Chapter 1: Exploring the World of

Business and Economics

Assoc. Prof. Nguyen Phuc

Nguyen, Ph.D
 Learning objective
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

1. Discuss what you must do to be successful in today’s

business world.
2. Identify the potential risks and rewards of business.
3. Describe the two types of economic systems: capitalism and
command economy.
4. Identify the ways to measure economic performance.
5. Examine the different phases in the typical business cycle.
6. Outline the four types of competition.

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 Icebreaker
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ What does it mean to you to be successful in today’s

business world?
➢ Why Study Business?
✓ For help in choosing a career
✓ To be a successful employee
• Cultural (or workplace) diversity*: A system that recognizes and
respects the differences among people because of their age,
race, ethnicity, gender, sexual orientation, and ability
✓ To start your own business
✓ To become a better informed consumer and investor

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Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Why Study Business?

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 Business: A Definition
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Business is the organized effort of individuals to

produce and sell, for a profit, the goods and services
that satisfy society’s needs. (Pride, Hughes, & Kapoor,
2022)
➢ Business is the continuous execution of one, some or all the
stages of business process, from the production to the sale
or the provision of services on the market for profit
purposes (Law of enterprises, 2020)
➢ A business is a particular organization. To be successful, a
business must perform three activities. It must be
organized, it must satisfy needs, and it must earn a profit.
(Pride, Hughes, & Kapoor, 2022)
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 Business: A Definition
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

The organized effort of individuals

to produce and sell goods and

BUSINESS services that satisfy customer’s
needs

Purpose: Profit

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 Combining Resources
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Financial Informational
Material Resources Human Resources
Resources Resources
• The raw materials • The people who • The money • Information that
used in furnish their labor required to pay tells the managers
manufacturing to the business in employees, of the business
processes, as well return for wages purchase how effectively
as buildings and materials, and the other three
machinery generally keep the resources are
business being combined
operating and used
 Business: A Definition
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

HUMAN INFORMATIONAL
RESOURCES? RESOURCES?

MATERIAL FINACIAL
RESOURCES? RESOURCES?
 Business: A Definition
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Today, businesses are usually organized as one of three

specific types:
✓ Service businesses: Produce services, such as haircuts, legal advice, or tax
preparation (Example: H&R Block)
✓ Manufacturing businesses: Process various materials into tangible goods (Example:
Intel, Sony Corporation)
✓ Marketing intermediaries/Commercial business: Buy products from manufacturers
and then resell them (Example: Best buy, Walmart)

➢ e-business: The organized effort of individuals to

produce and sell for a profit, the goods and services that
satisfy society’s needs through the facilities available on
the internet
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Business type: examples

 Business: A Definition
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Satisfying Needs
➢ The ultimate objective must be to satisfy the needs of customers
➢ Many start-up businesses fail because customers don’t need or want what
the business is selling
Business Profit
➢ Profit is the reward business owners receive for producing goods and
services that customers want.
➢ The remains after all business expenses have been deducted from sales
revenue.
➢ Profit is also the payment that business owners receive for
assuming the considerable risks of ownership:
✓ The risk of not being paid
✓ The risk of losing whatever they have invested into the business
➢ Stakeholders: All the different people or groups of people who are
affected by an organization’s policies, decisions, and activities
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Sales Revenue and Profit

The Relationship Between
 Types of Economic Systems
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Economics: The study of how wealth is created and

distributed
➢ Today, experts often study economic problems from two
different perspectives:
✓ Microeconomics: The study of the decisions made by individuals and businesses
✓ Macroeconomics: The study of the national economy and the global economy

➢ Economy: The way in which people deal with the

creation and distribution of wealth
 Types of Economic Systems
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Factors of production: Inputs and resources used to

produce goods and services
✓ Land and natural resources: Elements used in the production
process to make appliances, automobiles, and other products
(Examples: crude oil, forests, minerals, land, and water)
✓ Labor: The time and effort used to produce goods and services
(Examples: managers and employees)
✓ Capital: The money, facilities, equipment, and machines used
in the operation of organizations (Example: manufacturing
equipment at a production facility)
✓ Entrepreneurship: The activity that organizes land and natural
resources, labor, and capital
• Entrepreneur: A person who risks time, effort, and money to start
and operate a business
 Types of Economic Systems
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Capitalism: An economic system in which individuals own

