Deck 1: Exploring the World of Business and Economics

Question 1

Caterpillar Helps the World Build
From tractors to turbines, marine engines to mining equipment, Caterpillar makes the heavy equipment that powers progress and helps the world build. Formed in 1925 from the merger of two tractor manufacturers, Caterpillar has grown from its headquarters in Peoria, Illinois, into a successful $32 billion corporation with 110 factories and business operations in 23 countries. It also offers financing, insurance, and other services for dealers and business customers that buy its industrial products.
Caterpillar's sales contribute to the global economy by creating jobs for 94,000 in the company (including 44,000 employees located in North America) as well as for tens of thousands of workers employed by its network of suppliers and dealers. At the same time, Caterpillar's sales are affected, in large part, by local, regional, and international economic conditions. When the economy is expanding, customers such as construction firms need earthmoving equipment to tackle major projects, such as new housing, highways, pipelines, and mass transit systems. They also need demolition equipment, which Caterpillar makes, to clear the way for new projects.
During recessions, however, companies and governments often postpone or go slow on these types of projects, which in turn dampens demand for earthmovers and similar machinery. Still, Caterpillar has profited from the ongoing building boom in developing nations, where many infrastructure improvements move ahead regardless of what's happening in the rest of the world. These days, 69 percent of its sales come from outside the United States, up from 53 percent of sales just five years ago. Not surprisingly, Caterpillar's main competition in the global marketplace comes from multinational giants, such as Komatsu (based in Japan), CNH Global (based in the Netherlands), and Volvo (based in Sweden).
Before Caterpillar builds a new factory, it carefully researches the market. Recently, for example, it undertook a study of regional and global demand for excavating equipment. Although Caterpillar already operates excavator factories in the United States, Japan, and six other countries, it may open a new U.S. plant to serve all of North America if demand is strong enough. Instead of importing some models from its factory in Japan, as it does now, Caterpillar would make those products in the U.S. plant and have the Japanese facility make models that sell well in Asia.
Stepping up to sustainability, Caterpillar is going green on a global scale. It is constantly improving the efficiency of its products, reducing its use of power, doing more to recycle materials and cut waste, and finding new uses for old products. The company also offers training to help customers cut the amount of fuel they need to power their Caterpillar equipment, which saves users money as well as helps conserve scarce resources.
As a good corporate citizen, Caterpillar makes donations to non-profit organizations that support educational, health, and human services projects. It also contributes to environmental conservation organizations that protect natural resources and enhance sustainability around the world. Through the Caterpillar Employees United Way Appeal, the company and its employees make yearly donations to United Way groups in their local communities.
Caterpillar's managers and employees are required to follow the company's worldwide code of conduct in all their business dealings with suppliers, dealers, customers, and competitors. The code sets high standards for honest, ethical behavior; outlines how Caterpillar deals with potential conflicts of interest; and strictly forbids the use of "improper payments" such as bribes and kickbacks. Here's how the company sums up its commitment to being a responsible business: "We are global citizens and responsible members of our communities who are dedicated to safety, care for our environment, and manage our business ethically." 20
How is Caterpillar using the factors of production to fuel global growth?

Answer 1

Caterpillar adopts the best ways to utilize the basic factors of production. These factors include the company's people, materials, information, and energy needed in the production.
• Land: Caterpillar has over 110 factories build that are used in the production process to make the heavy equipment
• Labor: Employees talented and efficient people who specialize in the area of manufacturing heavy equipment.
• Capital: Offers financing, insurance and other financial aid for dealers and business customer that buy its industrial equipment.
• Entrepreneurship: The group is led by able managers who are able to utilize all the factors of production to their maximum potential.

Question 2

In what ways have the economic problems caused by the recent crisis in the banking and financial industries affected business firms? In what ways have these problems affected employees and individuals?

Answer 2

The United States along with other countries around the world are suffering due to the economic crisis which started in the late 2007. The following are the impact of the economic crisis on business firms, individuals and employees:
1) Reduction in consumer spending
2) Unemployment rate reaching10 percent
3) Slowdown in the construction and home building industry
4) Bankruptcy filed by several automobile manufacturers
5) Banks on the verge of a financial collapse as they are facing issues associated with loans and investments
6) Individual investments and retirement accounts getting devalued due to depressed stock values
7) Increase in business failures

Question 3

What reasons would you give if you were advising someone to study business?

