CHAPTER 1 Exploring the World of Business and Economics 1.7 TEXTBOOK ANSWER KEYS 1.7a Return to Inside Business Zynga 1. Of the four resources (material, human, informational, and financial) that businesses combine and organize to be successful, which had the most significant effect on Zynga’s growth—and why? Human resources have been extremely important for Zynga’s growth. Without the talented software developers and other experts who create the company’s games, it would never have been able to come up with new games to keep current players and attract new players. Material resources have played a key role, because Zynga’s ability to operate depends on state-of-the-art computer systems that run the games. Students may indicate that informational resources have also had a significant effect on growth, because Zynga carefully analyzes data about its players and their purchases. Students may suggest that financial resources have been important to Zynga’s ability to pay for a growing roster of talented employees who design new games. 2. Of the four environments that affect business (competitive, global, technological, and economic), which do you think will help and hurt Zynga’s long-term profitability? Looking ahead, the technological environment is likely to remain extremely important to Zynga’s future profitability. This is because the company depends on a steady stream of new games and virtual products, made possible by technological advances, to engage players and generate revenues and profits. Students may also say that the competitive environment has played a role in Zynga’s profitability by spurring the company on to new innovations that contribute to higher revenues and will lead to higher profitability over the years. 1.7b Review Questions 1. What reasons would you give if you were advising someone to study business? There are five compelling reasons for studying business described in this chapter. a. To help you choose a career a. To help you be a successful employee b. To help you improve your management skills c. To help you start your own business d. To help you become a better informed consumer and investor 2. What factors affect a person’s choice of careers? Deciding what kind of career you want to devote your life to can be both daunting and puzzling, especially when you don’t know what all the possibilities are. Choices range from small, local businesses owned by one individual to large corporations with offices and facilities in countries around the globe. There are also employment opportunities with federal, state, county, and local governments and with not-for-profit organizations. One thing to remember when choosing a career is that a person’s choice of a career is ultimately a reflection of what he or she values and holds most important. What you choose to do with your life will be based on what you feel is most important. 3. Describe the four resources that must be combined to organize and operate a business. How do they differ from the economist’s factors of production? The four resources are (1) material resources, which include raw materials used in the manufacturing process as well as buildings and machinery; (2) human resources, who are the people that furnish their labor to the business in return for wages; (3) financial resources, which is money used to pay employees, purchase materials, and keep the business operating; and (4) information, which tells the managers of the business how effectively the other resources are being combined and used. Economists refer to the factors of production as the resources used to produce goods and services. They are land and natural resources, labor, capital, and entrepreneurship. Although there are some overlapping principles, the factors of production come from a “macro” perspective, while the resources to operate a business come from a “micro” perspective. 4. Describe the relationship among profit, business risk, and the satisfaction of customers’ needs. The business that is able to successfully satisfy customers’ needs is said to be the business that will realize the greatest profit potential. Profit is also the payment that business owners receive for assuming the risks of ownership. These risks include not being paid and losing whatever they have invested into the business. 5. What are the four basic economic questions? How are they answered in a capitalist economy? The four basic economic questions are (1) what goods and services and how much of each to produce, (2) how to produce, (3) for whom to produce, and (4) who owns and controls the factors of production. In a capitalist economy, the first question is answered by consumers as they spend their money. The second question is answered by producers as they compete for sales and profits. The third question is answered by those who have the money to buy the product. The fourth question is answered by who provides the land and natural resources, labor, capital, and/or entrepreneurship. The distribution of goods and services, therefore, depends on the current prices of economic resources, goods, and services and who can afford to buy them. 6. Describe the four basic assumptions required for a laissez-faire capitalist economy. 1. The creation of wealth is the concern of private individuals, not of government. 2. Private individuals must own the resources used to create wealth and should be free to determine how these resources are used. 3. The existence of competitive markets gives sellers and buyers the right to make decisions about what to produce and what to buy, and the market determines how much is sold and at what prices. 4. Government’s role should be limited to providing defense against foreign enemies, ensuring internal order, and furnishing public works and education. 7. Based on Figure 1.5, outline the economic interactions between business and households in our business system. See Figure 1.5. In the circular flow that characterizes our business system: a. Households are the resource owners and provide businesses with natural resources, labor, and capital. Households are also consumers who use their income to purchase the goods and services produced by businesses. Today’s households purchase approximately two-thirds of our nation’s total production. b. Businesses purchase households’ natural resources, labor, and capital and use these resources to produce goods and services that are exchanged for sales revenue. This revenue is exchanged once again for households’ resources. 