and operate the majority of businesses that provide goods
and services
➢ Capitalism stems from the theories of the Scottish
economist Adam Smith:
✓ Invisible hand: A term created by Adam Smith to describe how
an individual’s own personal gain benefits others and a nation’s
economy
✓ Laissez-faire: Implies that there should be no government
interference in the economy
✓ Market economy: An economic system in which businesses and
individuals decide what to produce and buy, and the market
determines prices and quantities sold (also known as a free-
market economy)
 Basic Assumptions of Adam Smith’s Laissez-
Faire Capitalism
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen
 Types of Economic Systems
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Command Economies
➢ Command economy: An economic system in which the
government decides what goods and services will be produced,
how they will be produced, for whom available goods and services
will be produced, and who owns and controls the major factors of
production
➢ Today, two types of economic systems serve as examples of
command economies:

Socialism Communism
 Measuring Economic Performance
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

The Importance of Productivity in the Global Marketplace

➢ Productivity: The average level of output per worker per hour
The Nation’s Gross Domestic Product
➢ Gross domestic product (GDP): The total dollar value of all
goods and services produced by all people within the
boundaries of a country during a specified time period —
usually a one-year period
➢ To make accurate comparisons of the GDP for different years,
dollar amounts must be adjusted for inflation and deflation
✓ Inflation: A general rise in the level of prices
✓ Deflation: A general decrease in the level of prices
 Measuring Economic Performance
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Other Important Economic Indicators That Measure a Nation’s

Economy
➢ Unemployment rate: The percentage of a nation’s labor force
unemployed at any time
➢ Consumer price index (CPI): A monthly index that measures the
changes in prices of a fixed basket of goods purchased by a
typical consumer in an urban area
➢ Producer price index (PPI): A monthly index that measures
prices that producers receive for their finished goods
 Common Measures Used to Evaluate
a Nation’s Economic Health
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Economic Measure Description

1. Balance of Trade The difference between the value of a nation’s exports and a nation’s
imports over a specific period of time.
2. Consumer confidence index A measure of how optimistic or pessimistic consumers are about the
nation’s economy. This measure is usually reported on a monthly basis.
3. Corporate profits The total amount of profits made by corporations over selected time
periods.
4. Inflation rate An economic statistic that tracks the increase in prices of goods and
services over a period of time. This measure is usually reported monthly
and calculated on an annual basis.
5. National income The total income earned by various components of the economy,
including employees, interest and rental income, profits from businesses,
and other types of income.
6. New housing starts The total number of new homes started during a specific time period.
7. Prime interest rate The lowest interest rate that banks charge their most credit-worthy
customers.
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Economic Performance
 The Business Cycle
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Business cycle: The recurrence of periods of growth and recession

in a nation’s economic activity

Peak Recession Trough Recovery

Recession: Two or more consecutive three-month periods of decline

in a country’s GDP
Depression: A severe recession that lasts longer than a typical
recession and has a larger decline in business activity when
compared to a recession
 The Business Cycle
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ To offset the effects of recession and depression, the federal

government uses both monetary and fiscal policies
✓ Monetary policies: Federal Reserve’s actions to promote
maximum employment, stabilize prices, and increase or decrease
interest rates
✓ Fiscal policy: Government influence on the amount of savings
and expenditures; accomplished by altering the tax structure and
by changing the levels of government spending
➢ Federal deficit: A shortfall created when the federal
government spends more in a fiscal year than it receives
➢ National debt: The total of all federal deficits
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

The Business Cycle

 Types of Competition
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Competition*: Rivalry among businesses for sales to potential

customers
 Types of Competition
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Perfect (or pure) competition: The market situation in which there

are many buyers and sellers of a product, and no single buyer or
seller is powerful enough to affect the price of that product
✓ The market is for a single product
✓ There are no restrictions on firms entering the industry
✓ All sellers offer essentially the same product for sale
✓ All buyers and sellers know everything there is to know about the market
✓ The overall market is not affected by the actions of any one buyer or seller
➢ Monopolistic competition: A market situation in which there are
many buyers along with a relatively large number of sellers who
differentiate their products from the products of competitors
(Examples: Clothing, shoes, soaps, furniture)
➢ Oligopoly: A market (or industry) in which there are few sellers
(Examples: Automobile, airline, and car rental industries)
 Types of Competition
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Monopoly: A market (or industry) with only one seller, and

