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100 Cards in this Set
- Front
- Back
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Want
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Desire for things that we may or may not actually require
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Economic want
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When you need to spend money to satisfy a want
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Noneconomic want
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Wants that can be satisfied without spending money
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Goods
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Things you can touch
Useful, scarce, transferrable |
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Services
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Productive acts that satisfy economic wants
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Consumer goods
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Goods and services that are purchased and actually used by the end consumer
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Industrial goods
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Goods and services purchased by producers - the people or businesses who make or provide goods and services
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Convenience products
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Items purchased quickly and without thought
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Shopping products
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When customers shop around for the best price or quality and want advice from salespeople
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Specialty products
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Products that have special/unique characteristics - often have a specific brand name
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Unsought products
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Products bought out of adversity/need instead of desire
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Economic resources
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Used by businesses to produce goods and services
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Natural resources
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Examples of this type of resource are:
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Capital goods
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Used in the production of goods and services
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Human resources
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The type of resource used when people produce goods and services
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Economy
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Social system of production, exchange, distribution, and consumption of goods and services of a country
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Economics
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The social science that studies the production, exchange, distribution, and consumption of goods and services
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Scarcity
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What occurs when we have unlimited wants, but limited resources
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Economizing
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Avoiding waste
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Opportunity costs
- or - Trade-offs |
What you give up to gain something else
An economic choice businesses must make |
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Consumption
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The utilization of economic goods in the satisfaction of wants or in the process of production resulting in their destruction, deterioration, or transformation
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Consumer
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The person who uses a good or service
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Production
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The act of making goods
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Producer
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A business that produces goods
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Exchange
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Economic transaction where goods or services are transferred from the provider in return for compensation from the receiver
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Distribution
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Making goods and services available for use by consumers or businesses
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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) |
Three factors that affect the value of resources
Resources / Factors of Production = Natural (land) Human (labor) Capital (equipment) Entrepreneurship |
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Utility
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Adding usefulness to a product that is capable of satisfying wants and needs
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Form utility
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Usefulness of a good created by altering or changing its form or shape to make it more useful to the consumer
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Place utility
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Usefulness created by making sure that goods or services are available at the place where they are needed or wanted by consumers
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Time utility
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Usefulness created when products are made available at the time they are needed or wanted by consumers
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Possession utility
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Usefulness created when ownership of a product is transferred from the seller to the user
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Profit
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Monetary reward a business owner receives for taking the risk involved in operating a business
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Profit motive
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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.) |
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Income
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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 |
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Expenses
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Money that a business spends
usually measured in financial terms |
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Cost of goods
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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 |
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Operating expenses
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An on-going cost for running a business
Electric Rent Personnel |
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Gross profit
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Sales income minus cost of goods =
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Net profit
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Gross profit minus
operating expenses = |
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Business risk
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The possibility of
loss (failure) or gain (success) inherent in conducting business |
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Economic risks
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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 |
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Natural risks
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The type of risk that results from natural causes:
Floods Tornado Fires Lightning Blizzards |
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Human risks
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The type of risk caused by human weaknesses and the unpredictability of employees or customers:
Dishonesty Carelessness Accidents |
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Pure risks
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A characteristic of risks
Brings the possibility of loss or no loss (no gray area) |
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Speculative risks
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A characteristic of risks
Brings the possibility of loss, gain, or no change in business |
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Guarantee
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Promise to give customers their money back if something goes wrong
“Satisfaction guaranteed or your money back” Example of a way to transfer risk |
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Warranties
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Promise to repair or replace a faulty product
Car warranty 5 years/50,000 miles Example of a way to transfer risk |
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Competition
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Rivalry among two or more businesses to attract scarce or limited customer dollars
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Direct competition
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Type of competition that occurs among businesses that offer similar goods or services
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Indirect competition
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Type of competition that occurs among businesses that don’t offer the same or similar goods and services (Kroger & American Eagle)
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Price competition
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Type of rivalry between businesses that focuses on the use of price to attract scarce customer dollars
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Nonprice competition
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When businesses compete on a basis other than price to attract scarce customer dollars
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Monopoly
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Exists when a market is controlled by one business
No substitutes are available Very rare today |
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Regulated monopolies
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An exception – allowed when it’s too expensive for another company to compete
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Oligopoly
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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 |
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Pure/Perfect competition
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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 |
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Monopolistic competition
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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 |
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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 |
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Government legislation affecting competition
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Sherman Anti-Trust Act
Clayton Act Federal Trade Commission Act Robinson-Patman Act Celler-Kefauver Anti-Merger Act |
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Competition
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What forces producers (businesses) to make better and less expensive goods and services?
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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 do consumers benefit from competition?
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Development of new products that make people’s lives easier
Convenience Healthier Safer Provides jobs for people |
How does society benefit from competition?
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Businesses
Consumers Society |
Who benefits from competition?
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Keeps profits up
Keeps prices down Keeps standard of living high Keeps production efficient Maintains quality products |
Why is competition important in a private enterprise economy?
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Social responsibility
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When businesses have a duty to contribute to the well-being of society
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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 |
List two ways businesses can be socially responsible
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The people who use their products
The communities where they are located The employees of the business |
To whom should businesses be socially responsible?
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Producers
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People who make or provide goods and services
Three types: Raw-goods producers Manufacturers Builders |
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Raw-goods producers
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Type of producer
Provide goods in their natural, or raw, states EX: Farms, mines, fisheries, and lumber companies |
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Manufacturers
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Type of producer
Change the shapes or forms of materials so that they will be useful to consumers |
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Trade industries
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Businesses that buy and sell goods to others
Two types: Retailers Wholesalers |
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Retailers
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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 |
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Wholesalers
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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 |
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Service businesses
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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 |
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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) |
List classifications of service businesses
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Sole proprietorship
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Business owned by one individual
Advantage: Don’t have to share profits Disadvantage: Requires long hours and lots of work |
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Partnership
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Business owned by two or more people
Advantage: Share financial responsibility with others Disadvantage: May not always agree with other people’s decisions |
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General Partnership
Each partner has unlimited liability Limited Partnership Amount of financial liability is limited to the amount each person has invested |
List two types of partnership arrangements
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Corporation
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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 |
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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 |
List four types of corporations
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Limited-liability company
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Owners enjoy advantages of corporations while still being a sole proprietorship or partnership
Provides protection of your personal assets |
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Sell more stock
Mergers Consolidations |
List three ways corporations can grow
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Merger
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Combining of two or more companies
Goods and services of the companies may be unrelated Disney & ABC |
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Consolidation
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Acquiring smaller companies and combining them into one larger company
Alltel & Verizon |
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Expansion
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Growing your business
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Franchise
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Method of distributing recognized goods and services through a legal agreement between two parties
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Product trade-name franchise
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Independent sales relationship between a supplier (franchisor) and a dealer (franchisee) to sell a specific line of products
Commonly referred to as dealerships (Ford) |
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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 |
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Economic system
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How a country uses its resources
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Traditional economic system
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Traditional economic system
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Command economic system
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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 |
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Communism
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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 |
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Socialism
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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 |
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Market economic system
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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 |
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Private enterprise
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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 |
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Factors that affect the business environment
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Business trends
Cultural & social issues Economic conditions Ethical issues Global relationships Global trade Governmental impact Legal issues Technology |
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Environmental scanning
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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 |
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Contract law
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A binding legal agreement between two or more parties
Enforceable in a court of law |
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Sales law
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Laws governing the sale and lease of goods
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