8. How does capitalism differ from socialism and communism? Capitalism is a market economy (sometimes referred to as a free-market economy). The basic economic questions are answered by private business owners who control the factors of production. Socialism and communism, on the other hand, are controlled by government planning and government ownership. Decisions are made by government planners and, in many cases, the wants and needs of the government are more important than those of consumers. 9. How is productivity related to the unemployment rate? As productivity increases, fewer workers are needed to produce a given level of goods and services. If demand doesn’t increase, management may decide to reduce their workforce in order to generate more profit. This situation will result in higher unemployment. In this case, increased productivity is good for employers but not good for unemployed workers seeking jobs in a very competitive work environment. 10. Define gross domestic product. Why is this economic measure significant? Gross domestic product (GDP) is the total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period. GDP as an economic measure is important because it is a measure of a nation’s economic output. It facilitates comparisons between the United States and other countries, since it is the standard used in international guidelines for economic accounting. GDP allows observers to determine, over several time periods, the extent of economic growth. 11. How is the producer price index related to the consumer price index? The producer price index (PPI) measures prices of goods at the wholesale level. The consumer price index (CPI) measures the prices consumers typically pay for a specific good. Since changes in the PPI reflect price increases or decreases at the wholesale level, the PPI is an accurate predictor of both changes in the CPI or prices that consumers will ultimately pay when they purchase goods and services. 12. What are the four phases in a typical business cycle? How are monetary and fiscal policies related to the business cycle? The four phases in a typical business cycle are the peak (sometimes called prosperity), recession, the trough, and recovery (sometimes called expansion). The federal government uses both monetary and fiscal policies to offset the effects of recession and depression. The government uses monetary policies to determine the size of the supply of money in the nation and the level of interest rates. Through fiscal policies, the government can influence the amount of savings and expenditures by altering the tax structure and changing the level of government spending. 13. Identify and compare the four forms of competition. The four forms of competition are pure competition, monopolistic competition, oligopoly, and monopoly. Under pure competition, 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. Under monopolistic competition, there are many buyers and a relatively large number of sellers who differentiate their products from the products of competitors. An oligopoly is a market situation in which there are few sellers, so the market actions of each seller have a strong effect on competitors’ sales. A monopoly is a market with only one supplier of the product. 14. Explain how the equilibrium, or market, price of a product is determined. Under pure competition, the market price of any product is the price at which the quantity demanded is exactly equal to the quantity supplied. 15. Four different environments that affect business were described in this chapter. Choose one of the environments and explain how it affects a small electronics manufacturer located in Oregon. Why? The four different environments are (1) the competitive environment, (2) the global environment, (3) the technological environment, and (4) the economic environment. A small electronics manufacturer in Oregon would most likely find itself in a highly competitive environment where there are many buyers along with a relatively large number of sellers. To successfully compete in this environment, a small electronics manufacturer might differentiate its product from the competition by providing unique product features, an attention-getting brand name, unique packaging, services such as free delivery, or a lifetime warranty. 1.7c Discussion Questions 1. In what ways have the problems caused by the recent economic crisis affected business firms? In what ways have these problems affected employees and individuals? The recent economic crisis has had a significant negative impact on business firms not only in the United States but worldwide. Financial giants such as Lehman Brothers and Bears Stearns have either gone out of business or been taken over by competitors. AIG, the largest insurance company in the world, received a $45-billion-dollar bailout from the U.S. government so that the company could meet its financial obligations. Washington Mutual, the largest bank in Washington, D.C., has failed. The stock market in the United States fell nearly 38 percent in six months. This has resulted in a lack of confidence in the U.S. economy, a significant reduction in consumer spending, and a severe tightening of credit from banks. Businesses of all sizes have seen their investments lose value, are finding it difficult to borrow money to meet their short-term business needs, and are experiencing lower demand for their goods and services. The effect on individuals has been equally difficult. Workers are losing their jobs and are unable to find new ones. Individuals in every economic class have seen their savings decline in value and in some cases evaporate. Retirees are being forced to reenter the workforce because their savings have been depleted. Few if any Americans have not been affected by this economic downturn. 2. What factors caused American business to develop into a mixed economic system rather than some other type of economic system? The shrinking size of the globe, the intervention of foreign competition, the Great Depression, World Wars I and II, and the ever-increasing age of our population (among other factors) have contributed to our mixed economic system. 