POB Semester Review Chapter 1 Needs things required

POB Semester Review

Chapter 1 • Needs- things required in order to live • Wants- things that add comfort and pleasure to life • Goods- things that you can see and touch • Services- activities that are consumed at the same time they are produced • Economic Resources – means through which goods and services are produced. • Natural, Human and Capital Resources

Economic Problem • People have unlimited wants and needs but limited economic resources. Scarcity- not having enough resources to satisfy every need. • Economic Decision Making is the process of choosing which wants will be satisfied. • Tradeoff is the process of giving up one things to have something else. Opportunity Cost is the value of the next best alternative that you did not choose.

Decision Making Process 1. 2. 3. 4. 5. 6. Define the Problem Identify the Choices Evaluate the Pros and Cons of Each Choice Choose One Act on Your Choice Review Your Decision

Economic Questions 1. What goods and services will be produced? 2. How will the goods and services be produced? 3. What needs and wants will be satisfied with the goods and services produced?

Economic Systems Ø A nation’s plan for answering the three economic questions is called its economic system. • Command Economy- economic questions are answered by the government • Market Economy- economic questions are answered by the people • Traditional Economy- economic questions are answered by family and customs • Mixed Economy- combination of elements from command market economies

4 Principles of the U. S. Economic System 1. Private Property- right to own, use or dispose of things of value 2. Freedom of Choice- right to make decisions independently and accept consequences of those decisions 3. Profit- right to make money; money left from sales after all costs of operating a business have been paid. 4. Competition- right to compete with other businesses (this keeps prices low)

Business Cycle • Prosperity- low unemployment; high consumer spending; high output of goods and services • Depression- high unemployment; prolonged recession; extremely low consumer spending • Recovery- renewed economic growth; reduced unemployment; increased consumer spending • Recession- economic slowdown; decrease in consumer spending

Prosperity Recession Recovery Depression

Measuring Economic Activities • GDP- measures the productivity in a country for a given time; total value of goods and services produced in a country • GDP includes individual spending, business spending, government spending, and exports minus imports. • GDP per capita = GDP/ total population

2. 0 • Inflation- increase in the general level of prices • Inflation is caused when the demand for goods and services is greater than the supply • Consumer Price Index (CPI)- measures inflation • Deflation- decrease in the general level of prices

Forms of Production • Extraction and Cultivation – Most basic form of production; products are obtained from nature or from using natural resources to grow • Processing – Changing & improving the form of another product which increases its value and usefulness • Manufacturing – Combing raw materials and processed goods into finished products • 2 types: mass manufacturing and custom manufacturing

Business Operations • Facilities Management- managing buildings and land of a business to ensure that everything is used, repaired and running properly • Logistics- managing the receiving, moving and storing of supplies, materials and finished products • Schedule- managing activities to be completed, who will complete the work and resources needed for completing the task • Safety and Security- managing personnel to prevent accidents and injuries of employees and customers

Socially Responsible Practices of Businesses 1. Environmental Responsibility- companies contribute to environmental protection by conserving natural resources, and minimizing pollution – Environmental Protection Agency (EPA)- enforces & provides standards for air and water quality 2. Workplace Diversity- companies have a diverse workplace when the employees represent a variety of groups such as: • Women, ethnic groups, physically challenged, older workers

Socially Responsible Practices of Businesses 3. Safe Work Environments- ensuring work environments are risk free of accidents – Worker’s Compensation Act- reimburses workers who suffer from injuries on the job or illness caused by job 4. Employee Wellness Programs – offered by employers to maintain a healthy workforce

Intellectual Property • Copyrights- protects the creative work of artists, authors, and composers. Protected during originators lifetime plus 70 years. • Patents- provide originators the exclusive right to make, use or sell the item for 17 years • Trademarks- protects registered words, letters, or symbols connected with company or product

3. 0 Functions of Marketing • Marketing-Information Management – obtaining info needed to make sound business decisions • Product/Service Management- concepts and procedures necessary to obtain, develop, maintain, and improve a product or service mix in response to market opportunities • Financing- obtaining money needed to finance the operation of a business

Functions of Marketing • Pricing- determining a value to charge for goods and services • Promotion- communication used to inform or remind people about a business’s products • Selling- determining customer needs and wants through planned, personalized communication to influence purchase decisions and ensure satisfaction • Distribution- transporting, storing and handling goods from the manufacturer to the consumer

Types of Research Studies • Surveys- gather info from • Observations- collects people using a planned info by recording the set of questions actions of consumers; • Focus Groups- small • Experiments- presents group of customers taking two carefully controlled part in a group discussion; products to customers in discusses experiences order to determine which with products or make product is preferred. suggestions for product improvements

Factors influencing Price • • • Supply and Demand Uniqueness Age Season Complexity Convience Pricing Formula • Selling Price- price paid by customers • Product costs- costs paid by business for producing or to buy the product • Operation Expenses- all expenses associated with running a business • Profit- money left over after all costs and expenses have been paid

Pricing Formulas • Selling Price = products costs + operating expenses + profit • Markup is the amount added to the cost of a product – Selling Price= product cost + markup • Markdown is the reduction from the original price – Selling Price+ product cost - markdown

Channels of Distribution Direct Distribution Indirect Distribution • Products move from the producer straight to the consumer with no other organization involved • Products go through one or more businesses between the producer and the consumer

Marketing Strategy Target Market • Specific group of consumers that have similar wants and needs. • Market segmentation is divining the target market into smaller groups based on: – – Demographics Geographic Psychographic Behavioral Marketing Mix • The blending of the four elements of marketing known as product, place (distribution), price and promotion.

