The Business Dimension of Europe Chapter 1
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. What would you like to do?
What is business?
Organizations that provide goods and services that are then sold to earn profits
What is profit?
The difference between business's revenues and its expenses
How to benefit when other retailers fail?
Using the opportunity to improve goods/services when others are doing inefficiently or incompletely. Or then provide goods/services when there's a need and no one else is supplying them.
The benefits of business?
- produce the goods/serv that we consume
- creat jobs
- creat innovations
- provide opportunities for new businesses
- healthy businesses contribute to the quality of life and standard of living of people
- taxes help to support governments
What is an external environment?
All businesses, regardless of their size, location, or mission, operate within a larger external environment - everything outside and org's boundaries that might affect it (e.g political-legal env, economic env, global business env, technological env, socio-cultural env, domestic business env)
Describe domestic business environment
The env in which a firm conducts its operations and derives its revenues (tuletab aastatulu). Businesses seek to be close to their customers,to build strong relationships with suppliers and to distinguish themselves from their competitors.
Describe the global business env
The international forces that affect a business. Such as international trade agreement, international econimic condition, political unrest, cultural differences etc)
Describe the technological env
all the ways by which firms create value for their constituents (koostisosadele).E.g human knowledge, work methods, physical equipment, electronics, telecommunication etc.
Describe the political-legal env
the relationship between business and government
Describe the sociocultural env
The customs, mores and democraphic characteristics of society in which an organ. functions. Determines which kind of goods/ services and business conduct a certain society values and accepts.
Describe the economic env
The existing economic condistions in which a company operates.
What is an economic system?
It is a nation's system for distributing resources among its citizens, both individuals and organizations.
What are the factors of production?
(this is a basic difference between economic systems in countries) Resources used in the production of goods/ services - labour, capital, entrepreneurs, physical resources and information resources.
What is labour?
=Human resources, is the physical and intellectual contributions people make in economic production.
What is capital?
Obtaining and using labour and other resources requires capital. Capital needed to start a new business and then keep it running and growing.
Who is an entrepreneur?
A person who accepts the risks and opportunities entailed (kaasnevad)in creating and operating a new business.
What are physical resources?
Are the tangible (kombatav) things that organizations use to conduct their business. E.g natural resources, raw materials, offices, storage, production facilities & other equipment
What are information resources?
Data and other informtion used by businesses. E.g market forecasts, economic data..
Types of economic systems? (4)
- 1. Planned economy (Communism)
- 2. Market economy (Capitalism)
- 3. Mixed market economy (Socialism)
- 4. Privatization
What is a planned economy?
Relies on a centralized government to control all or most factors of production. Makes all or most production and allocation (määramine/paigutus) decisions.
what is a market economy?
Individual producers and consumers control the production and alloctaion by creating combinations of supply and demand.
What is communism?
It is system in which the government owns and operates all factors of production.
What is a market?
- It is a mechanism for exchange between buyers and sellers of a particular good or service.
- Market economy= produsers and consumers are free to selll and buy what they choose.
What is capitalism?
A system that allows/ sanctions the private ownership of the factor of production and encourages entrepreneurship by offering profits as an incentive (ajendusel/lisatasu).
What is a mixed market economy?
Has characteristics of both planned and market economies
What is privatization?
From planned economy to market economy in continuum. The process of converting government enterprises into privately owned companies.
What is socialism?
It is only a partially planned system (has the mixed market economy) in which the government owns and operates only major industries (banking, transportation, oil/ steel producers and not clothing stores, restaurants)
What is a demand?
+ The law of demand
The willingness and ability of buyers to purchase a product.
Buyers will purchase (demand) more of a product when as its price drops and less as its price increases
What is a supply?
+ The law of supply
The willingness and ability of producers to to offer a good or service for sale.
Producers will offer (supply) more of a product for a sale as its price rises and less of a product as its price drops.
What is a demand and supply schedule?
The assessment of the relationships among different levels of demand and supply at different price levels.
What is a demand curve?
(Based on the schedule info) Shows how many products will be bought at different prices.
What is a supply curve?