3. Does an individual consumer really have a voice in answering the basic four economic questions? Yes, each individual votes in the competitive marketplace with his or her dollars. 4. Is gross domestic product a reliable indicator of a nation’s economic health? What might be a better indicator? Currently, gross domestic product is the measure used by the nations of the world. A system that measures only those goods and services that contribute directly to the standard of living of the nation’s citizens might be better. 5. Discuss this statement: “Business competition encourages efficiency of production and leads to improved product quality.” If there are several products of the same type, the consumer will purchase the products of better quality. Businesses are thus forced to improve their products constantly to maintain or enlarge their share of the market. 6. Is government participation in our business system good or bad? What factors can be used to explain your position. It can be argued that the government’s participation in our business system is necessary. On the other hand, the argument can be made that the government interferes. The government provides goods and services that would not be produced by private enterprise or that would otherwise be too expensive for the average citizen. Taxation is necessary to pay for goods and services society needs. Students’ answers will vary based on whether they believe government participates in or interferes with the business system. 7. Choose one of the challenges listed on page 28 and describe possible ways in which business and society could help to solve or eliminate the problem in the future. Students’ answers will vary, depending on the challenge chosen by the student. 1.7d Comments on Video Case 1.1 Suggestions for using this video case are provided in the Pride/Hughes/Kapoor Video Guide. Entertainment Means Profits for Nederlander Concerts 1. Nederlander Concerts competes for music lovers with other concert arenas and promoters. Do you think it also competes with TV, movies, CDs, DVDs, streaming video, and sports events? If yes, what implications does this type of competition have for Nederlander’s business? There is a sense in which all forms of entertainment, even print media, must compete with each other for audience members’ loyalty, time, and dollars, which means Nederlander must continue to meet high standards by booking popular artists, staging exciting and well-produced shows, and creating a memorable entertainment experience at a fair price. Students may discuss whether live entertainment can really compete with recorded entertainment or even streaming video online or simulcast. The spontaneity and thrill of a live performance also includes sharing the audience response, an advantage recorded media events cannot provide. 2. How many different groups can you think of whose needs Nederlander Concerts must satisfy in order to be a successful business? Nederlander Concerts must produce enough profit to make its owners happy; it must be run fairly to keep its employees happy; it must cut rewarding deals to satisfy the performers on whom it depends; and it must keep audiences happy by balancing supply and demand—presenting the acts they want at prices they can afford. The company must also work well with the cities whose civic theaters it manages and even consider the communities in which its performances are staged so that noise and traffic, for instance, don’t inconvenience its neighbors. Although it is privately owned, Nederlander must also comply with local government regulations covering, for instance, allowable noise levels, employee safety, fire safety, and so on. 3. Give an example showing how Nederlander Concerts uses each of the four factors of production. Nederlander Concerts uses land for its physical buildings—theaters, offices, parking lots—and natural resources for electrical energy, heating, air conditioning, and so on. It uses the labor of its own employees and of the performers it books and their crews and staff. Its capital is in the form of equipment like amplifiers, microphones, lighting and special effects systems, and even the seats in the company-owned theaters. Finally, while the firm is not an entrepreneurship, it operates in a highly creative, fast-changing, and competitive industry, so entrepreneurial skills are needed to book the right acts in the right venues on the right schedule. 1.7e Comments on Case 1.2 The Walt Disney Company Entertains the World 1. How is the Walt Disney Company combining human, informational, material, and financial resources for business success? As it expands worldwide, Walt Disney uses human resources—employees and managers in its theme parks, media firms, studios, Disney Institute, and other divisions—to produce and deliver creative products, entertainment services, and educational programs for consumers and businesses. Human resources have been particularly important in the company’s success because people delivery the friendly service for which Walt Disney is well known. Informational resources are vital to Walt Disney’s ability to manage its human resources, track spending of financial resources, and plan for the right timing and application of material resources. The company uses material resources such as buildings, machinery, computers, and construction materials for its theme parks, offices, movie studios, and other operations. Having the material resources to expand its resorts and build new parks has contributed to the firm’s global growth. Finally, it requires financial resources to pay for informational, material, and human resources as it expands into additional theme parks, online entertainment, and new markets. Walt Disney’s strong financial resources allowed it to pay to acquire ABC networks and the Club Penguin site, for instance. 