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CLEMSON / Business / BUS 101 / the recurrence of periods of growth and recession in a nation's econom

the recurrence of periods of growth and recession in a nation's econom

the recurrence of periods of growth and recession in a nation's econom


School: Clemson University
Department: Business
Course: Into to Business
Term: Spring 2017
Tags: business
Cost: 50
Name: Business Test 1 Study Guide
Description: These notes cover the first exam, chapters one through four.
Uploaded: 02/08/2017
11 Pages 89 Views 0 Unlocks

CHAPTER 1 Free enterprise: ability to produce any legal goods and sell at any price  • Why take business class? o Choose career o Be more successful as an employee o Improve management  o Decide to start your own business o More informed consumer and investor Business: organizational effort of people to produce and sell goods that make a profit and are  needed by the public E-business: organized effort of individuals to produce and sell for a profit, the goods and services  that satisfy society’s needs through the facilities available on the internet Economics: study of how wealth is created and distributed Microeconomics: an individual, smaller picture Macroeconomics: national economy Economy: how people with economics • Factors of Production: resources used to produce goods and services o Land and natural resources ▪ Forests, crude oil, minerals, land, water o Labor ▪ Time and effort that we use to produce goods and services ▪ Managers and employees o Capital ($ and what you can buy to help with production) ▪ Money, facilities, equipment, and machines used in the operation of  organizations o Entrepreneurship ▪ The activity that organizes land and natural resources, labor, and capital.  The willingness to take risks and the knowledge and ability to use the  other factors of production efficiently. • Big Questions to Ask Yourself? o What and how much of the product to make? o How to produce it? o For whom to sell it to? Capitalism: economic system in which individuals own and operate the majority of businesses that provide goods and services to the public o Adam Smith o Invisible hand ▪ Coined by Adam Smith describes how an individual’s personal gain  benefits others and a nation’s economy  Laisse-faire: everyone has the right to create wealth, economic freedom and freedom to compete,  and limited government interventionMarket economy: an economic system in which businesses and individuals decide what to  produce and buy, and the market determines quantities sold and prices Mixed economy: an economy that exhibits elements of both capitalism and socialism • The USA is a mixed economy (private and government owned businesses/industries) Consumer products: goods and services purchased by individuals for personal consumption Command economy: economic system in which the government decides what goods and services  will be produced, how they will be produced, for whom available goods and services will be  produced, and who owns and controls the major factors of production Socialism: key industries controlled by government • Transportation, utilities, communications, banking, and steel production Communism: classless society whose citizens together owned all economic resources. All  workers would then contribute to the society according to their ability and would receive benefits  according to their needs. • Karl Marx • Government controls everything and makes all of the decisions Gross-domestic product: the total dollar value of all goods and services produced by all people  within the boundaries of a country during a one-year period Productivity: average level of output per worker per hour Inflation: general rise in the level of prices Deflation: general decrease in the level of prices Unemployment rate: the percentage of a nation’s labor force unemployed at any time Consumer price index: a monthly index that measures the changes in prices of a fixed basket of  goods purchased by a typical consumer in an urban area  Producer price index: index that measures prices that producers receive for their finished good Economic Measure Description Balance of trade Total value of a nation’s exports minus the  total value of its imports over a specific  period of time Consumer confidence index Measure of how optimistic or pessimistic  consumers are about the nation’s economy Corporate profile Total amount of profits made by corporations  over a specific time period Inflation rate Economic statistic that tracks the increase in  prices of goods and services over a period of  time National income Total income earned by various segments of  the population New housing starts Total number of new homes Prime interest rate Lowest interest rate that banks charge their  most credit-worthy customers

• Why take business class?

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Business cycle: recurrence of periods of growth and recession in a nation’s economic activity Recession: two or more consecutive three  month periods of decline in a country’s GDP • Unemployment rises during a recession and total buying power declines depression: severe recession that lasts longer than a typical recession and has a larger  decline in business activity when compared to a recession  • The trough of a recession or depression is the turning point when a nation’s production  and employment bottom out and reach their lowest levels • During the peak period, the economy is at its highest point, unemployment is low and  total income is relatively high Monetary policies: federal reserve’s decisions that determine the size of the supply of money in  the nation and the level of interest rate 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 Federal deficit: shortfall created when the federal government spend more in a fiscal year than it  receives National debt: total of all federal deficits Competition: rivalry among businesses for sales to potential customers Types of Competition Definition Real-World Example # of Business Firms Perfect (or Pure) There are many  buyers and sellers of  a product, and no  single buyer or seller  is powerful enough to  affect the price of that  product Corn, Wheat, Peanuts Many Monopolistic There are many  buyers along with a  relatively large  number of sellers  who differentiate  their products from  the products of  competitors Clothing, Shoes Many

o What and how much of the product to make?

