Title

Sub Title
 Fakultas Ekonomi dan Bisnis
School Economics and Business

LEARNING OBJECTIVES
Telkom University

After reading this chapter, you should be able to:

1. Define the nature of business and Identify Its main goals.
2. Describe different types of global economic systems according to the
means by which they control the factors of production through input and
output markets.
3. Show how demand and supply affect resource distribution .
4. Identify the elements of private enterprise .

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2 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Exercise
Telkom University
A. Write four things do you know about business. Write
4 things you would like to know?
B. Try to know your neighbor and brake the ice.

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3 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Telkom University
The Concept of Business and Profit

Business
An organization that provides goods or services that
are then sold to earn profits.
Profits
The positive difference between a businesss revenues
and its expenses. The rewards owners get for risking
their money and time.

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4 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business The Benefits of Business
Telkom University

1. Provision of goods and services

2. Employment of workers
3. Innovation and opportunities
4. Increased quality of life and standard of living
5. Enhanced personal incomes of owners and stockholders
6. Tax payments support government
7. Support for charities and community leadership

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5 Creating the great business leaders
Factors of Production

Labor Capital

Information
Resources

Entrepreneurs Physical Resources

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 Fakultas Ekonomi dan Bisnis
School Economics and Business Factors of production
Telkom University

A. Labor: The people who work for businesses. Labor

includes both physical and mental contributions. A
country with a highly educated workforce is
considered rich in this resource.
B. Capital: The funds needed to create and operate a
business. Sources include personal investment by
owners, loans, sale of stock and bonds, and revenue
from the sale of product.

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7 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Factors of production
Telkom University

A. Entrepreneurs: People who are willing to accept the risks that are
part of creating and operating businesses, in return for the
potential profits.
B. Physical resources: Tangible things organizations use in the
conduct of their business. Possibilities include natural resources,
raw materials, office equipment and facilities, computers,
transportation and communication infrastructure, etc.
C. Information resources: Data and other information used by
business. This factor has become increasingly important in the
last decade.

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 Fakultas Ekonomi dan Bisnis
School Economics and Business Information Resources
Telkom University

Information resources include: the specialized

knowledge and expertise of people who work in
businesses, as well as information that is found in
market forecasts and various other forms of economic
data.

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9 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Exercise: group Discussion

Telkom University

1. In your faculty of business, list the factors of

production that were used to provide higher education
service.
2. What are the factors of production used to produce
clothes?
3. Factors of production in a supermarket.

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10 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Economic Environment
Telkom University

The relevant conditions that exist in the economic

system in which a company operates
Examples: recession and growth.

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11 Creating the great business leaders
Recessions & Depressions
Recession:
Aggregate output declines, unemployment
increases. A recession is usually measured by
two consecutive quarters of decline in real
GDP.

Depression:
Severe and long-lasting recession
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Economic Environment
Telkom University

Examples:
If an economy is doing well enough that most people have
jobs, a growing company may find it necessary to pay higher
wages and offer more benefits in order to attract workers
from other companies.
If many people in an economy are looking for jobs, a firm
may be able to pay less and offer fewer benefits.

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13 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Economic Systems
Telkom University

Economic System
A nations system/methods for allocating its resources
among its citizens, both individuals and organizations
Factors of Production are the resources.

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14 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Types of Economic Systems

Telkom University

Planned Economy (command)

A centralized government controls all or most factors
of production and makes all or most production and
allocation decisions for the economy. Planned
Economy (command) includes: communism and
socialism.
With communismas currently operating in North
Koreaall sources of production are owned and
operated by the government.
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15 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Planned Economies
Telkom University

Communism
A system Karl Marx envisioned in which individuals would
contribute according to their abilities and receive benefits
according to their needs.
The government owns and operates all factors of
production.
The government assigns people to jobs and owns all
businesses and controls business decisions.

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16 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Socialism
Telkom University

In the partially planned system called socialism, the

government owns and operates selected major industries.
Smaller businesses such as clothing stores
and restaurants may be privately owned. Although workers
in socialist countries are usually allowed to choose their
occupations or professions, a large proportion generally
work for the government.

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17 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Types of Economic Systems

Telkom University

Market Economy
Individual producers and consumers control
production and allocation by creating combinations of
supply and demand.
Market
A mechanism of exchange between buyers and sellers
of a good or service.

