is allowed

High taxes

Market economic system
In this type of economic system, the govt. has limited control of businesses
People live and work where they choose
Marketplace competition
Supply and demand control prices
Private enterprise
Term used to describe businesses that are managed by independent companies or private individuals rather than by the government

Also referred to as market economy or market system

Factors that affect the business environment
Business trends
Cultural & social issues
Economic conditions
Ethical issues
Global relationships
Global trade
Governmental impact
Legal issues
Technology
Environmental scanning
Process of gathering, analyzing, and dispensing information for tactical or strategic purposes
This process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering
Contract law
A binding legal agreement between two or more parties
Enforceable in a court of law
Trade-offs
An economic choice businesses must make