2. What is Disney’s competitive situation, and what are the implications for its future expansion and profitability? Walt Disney competitive situation appears to be monopolistic competition, because it has a number of rivals in each industry and serves a large number of customers in the global marketplace. As a result, the company is careful to differentiate its goods and services to distinguish them from competitive offerings. For instance, Walt Disney has developed a distinctive image of innovation and high-quality customer service that attracts visitors and customers worldwide to its growing lineup of theme parks and resorts. Its reputation sets it apart from competitors and enables it to charge prices that maintain profitability. Students may suggest other implications for Walt Disney’s business situation as well. 3. Which of the factors in the business environment seem to be exerting the most influence on Disney’s ability to grow? Explain. One factor that has greatly influenced Disney’s growth is the global environment. The company has built on its strengths to sell products worldwide and open popular new theme parks and resorts in other countries. It has also entered fast-growing markets such as China by teaming up with local partners to jointly create movies. The technological environment is another major factor contributing to Disney’s growth. Taking advantage of the latest advances in animation, for example, has helped Disney and its Pixar studio to attract large audiences for its movies. Technology is also vital to creating new theme park rides that bring in crowds and improve revenue. Students may be able to make a strong case for the economic environment being influential because better economic conditions means consumers have more money to spend on entertainment and consumer products. Students may also point out that competition has encouraged Disney to constantly improve and stay ahead of its rivals. 1.7f Building Skills for Career Success 1. Social Media Exercise Today, many companies have a social media presence on Facebook, Twitter, Flickr, and other sites beyond their corporate Web site. Think of three of your favorite car companies and conduct a quick search using a search engine like Google or Yahoo! Answer the following: 1. Name the social networks for each company. Where do they end up in the search results? 2. Compare each of their Facebook pages. How many “likes” does each company have? Are there multiple pages for the company? How much interaction (or engagement) is on each Facebook page? 3. What business goals do you think each company is trying to reach through their Facebook presence? ANSWERS: Students will choose from many car companies; here are sample answers for Ford: 1. Facebook, Twitter YouTube, Flickr, Scribd, Delicious, and Reviews. 2. At this writing, Ford has over 1 ½ million likes. The home page has pictures and videos and links to many additional sources of information. 3. Ford currently has a “Pick a Badge” campaign. This helps to connect its current customer to the Ford brand through social media by connecting them to other Ford customers. 2. Journaling for Success The journal exercises can be used as informal writing assignments that are checked off or they may be graded. Some instructions you may wish to give for Chapter 1 might include the following: 1. Answer all questions. 2. Check grammar and spelling. 3. Bullet points are acceptable. 4. Be honest in your answers—the purpose of these questions is to help prepare you to be a successful employee. 5. Be as specific as possible. 6. Use the language and concepts from the course whenever possible. 7. Provide examples as appropriate. Assume that you are now 25 years old and are interviewing for a position as a management trainee in a large corporation. Also assume that this position pays $45,000 a year. 1. Describe what steps you would take to prepare for this interview. A thoughtful answer should include a brief discussion of research the student will do as well as a self-assessment relative to what the student might have to offer. A sample answer follows. The first thing I would do is research the company online. I would want to know: • its mission statement; • the products and services it provides; • total revenue and sales; and • what its growth areas are. The second thing I would do is look for recent articles on the company to see what problems it may be having or what opportunities exist. After looking at its situation, I would make a list of the skills and attributes I possess that it could use. For example, if the company is looking to expand into South and Latin America, my minor in Spanish will be an asset. 2. Assuming that you get the management trainee position, describe the personal traits or skills that you have that will help you to become successful. Students have a variety of skills they can discuss in this answer. A thoughtful answer might consider traits or skills that have helped them in school and part-time work, clubs, activities, and athletics. In their descriptions, students should indicate how each particular trait or skill will help them. For example, being disciplined means they will be able to set their own deadlines and make sure that work gets done without prodding, while being a fast reader means that they can keep up with new information. A typical student answer might look like the following: I am a hard-working person who is not satisfied unless a job is done well. Whether it is a paper I write for school or waiting on a customer at work, I make sure that I cover all the bases. I ask questions to make certain that everything is being done correctly. I am also good at organizing a lot of material. This enables me to work on more than one thing without losing my place or missing deadlines. 3. Describe the one personal skill or trait that you feel needs improvement. How would you go about improving your weakness? Some traits students may wish to work with include shyness in groups, giving in to others too easily, or a tendency to get flustered when confronted with stress or difficult deadlines. Some things they could do would be to find books or articles that address those issues or talk to professors who could point them in the right direction. Skills are easier to address than traits, as there are courses, programs, and so forth, that help people with their skills. A typical student answer might look something like this: I am not as organized as I would like to be. Occasionally, I lose track of papers and deadlines, which creates issues with professors and bosses. I work hard, and my work is good, but I get stressed when I am disorganized. Specific actions I can take include making lists on my computer and saving them on the hard drive rather than on pieces of paper I can lose. I will also keep a calendar and pen by the phone to write down right away any dates I need to remember. 