Complete List of Terms and Definitions for Chapter 1 Introduction

Terms Definitions
Economics the study of behavior of human beings in producing, distributing and consuming material good and services in a world of scarce resources
managerial economics the use of economic analysis to make business decisions involving the best use of an organization's scarce resources
types of risks businesses face 1. changes in demand and supply conditions. 2 technological changes and the effect of competition. 3. changes in interest and inflation rates. 4. exchange rate 5. political risk
economics of business the key factors that affect the ability of a firm to earn an acceptable rate of return on its owners' investment
4 stage model of change shows the impact of changing economics on well-established companies
stage 1 of 4 stage model "the good old days" where dominance of the market allows high profit margins by marking up costs
stage 2 of 4 stage model changes in technology, competition, and customers cause companies to cost cut, downsize, restructure, or reengineer.
stage 3 of 4 stage model companies can no longer cut cost they enter "top-line growth" revenue management
stage 4 of 4 stage model revenue plus
Scarcity condition in which resources are not available to satisfy all the needs and wants of a specified group of people.
opporutunity cost the amount or value that must be sacrificed in choosing one activity over the next best alternative.
The 3 allocation decisions What goods/services should be produced and what quantities? How should these goods and services be produced? For Whom should these goods and services be produced?
Processes for answering the allocation decisions Market process, command process, traditional process
Market process The use of supply, demand, and material incentives to answer the questionss of whatet, how and for whom.
Command process The use of the government to answer the 3 basic questions.
Traditional process The use of customs and traditions to answer the 3 basic questions.
Indirect command the government uses material incentives of the market process to allocate resources.