Chapter 1: The Dynamics of Business and
Economics
Use this Instructor’s Manual to facilitate class discussion and incorporate the unique features of the text’s
highlights. Follow-up via the Connect exercises is then encouraged to provide a holistic understanding of
the chapter.
CHAPTER FORECAST
We begin our study of business in this chapter by examining the fundamentals of business and
economics. First, we introduce the nature of business, including its goals, activities, and participants.
Next, we describe the basics of economics and apply them to the United States economy. Finally, we
establish a framework for studying business in this text.
LEARNING OBJECTIVES
LO 1-1 Define basic concepts such as business, product, and profit.
LO 1-2 Identify the main participants and activities of business and explain why studying business
is important.
LO 1-3 Define economics and compare the four types of economic systems.
LO 1-4 Describe the role of supply, demand, and competition in a free enterprise system.
LO 1-5 Specify why and how the health of the economy is measured.
LO 1-6 Trace the evolution of the American economy and discuss the role of the entrepreneur in the
economy.
,KEY TERMS AND DEFINITIONS
budget deficit The condition in which a nation spends more than it takes in
from taxes.
business Individuals or organizations who try to earn a profit by
providing products that satisfy people’s needs.
capital The funds used to acquire the natural human resources needed
to provide products; also called financial resources.
capitalism (free enterprise) An economic system in which individuals own and operate the
majority of businesses that provide goods and services.
communism First described by Karl Marx as a society in which the people,
without regard to class, own all the nation’s resources.
competition The rivalry among businesses for consumers’ dollars.
demand The number of goods and services that consumers are willing
to buy at different prices at a specific time.
depression A condition of the economy in which unemployment is very
high, consumer spending is low, and business output is sharply
reduced.
economic contraction A slowdown of the economy characterized by a decline in
spending and during which businesses cut back on production
and lay off workers.
economic expansion The situation that occurs when an economy is growing and
people are spending more money; their purchases stimulate
the production of goods and services, which in turn stimulates
employment.
economic system A description of how a particular society distributes its
resources to produce goods and services.
economics The study of how resources are distributed for the production
of goods and services within a social system.
entrepreneur An individual who risks his or her wealth, time, and effort to
develop for profit an innovative product or way of doing
something.
equilibrium price The price at which the number of products that businesses are
willing to supply equals the amount of products that
consumers are willing to buy at a specific point in time.
, financial resources The funds used to acquire the natural and human resources
needed to provide products; also called capital.
free-market system Pure capitalism, in which all economic decisions are made
without government intervention.
gross domestic product (GDP) The sum of all goods and services produced in a country during
a year.
human resources The physical and mental abilities that people use to produce
goods and services; also called labor.
inflation A condition characterized by a continuing rise in prices.
mixed economies Economies made up of elements from more than one economic
system.
monopolistic competition The market structure that exists when there are fewer
businesses than in a pure-competition environment and the
differences among the goods they sell are small.
monopoly The market structure that exists when there is only one
business providing a product in a given market.
natural resources Land, forests, minerals, water, and other things that are not
made by people.
nonprofit organizations Organizations that may provide goods or services but do not
have the fundamental purpose of earning profits.
oligopoly The market structure that exists when there are very few
businesses selling a product.
product A good or service with tangible and intangible characteristics
that provide satisfaction and benefits.
profit The difference between what it costs to make and sell a
product and what a customer pays for it.
pure competition The market structure that exists when there are many small
businesses selling one standardized product.
recession A decline in production, employment, and income.
socialism An economic system in which the government owns and
operates basic industries, but individuals own most businesses.
, stakeholders Groups that have a stake in the success and outcomes of a
business.
standard of living The level of wealth and material comfort that people have
available to them.
supply The number of products—goods and services—that businesses
are willing to sell at different prices at a specific time.
standard of living Refers to the level of wealth and material comfort that people
have available to them.
unemployment The condition in which a percentage of the population wants to
work but is unable to find jobs.