3. Developing Critical-Thinking Skills The answers will vary depending on the students’ ages and interests, how familiar they are with their local car dealerships, and what they know about financing. Competition promotes a wide range of products—in this case, models of automobiles and types of financing—to consumers. Competition affects the prices of the product—automobiles and interest rates—and the types of services offered by dealerships and financial institutions. Competition encourages manufacturers and financial institutions to improve their quality by offering better products and better services to their consumers. Competition impacts the way business is done. For example, competition affects the way salespeople differentiate their automobiles from their competitors’ makes and models and the way financial packages are offered to borrowers. Students should recognize that the auto industry is dominated by a few manufacturers and, therefore, operates as an oligopoly type of competition, which restricts them from setting prices by agreement. The amount and degree of competition are determined by the availability of resources in a community. 4. Building Team Skills Giving students an opportunity to learn something about their classmates will decrease fears, allow relationships and trust to develop, and help move the class toward being a team. The number of students will determine how much time you can devote to each step in the process. The instructor’s role is to keep track of the time and move the students along. Emphasize that time is a resource in the workplace and that time is money. How time is spent can make a difference in the results achieved. Use time wisely. 5. Researching Different Careers The answers will vary depending on what information the students are able to find. An entrepreneurial environment spurs creativity and encourages new product development, while an entrepreneurial attitude allows an employee to take risks and try new and different things. Solving difficult problems requires moving outside a perceived set of assumptions; this is where an entrepreneurial attitude helps. Employees are rewarded in many different ways—from cash to promotions. The philosophy of the company determines how it values entrepreneurship and how employees are rewarded for their efforts. 1.8 QUIZZES I AND II Quiz I True-False Questions Select the correct answer. 1. T F Free enterprise is a system of business in which individuals decide what to produce and how to produce it. 2. T F Less than 50 percent of small businesses fail within the first five years. 3. T F Business is the organized effort of individuals to produce and sell, for a profit, the products and services that satisfy society’s needs. 4. T F Adam Smith argued that the creation of wealth is properly the concern of private individuals, not the government. 5. T F The business cycle consists of two or more consecutive three-month periods of decline in a country’s GDP. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. A general rise in the level of prices is called a. free enterprise. b. inflation. c. gross domestic product. d. depression. e. monopoly. 7. A market situation in which there are many buyers and sellers of a product and no single buyer or seller can control the price is a. an oligopoly. b. a monopolistic marketplace. c. a monopoly. d. pure competition. e. a laissez-faire market. 8. A system of exchange in which goods or services are exchanged without using money is called a. a barter system. b. free enterprise. c. monetary policy. d. fiscal policy. e. monopolistic competition. 9. The separation of a manufacturing process into distinct tasks is referred to as a. barter. b. specialization. c. a factory system. d. a domestic system. e. an economy of scale. 10. A method of manufacturing in which all materials, machinery, and workers are assembled in one place is called a. the economic system. b. the domestic system. c. Slater’s system. d. the factory system. e. an oligopoly. Quiz II True-False Questions Select the correct answer. 1. T F The only difference between the definition of business and e-business is that e-business requires that sales be conducted through the Internet. 2. T F Walmart and Target are often referred to as marketing intermediaries. 3. T F Profit is the payment that business owners receive for assuming the considerable risks of ownership. 4. T F Approximately one-third of our nation’s total production consists of consumer products. 5. T F A monopoly is a market (or industry) with only one seller. Multiple-Choice Questions Circle the letter before the most accurate answer. 6. Which of the following is not one of the four resources used by business today? a. Material b. Informational c. Governmental d. Financial e. Human 7. Today, the U.S. economy is often characterized as an __________ economy. a. laissez-faire b. command c. socialist d. mixed e. Smithsonian 8. Many economists refer to the average level of output per worker per hour as a. productivity. b. inflation. c. the business cycle. d. real GDP. e. the trough. 9. Which of the following is not one of the four states in a business cycle? a. Peak b. Recession c. Trough d. Recovery e. Deficit 10. Before leaving England, __________ memorized the plans for a water-powered spinning machine and set up a textile plan in Pawtucket, Rhode Island. a. Eli Whitney b. Franklin Roosevelt c. Samuel Slater d. Mark Cuban e. Cyrus McCormick 1.9 ANSWER KEY FOR QUIZZES I AND II Quiz I True-False Multiple-Choice 1. T 6. b 2. F 7. d 3. T 8. a 4. T 9. b 5. F 10. d Quiz II True-False Multiple-Choice 1. T 6. c 2. T 7. d 3. T 8. a 4. F 9. e 5. T 10. c 1.10 CLASSROOM EXERCISES 1.10a Homework Activities • Correlating Current Events to Text Concepts. Ask students to cite an article that discusses one of the challenges facing businesses today as discussed at the end of the chapter. • Researching and Following a Company Throughout the Course This exercise is a continuing exercise and will have optional homework exercises in the Instructor’s Manual for many of the chapters. Have students identify a public company in which they are particularly interested. Have them explain why they are interested in it, and have them make a list of potential sources they will use to research the company for the duration of the course. They should write a brief overview about the company indicating what industry it is in, who its major competitors are, and where the company headquarters are located. With each continuing assignment, students should document their sources of information, as they would with any research project. 