Chapter One

2. McGraw-Hill/Irwin Introduction to Business © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter One What is Business?

3. What is Business? • Business • goal-directed behavior aimed at getting and using productive resources to buy, make, trade, and sell goods and services that can be sold at a profit

4. Productive Resources and Operating Costs Figure 1.1

5. Key Business Terms • Business Model • a company’s plan of action to use resources to create a product that will give it a competitive advantage • Competitive advantage • a company’s ability to offer customers a product that has more value to them than similar products offered by other companies

6. Key Business Terms • Sales revenue • the amount of money or income that a company generates from the sale of the product • Profit • the total amount of money left over after operating costs have been deducted from sales revenues

7. Key Business Terms • Capital • profit that is kept in a company and invested in its business • Wealth • the sum total of the resources, assets, riches, and material possessions owned by people and groups in society

8. Profit and Profitability • Profitability • a measurement of how well a company is making use of its resources relative to its competitors • Profit • the difference between sales revenues and operating costs

9. Business as Commerce • Trade • the exchange of products through the use of money • Barter • the exchange of one product for another product

10. Transaction Costs Related to Business • Transaction Costs • the costs of bargaining, negotiating, monitoring, and regulating exchanges between people in business

11. Demand, Supply, and the Market Price • Diminishing marginal utility • the principle that the value people receive from an additional unit of a product declines as they obtain more of a product

12. Demand, Supply, and the Market Price • Law of demand • the principle that states as the price of a product rises, consumers will buy less of it, and as the price of it falls, consumers will buy more of it

13. Demand, Supply, and the Market Price • Law of supply • the principle that states that as the price of a product rises, producers will supply more of it, and that as the price of it falls, producers will supply less of it

14. Demand, Supply, and the Market Price Figure 1.3

15. Determining the Market Price • Market • buyers and sellers for a particular product

16. The Business Model and Profitability • Industry • a group of companies that makes similar products and competes for the same customers

17. The Invisible Hand of the Market • Invisible hand • the principle that the pursuit of self-interest in the marketplace naturally leads to the improved well-being of society in general

18. The Invisible Hand of the Market • Monopoly • a situation in which one company controls the supply of a product and can charge an artificially high price for it • Human capital • a person’s stock of knowledge, skills, experience, judgment, personality, and abilities

19. Business Organizations • Organizational structure • the framework of task and authority relationships that coordinates people so they work towards a common goal • Functional activities • the task-specific operations needed to convert resources into finished goods and services sold to customers