Answer 3

College education provides enormous benefits both economically and in terms of knowledge enhancement. The following are the four most convincing reasons to study business:
1) It helps one in selecting a career that one wants to pursue in life.
2) It provides one with a roadmap to become a successful employee.
3) It helps one develop skills to start one's own business.
4) It helps one in becoming a well-informed investor and consumer.

Question 4

Entertainment Means Profits for Nederlander Concerts
Nederlander Concerts is based in Los Angeles, one of the two biggest markets in the U.S. concert industry (New York is the other). The company specializes in booking and promoting musical artists like the Goo Goo Dolls, Maroon 5, and Cyndi Lauper in small- to mid-sized venues across the western United States. It owns some of the theaters, amphitheaters, and arenas, including the Greek Theatre in Los Angeles, the Santa Barbara Bowl, the San Jose Civic Theater, and the Grove in Anaheim, and it rents space for concerts and events in other third-party venues along the West Coast. Nederlander Concerts also partners with some of California's major cities such as Santa Monica and San Jose to manage or operate their civic theaters and present events there.
Since Nederlander Concerts deliberately focuses on small- to mid-sized venues, it can offer a unique concert experience that brings audiences and performers closer together. It can therefore sell that high-quality experience at a higher price than seats in a bigger theater yield, and it can more often count on selling out the house, which helps the company and the artists to profit. The concert company's chief operating officer says, "The key areas or departments of the company include talent-buying and marketing, operations, finance, and business development… I have a talent-buying team, I have a marketing team, we have a general manager of the building, we have a substantial team of people who take care of the fans, take care of the artist, and look after the shows that we buy. We're in a competitive market, and it's pretty interesting what we do."
Although it might seem odd that the concert business is a competitive one, in fact Nederlander Concerts competes with other promoters (like Live Nation) not just for audiences at its events but for bookings by popular artists. Therefore, it counts as its clients or customers musicians as well as music lovers, and the performers need to be happy with the financial deal they are getting. As Nederlander's chief operating officer explains, "It's not always easy to get the show; there is competition… We have a great reputation with the artist. But also there's one other factor, and that's making the deal. That's making your best offer. That's trying to think about whether the agent is… telling you that your competition is paying more, willing to go more. You have to get your own 'I won't go above' number and stop bidding (for the act), or you have to say, 'Okay, I'll pay a little bit more and try to get the show.' So there's a real gamesmanship between agent and buyer… the art of the deal is something we live with every day."
Given the talent, how does Nederlander find the audience? Says its vice president of marketing, "It's learning about the market, and picking up every newspaper you can find, listening to every radio station you can find, watching all of the TV, all the news programming … it still comes back to, who is the artist, and who is their audience? And how do you find them?... The number one reason why people don't go to a show, so they say, is that they don't know about it. Which is infuriating. But we just try to make that percentage of people … smaller, and smaller, and smaller."
When everything is going well, the company profits. "Where we like to do most of our business, and in fact is where we probably do 90 percent of our business, is in the venues that we own or operate, so that the risk profile of those shows goes down … we have more revenues coming in to ensure that we're able to cover the cost, including the cost of talent, and then walk away with a greater profit." 19
Nederlander Concerts competes for audiences and with other concert arenas and promoters. Do you think it also competes for those audiences with TV, movies, CDs, DVDs, streaming video, and sports events? Why or why not? If yes, what implications does this type of competition have for Nederlander's business?