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Oligopoly Market (or industry)  in which there are  few sellers Automobiles, Cereal Few Monopoly Market (or industry)  with only one seller,  and there are barriers  to keep other firms  from entering the  industry Software produced by  copyright, many local  public utilities One

• A natural monopoly, is an industry that requires a huge investment in capital and within  which any duplication of facilities would be wasteful o Permitted to exist because the public interest is best served by their existence, but  they operate under the scrutiny and control of various state and federal agencies • A limited monopoly, is created when a government entity issues a franchise, license,  copyright, patent, or trademark • The price of each product is determined by the action of all buyers and all sellers together  through the force of supply and demand Supply: the quantity of the product that producers are  willing to sell at each of various prices Demand: quantity that buyers are willing to purchase at each  of various prices Market price: price at which the quantity demanded is  exactly equal to the quantity supplied Product differentiation: the process of developing and  promoting differences between one’s products and all  competitive products Standard of living: loose, subjective measure of how well off an individual or a society is, mainly in terms of want satisfaction through goods and services Barter: system of exchange in which goods and services are traded directly for other goods or  services without using money Domestic system: method of manufacturing in which an entrepreneur distributes raw materials or  various homes, where families process them into finished goods to be offered for sale by the  merchant entrepreneur  Factory system: system of manufacturing in which all the materials, machinery, and workers  required to manufacture a product are assembled in one place Specialization: the separation of a manufacturing process into distinct tasks and the assignment  of the different tasks to different individuals Chapter 2 Ethics: the study of right and wrong and of the morality of the choices individuals make  Business ethics: application of moral standards to business situations • Ethical issues often arise out of a business’s relationship with investors, customers,  employees, creditors, suppliers, or competitors  1. Fairness and honesty  a. Besides obeying all laws and regulations, businesspeople are expected to  refrain from knowingly deceiving, misrepresenting, or intimidating others 2. A businessperson may be tempted to place his or her personal welfare above the  welfare of others or the welfare of the organization  3. Conflict of interest  a. A businessperson takes advantage of a situation for his or her own personal  interest rather than for the employer’s interest b. May occur when payments and gifts make their way into business deals  4. Business communications, especially advertising, can present ethical questions a. False and misleading advertising is illegal and unethical, and it can infuriate  customers 5. Individual factors  a. personal knowledge, values, and goals b. How much an individual knows about an issue is one factor c. The types of personal goals an individual aspires to and the manner in which  these goals are pursued have a significant impact on that individual’s behavior  in an organization  6. Social factors a. Cultural norms, actions, and decisions of coworkers, values and attitudes of  “significant others”, and the use of the internet  7. Opportunity a. The amount of freedom an organization affords an employee to behave  unethically if he or she makes that choice b. The degree of enforcement of company policies, procedures, and ethical codes  is a major force affecting opportunity c. When violations are dealt with consistently and firmly, the opportunity to be  unethical is reduced  Sarbanes-Oxley Act of 2002: provides sweeping new legal protection for employees who report  corporate misconduct  Trade Associations’ Role in Encouraging Ethics  • Trade associations can and often do provide ethical guidelines for their members • Organizations which operate within particular industries, are in an excellent position to  exert pressure on members to stop engaging in questionable business practices that may  harm all firms in the industry  • Enforcement and authority vary from association to association • Trade associations exist for the benefit of their members, harsh measures may be self defeating• Trade associations must also ensure that their codes to not contain provisions that may  run afoul of antitrust laws  Code of ethics: guide to acceptable and ethical behavior as defined by the organization  • Outlines uniform policies, standards, and punishments for violations Whistle-blowing: informing the press or government officials about unethical practices within  one’s organization  • Those who “blow whistles” may face retaliation and sometimes even lose their job Social responsibility: recognition that business activities have an impact on society and the  consideration of that impact in business decision making  Corporate citizenship: adopting a strategic approach to fulfilling economic, environmental, and  social responsibilities  Economic model of social responsibility: the view that society will benefit most when business is  left alone to produce and market profitable products that society needs Socioeconomic model of society: concept that business should emphasize not only profits but  also the impact of its decisions on society Consumerism: all activities undertaken to protect the rights of consumers The Basic Rights of Consumerism Definition Right to Safety The products they purchase must be safe for  their intended use, and include thorough  explicit directions for intended use Right to Be Informed Consumers must have access to complete  information about a product before they buy it Right to Choose Consumers must have a choice of products  offered by different manufacturers and sellers  to satisfy a particular need Right to Be Heard Someone will listen and take appropriate  action when customers complain Right to Consumer Education Entitles people to be fully informed about  their rights as a consumer Right to Service Entitles consumers to convenience, courtesy,  and responsiveness from manufacturers and  sellers of consumer products

o For whom to sell it to?