Consumer Information Sources • Product Testing Organizations- test products and services to detect benefits • Media Sources- provide specific info about products and services: – Magazines, newspapers, radio, television, websites • Government Agenciesinform consumers and may handle consumer questions • Business Sourcessavailable as a public service to sell products and services – Advertisings, product labels, customer service, Better Business Bureau, Personal Contact

Types of Retailers Traditional Retailers • Department Stores- broad product lines and highlight their service • Discount Stores- highlight their offering of lower prices for products • Specialty Stores- provide special line of products • Supermarket- large, service store • Convenience Store- provides popular items, offer long operating hours Contemporary Retailers • Specialty Superstoresprovide wide variety of limited products at low prices • Superstores- provide a wide variety of products in the retail services • Warehouse Club- provide products in large amounts at practical prices • Factory Outlets- provide high- quality products at low prices

4. 0 Budgets Vocab • Revenue- all income a business receives over a period of time • Expenses- costs of operating a business • Profit- occurs when revenue is greater than expenses • Loss- occurs when revenue is less than expenses Budget • detailed plans for the financial needs of individuals, families and businesses • Purposes – Predict types and amount of expenses – Anticipate sources and amounts of income – A budget is successful when revenue is greater than expenses

Types of Budgets • Start up- plans income and expenses from the beginning of the new business or a major expansion until it become profitable • Operating Budget- a financial plan for ongoing operations of the business for a specific period of time • Cash Budget- estimate of actual money received and paid out for a specific period

Balance Sheet • Balance Sheet- shows assets, liabilities, and owner’s equity for a specific date – Assets: anything of value owned by the business – Liabilities: amounts owed by the business to others – Assets= Liability + Owners Equity

Income Statement • Income Statements is the report of revenue, expenses, and net income or loss from operations for a specific period of time – Revenue- all income that is received by the business during the time period – Expenses- all the costs incurred by the business during the time period – Revenue – Expenses = Profit or Loss

Federal Reserve System • The Federal Reserve System is a centralized banking system a. k. a The Fed. • Purposes of the Fed: – To establish and maintain confidence in the U. S. monetary system – Ensure safe, healthy, and stable economy – To supervise and regulate member banks and help serve the public efficiently

Two Arms of The Fed • Board of Governors represent the government (public) sector – The public is invited to look into the meeting of the Board of Governors – Discuss monetary policy such as raising or lowering interest rates • District Federal Reserve Banks represent the business (private) sector

Fed Supervision • The Fed Supervision sets Reserve requirement. Member banks are required to keep a certain percentage of all deposits in the bank’s vault or on deposit with the district federal reserve. • Jobs of the Fed Supervision – Audits member banks – Approves bank mergers

Monetary Policy • Monetary Policy is when the Federal Reserve influences money and credit conditions in the economy to achieve economic goals. • The Fed controls the amount of money in circulation and available for loans, then either increases or decreases to stabilize/stimulate to economy. – Tight Money: policy when less money is available at higher interest rates (stabilizes economy) – Loose Money: policy when more money is available at lower interest rates (stimulates economy)

Financial Institutions • Depository Financial Institutions – Commercial Banks- full service, offer variety of services such as savings, loans, and checking accounts – Savings and Loans- specialize in savings and home loans – Mutual Savings- Owned by depositors & specialize in savings and home loans – Credit Unions- not for profit, serve their members only

Financial Institutions • Non-Depository Financial Institution – Life Insurance Companies – Investment Companies – Consumer Finance Companies – Mortgage Companies – Check Cashing Outlets – Pawnshops Features of Financial Institutions to consider: • Services Offered • Safety • Convenience • Fees and Charges • Restrictions

Drawer’s Name and Address Check Number Check Date Payee Bank Name/ Drawee ABA # Signature Memo MICR Banking #

Steps to Writing a Check • • Write info in the check register first Write the date the check is written Write the payee’s name Write in the numerical amount of the check Write in the amount of the check in words Write the purpose of the check Sign the check

5. 0 Risk Management • Risk Management is a systematic process of managing risk to achieve set objectives. Types of Risks – Economic – results in financial loss – Non- Economic- may result in embarrassment or inconvenience – Pure- threat of loss with no chance for gain – Speculative- offers the chance of gain or loss – Controllable- occurs when conditions can be controlled to lessen the chance of harm – Uncontrollable- can’t be controlled or reduced by actions – Insurable- meets criteria of an insurance company for coverage – Uninsurable- possible amount of loss is unpredictable

Ways to Handle Risks • • Avoid Transfer Insure Assume Types of Uninsurable Risks • • • Economic Conditions Consumer Demand Competitors’ Actions Technology Changes Local Factors

Business Insurance • • • Health Insurance Disability Insurance Life Insurance Property Insurance Business Operations Types of Health Insurance Hospital Insurance Surgical Insurance Regular Medical Insurance Major Medical Insurance Comprehensive Medical Policy • Dental Insurance • Vision Care Insurance • • •

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