Chapter 2 Notes v2.docx

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Department
Business Administration
Course
BUS 100
Professor
Kim Milnes
Semester
Fall

Description
Thomas Davies Business 100 Chapter 2 – The Business Environment Organizational Boundaries and Environments 1) Organizational Boundary separates organization and environment a) Physical (walls, doors) b) Delivery etc. or agreements blur the boundary for customer 2) Organizations exists in multiple environments – local and global a) Global recession has affect, local weather/unemployment does too b) Political, socio-cultural, technology, etc. The Economic Environment 1) The economic environment refers to conditions of the economic system in which the organization operates 2) Canada currently in „moderate growth/unemployment‟ and „low inflation‟ a) Means most people can eat out, but restaurants can‟t change prices due to competitive pressures 3) Economic Growth a) Simply, economic growth = increase in production of goods (GDP) b) Aggregate Output/Standard of Living (SOL)  Aggregate output = total goods/services produced by system in a period  If aggregate output grows more than pop., the per capita goes up  This causes higher standard of living (total quantity of goods/services that citizens can purchase) c) Business cycle = regular growth/contraction  Standard cycle: peak  recession  trough  recovery  Recession considered two consecutive quarters where economy shrinks  Depression occurs when the trough lasts 2+ years d) Gross Domestic Product (GDP) & Gross National Product (GNP)  GDP = total value of all goods/services produces by domestic factors  Replaced GNP, where all Cnd. ownership considered (1) Cnd. owned company in Brazil counts for GNP, but not GDP (2) French company in Canada counts for GDP, but not for GNP  GDP is key factor in growth, but not exclusive (debt another factor)  Real growth rate is GDP adjusted for inflation/currency changes  Real GDP means that GDP has been adjusted for above factors (1) When not adjusted, called nominal GDP (in current $)  GDP per capita is GDP per person  Purchasing power parity = principle that exchange rates set so that the prices of similar products in different countries are about the same e) Productivity has major impact on growth  Is comparison production vs. resources required (workers, money, time, materials)  Increased productivity allows prices to decrease – necessary for SOL increase f) Balancing Trade and National Debt  Balance of trade = exports – imports 1 Thomas Davies Business 100  A trade deficit reduced growth, as less money to be used domestically  National debt is total money owed , which accumulates through budget deficits (yearly shortage)  Recessions can cause 86% increase in debt  National debt, specifically the borrowing, reduces money available for other investments/loans throughout the world to increase productivity etc. 4) Economic stability – affected by inflation, deflation and unemployment a) Inflation = when money injected into system greater than actual output  People have more $$, but all can buy more, so prices increase  „normal‟ inflation rate = 2-15 %  Consumer Price Index (CPI) = measures changes in prices of typical products purchased (loaf of bread, tank of gas)  Small amount of inflation good, but everything must adjust b) Deflation = injected money less than economic output, leads to falling prices  Fall due to increase of productivity (good), or higher consumer debt (bad) c) Unemployment = level of joblessness among those actively seeking for one  Frictional (temporary, while looking for new job),  Seasonal (job is only seasonal)  Cyclical (downturn in business cycle)  Structural (people lack the necessary skills)  Cycle: low unemployment  shortage of works  increased wages  less profits  increased prices  less spending  reduce workforce……. 5) Managing the Canadian Economy (fiscal and monetary policies) a) Fiscal policies = collecting/spending of gov‟t revenue b) Monetary policies = control size of money supply  Bank of Canada can make these changes  High interest = more expensive to borrow = less investment = tight monetary policy  Low interest = less expensive to borrow = more investment = easy monetary policy The Technological Environment 1) Technology = all the ways firms create value for constituents (knowledge, work methods, equipment, etc.) 2) Research and Development a) Basic (pure) R&D is improving knowledge without market focus b) Applied R&D is focused on producing an innovation to use in production c) Canada has lower R&D per capita due to a large number of foreign companies 3) Product and Service Technologies a) Employed to create products (goods or services) for consumers b) Companies must use breakthroughs quickly to keep pace with market c) Technology transfer = getting new tech from labs into marketplace for use
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