(Based on the schedule info) Shows how many products will be supplied at different prices.
What is the market=equilibirium price?
The price at which the quantity of goods demanded and the quantity of goods supplied are equal.
What is a surplus?
A situation in which the quantity supplied exceeds the quantity demanded.
What is a shortage?
The quantity demanded will be greater than the quantity supplied.
What is private enterprise? What are the 4 required elements?
- Economic system that allows individuals to pursue their own interests with minimal government restriction. 4 elements:
- 1. private property rights
- 2. freedom of choice
- 3. profits
- 4. competition
What is competiton?
Businesses vie for the same resources or customers.
Name 4 types of competition
- 1.perfect competition
- 2.monopolistic cosmopolitan
What is perfect competition?
- Small firms - large number of firms
- 1. no single firm is powerful enough to influence the price of its product =>prices determined by supply/demand
- 2. products identical
- 3.easy to enter and leave the market
- 4. buyers/sellers aware of others prices
What is monopolistic competition?
- may be large and small - many firms, but fewer than in the perf comp.
- 1. quite easy to enter and leave the market
- 2. products are similar
- 3. some control over prices
What is oligopoly?
- Quite large firms - just a few firms
- 1. entry of competitiors is difficult and large capital is needed
- 2. more control over strategies that in the mon. comp., but the actions of one firm clearly afftects the other firms (so the other follow one's decisions)
- 3. some control over prices
- 4. products similar or different
What is monopoly?
- one big firm - no competitors (one dominates)
- 1. regulated by the government
- 2. no competing goods/services
- 3. conciderable control over prices
What is a natural monopoly?
Industry in which one company can most sufficiently supply all goods and services
What is an economic indicator?
A statistic that helps assess the performance of an economy (strenghtening, weakening or remaining stable)
what is a business cycle?
A short-term pattern of economic expansions and contractions
Which are the 2 primary measures of growth in business cycle?
- 1. Aggregate output: the total quantity of goods/services produced by an economic system during a given period
- 2. Standard of living: the total quantity and quality of goods/services people can buy with the currency used in their economic system.
What is GDP? (to show the growth of an economic system: GDP, GNP, Real GDP, PPP, Productivity)
GDP is the total value of all goods and services produced within a given period by a national economy through domestic factors of production
What is GNP?
=Gross National Product= the total value of all goods/ sevrices produced by a national economy within a given period reardless of where the factors of production are located.
What is GDP per capita?
=GDP per person= dividing total GDP by the total population
What is a Real GDP?
Gross domestic product (GDP) adjusted to account for changes in currency values and prices.
What is a nominal GDP?
Gross domestic product (GDP) measured in current dollars or with all components valued at current prices.
What is PPP?
= Purchasing Power Parity= the principle that exchange rates are set so that the prices of similar products in different countries are about the same. The Big Mac Index
What is productivity?
A measure of economic growth that compares how much a system produces with the resources needed to produce it.
Which 2 factors can limit the growth of an economic system?
- 1. Balance of trade: the economic value of all the products that a country exports minus the economic value of all products it imports
- positive- exports more that imports
- negative (trade deficit)- imports more than exports
2. National debt:
the amount of money the government owes its creditors
what is stability?
A condition in which the amount of money available in an economic system and the quantity of goods/services produced in it are growing at about the same rate.
What is inflation?
The value of money decreases: ppl have to spend more money on the same quantity of products.
What is the CPI?
=Consumer Price Index= measure the prices of typical products purchased by consumers in urban areas.
What is unempoyment?
The level of joblessness among ppl actively seeking work in an economic system
What is recession?
(First the aggregate output will be checked) A period during which aggregate output, as measured by Real GDP, declines.
What is depression?
A prolonged and deep recession
What are the 2 sets of polices manage U.S economy?
- 1. Fiscal policy: policies used by a government regarding how it collects and spends revenues (e.g taxes)
- 2. Monetary policy: policies used by a government to control the size of its money supply (e.g. to lend/ injects money)
- + Stabilization Policy: government economic policy to smooth out fluctuations in output and unemployment and to stabilize prices.
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