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18 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business The Concept of Business and Profit
Telkom University

Consumer Choice and Demand

The freedom of consumers to choose how to satisfy their
wants and needs.
The freedom of business owners to decide how to meet
those wants and needs.
Opportunity and Enterprise
Success in business requires spotting a promising
opportunity and then developing a good plan for capitalizing
on it.
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19 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Market Economics
Telkom University

Capitalism: The political basis for the free market

economy, which allows private ownership. The
government supports private ownership and
encourages entrepreneurship.
Individuals choose where to work, what to buy, and
how much to pay.
Producers choose who to hire, what to produce, and
how much to charge.

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20 Creating the great business leaders
Circular Flow in Market Economy

SUPPLY OUTPUT MARKETS DEMAND

Goods
Services

FIRMS HOUSEHOLDS

Supply products in Demand products in

output markets output markets
Demand resources in Supply resources in
input markets INPUT MARKETS input markets

DEMAND Labor SUPPLY

Capital
Entrepreneurs
Physical Resources
Information Resources
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Copyright 2003 Prentice Hall, Inc. 1 - 21
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Mixed Market Economy

Telkom University

A. Mixed Market Economies: mixed of planned and market

economies; many countries are moving from planned systems
to mixed market systems through privatization, which
involves the transformation of government-controlled
businesses into privately owned enterprises.

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22 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Nationalization
Telkom University

-converting private firms into government owned firms.

Venezuela, for example, nationalized its
telecommunications industry.

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23 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Deregulation
Telkom University

Deregulation means a reduction in the number of laws affecting business

activity and in the powers of government enforcement agencies.
This trend also developed during the 1990s, and deregulation occurred in
many industries, including airlines, pipelines, banking, trucking, and
communications.
But this trend has also slowed (and even reversed in some cases) due to
the 2008 recession. For example, there have been calls for a dramatic
tightening up of the laws regulating business activity, particularly in
the financial sector.

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24 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
Interactions between Business and
Government
School Economics and Business

Telkom University

How Government Influences Business

A. Government plays several key roles In the economy,
and each of these roles influences business activity in
some way. The roles government plays are as follows.

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 Fakultas Ekonomi dan Bisnis
School Economics and Business

Interactions
Telkom University between Business and Government

The roles government plays are as follows.

A. Government as a Customer Government buys thousands of
different products and services. E.g., PA buys medicines.
B. Government as a Competitor.
C. Government as Regulator: Reasons for regulating business
activity include protecting competition, protecting
consumers, achieving social goals, and protecting the
environment.

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26 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
Interactions between Business and
Government
School Economics and Business

Telkom University

The roles government plays are as follows.

A. Promoting Competition: Competition is crucial to a market
economy.
B. Protecting Consumers.
C. Government as a Taxation Agent: Taxes are Imposed and
collected by the federal, and local governments.

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27 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
Interactions between Business and
Government
School Economics and Business

Telkom University

The roles government plays are as follows.

A. Government as a Provider of Incentives and Financial
Assistance.
B. Government as a Provider of Essential Services. E.g., PA
provides health and education services.

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28 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business The Economics of Market Systems
Telkom University

Demand
The willingness and ability of buyers to purchase a
product (a good or a service).
Supply
The willingness and ability of producers to offer a
good or service for sale.

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29 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business The Economics of Market Systems
Telkom University

The Laws of Demand and Supply in a Market Economy

Demand: Buyers will purchase (demand) more of a
product as its price drops and less of a product as its
price increases.
Supply: Producers will offer (supply) more of a product
for sale as its price rises and less of a product as its price
drops.

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30 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Private Enterprise in a Market Economy
Telkom University

Private Enterprise System

Allows individuals to pursue their own interests with
minimal government restriction.
Elements of a Private Enterprise System
Private property rights
Freedom of choice
Profits
Competition

economic
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31 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Economic Indicators
Telkom University

Economic Indicators
Statistics that show whether an economic
system is strengthening, weakening, or
remaining stable
Measure key goals of the economic system:
economic growth and economic stability

economic
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 Fakultas Ekonomi dan Bisnis
School Economics and Business Economic Indicators
Telkom University

Economic growth indicators

Aggregate output, standard of living, gross
domestic product, and productivity
Economic stability indicators
Inflation and unemployment

economic
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33 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
Economic Growth: Aggregate Output, and
Standard of Living
School Economics and Business

Telkom University

The elements:
Business Cycle
The pattern of short-term ups and downs
(or, better, expansions and
contractions/reductions) in an economy.

economic
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34 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
Economic Growth: Aggregate Output, and
Standard of Living
School Economics and Business

Telkom University

The elements:
Aggregate Output
Growth during the business cycle is measured by
the total quantity of goods and services
produced by an economic system during a given
period. It measures the growth during the
business cycle

economic
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35 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
Economic Growth, Aggregate Output, and
Standard of Living
School Economics and Business

Telkom University

Standard of Living
The total quantity and quality of goods and
services that consumers can purchase with
the currency used in their economic system.

economic
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36 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Gross Domestic Product (GDP)

Telkom University

An aggregate output measure of the total value of all

goods and services produced within a given period by
a national economy through domestic factors of
production on the soil of the country. In US $14
trillion, in PA 5.7 billion.
If GDP is going up, aggregate output is going up; if
aggregate output is going up, the nation is
experiencing economic growth.