Question 5

Caterpillar Helps the World Build
From tractors to turbines, marine engines to mining equipment, Caterpillar makes the heavy equipment that powers progress and helps the world build. Formed in 1925 from the merger of two tractor manufacturers, Caterpillar has grown from its headquarters in Peoria, Illinois, into a successful $32 billion corporation with 110 factories and business operations in 23 countries. It also offers financing, insurance, and other services for dealers and business customers that buy its industrial products.
Caterpillar's sales contribute to the global economy by creating jobs for 94,000 in the company (including 44,000 employees located in North America) as well as for tens of thousands of workers employed by its network of suppliers and dealers. At the same time, Caterpillar's sales are affected, in large part, by local, regional, and international economic conditions. When the economy is expanding, customers such as construction firms need earthmoving equipment to tackle major projects, such as new housing, highways, pipelines, and mass transit systems. They also need demolition equipment, which Caterpillar makes, to clear the way for new projects.
During recessions, however, companies and governments often postpone or go slow on these types of projects, which in turn dampens demand for earthmovers and similar machinery. Still, Caterpillar has profited from the ongoing building boom in developing nations, where many infrastructure improvements move ahead regardless of what's happening in the rest of the world. These days, 69 percent of its sales come from outside the United States, up from 53 percent of sales just five years ago. Not surprisingly, Caterpillar's main competition in the global marketplace comes from multinational giants, such as Komatsu (based in Japan), CNH Global (based in the Netherlands), and Volvo (based in Sweden).
Before Caterpillar builds a new factory, it carefully researches the market. Recently, for example, it undertook a study of regional and global demand for excavating equipment. Although Caterpillar already operates excavator factories in the United States, Japan, and six other countries, it may open a new U.S. plant to serve all of North America if demand is strong enough. Instead of importing some models from its factory in Japan, as it does now, Caterpillar would make those products in the U.S. plant and have the Japanese facility make models that sell well in Asia.
Stepping up to sustainability, Caterpillar is going green on a global scale. It is constantly improving the efficiency of its products, reducing its use of power, doing more to recycle materials and cut waste, and finding new uses for old products. The company also offers training to help customers cut the amount of fuel they need to power their Caterpillar equipment, which saves users money as well as helps conserve scarce resources.
As a good corporate citizen, Caterpillar makes donations to non-profit organizations that support educational, health, and human services projects. It also contributes to environmental conservation organizations that protect natural resources and enhance sustainability around the world. Through the Caterpillar Employees United Way Appeal, the company and its employees make yearly donations to United Way groups in their local communities.
Caterpillar's managers and employees are required to follow the company's worldwide code of conduct in all their business dealings with suppliers, dealers, customers, and competitors. The code sets high standards for honest, ethical behavior; outlines how Caterpillar deals with potential conflicts of interest; and strictly forbids the use of "improper payments" such as bribes and kickbacks. Here's how the company sums up its commitment to being a responsible business: "We are global citizens and responsible members of our communities who are dedicated to safety, care for our environment, and manage our business ethically." 20
How would you characterize Caterpillar's competitive situation? What are the implications for how it does business?

Question 6

What factors caused American business to develop into a mixed economic system rather than some other type of economic system?

Question 7

What factors affect a person's choice of careers?

Question 8

Entertainment Means Profits for Nederlander Concerts
Nederlander Concerts is based in Los Angeles, one of the two biggest markets in the U.S. concert industry (New York is the other). The company specializes in booking and promoting musical artists like the Goo Goo Dolls, Maroon 5, and Cyndi Lauper in small- to mid-sized venues across the western United States. It owns some of the theaters, amphitheaters, and arenas, including the Greek Theatre in Los Angeles, the Santa Barbara Bowl, the San Jose Civic Theater, and the Grove in Anaheim, and it rents space for concerts and events in other third-party venues along the West Coast. Nederlander Concerts also partners with some of California's major cities such as Santa Monica and San Jose to manage or operate their civic theaters and present events there.
Since Nederlander Concerts deliberately focuses on small- to mid-sized venues, it can offer a unique concert experience that brings audiences and performers closer together. It can therefore sell that high-quality experience at a higher price than seats in a bigger theater yield, and it can more often count on selling out the house, which helps the company and the artists to profit. The concert company's chief operating officer says, "The key areas or departments of the company include talent-buying and marketing, operations, finance, and business development… I have a talent-buying team, I have a marketing team, we have a general manager of the building, we have a substantial team of people who take care of the fans, take care of the artist, and look after the shows that we buy. We're in a competitive market, and it's pretty interesting what we do."
Although it might seem odd that the concert business is a competitive one, in fact Nederlander Concerts competes with other promoters (like Live Nation) not just for audiences at its events but for bookings by popular artists. Therefore, it counts as its clients or customers musicians as well as music lovers, and the performers need to be happy with the financial deal they are getting. As Nederlander's chief operating officer explains, "It's not always easy to get the show; there is competition… We have a great reputation with the artist. But also there's one other factor, and that's making the deal. That's making your best offer. That's trying to think about whether the agent is… telling you that your competition is paying more, willing to go more. You have to get your own 'I won't go above' number and stop bidding (for the act), or you have to say, 'Okay, I'll pay a little bit more and try to get the show.' So there's a real gamesmanship between agent and buyer… the art of the deal is something we live with every day."
Given the talent, how does Nederlander find the audience? Says its vice president of marketing, "It's learning about the market, and picking up every newspaper you can find, listening to every radio station you can find, watching all of the TV, all the news programming … it still comes back to, who is the artist, and who is their audience? And how do you find them?... The number one reason why people don't go to a show, so they say, is that they don't know about it. Which is infuriating. But we just try to make that percentage of people … smaller, and smaller, and smaller."
When everything is going well, the company profits. "Where we like to do most of our business, and in fact is where we probably do 90 percent of our business, is in the venues that we own or operate, so that the risk profile of those shows goes down … we have more revenues coming in to ensure that we're able to cover the cost, including the cost of talent, and then walk away with a greater profit." 19
How many different groups can you think of whose needs Nederlander Concerts must satisfy to remain a successful business?

