Economics PI

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Distinguish between economic goods and services.
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Good – tangible, purchased for manual use Service – intangible, purchased for one to perform a task on behalf of the clientt
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Explain the concept of economic resources.
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Capital Resources – assets, monetary value Human Resources – labor/management Natural Resources – raw materials
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Describe the concept of economics and economic activities.
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Economics is the study of meeting unlimited human wants and examining their behavioral patterns in regards to money based on various environmental, social, political, personal, and psychological factors. This includes strategy involved in various economic activities in order to attract consumers of the target market and generate more cash flow. Economic Activities: Production – creation of a good/service Distribution – making good/service available Consumption – usage of a good/service
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Determine economic utilities created by business activities.
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Form Utility – configuration of product Place Utility – physical location Time Utility – timing of service Possession Utility – terms of ownership
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Explain the principles of supply and demand.
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Supply – availability of good/service Demand – public desire for good/service Law of Supply – price and supply are positively correlated because if it is more profitable and suppliers are more willing to produce/offer good/service Law of Demand – price and supply are negatively correlated because less people are willing to pay for said good/service Elasticity – sensitivity of supply/demand to increasingly subtle changes in price (high elasticity = sensitive to smaller changes in price, no elasticity = no change in supply/demand regardless of price) Market Equilibrium – price at which supply and demand are equal, correlates with equilibrium quantity, assessed by economists in order to avoid shortage or surplus Shortage – price too low, supply less than demand, not enough for every consumer Surplus – price too high, supply higher than demand, capital wasted on resources for things no one wants Factors Affecting Supply: Resource Price – negative correlation Related Product Price – negative correlation Number of Suppliers – positive correlation Technological Advancement – positive correlation Expected Future Prices – positive correlation Factors Affecting Demand: Substitute Price – positive correlation Complement Price – negative correlation Expected Future Prices – positive correlation Income – positive correlation (except for low-value) Population – positive correlation (except for low-value)
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Describe the functions of prices in markets.
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The price of a good or service is how much it costs per unit or time period. Based on factors affecting supply and demand in the current marketplace, the price determines a forecasted quantity supplied and demanded, allowing a business to determine what price to set in order to accomplish market equilibrium.
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Explain the role of business in society.
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Businesses satisfy unlimited human wants by providing goods and services to society.
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Describe types of business activities.
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Operations – improving quality/efficiency Marketing – improving product appeal to consumers Finance – recording financial transactions to make recommendations, filing reports to banks and gov.
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Describe types of business models.
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Manufacturer – takes raw material and creates product Distributor – makes product available to retailers Retailer – sells product to consumers Franchise – includes all 3 functions/models
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Explain the organizational design of businesses.
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Organizational design is the structure of a business or its activities, such as having a CEO and chief executives, followed by senior managers, managers, associates, and interns. It can be centralized (one decision-maker) or decentralized (multiple decision-makers).
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Describe the global environment in which businesses operate.
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Social Forces – approval of brand among society Technological Forces – adaptation to new technologies Economical Forces – business cycles Geopolitical Forces – legislation, international relations
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Describe the factors which affect the business environment.
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Internal Factors: Core Competencies – strengths/weaknesses Goals/Objectives – envisioned accomplishments Values/Philosophy – beliefs on how to do business External Factors: Macro Trends – various environmental, geopolitical, and social trends Economic Dynamics – changes in economic principles of industry Competition – See PI #89
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Explain the nature of business ethics.
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Business ethics include employees balancing their personal and professional responsibilities, as well as companies serving the interests of both their consumers and stakeholders.
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Explain how organizations adapt to today’s market.
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Organizations have market-research specialists and economic analysts to analyze trends in the ever-changing market and make recommendations to the marketing and finance teams based on their findings.
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Explain the types of economic systems.
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Traditional – unregulated perfect competition Command – government monopolies Market – unregulated, various forms of competition Mixed – regulated, various forms of competition
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Identify the impact of small businesses/entrepreneurship on market economies.
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Market economies are completely unregulated, meaning that there are few barriers to entry and startups can easily make contributions to society and profit.
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Explain the concept of private enterprise.
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A private enterprise is a type of business with no government regulation.
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Identify factors affecting a business’s profit.
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Supply/Demand – See PI #74 Competition – See PI #89 Global Environment – See PI #80 Expansion – into new markets (vertical integration) into various brands (horizontal integration)
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Determine factors affecting business risk.
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Human Risk – possibility of loss caused by humans Economic Risk – unfavorable market conditions Natural Risk – natural disasters
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Explain the concept of competition.
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Competition is the amount of businesses and differentiation among their goods and services within a certain market. Types of Competition: Monopoly – 1 business, no differentiation Oligopoly – few businesses, low differentiation Monopolistic Competition – many businesses, high differentiation Perfect Competition – many businesses, no differentiation Duopoly – 2 dominant suppliers Collusion – classified suppliers (e.g. government weapons suppliers) Cartel – association of suppliers with high prices and low competition
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Determine the relationship between government and business.