customers can only buy the product or service from that
seller
✓ Public utilities are a prime example, where each utility firm operates in
a natural monopoly, an industry that requires a huge investment in
capital and within which any duplication of facilities would be wasteful
✓ A limited (or legal) monopoly is created when a government entity
issues a franchise, license, copyright, patent, or trademark
✓ Except for natural monopolies and legal monopolies, federal antitrust
laws discourage or prohibit both monopolies and attempts to form
monopolies in order to ensure that competitive markets exist and
customers have a choice for products they need or want to purchase
 Supply Curve and Demand Curve
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Supply: The quantity of a

product that producers are
willing to sell at each of
various prices
Demand: The quantity of a
product that buyers are
willing to purchase at each
of various prices
Market price: The price (of
any product) at which the
quantity demanded is
exactly equal to the
quantity supplied
 Business ethics
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Ethics is the study of right and wrong and of the morality of the
choices individuals make. An ethical decision or action is one that
is “right” according to some standard of behavior.
• Ethical issues often arise out of a business’s relationship with
investors, customers, employees, creditors, suppliers, or
competitors.
• Each of these stakeholder groups has specific concerns and
usually exerts pressure on the organization’s managers.
➢ Business ethics is the application of moral standards to business
situations.
➢ Business-people face ethical issues every day, and some of these issues
can be difficult to assess. Although some types of issues arise
infrequently, others occur regularly. Let’s take a closer look at several
ethical issues.
 Encourage ethics behavior
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Governace: enacting more stringent regulations

➢ Trade Associations’ Role: provide ethical guidelines
for their members
➢ Individual Companies’ Role: A code of ethics: a
written guide to acceptable and ethical behavior as
defined by an organization; it outlines uniform policies,
standards, and punishments for violations
 Social responsibility
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

Social responsibility is
the recognition that
business activities
have an impact on
society and the
consideration of that
impact in business
decision making.
(Pride et al., 2018)
 International business
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ International business encompasses all business activities that

involve exchanges across national boundaries. Thus, a firm is
engaged in international business when it buys some portion
of its input from, or sells some portion of its output to, an
organization located in a foreign country.
➢ Refers to the trade of goods, services, technology, capital
and/or knowledge across national borders and at a global
scale.
➢ International business is based two important concepts:
✓ Absolute advantage: is the ability to produce a specific product more
efficiently than any other nation.
✓ Comparative advantage: the ability to produce a specific product
more efficiently than any other product
 International business
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ Exporting: is selling and shipping raw materials or products to other

nations.
➢ Importing: is purchasing raw materials or products in other nations
and bringing them into one’s own country Importing and exporting
are the principal activities in international trade. They give rise to
an important concept called the balance of trade. A nation’s
balance of trade is the total value of its exports minus the total
value of its imports over some period of time. If a country imports
more than it exports, its balance of trade is negative and is said to
be unfavorable. (A negative balance of trade is unfavorable because
the country must export money to pay for its excess imports.). On
the other hand, when a country exports more than it imports, it is
said to have a favorable balance of trade.
 International business
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ A nation’s balance of payments is the total flow of money into a country

minus the total flow of money out of that country over some period of
time. Balance of payments is a much broader concept than balance of
trade. It includes imports and exports, of course. It includes investments,
money spent by foreign tourists, payments by foreign governments, aid to
foreign governments, and all other receipts and payments.
➢ Type of trade restrictions: Nations generally are eager to export their
products. They want to provide markets for their industries and to develop
a favorable balance of trade. Hence, most trade restrictions are applied to
imports from other nations.
✓ Tariffs: Perhaps the most commonly applied trade restriction is the customs (or
import) duty. An import duty (also called a tariff) is a tax levied on a particular
foreign product entering a country.
✓ Nontariff Barriers: A nontariff barrier is a nontax measure imposed by a
government to favor domestic over foreign suppliers. Nontariff barriers create
obstacles to foreign goods in a country and increase costs for exporters.
 International business
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

➢ A nation’s balance of payments is the total flow of money into a country

minus the total flow of money out of that country over some period of
time. Balance of payments is a much broader concept than balance of
trade. It includes imports and exports, of course. It includes investments,
money spent by foreign tourists, payments by foreign governments, aid to
foreign governments, and all other receipts and payments.
➢ Type of trade restrictions: Nations generally are eager to export their
products. They want to provide markets for their industries and to develop
a favorable balance of trade. Hence, most trade restrictions are applied to
imports from other nations.
✓ Tariffs: Perhaps the most commonly applied trade restriction is the customs (or
import) duty. An import duty (also called a tariff) is a tax levied on a particular
foreign product entering a country.
✓ Nontariff Barriers: A nontariff barrier is a nontax measure imposed by a
government to favor domestic over foreign suppliers. Nontariff barriers create
obstacles to foreign goods in a country and increase costs for exporters.
 International business
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

• Import-export tax
Tariffs
• Special consumption tax
barries
• Anti-dumping duties...

