Chapter 1

1.      Briefly describe the goals of a business, especially the primary goal. 

The goal of any business is to earn a profit.  To earn a profit, a person or organization needs management skills to plan, organize, and control the activities of the business and to find and develop employees so that it can make products consumers will buy.

2.      Describe the relationship between management, marketing, finance, owners, employees, and customers. 

The owners have to put up resources to start a business.  Employees are responsible for the work that goes on within a business.  Owners can manage the business themselves or hire employees to accomplish this task.  Management and employees are in the same segment of the circle.  Management involves coordinating employees’ actions to achieve the firm’s goals, organizing people to work efficiently, and motivating them to achieve the business’s goals.  Other elements of management are production and manufacturing.  Managers have to plan, organize, staff, and control the tasks required to carry out the work of the company or nonprofit organization.  Marketing includes all the activities designed to provide goods and services that satisfy consumers’ needs and wants.  Every business has to deal with financial situations.  Finance is in the same part with management and marketing, it is just the primary responsibility of the owners to provide financial resources for the operation of the business.  

3.      What are the three questions that all economic systems must answer? Who answers them under a communist system? A socialist system? A capitalist system? 

The three questions that all economic systems must answer are 1) What goods and services, and how much of each, will satisfy consumers’ needs? 2) How will goods and services be produced, who will produce them, and with what resources will they be produced? 3) How are the goods and services to be distributed to consumers?

Under a communist system the people (through the government) own and operate all business and factors of production.  Central government planning determines what goods and services satisfy citizens’ needs, how the goods and services are produced, and how long they are distributed.

A socialist system central planning determines all of these.  Individuals and small businesses provide other goods and services based on consumer demand and the availability of resources.

A capitalist system individuals own and operate the majority of businesses that provide goods and services.

4.      Define supply, demand, and equilibrium price, and explain their relationship with each other. 

Supply is the number of products that businesses are willing to sell at different prices at a specific time.  Demand is the number of goods and services that consumers are willing to buy at different prices at a specific time.  Equilibrium price is 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.  You have to have a demand in order to be able to supply the product.

5.      Discuss the issues involved in measuring a country's economy. 

Gross domestic product is a commonly used measure which is the sum of all goods and services produced in a country during a year.  GDP measures only those goods and services made within a country but therefore does not include profits from companies’ overseas operations.  Another important indicator is the relationship between its spending and income.   

6.      Why are entrepreneurs important to the economy? 

Entrepreneurs are often the inventors who brought all the factors of production together to produce a new product.  They are constantly changing America business practice with new technology and innovative management techniques.