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There are government agencies and legislation to impose regulations on business activities, but businesses can influence political decision-makers.
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Describe the nature of taxes.
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Tax policy is regulated by the Internal Revenue Service (IRS) government agency. The funds are used to improve public services such as transportation, education, and infrastructure. Donations are often tax-deductible. Types of Taxes: Income Tax – percentage of any income paid to IRS Payroll Tax – withheld by employer to pay to IRS Sales Tax – percentage of commodity price paid to IRS Excise Tax – seller pays percentage of revenue to IRS Property Tax – percentage of loan paid to IRS
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Explain the concept of productivity.
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Productivity is a quantitative measure of the ratio of outputs to inputs. When productivity is lower than necessary, inflation occurs due to more input (resources) resulting in less output (money), decreasing each individual unit of money’s value.
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Analyze impact of specialization/division of labor on productivity.
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Division of labor ensures that a business can complete multiple tasks at once, allowing it to remain competitive and thereby increasing its productivity, resulting in more outputs per input.
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Describe the concept of organized labor and business.
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Organized labor unions often strike against a business for increased rights, such as higher wages.
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Explain the impact of the law of diminishing returns.
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The law of diminishing returns states that the greater the number of inputs, the less outputs each individual input will produce unless other factors are manipulated (e.g. more employees, each one is less productive; more time, more procrastination, etc.)
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Describe the measure of consumer spending as an economic indicator.
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The more consumer spending a business has, the higher its profits are likely to be, making it an effective economic indicator of the company’s profitability.
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Describe the economic impact of inflation on business.
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Inflation decreases the value of money, meaning that the business’s assets are constantly becoming less and less valuable.
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Explain the concept of Gross Domestic Product.
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A nation’s GDP is a quantitative measure representing the total monetary value of all goods and services produced within a country’s borders over a period of time. It can be used as a measure of a nation’s wealth.
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Discuss the impact of a nation’s unemployment rates.
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The higher the unemployment rate, the worse the economy of a country does. It serves as an indicator of poor economic conditions that cause high rates of unemployment, but also causes economic issues of its own. Types of Unemployment: Structural – low demand for job skills Frictional – job transition (e.g. college grads, retirement) Cyclical – caused by business cycles (e.g. GDP change) Causes of Unemployment: surplus of skills (causes structural) more recent college grads than there are jobs (causes frictional) GDP decrease, bear market, etc. (causes cyclical)
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Explain the economic impact of interest-rate fluctuations
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Interest rate fluctuations influence consumer/business spending, inflation, and recessions. Relationships between Interest Rates and Economy: Consumer/Business Spending – negatively correlated Inflation – negatively correlated Recession – positive correlated (when set too high)
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Determine the impact of business cycles on business activities.
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A business cycle is a series of fluctuations including growth, peak, and recession. Actions During Phases of Business Cycle: Growth – invest more Recession – withdraw investments
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Explain the nature of global trade.
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Global trade occurs through the transport of goods internationally. Import/export law differs from country to country and must be abided by.
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Describe the impact of globalization on business.
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Globalization allows businesses to promote its products over the Internet and work with other businesses around the globe. However, there is increased competition from foreign companies.
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Describe the determinants of exchange rates and their effects on the domestic economy.
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Inflation rates, interest rates, public debt, political stability, recession, and speculation cause fluctuations in a currency’s value.
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Explain cultural considerations that impact global business relations.
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Businesses should not offend people of any culture. When marketing, businesses should tailor their promotional strategies to fit the area’s culture, in ways such as using models of that race or using a certain language in ads.
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Discuss the impact of cultural and social environments on global trade.
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Marketing strategies should be appropriate to the cultural and social norms of an area, such as making area-specific products that people are more likely to purchase.
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Describe the impact of electronic communication tools on global business activities.
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Electronic communication, such as email and social media can allow businesses to market their products to a global audience and negotiate partnerships with foreign companies.
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Explain the impact of major trade alliances on business activities.
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When trade alliances, or treaties governing commerce between multiple countries, are enacted, businesses should adapt their operations, marketing, and production to fit the new terms.
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Describe the impact of the political environment on world trade.
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Political standpoints and biases can lead proponents and opponents to be persuaded or dissuaded from purchasing a company’ product.
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Explain the impact of geography on world trade.
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Complex terrain can make distribution of products to these areas difficult, forcing businesses to decide whether it is worth expending resources to distribute products to these areas.
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Describe the impact of a country’s history on world trade.
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If a nation is an opponent of another, inhabitants of that nation may be reluctant to purchase from vendors of those opposing nations.
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Explain the impact of a country’s economic development on world trade.
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A country’s economic stability can play a role in the affordability of products, meaning that businesses may have to change prices accordingly or shift away from certain markets altogether.
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Discuss the impact of bribery and foreign monetary payments on business.
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Bribery wastes money (estimated 5% of GDP) and decreases efficiency while increasing inequality.
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Identify requirements for international business travel.
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Passport and/or US permanent resident card

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