Bus201 Chapter 2.doc

49 views6 pages
Chapter 2
The Environment of Business
Organizational Boundaries and Environments
External Environment: everything outside an organization’s boundaries that might
affect it
Organizational Boundaries
oOrganizational Boundary: separates the organization from its environment
Multiple Organizational Environments
oOrganizations have multiple environments
oSome, like prevailing economic conditions, affect the performance of almost
every business
oElements of the External Environment:
Economic conditions
technology
political-legal considerations
social issues
the global environment
issues of ethical and social responsibility
the business environment itself
emerging challenges and opportunities
The Economic Environment
Economic Environment: conditions of the economic system in which an organization
operates
Economic Growth
oAgricultural production has grown because the total output of the agricultural
sector has increased
Aggregate Output and the Standard of Living
Main measure of growth is aggregate output: the total quantity of goods
and services produced by an economic system during a given period. (an
increase in aggregate output is economic growth)
When output grows more quickly than the population:
1) Output per Capita (quantity of goods and services per person)
goes up
2) The system provides relatively more of the goods and services
that people want
When those two things occur: higher Standard of Living – the
total quantity and quality of goods and services that they can
purchase with the currency used in their economic system
The Business Cycle
oBusiness Cycle: Pattern of short-term ups and downs (expansions and
contractions) in an economy
Peak
Recession: two consecutive quarters when the economy shrinks,
but it is probably more helpful to say that a recession starts just
after the peak of the business cycle is reached and ends when the
trough is reached
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in
Trough
Recovery
Depression: occurs when the trough of the business cycle
extends two or more years
Periods of expansion and contraction can vary from several
months to several years
Depression (bust) Recover Peak (boom) Recession
Trough Recovery
Gross Domestic Product and Gross National Product
oGDP: the total value of all goods and services produced
within a given period by a national economy through domestic factors of
production.
oIf GDP goes up, the nation is experiencing economic
growth
oGDP measures all business activity within a nation’s
borders and it has wisely replaced Gross national product (GNP)
oGNP: 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
Real Growth Rates
oThe real growth rate of GDP – the growth rate of GDP adjusted for
inflation and changes in the value of the country’s currencyis what
counts
GDP per Capita
oGDP per Capita: Gross domestic product per person
oDividing total GDP by the total population of a country
oAs a measure of economic well being of the average person, GDP per
capita is a better measure than GDP
Real GDP
oReal GDP: GDP calculated to account for changes in currency values
and price changes
oNominal GDP: GDP measured in current dollars or with all components
valued at current prices
Purchasing Power Parity
oPurchasing Power Parity: Principle that exchange rates are set so that
the prices of similar products in different countries are about the same
oGives us a better sense of standards of living across the globe
Productivity
oProductivity: measure of economic growth that compares how much a system
produces with the resources needed to produce it
The Balance of Trade and the national Debt
oBalance of Trade
oThe total of a country’s exports (sales to other countries) minus its
imports (purchases from other countries)
oA negative balance of trade is commonly called a trade deficit
oA positive balance of trade is called a trade surplus
oNational Debt
oThe total amount of money that a country owes its creditors
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 6 pages and 3 million more documents.

Already have an account? Log in

Get access

Grade+
$10 USD/m
Billed $120 USD annually
Homework Help
Class Notes
Textbook Notes
40 Verified Answers
Study Guides
1 Booster Class
Class+
$8 USD/m
Billed $96 USD annually
Homework Help
Class Notes
Textbook Notes
30 Verified Answers
Study Guides
1 Booster Class