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Summary Sumarry: Understanding Business, Ch. 1-11 and 21
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Summary of the book Understanding Business. The summary is written with the assumption that the reader has some knowledge of economics.
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Understanding Business (Ch. 1-11, and 21)Ch. 1: Taking risks and making profits within the dynamic
business environment.
Business = any activity that seeks to provide goods and services to others while
operating at profit.
Entrepreneur = a person who risks time and money to start and manage a business.
Goods = tangible products.
Services = intangible products.
Revenue = the total amount of money a business takes in during a given period by
selling goods and services.
Profit = the amount of money a business earns above and beyond what it spends for
expenses needed to runt the operation.
Loss = when a business’s expenses are more than its revenues.
Risk = the chance an entrepreneur takes of losing time and money on a business
that may not prove profitable.
Standard of living = the amount of goods and services people can buy with the
money they have.
Quality of life = the general well-being of a society in terms of its political freedom,
natural environment, education, health care, safety, amount of leisure, and rewards
that add to the satisfaction and joy that other goods and services provide.
Stakeholders = all the people who stand to gain or lose by the policies and activities
of a business and whose concerns the business needs to address.
Outsourcing = contracting with other companies to do some or all of the functions of
a firm, like its production or accounting tasks. Insourcing = the opposite.
Nonprofit organization = an organization whose goals do not include making a person
profit for its owners or organizers.
Factors of production = the resources used to create wealth: land, labor, capital,
entrepreneurship, and knowledge.
What makes rich countries rich today = entrepreneurship + knowledge.
The business environment encourages or discourages entrepreneurship.
,The business environment = the surrounding factors that either help or hinder the
development of business:
- The economic and legal environment; freedom of ownership, contract laws,
elimination of corruption, tradable currency, minimum taxes, and regulation.
- The technological environment; IT, databases, internet, and bar codes.
- The competitive environment; customer service, stakeholder recognition, employee
service, and the concern for the environment.
- The social environment; diversity, demographic changes, and family changes.
- The global business environment; growth global competition, increase of free trade
among nations, and the quality imperative.
Technology = everything from phones to copiers and medical imaging devices that
make business processes more effective (producing the desired result), efficient
(producing goods and services using the least amount of resources) and productive.
E-commerce = the buying and selling of goods over the internet.
Database = an electronic storage file for information.
Identity theft = the obtaining of individuals’ personal information for illegal purposes.
Productivity = the amount of output you generate given the amount of input.
Business is becoming customer-driven, not management-driven as in the past.
Empowerment = giving frontline workers the responsibility, authority, freedom,
equipment and training they need to respond quickly to customer needs.
Demography = the statistical study of the human population with regards to race, etc.
Managing diversity = recruiting and keeping minority, female employees, etc.
Globalization has grown thanks to the development of efficient distribution systems
and communication advances such as the Internet.
Climate change = movement of the temperature of the planet up or down over time.
Greening = the trend toward saving energy and producing products that cause less
harm to the environment.
Ch. 2: Understanding economics and how it affects
business.
Economics = the study of how society chooses to employ resources to produce
goods and services and distribute them for consumption among various competing
groups and individuals.
Macroeconomics = looks at the operation of a nation’s economy as a whole.
Microeconomics = looks at the behavior of people and organizations in markets.
Resource development = the study of how to increase resources and to create the
, conditions that will make better use of those resources.
Adam Smith believed freedom was vital to the survival of any economy. He believed
people will work hard if they know they’ll be rewarded. Smith assumed that as people
became wealthier, they would reach out to help the less fortunate in the community.
Invisible hand = the process that turns self-directed gain into economic benefit for all.
Capitalism = an economic system in which all or most of the factors of production and
distribution are privately owned and operated for profit.
State capitalism = where the state runs businesses instead of private owners.
Under free-market capitalism people have four basic rights:
- The right to own private property; buy, sell and use property.
- The right to own a business and keep all that business’s profits; a popular incentive.
- The right to freedom of competition; within guidelines made up by the government.
- The right to freedom of choice; people are free to choose where to live, work, etc.
Free market = one in which decisions about what and how much to produce are
made by the market, by buyers and sellers negotiating prices for goods and services.
Consumers send signals to tell producers what to make, how many etc.
Supply = the quantity of products that manufacturers or owners are willing to sell at
different prices at a specific time.
Demand = the quantity of products that people are willing to buy at different prices at
a specific time.
Market price (equilibrium price) = the price determined by supply and demand.
In countries without a free market, there are often shortages or surpluses.
There are four different degrees of competition:
- Perfect competition = there are many sellers in a market and none is large enough
to dictate the price of a product. There are identical products.
- Monopolistic competition = a large number of sellers produce very similar products
that nevertheless perceive as different. Product differentiation is a key to success.
- Oligopoly = just a few sellers dominate the market with large investments. Products
prices tend to be about the same. Product differentiation and advertising is needed.
- Monopoly = one seller controls the supply of a product or service, and sets the
price.
One of the dangers of free markets is that some people let greed dictate how they
act. To overcome some of capitalism’s limitations some countries have adopted
socialism.
Socialism = economic system based on the premise that some, basic businesses
should be owned by the government so that profits can be more evenly distributed.
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