A. Milton Friedman, the author of "Capitalism and Freedom", famously said that businesses are only obliged to focus on their profit margin. He believed businesses contribute to society when they increase profits, provide goods and services, and employ people in the local community.
Review this material in section 1 of What is a Business?
B. While profit maximization is a fundamental goal for most businesses, other foundational business practices influence how to organize a business to make it more efficient.
Review this material in Section 2 of What is a Business?
C. In addition to profit maximization and having a sound organizational structure, businesses are also defined by the product they offer (a service or good).
Review this material in Section 3 of What is a Business?
A. We can use a number of economic indicators to explain the condition of the economy at any given moment, such as gross domestic product (GDP), the consumer price index (CPI), and interest rates.
These indicators are either leading (predicting the direction the economy is going), coincident (looking at the current state of the economy), or lagging (fluctuating for months after a change in the economy has taken place). Some indicators provide more relevant information about the economy than others.
Review this material in "Economic Indicators" on page 81 of Introduction to Business.
B. Try inserting some numbers in the U.S. Bureau of Labor Statistics CPI calculator to compare the buying power of today's dollar with the buying power of the dollar in past years.
C. Let's review some indicators that can help predict future economic activity.
Review this material in "Economic Indicators" on page 81 of Introduction to Business.
D. The construction industry provides a common indicator of economic activity since so many businesses are intertwined with construction. For example, an increase or decrease in the number of new houses or businesses being built can tell investors and consumers about the general level of confidence in the economy.
Review this material in "The Economy" on page 52 of Introduction to Business.
A. While most businesses benefit the societies in which they operate, some can negatively impact their local community. Some companies commit to a triple bottom line approach agree to strive toward three goals: economic profits, social and moral responsibility, and environmental sustainability.
Review the positive impact businesses have on society in Corporate Social Responsibility. Review the triple bottom line approach in "Corporate Social Responsibility" on page 252 of Introduction to Business .
B. Companies should identify any potential negative impacts they may have on their local community and put processes in place to mitigate these negative effects. Consider two areas where businesses could negatively impact their local communities: social disruption and environmental damage.
Review some negative impacts business can have on society in Environmentalism.
A. While news reports usually give inflation a negative connotation, inflation is necessary to a growing economy. In addition to periods of inflation, politicians also use the terms depression and recession to describe the state of the economy. Business owners know these descriptors of the economy can play a large role in their decision making.
Review "Inflation" on page 69 of Introduction to Business.
B. Economic indicators provide more than simple data points politicians incorporate into their political speeches: business managers and consumers use this data to determine whether they should hire additional employees, open up a new store, build a new production plant, or wait until a more favorable time when their customers can afford to buy more of their products or services. Companies use the statistics they obtain from the U.S. Census Bureau to help them make these decisions.
Review an explanation of economic indicators and the inflation rate beginning with "Inflation Rate" on page 70 of Introduction to Business. Review how managers track and use economic indicators in Measuring the Health of the Economy . Review a list of the economic indicators the U.S. Census Bureau collects (everything from construction spending, to rental vacancy rates, to monthly retail inventories) in U.S. Census Bureau: Economic Indicators.
A. Business managers use economic indicators to predict economic trends so they can make decisions, such as calculating how their company will fare during a particular phase of the business cycle. These different phases represent the economic climate, which is the trends that are taking place in the country or within a certain industry. Each phase of the business cycle presents an economic trend during a given time period.
Review the business cycle in terms of the economic indicator gross domestic product (GDP) on page 75 of Introduction to Business. Review the business cycle in The Business Cycle and The Business Cycle: Definitions and Phrases.
A. The four phases of the business cycle are extremely important in real-life situations: they help business managers make decisions for their companies. For example, knowing what phase the economy is in can help managers predict whether it is a good time to spend their savings to make needed investments in their company. Making investments during an inopportune time could put their organization at risk.
Today's companies are more interconnected than ever, on a national and global scale. For example, when a company or industry sees fewer sales due to a contraction in the economy, they may need to lay off workers, buy fewer raw materials, or postpone buying a warehouse to house a new production facility. Fewer workers means that real estate sales plummet, and local small businesses suffer when no one comes into their stores to make purchases.
However, the global economy can protect companies from these economic trends. For example, while the U.S. economy is experiencing a recession, companies may find new buyers of their products in foreign countries that are experiencing expansion.
Review how to evaluate the implications and attributes of the different phases of the business cycle in the infographic on page 74 of Introduction to Business.
A. Business managers use economic indicators to predict where their company may be heading in the business cycle. In other words, economic indicators help managers predict the future. Consider the following scenario: a real estate company hires additional salespeople to respond to an increase in the volume of new houses it has listed during the past three months.
B. The U.S. Federal Reserve plays a large role in making changes to the business cycle. Typically, the Federal Reserve creates policies to control the money supply and inflation, which can influence employment levels in the United States.
Review this material in "Fiscal policy" on page 77 and "Monetary Policy" on page 79 of Introduction to Business. Be sure to study the infographic on monetary policy on page 79.
C. We have reviewed how business cycles correlate with gross domestic product (GDP). Other economic indicators can also predict where the economy is heading in terms of the business cycle.
Review this material in "The Consumer Price Index" in Measuring the Health of the Economy.
A. Many companies like to do business globally because it expands their pool of potential customers, which can lead to increased profits. However, business managers have to consider and overcome many barriers to global trade, such as trade restrictions foreign governments impose on outside businesses. Luckily, pathways exist to help alleviate the burden of these government-imposed restrictions.
Review this material in International Trade Barriers.
B. Differences in currencies present another barrier to global trade. Since most countries use different currencies, how can businesses and consumers know whether they are making an equitable deal? They need to be able to compare and determine the value of each currency in terms of the other. These calculations involve using a currency exchange rate, that can change rapidly.
A. Entrepreneurs need to be aware of many factors that can influence their business success.
B. One key factor affecting the success of a business is understanding the customer. Who are they? What do they need? How can my product help consumers?
Review how to identify consumer trends on page 99 of Introduction to Business.
A. We have examined barriers for conducting global business in terms of the restrictions governments place on foreign businesses. Corporations need to consider other factors as they look to expand globally.
B. Companies conduct business differently in "industrialized" and "non-industrialized" nations.
Review the explanation of external factors that influence business activities in Getting Down to Business.
C. In the previous section we looked at factors that can contribute to, or hinder, business success.These factors are also important to global competition.
D. Processes that have made it easier for companies to conduct business on a global scale include the formation of economic communities.
A. Once a company has decided to explore avenues of international trade, it needs to consider the best method for launching their business abroad. For example, the originating business could choose to maintain or relinquish control over its operations.
B. Since the primary goal of most companies is to make a profit, cost is an important consideration when choosing the best method for entering a foreign marketplace.
Review this material in Types of International Business.
A. Barriers to entering a global marketplace include overcoming government-imposed restrictions and other obstructions that can make international ventures risky. Organizations exist whose sole purpose is to help businesses navigate these potential barriers to facilitate international trade.
B. Some trade facilitators help businesses understand legal differences while some help them manage the monetary aspects of doing business globally.
Review a variety of trade facilitators in International Trade Agreements and Organizations.
Be sure you understand these terms as you study for the final exam. Try to think of the reason why each term is included.