Economics
Use this Instructor’s Manual to facilitate class discussion and incorporate the unique features of the text’s
highlights. Follow-up via the Connect exercises is then encouraged to provide a holistic understanding of
the chapter.
CHAPTER FORECAST
We begin our study of business in this chapter by examining the fundamentals of business and
economics. First, we introduce the nature of business, including its goals, activities, and participants.
Next, we describe the basics of economics and apply them to the United States economy. Finally, we
establish a framework for studying business in this text.
LEARNING OBJECTIVES
LO 1-1 Define basic concepts such as business, product, and profit.
LO 1-2 Identify the main participants and activities of business and explain why studying business
is important.
LO 1-3 Define economics and compare the four types of economic systems.
LO 1-4 Describe the role of supply, demand, and competition in a free enterprise system.
LO 1-5 Specify why and how the health of the economy is measured.
LO 1-6 Trace the evolution of the American economy and discuss the role of the entrepreneur in the
economy.
,KEY TERMS AND DEFINITIONS
budget deficit The condition in which a nation spends more than it takes in
from taxes.
business Individuals or organizations who try to earn a profit by
providing products that satisfy people’s needs.
capital The funds used to acquire the natural human resources needed
to provide products; also called financial resources.
capitalism (free enterprise) An economic system in which individuals own and operate the
majority of businesses that provide goods and services.
communism First described by Karl Marx as a society in which the people,
without regard to class, own all the nation’s resources.
competition The rivalry among businesses for consumers’ dollars.
demand The number of goods and services that consumers are willing
to buy at different prices at a specific time.
depression A condition of the economy in which unemployment is very
high, consumer spending is low, and business output is sharply
reduced.
economic contraction A slowdown of the economy characterized by a decline in
spending and during which businesses cut back on production
and lay off workers.
economic expansion The situation that occurs when an economy is growing and
people are spending more money; their purchases stimulate
the production of goods and services, which in turn stimulates
employment.
economic system A description of how a particular society distributes its
resources to produce goods and services.
economics The study of how resources are distributed for the production
of goods and services within a social system.
entrepreneur An individual who risks his or her wealth, time, and effort to
develop for profit an innovative product or way of doing
something.
equilibrium price The price at which the number of products that businesses are
willing to supply equals the amount of products that
consumers are willing to buy at a specific point in time.
, financial resources The funds used to acquire the natural and human resources
needed to provide products; also called capital.
free-market system Pure capitalism, in which all economic decisions are made
without government intervention.
gross domestic product (GDP) The sum of all goods and services produced in a country during
a year.
human resources The physical and mental abilities that people use to produce
goods and services; also called labor.
inflation A condition characterized by a continuing rise in prices.
mixed economies Economies made up of elements from more than one economic
system.
monopolistic competition The market structure that exists when there are fewer
businesses than in a pure-competition environment and the
differences among the goods they sell are small.
monopoly The market structure that exists when there is only one
business providing a product in a given market.
natural resources Land, forests, minerals, water, and other things that are not
made by people.
nonprofit organizations Organizations that may provide goods or services but do not
have the fundamental purpose of earning profits.
oligopoly The market structure that exists when there are very few
businesses selling a product.
product A good or service with tangible and intangible characteristics
that provide satisfaction and benefits.
profit The difference between what it costs to make and sell a
product and what a customer pays for it.
pure competition The market structure that exists when there are many small
businesses selling one standardized product.
recession A decline in production, employment, and income.
socialism An economic system in which the government owns and
operates basic industries, but individuals own most businesses.
, stakeholders Groups that have a stake in the success and outcomes of a
business.
standard of living The level of wealth and material comfort that people have
available to them.
supply The number of products—goods and services—that businesses
are willing to sell at different prices at a specific time.
standard of living Refers to the level of wealth and material comfort that people
have available to them.
unemployment The condition in which a percentage of the population wants to
work but is unable to find jobs.