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Minority: racial, religious, political, national, or other group regarded as different from the larger  group of which it is a part and that is often singled out for unfavorable treatment Affirmative action programs: plan designed to increase the numbers of minority employees at all  levels within an organization Equal employment opportunity commission: government agency with the power to investigate  complaints of employment discrimination and the power to sue firms that practice it Hardcore unemployed: workers with little education or vocational training and a long history of  unemployment  Social audit: comprehensive report of what an organization has done and is doing with regard to  social issues that affect itChapter 3 International business: all business activities that involve exchange across national boundaries Absolute advantage: ability to produce a specific product more efficiently than any other nation Comparative advantage: ability to produce a specific product more efficiently than any other  product Exporting: selling and shipping raw materials or products to other nations • Export-import merchant, a merchant wholesaler o The merchant assumes all the risks of product ownership, distribution and sale • Export-import agreement o arranges the sale of the products to foreign intermediaries for a commission or fee • Offices or branches o International extensions of the firm’s distribution system o They represent a deeper involvement in international business Importing: purchasing raw materials or products in other nations and bringing them into one’s  own nation  Balance of trade: total value of a nation’s exports minus the total value of its imports over some  period of time  • If a country imports more than it exports, its balance of trade is negative  Trade deficit: negative balance of trade • Not a sign of economic distress, but of rising domestic demand and investment. Imposing  new trade barriers will only make Americans worse off while leaving the trade deficit  virtually unchanged.  Balance of payments: total flow of money into a country minus the total flow of money out of  that country over some period of time Licensing: contractual agreement in which one firm permits another to produce and market its  product and use its brand name in return for a royalty or other compensation • Advantageous for small manufacturers wanting to launch a well-known domestic brand  internationally  • Provides a simple method for expanding into a foreign market with virtually no  investment Letter of credit: issued by a bank on request of an importer stating that the bank will pay an  amount of money to a stated beneficiary  Bill of lading: document issued by a transport carrier to an exporter to prove that merchandise  has been shipped Draft: issued by the exporters bank, ordering the importer’s bank to pay for the merchandise,  thus guaranteeing payment once accepted by the importer’s bank Joint ventures: partnership formed to achieve a specific goal or to operate for a specific period of  time • Provides immediate market knowledge and access, reduced risk, and control over product  attributes • If established across national borders can become extremely complex and require a very  high level of commitment from all the parties involved Totally owned facilities: a firm’s own production and marketing facilities in one or more foreign  nations • Biggest risk most money made• Direct investment provides complete control over operations, but it carries a  greater risk than the joint venture Strategic alliance: partnership formed to create competitive advantage on a worldwide basis Trading companies: provides a link between buyers and sellers in different countries • It buys products in one country at the lowest price consistent with quality and  sells to buyers in another country • Taking title to products and performing all the activities necessary to move the  products from the domestic country to a foreign country  Countertrade: international barter transaction  • In the early 1990’s many developing nations had major restrictions on converting  domestic currency into foreign currency Multinational enterprise: firm that operates on a worldwide scale without ties to any specific  nation or region Import duty (tariff): tax levied on a particular foreign product entering a country  • Revenue tariffs, imposed solely to generate income for the government • Protective tariffs, imposed to protect a domestic industry from competition by keeping  the price of competing imports level with or higher than the price of similar domestic  products Dumping: exportation of large quantities of a product at a price lower than that of the same  product in the home market  • Drives down the price of the domestic item  Nontariff barrier: nontax measure imposed by a government to favor domestic over foreign  suppliers 1. Import quota: limit on the amount of a particular good that may be imported into a  country during a given period of time  a. Limit may be set in terms of either quantity or value b. Quotas may also be set on individual products imported from specific countries 2. Embargo: complete halt to trading with a particular nation or in a particular product a. Most often used as a political weapon 3. Foreign-exchange control: restriction on the amount of a particular foreign currency that  can be purchased or sold a. By limiting the amount of foreign current importers can obtain, a government  limits the amount of goods importers can purchase with that currency  4. Currency devaluation: reduction of the value of a nation’s current relative to the  currencies of other countries  a. Devaluation increases the cost of foreign goods, whereas it decreases the cost of  domestic goods to foreign firms General agreement on tariffs and trade: international organization of 160 nations dedicated to  reducing or eliminating tariffs and other barriers to world trade  World trade organization: powerful successor to GATT that incorporates trade in goods,  services, and ideas Economic community: organization of nations formed to promote the free movement of  resources and products among its members and to create common economic policies