• Import Quota
Non- • Licenses
tariffs • Standardization
barriers • Subsidies
• Embargo...
 Quiz
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

The organized effort of individuals to produce and sell, for a profit, the goods
and services that satisfy society’s needs is called:
a. the economy.
b. capitalism.
c. business.
d. the workplace.
Raw materials, buildings, and machinery are ____ resources.
a. human
b. financial
c. information
d. material
 Quiz
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

All of the following are material resources for Toyota Motor Company except
a. paint.
b. steel.
c. factory.
d. tires.
e. money.
____ resources include the funds needed to pay wages, purchase raw
materials, and operate a business.
a. Human
b. Financial
c. Information
d. Major
e. Material
 Quiz
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

When an individual chooses his or her ideal career, it is most likely a reflection
of one's
a. values.
b. hobbies.
c. skills.
d. education.
e. desire to be rich.

Shawn Sine decides to start his own business. How likely is Shawn to still be
operating a successful business in seven years?
a. It depends on whether it is an e-business or not.
b. It is very likely because most small businesses are successful.
c. It is likely because the chance of failure is nearly equal to the chance for
success.
d. It is unlikely because over half of all new small businesses fail.
e. It is very unlikely because almost all new businesses fail within the first
three years.
 Quiz
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

An economic system in which the government decides what goods and

services will be produced, how they will be produced, for whom available
goods and services will be produced, and who owns and controls the major
factors of production is known as…
a. A mixed economy
b. A command economy
c. A market economy
d. A laissez-faire economy

____ is the study of how wealth is created and distributed.

a. Economics
b. Business
c. Marketing
d. Capitalism
 Quiz
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

According to economists, natural resources, labor, capital, and

entrepreneurship are called
a. free resources.
b. competitive resources.
c. factory resources.
d. factors of manufacturing.
e. factors of production.

Tom, a former Air Force pilot, decides to operate a helicopter tour company to
provide customers with breathtaking views of the Rocky Mountains. He
obtains a loan and purchases the necessary land, facilities, advertising,
and five helicopters for his business. What important factor of production
has he overlooked in creating his business?
a. Equipment
b. Capital
c. Labor
d. Natural resources
 Quiz
Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

The manager spoke to a group of college students about being successful in

the business world. He focused on purpose of the business: “to produce
and market profitable products needed by society”. He indicated that a
stockholder, not the society as a whole, invests in a corporation to earn a
return on the investment and that a firm is legally obligated to act in
stockholders' interests. What concept do the manager's comments reveal?
a. Socioeconomic model of social responsibility
b. Economic model of social responsibility
c. Strictest model of social responsibility
d. Rights of employees

Which of the following is an argument for increased social responsibilities?

a. Because business is part of our society, it cannot ignore social issues.
b. Management must be concerned with providing a return on owners'
investments.
c. Individual businesses should not be expected to solve society's
problems.
d. Social issues are the responsibility of government officials.
 Quiz

McDonald’ has built Ronald McDonald Houses, temporary lodging for

Introduction to Business - Assoc. Prof. Nguyen Phuc Nguyen

individuals with seriously ill family members. The corporation’s active role in
improving societal conditions suggests that it is responsive to which?
a. Corporate resources should be devoted to maximizing profits, not to
solving society’s problems.
b. Socially responsible actions by business firms increase the role of
government in business.
c. Businesses are ill-equipped to handle today’s complex social issues.
d. Social responsibility promotes environmental stability and long-run
profitability.
Jackson Springs Coal Mine discovered that the mine was contaminating the
local drinking water. Fixing this problem would probably bankrupt the mine,
causing loss of hundreds of local jobs, but doing nothing would endanger
the health of the community. The mine faces a serious ____ decision.
a. business
b. ethical
c. environmental