1.10b Classroom Activities • Fun Quiz. Using the “So You Think You Know Business?” Fun Quiz as a handout or a PowerPoint, have students form groups of four or five and give them 10 minutes to see if they can come up with the answers. Then, use the answers from the quiz as a basis for discussion. This is an especially good exercise for the first day. It allows students to have a little fun and meet others in the class. • Resource Exercise: What Do I Need? Divide students into groups of three or four. Using the Resource Exercise as a handout or PowerPoint slide, ask the students to develop a list of the various resources they would need to start a part-time garage cleaning business. You may wish to mention here that Michael Dell started his computer business while still in college. This exercise should take no more than 10 to 15 minutes to complete. Instructor guidelines for completing the exercise appear after the handout. • Supply and Demand Exercise. Hand out the Garage Works! fee schedule. Have students get into groups of four and decide how much they will charge to clean a garage. How much labor are they willing to supply at each price? And what happens to demand as they raise their prices? This exercise should take about 10 minutes and stimulate a lot of discussion, not only about how much demand there is for services at different prices but also about how much work people are willing to provide at what pay. • Productivity Exercise. This is a simple exercise that can be done in 10 to 15 minutes. Using the handout or slide, ask students to develop a list of techniques or strategies to help increase the productivity of a gardening hobby that has grown into a profitable little business. This exercise can also be used to lead into a discussion of the differences between services and goods. It is also helpful for introducing the subject of sustainability early in the semester. 1.10c Exercise Handouts Follow on Next Pages “Fun Quiz” So You Think You Know Business? (Answer the following questions to see how much you really know.) 1. Since 1954, only three companies have been No. 1 on America’s Fortune 500 list. They are: 2. The best-selling clothing brand on the planet is: 3. The air conditioner was developed by Willis Carrier in 1902. Its original purpose was not to cool homes. What was its purpose? 4. Which college football team inspired Gatorade? 5. What fast-food chain founded in 1964 was named for brothers Forrest and LeRoy Raffel? 6. True or False—Reebok is Turkish for “fleet of foot.” 7. In what city was America’s first stock exchange located? 8. What company today was originally named the Computer-Tabulator-Recorder Company (C-T-R)? 9. With what product did the term “brand name” originate? 10. What did the term “buck” originally refer to? Sources: Adapted from American Business Trivia, www.journalofbusinessstrategy.com/articles/business-trivia.shtml, accessed July 16, 2006; Business & Finance Trivia, http://morevalue.com/FinanceChannnel/Trivia/TriviaEnter.htm, accessed July 17, 2010. Answer Key to “Fun Quiz” 1. Since 1954, only three companies have been No. 1 on America’s Fortune 500 list. They are: General Motors ExxonMobil Walmart 2. The best-selling clothing brand on the planet is: Levi’s 3. The air conditioner was developed by Willis Carrier in 1902. Its original purpose was not to cool homes. What was its purpose? To remove humidity from air in printing and food production plants. 4. Which college football team inspired Gatorade? University of Florida researchers were looking for a drink to rapidly replace fluids and help prevent dehydration—the drink was tested on the UF Gators football team. 5. What fast-food chain founded in 1964 was named for brothers Forrest and LeRoy Raffel? Arby's. The name stands for RB—Raffel Brothers. 6. True or False—Reebok is Turkish for “fleet of foot.” False—Reebok is an African gazelle. 7. In what city was America’s first stock exchange located? Philadelphia 8. What company today was originally named the Computer-Tabulator-Recorder Company (C-T-R)? IBM 9. With what product did the term “brand name” originate? Whiskey. Producers branded their names on the barrels they shipped out. 10. What did the term “buck” originally refer to? Deerskins, which were a common method of exchange in frontier days. Resource Exercise What Do I Need? You and three school friends have come up with a new business—Garage Works! There are many people working in the landscaping, house-cleaning, and even car-cleaning and dog-washing businesses, but you are going to specialize in cleaning and organizing garages for suburbanites. Some are elderly, some are busy—so you will do the heavy work. What resources will you and your friends need? Initially, you will clean four garages a week while in school. Work with your group members to come up with a short list of needs. This should take no longer than 10 minutes. Material resources: What do you need to get started? Human resources: How many people will you need? Informational resources: What information do you need access to, and how will you know how well you are doing? Financial resources: How much money do you need to get started? Answers to Resource Exercise A partial list might include: Material resources: What do you need to get started? • Access to at least one large car or van to transport people and equipment/ supplies • Cleaning equipment—Heavy-duty sponges, brooms, rags, towels, sprayers, long-handled cleaners for ceilings • Cleaning supplies—Wood cleaners, concrete and metal cleaners, rust remover, garbage bags, etc. • Work shoes/boots and