Export-import bank of the USA: independent agency of the US government whose function is to  assist in financing the exports of American firmsMultilateral development bank: internationally supported bank that provides loans to developing  countries to help them grow International monetary fund: international bank with 188 member nations that makes short-term  loans to developing countries experiencing balance of payment deficits Chapter 4 Sole proprietorship: business that is owned (and usually operated) by one person • Advantages  o Ease of start-up and closure o Pride of ownership o Retention of all profits o No special taxes o Flexibility of being your own boss • Disadvantages o Unlimited liability: legal concept that holds a business owner personally  responsible for all the debts of the business o Lack of continuity o Lack of money o Limited management skills o Difficulty in hiring employees Partnership: voluntary association of two or more persons to act as co-owners of a business for  profit • Types of partners o General partners: person who assumes full or shared responsibility for operating a  business o Limited partner: person who invests money in a business but has no management  responsibility or liability for losses beyond the amount he or she invested in the  partnership • Partnership agreement: refers to an agreement listing and explaining the terms of the  partnership • Advantages o Ease of start up o Availability of capital and credit o Personal interest o Combined business skills and knowledge o Retention of profits o No special taxes • Disadvantages o Unlimited liability o Management disagreements o Lack of continuity o Frozen investment Corporate ownership • Most corporations grow by expanding their present operations. Some introduce and sell  new but related products. While others expand the sale of present products to new  geographic markets or to new groups of consumers in geographic markets already served.• Merger: combining of two corporations or other business entities to form one business o Horizontal merger: between two firms that make and sell similar products or  services in similar markets o Vertical merger: between firms that operate at different but related levels in the  production and marketing of a product o Conglomerate merger: takes place between firms in completely different  industries  • Hostile takeover: situation in which the management and board of directors of a firm  targeted for acquisition disapprove of the merger  • Tender offer: offer to purchase the stock of a firm targeted for acquisition at a price just  high enough to tempt stockholders to sell their shares • Proxy fight: technique used to gather enough stockholder votes to control a targeted  company • Stock: shares of ownership of a corporation • Stockholder: person who owns a corporation’s stock • Closed corporation: corporation whose stock is owned by relatively few people and is  NOT SOLD to the general public • Open corporation: corporation whose stock can be bought and sold by an individual  • Domestic corporation: corporation in the state in which it is incorporated • Foreign corporation: corporation in any state in which it does business except the one in  which it is incorporated • Alien corporation: corporation chartered by a foreign government and conducting  business in the united states  • Stockholders’ rights o Common stock: stock owned by individuals or firms who may vote on corporate  matters but whose claims on profits and assets are subordinate to the claims of  others o Preferred stock: stock owned by individuals or firms who usually do not have  voting rights but whose claims or dividends are paid before those of common  stock owners o Dividend: distribution of earnings to the stockholders of a corporation o Proxy: legal form listing issues to be decided at a stockholders’ meeting and  enabling stockholders to transfer their voting rights to come other individuals  • Corporate structure o Board of directors: the top governing body of a corporation, the members of  which are elected by the stockholders o Corporate officers: chairmen of the board, president, executive vice presidents,  corporate secretary, treasurer, and any other top executive appointed by the board  of directors • Advantages o Limited liability: feature of corporate ownership that limits each owner’s financial  liability to the amount of money that he or she has paid for the corporation’s stock o Ease of raising capital o Ease of transfer of ownership▪ Ownership is transferred when the sale is made, and practically no  restrictions apply to the sale and purchase of stock issued by an open  corporation o Perpetual life o Specialized management • Disadvantages o Difficulty and expense of formation o Government regulation and increased paperwork o Conflict within the corporation o Double taxation ▪ Corporations pay tax on the money they make then stockholders are taxed  on the dividends they receive  o Lack of secrecy • S Corporations: a corporation that is taxed as though it were a partnership • Limited-liability companies: form of business ownership that combines the benefits of a  corporation and a partnership while avoiding some of the restrictions and disadvantages  of those forms of ownership o Pass-through taxation o Avoid double taxation o Provides limited-liability protection for acts and debts of the LLC o Organization provides more management flexibility and fewer restrictions when  compared with corporations o LLC is not restricted to 100 stockholders, a common drawback of the S  corporation • Not-for-profit corporations: corporation organized to provide a social, educational,  religious, or other service rather than to earn a profit o Must meet specific internal revenue service guidelines in order to obtain tax exempt status Joint venture: agreement between two or more groups to form a business entity in order to  achieve a specific goal or to operate for a specific period of time  Syndicate: temporary association of individuals or firms organized to perform a specific task that  requires a large amount of capital  • Most commonly used to underwrite large insurance policies, loans, and investments
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