Textbook Notes (369,067)
Canada (162,366)
RSM100Y1 (431)
Chapter 2

chapter 2

11 Pages

Rotman Commerce
Course Code
Stojanovic Dragan

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Chapter 2 Understanding the Environment of BusinessORGANIZATIONAL BOUNDARIES AND ENVIRONMENT y All businesses operate within an external environment y External Environment everything outside of an organizations boundaries that might affect it y Plays a major role in determining success or failure of business Organizational Boundaries y Organization Boundary that which separates the organization from its environment y Becoming increasingly complicated and hard to identify y For example Coca cola has a contract with McDonalds saying that they will only sell coke soft drinks and McDonalds has a contract with WalMart and Disney to let them open their stores inside theirs So when you buy a coke from a McDonald located inside WalMart or Disney youre affecting and being affected by multiple boundaries Multiple Organizational Environments y Organizations have multiple environments y Economic conditions affect performance of almost every businessincrease in unemployment pricing and other marketing policies of competitors etc y Look at Business External Environment Diagram for visual lookTHE ECONOMIC ENVIRONMENTconditions of the economic system in which an organization operates y Economic Environmenty For example a restaurant will lose business if there is rising unemployment since people are less likely to go out and eat when they dont have a job y Three key goals in economic system economic growth stability and full employment Economic Growth 1 Business Cycle y Business cycle tells whether or not an economic system is growing y Business Cycle pattern of short term ups and downs expansions and contractions in an economy y Has four recognizable phases peak recession trough and recovery y Recession period during which aggregate output as measured by real GDP declinesrecession starts just after the peak of a business cycle is reached and ends when the trough is reachedy Depression particularly severe and longlasting recessioneconomic activity declines high unemployment and consumer buying declines 2 Aggregate Output and the Standard of Living y Main measure of growth in business cycle is aggregate outputtotal quantity of goods and services produced by an economic y Aggregate Outputsystem during a given period y Increase in aggregate outputeconomic growth y When output grows quicker than population two things usually follow output per capitaquantity of goods and services per persongoes up and the system provides more of the goods and services that people want y When these two things occur people benefit from a higher standard of livingtotal quantity and quality of goods and services that a countrys y Standard of Livingcitizens can purchase with the currency used in their economic system 3 Gross Domestic Product and Gross National Product y Gross Domestic Product GDP total value of all goods and services provided within a given period by a national economy through domestic factors of production y Gross National Product GNP 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 y For example profits earned by a Canadian company abroad are included in GNP but not in GDP y Also profits earned by foreign firms in Canada are included in GDP y GDP and GNP are useful measures of economic growth because they allow us to track an economys performance overtime I Real Growth Rates y GDPpreferred method for calculating national income and output y Real Growth Rates of GDP growth rates of GDP adjusted for inflation and changes in the value of the currency y Iswhat counts II GDP per Capita y Calculated by dividing total GDP by the population of a country y Better measure than total GDP III Real GDP y Real GDP GDP calculated to account for changes in currency values and prices y Selling the same amount of products for a higher price is not economic growth since aggregate output remains the sameGDP measured in current dollars or with all components valued at y Nominal GDPcurrent prices
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