clothes—Aprons? Overalls? • Organizing supplies—Nails, hammers, shelving, etc. • Bins or boxes to hold and transport equipment and supplies • Some place to keep supplies and equipment when not in use • Other? Human resources: How many people will you need? You have four people in your company. Will you always need—or even have—four people? How many hours do you need to do a “typical” job? How much time will you have to spend getting customers? Advertising? Organizing? Getting supplies? Etc. How will you decide who does what? Informational resources: What information do you need access to, and how will you know how well you are doing? Obviously, you need cost data, including the value of time. It would be helpful to have a potential customer database, whether generated from family, friends, neighbors, or some other source. You may wish to check the Internet or local library to find out which suburb has the most two-earner families on the assumption that they have the least time. Financial resources: How much money do you need to get started? This is a bit of a trick question, as you would have to know the cost of the equipment and supplies, opportunity cost of giving up your current job, how many trips you would make and where in order to calculate gas and car maintenance costs. Garage Works! Instructor Notes Most students will quickly see that they will maximize their income by charging the high price of $500. However, there are only 10 people willing to pay that price. Clearly, demand falls as price rises. Students who choose that price may argue that since the members of Garage Works! have a full study schedule, they are better off just doing 10 garages and charging the maximum. This is not a full-time business for them. They may also suggest that after they finish the 10 at $500 and wish to do more, they can always lower the price. Other groups may feel that there is a long-term opportunity here and may wish to go with a lower price such as $400 or $350. They may feel there is still enough profit so that the original four members may wish to subcontract to friends on an as-needed basis. It is unlikely that any groups will consider $150 as a viable price. At $16.25 an hour, opportunity cost would apply. Service Sector Productivity Brainstorming Exercise Handout Chapter 1 defines “productivity” as the average level of output per worker. An increase in productivity results in economic growth. The Internet along with automation has increased productivity in recent times. Productivity improvements are more difficult to achieve in the service sector than they are in manufacturing. Your instructor has assigned your team the following scenario: Your parents have recently retired and have turned their backyard gardening hobby into a small business growing organic vegetables and herbs. They start their seeds in the winter and plant as the weather allows in spring. Because they are organic, they do not use pesticides. All weeding and pest control is done by hand. The resulting foods are sold either at local farm markets or at a small stand in front of their house. They are fortunate to live in a semi-rural suburb with little zoning regulation that is still close to urban and suburban areas where residents are willing to pay a premium for such foods. In fact, they are able to charge up to 15 percent more than local supermarkets do for similar organic foods. They have built up a strong clientele and could easily sell 50 percent more vegetables if they had more room and more help. They would love the extra money, but at their age, are not anxious to buy more land, make huge investments in machinery, or start hiring staff. They also love the interaction with their customers. Clearly, this is a productivity issue. In the next 10 to 15 minutes, develop a list of ways they could increase their productivity. Choose a group member to report the results as directed by your instructor. Service Sector Productivity Brainstorming Instructor Notes This is a simple exercise, given that there are no employees to be trained or motivated to perform at higher levels. Students should be organized into groups of three or four, with one student designated to report results. This exercise should take no longer than 15 minutes. Students should be encouraged to discuss any service jobs they may have held and how productivity could have been increased in those jobs. They can then see if those can be adapted for the Mom and Pop Farm scenario. It should be fairly easy for them to suggest items such as the following: • Establish contact with local agricultural schools for suggestions about time-saving techniques and equipment. • Research the Internet and journals to see what advances are being made in sustainable farming techniques. • Investigate the possibility of joining forces with other micro-farmers in the area. • Consider specializing in a more limited product assortment of vegetables or herbs. • Grow only the vegetables that provide the highest profit and are the easiest to grow. • Provide part-time work for middle and high school students on a partnership basis. This scenario makes it clear that these small-scale gardeners have no interest in growing a major business. As a follow-up, you may ask your students how their answers might change if that were not the case. Chapter 1 Video Case: Entertainment Means Profits for Nederlander Concerts RUNNING TIME: 9:45 Chapter 1 introduces the world of business and economics. Business is the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs. Four kinds of resources—material, human, financial, and informational—must be combined to start and operate a business. The three general types of businesses are manufacturers, service businesses, and marketing intermediaries. Economics is the study of how wealth is created and distributed. Capitalism is an economic system in which individuals own and operate the majority of businesses that provide goods and services. One way to evaluate the performance of an economic system is to assess changes in productivity. Gross domestic product (GDP) can also be used to measure a nation’s economic well-being. Competition is essentially a rivalry among businesses for sales to potential customers. Now, more than ever before, the way a business