Flashcards in Chapter 1 - Taking Risks and Making Profits within the Dynamic Business Environment Deck (14)
What is the difference between revenue and profit?
Revenue is the total amount of money a business takes in during a given period by selling goods and services.
Profit is the amount of money a business earns above and beyond what it spends for salaries and other expenses needed to run the operation (after taxes).
If expenses are more than revenue, there is a loss.
What is the difference between standard of living and quality of life?
Standard of living refers to the amount of goods and services people can buy with the money they have. USA has one of the highest standards of living.
Quality of life refers to the general well-being of a society in terms of its political freedom, natural environment, education, health care, safety, amount of leisure, and rewards that add to the satisfaction and joy that other goods and services provide.
What is risk, and how is it related to profit?
Risk is the chance an entrepreneur takes of losing time and money on a business that may not prove profitable.
The more risk associated with a business endeavor, usually comes with a higher profit potential. (ex. high risk in making new kind of car)
Denis O'brien, founder of Digicel, earned billions by selling cell phones in the poorest, most violent countries in the world.
What do the terms stakeholders, outsourcing, and insourcing mean?
Stakeholders are all the people who stand to gain or lose by the policies and activities of a business and whose concerns the business needs to address.
They include customers, employees, stockholders, suppliers, dealers, bankers, people in the surrounding community, the media, environmentalists, competitors, unions, critics, and elected government leaders.
Outsourcing means contracting with other companies (often in other countries) to do some or all of the functions of a firm, like its production or accounting tasks.
Outsourcing has had serious consequences in some states where jobs have been lost to overseas competitors.
Staying competitive may call for outsourcing.
Insourcing is the opposite of outsourcing. It's when companies overseas or domestic bring in business functions. (ex. Hyundai and its production locations being within USA)
What are some advantages of working for others?
The advantage of working for others is that somebody else assumes the company's entrepreneurial risk and provides you with benefits like paid vacation time and health insurance.
What benefits do you lose by being an entrepreneur, and what do you gain?
As an entrepreneur, you don't receive any benefits such as paid vacation time, health care, day care, or a company car. You have to provide them for yourself.
But what you gain-- freedom to make your own decisions, opportunity, and possible wealth-- is often worth the effort.
What are the five factors of production? Which ones seem to be the most important for creating wealth?
Economists have been studying the issue of wealth creation for many years. They began by identifying five factors of production that seemed to contribute to wealth.
1. Land (or natural resources): Land and other natural resources are used to make homes, cars, and other products.
2. Labor (workers): People have always been an important resource in producing goods and services, but many people are now being replaced by technology.
3. Capital (This includes machines, tools, buildings, or whatever else is used in the production of goods. It may not include money; money is used to buy factors of production but it is not always considered a factor by itself)
4. Entrepreneurship. All the resources int he world have little value unless entrepreneurs are willing to take the risk of starting businesses to use those resources.
5. Knowledge. Information technology has revolutionized business, making it possible to quickly determine wants and needs and to respond with desired goods and services.
Late management expert and business consultant Peter Drucker said the most important factor of production in our economy is and always will be KNOWLEDGE.
What makes rich countries rich today is a combination of entrepreneurship and the effective use of knowledge.
What are four ways the government can foster entrepreneurship?
One way for government to actively promote entrepreneurship is to allow private ownership of businesses.
One of the best things the governments of developing countries can do is to minimize interference with the free exchange of goods and services.
The government can further lessen the risks of entrepreneurship by passing laws that enable businesspeople to write enforceable contracts. (ex. UCC)
The government can also establish a currency that's tradable in world markets
The government can help minimize corruption in business and in its own ranks.
What's the difference between effectiveness, efficiency, and productivity?
Effectiveness means producing the desired result.
Efficiency means producing goods and services using the least amount of resources.
Productivity is the amount of output you generate given the amount of input, such as the number of hours you work.
Technology means everything that make business processes more effective, efficient, and productive.
What is empowerment?
In the competitive environment.
Empowerment is giving frontline workers the responsibility, authority, freedom, training, and equipment they need to respond quickly to customer requests.
What are some of the major issues affecting the economy today?
Retired people, although a very lucrative segment, will be draining the economy of wealth.
Social Security has become a major issue.
The government has been spending the accumulated Social Security money instead of leaving it in a Social Security account. Soon, less money will be going into Social Security than going out. In short, paying Social Security to senior citizens in the future will draw huge amounts of money from the working population.
Legal and illegal immigrants have had a dramatic effect on many cities.
Two important changes in the global environment are the growth of global competition and the increase of free trade among nations.
War and terrorism have drained billions of dollars from the U.S. economy. The threat of war and terrorism leads the government to spend even more money on spying and the military.
The ecological environment (going green)
What major factor caused people to move from farming to manufacturing and from manufacturing to the service sector?
Technology has made modern farming so efficient that the number of farmers has dropped from 33% of the population to about 1% today.
Manufacturers, like farms, began using new technology, new tools and machines, to become more productive. Eventually the consequences in manufacturing, as in farming, was the elimination of jobs.
The service industry has generated almost all the increases in employment since the mid 1980s. Although its growth has slowed, it remains the largest area of growth.
What does the future look like for tomorrow's college graduates?
The strategy for college graduates is to remain flexible, find out where jobs are being created, and move when appropriate.
High-paying service-sector jobs abound in health care, accounting, finance, entertainment, telecommunications, architecture, law, software engineering, and more.
We're in the midst of an information-based global and technical revolution that will alter all sectors of the economy: agricultural, industrial, and service.