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37 Creating the great business leaders 37
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Gross National Product (GNP)

Telkom University

The total value of all goods and services produced by

a national economy within a given period, regardless
of where the factors of production are located.
E.g., When a Japanese automobile produces cars at its
factory in USA, the profits from that factory are
included in the American GDP, and in the Japanese
GNP.

economic
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38 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Economic Growth
Telkom University

Productivity
A measure of economic growth that compares how much
product a system produces with the resources needed to
produce that product.
Productivity: output/input (resources used)
If more product is produced with fewer factors of production,
the price of the product decreases.
The standard of living in an economy improves through
increases in productivity.

economic
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39 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Balance of Trade
Telkom University

The economic value of all the products a country

exports minus the economic value of its imported
products.
Positive balance of trade: When a country exports (sells to
other countries) more than it imports (buys from other
countries).
Negative balance of trade: When a country imports more
than it exports. Commonly called a trade deficit.

economic
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40 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business FIGURE 1.4 Balance of Trade
Telkom University

economic
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41 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Telkom University

A.National debts in USA in 2007 amounted

9.4$ trillion.
B.Trade deficit: in 2007 exceeded $700
billion.

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42 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Managing the Economy
Telkom University

Stabilization Policy
Coordinating fiscal and monetary policies to
smooth fluctuations in output and
unemployment and to stabilize prices.

economic
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43 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Types of Policies
Telkom University

Monetary Policy:
Designed to control the amount of money flowing around the
economy (the money supply).
This policy is used to tackle inflation and balance of payments.
Methods under this policy:
1. Interest rates:
2. The government may impose restrictions on financial
institutions to affect borrowing.
3. The central bank can control bank assets and the amount of
lending. Level of reserves

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44 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Types of Policies
Telkom University

Fiscal policy:
Aims to control the total spending in the economy.
1. Government spending.
2. Change in direct taxation.
3. Change in indirect taxation.

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45 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Business Environment
Telkom University

Few things will be mentioned.

The following elements are part of
chapter 2.

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46 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business The External Environments of Business
Telkom University

External Environment
Everything outside an organizations boundaries that might affect it
and business cannot control
1. The domestic business environment
2. The global business environment
3. The technological environment
4. The political-legal environment
5. The socio-cultural environment
6. The economic environment
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47 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Domestic Business Environment

Telkom University

The environment in which a firm conducts its operations and

derives its revenues by:
1. Seeking to be close to its customers
2. Establishing strong relationships with its suppliers
3. Distinguishing itself from its competitors
4. Example, lock at the IUG.

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48 Creating the great business leaders 48
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Global Business Environment

Telkom University
The international forces that affect business:
1. International trade agreements
2. International economic conditions
3. Political unrest
4. International market opportunities
5. Suppliers outsourcing.
6. Cultural differences
7. Competitors, Currency values

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49 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Technological Environment
Telkom University

All the ways by which firms create value for their

constituents:
1. Human knowledge
2. Work methods
3. Physical equipment
4. Electronics and telecommunications
5. Various business activity processing systems

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50 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis

Political-Legal Environment
School Economics and Business

Telkom University
The regulatory relationship between business and the government (legal
system) and its agencies that define what organizations can and cant do:
1. Product identification laws (ingredients to be listed).
2. Local zoning requirements e.g., obtain a license to operate
3. Advertising practices
4. Safety and health considerations, warnings on cigarette packages.
5. Acceptable standards of business conduct, pollution
Pro- or anti-business sentiment/attitude in government and political stability
are also important considerations, especially for international firms.

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51 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Socio-cultural Environment
Telkom University

The customs (e.g., celebrations), mores/traditions (e.g.,

beliefs), values (e.g., importance of religion), and
demographic characteristics of the society in which an
organization functions (e.g., education level).
Socio-cultural processes determine the goods, services, and
standards of business conduct a society is likely to accept,
e.g., children labor, selling certain food.

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52 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business Discussion
Telkom University
Why will customers choose to buy from your business, instead of your
competition?

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53 Creating the great business leaders
 Fakultas Ekonomi dan Bisnis
School Economics and Business

Telkom University

54 Creating the great business leaders