operates is affected by the competitive environment, global environment, technological environment, and economic environment. As a result, business has a number of opportunities for improvement and challenges for the future. Concepts Illustrated in the Video • Client Management • Entertainment Industry • Family Enterprise • Marketing • Outdoor Amphitheatre Business • Promoting Talent • Seasonal Employment VIDEO CASE SUMMARY Nederlander Concerts specializes in booking and promoting well-known musical artists in small- to mid-sized venues across the western United States. The company owns venues such as the Greek Theatre in Los Angeles, the Santa Barbara Bowl, the San Jose Civic Theater, and the Grove in Anaheim. Since Nederlander Concerts deliberately focuses on small- to mid-size venues, it can offer a unique concert experience that brings audiences and performers closer together. It can therefore sell that high-quality experience at a higher price than seats in a bigger theater can yield, and it can more often count on selling out the house, which helps the company and the artists to profit. Because Nederlander competes with other promoters for bookings by artists and for audiences alike, the company understands the need to keep the musicians happy as well as the fans. Critical-Thinking Questions Using information from the case and the video, answer the following questions: 1. Nederlander Concerts competes for music lovers with other concert arenas and promoters. Do you think it also competes for those audiences with TV, movies, CDs, DVDs, streaming video, and sports events? If yes, what implications does this type of competition have for Nederlander’s business? It may be difficult to gauge what level of competition Nederlander gets from entertainment sources such as TV, movies, CDs, DVDs, streaming video, and sporting events. Some students may view these as substitutes for concert entertainment, while others may view these alternate entertainment sources as complementary to the concert experience. Rather than viewing these sources as a threat, Nederlander should view them as an opportunity where the company could explore the potential for partnerships to expand its own visibility amid an audience that is already entertainment driven. 2. How many different groups can you think of whose needs Nederlander Concerts must satisfy in order to be a successful business? Nederlander’s stakeholders include all of the different people or groups who are affected by the policies and decisions made by the organization. Virtually every Nederlander stakeholder has a role in making the company successful. Musician clients are a top focus for the company, representing the product that Nederlander sells. Fans attending concerts are a second area of focus because they generate revenue for the company. Beyond that, the company must maintain strong relationships with other groups to remain successful, including full-time and seasonal employees and contractors, outside suppliers, and partners within the entertainment industry. 3. Give an example showing how Nederlander Concerts uses each of the four factors of production. The four factors of production that Nederlander Concerts utilizes to be successful include land and natural resources, labor, capital, and entrepreneurship. For a typical concert event, all four factors must be combined to make the event successful. Land and natural resources includes the concert venue itself and the space surrounding it. Labor includes the musicians, sound crew, lighting crew, concert promoters, and anyone else working behind the scenes to make the concert happen. Capital includes the generation of revenue through ticket sales or perhaps the borrowing of money. Finally, entrepreneurship involves the risks taken when scheduling events to maximize success. Chapter 1 Lecture Launcher 1: What Do You Mean … This Kind of Business? VIDEO SUMMARY Urban Farmz is not your typical farm. Founders Jake, a MBA graduate, and his free-spirited vegan cousin, Caleb recently started this organic and sustainable farming cooperative on their grandfather’s small farm upstate. As children, Jake and Caleb both grew up in the city and spent their summers at Grandpa Richardson’s Long Hill Ridge Farm, running through the fields getting dirty. As they got older, their interests changed. Jake spent time perfecting his golf game and reading the Wall Street Journal. Caleb backpacked around the world with the earnings from his many business ventures—the burrito stand he set up at outdoor concerts, his bicycle refurbishing business, converting cars to run on French fry grease, and selling reclaimed construction materials to green contractors. Recently, Grandpa Richardson announced that he no longer had the energy to keep the farm going. He’s selling and moving to Florida. Devastated, Jake and Caleb decide to partner in a new business venture to save the family farm they loved so much as children. In this first scenario, we see Jake and Caleb, sitting with their business advisor, Sylvie, and Grandpa Richardson. Sylvie is presenting the current financial picture of the company after its first six months in business. So far, things are running well—but there are so many details to worry about. Chapter 1 Lecture Launcher 2: A Twenty Won’t Even Fill Your Car! VIDEO SUMMARY In this scene, the new business partners consider making a deal with a Fair Trade cooperative to buy organic coffee produced in Ethiopia. The coffee is great, but is it great enough? It sells for $18 a pound wholesale and $22 a pound retail. Jake thinks that’s too high, especially in the aftermath of the recession. “Why would Urban Farmz’s customers pay that much for coffee when they can buy it for $8 a pound at Wal-mart?” he argues. “A twenty won’t even fill up your car today,” he says. Caleb counters that Urban Farmz isn’t just about prices. It’s about a safer, cleaner, greener lifestyle and not about bowing to “the oligopoly.” Jake says oligopolies aren’t relevant to the market that Urban Farmz is in. Who is right? Solution Manual for Business William M. Pride, Robert J. Hughes, Jack R. Kapoor 9781133595854, 9780538478083, 9781285095158, 9781285555485, 9781133936671, 9781305037083
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