BCOR 1010 Notes - Business Notes Part One The Context of...

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Business Notes Part One: The Context of Modern Business Role of Profit What's a business? Sell goods to earn a profit Profit: amount of money leftover Freedom Adam Smith: father of free trade and capitalism Resources go to best and most efficient uses Competition Invisible hand guiding market No government necessary; self-regulation Factors of Production: Resources used to produce goods and services Land Labor Capital Entrepreneurship Knowledge/information Compare Japan and Russia JAPAN RUSSIA Small, efficient Large, inefficient Labor, densely populatedPopulated, spread out Technology exports World Economic Systems Communism All businesses owned and operated by government Government/central planning No competition Ex: Cuba, N. Korea Socialism Basic industries/services owned by government High taxation Individuals own small businesses Ex. Sweden, Israel, India
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Capitalism Private ownership of businesses Competition and profit Freedom "Free Market" Capitalism Competition produces optimal quantity and variety of goods Laws of supply and demand determine prices Demand Quantity demanded increases as price decreases Supply Combine supply and demand--> find equilibrium price Competitiveness of Markets Pure/perfect competition Monopolistic competition Oligopoly (autos, airlines, steel, cable) Monopoly (electric, gas, water, utilities) Elasticity Elasticity of demand is the responsiveness of demand to price changes No alternative--pay any price--inelastic Lots of alternatives--varying prices--elastic Economic Indicators Gross domestic product (GDP) Productivity (amount of output per person, per hour) Unemployment rate (16 years and up, actively looking for job) Types: frictional (common), cyclical, structural (bad form, mismatch between skills and jobs) Inflation Widespread increase in price Too much money chasing same amount of goods Measure by the consumer price index (CPI) Basket of 400 goods/services Tracked money Fed works to control inflation
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The Role of Government What does our government do? Agriculture, commerce, education, energy, health and human services, homeland security, housing and urban development, labor, state, transportation, treasury, etc. Uncompetitive Markets The free market produces uncompetitive markets Why? Stop anti-competitive prices, equality, market gives us inefficient outcomes in the case of products/services with externalities or public goods/ services --> to channel or shape markets along competitive lines Channeling of Markets along Competitive Lines: Anti-trust activities Investigate and prosecute price accusations Review merges and accusations Regulates natural monopolies Equality vs. Efficiency (don't like outcomes) The basic "trade-off" Birth control pills Insulin What constitutes "fairness"?
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