Question 9

Caterpillar Helps the World Build
From tractors to turbines, marine engines to mining equipment, Caterpillar makes the heavy equipment that powers progress and helps the world build. Formed in 1925 from the merger of two tractor manufacturers, Caterpillar has grown from its headquarters in Peoria, Illinois, into a successful $32 billion corporation with 110 factories and business operations in 23 countries. It also offers financing, insurance, and other services for dealers and business customers that buy its industrial products.
Caterpillar's sales contribute to the global economy by creating jobs for 94,000 in the company (including 44,000 employees located in North America) as well as for tens of thousands of workers employed by its network of suppliers and dealers. At the same time, Caterpillar's sales are affected, in large part, by local, regional, and international economic conditions. When the economy is expanding, customers such as construction firms need earthmoving equipment to tackle major projects, such as new housing, highways, pipelines, and mass transit systems. They also need demolition equipment, which Caterpillar makes, to clear the way for new projects.
During recessions, however, companies and governments often postpone or go slow on these types of projects, which in turn dampens demand for earthmovers and similar machinery. Still, Caterpillar has profited from the ongoing building boom in developing nations, where many infrastructure improvements move ahead regardless of what's happening in the rest of the world. These days, 69 percent of its sales come from outside the United States, up from 53 percent of sales just five years ago. Not surprisingly, Caterpillar's main competition in the global marketplace comes from multinational giants, such as Komatsu (based in Japan), CNH Global (based in the Netherlands), and Volvo (based in Sweden).
Before Caterpillar builds a new factory, it carefully researches the market. Recently, for example, it undertook a study of regional and global demand for excavating equipment. Although Caterpillar already operates excavator factories in the United States, Japan, and six other countries, it may open a new U.S. plant to serve all of North America if demand is strong enough. Instead of importing some models from its factory in Japan, as it does now, Caterpillar would make those products in the U.S. plant and have the Japanese facility make models that sell well in Asia.
Stepping up to sustainability, Caterpillar is going green on a global scale. It is constantly improving the efficiency of its products, reducing its use of power, doing more to recycle materials and cut waste, and finding new uses for old products. The company also offers training to help customers cut the amount of fuel they need to power their Caterpillar equipment, which saves users money as well as helps conserve scarce resources.
As a good corporate citizen, Caterpillar makes donations to non-profit organizations that support educational, health, and human services projects. It also contributes to environmental conservation organizations that protect natural resources and enhance sustainability around the world. Through the Caterpillar Employees United Way Appeal, the company and its employees make yearly donations to United Way groups in their local communities.
Caterpillar's managers and employees are required to follow the company's worldwide code of conduct in all their business dealings with suppliers, dealers, customers, and competitors. The code sets high standards for honest, ethical behavior; outlines how Caterpillar deals with potential conflicts of interest; and strictly forbids the use of "improper payments" such as bribes and kickbacks. Here's how the company sums up its commitment to being a responsible business: "We are global citizens and responsible members of our communities who are dedicated to safety, care for our environment, and manage our business ethically." 20
What factors in the business environment appear to have the most influence on Caterpillar's ability to continue its business success? Explain.

Question 10

Does an individual consumer really have a voice in answering the basic four economic questions?

Question 11

Describe the four resources that must be combined to organize and operate a business. How do they differ from the economist's factors of production?

Question 12

Entertainment Means Profits for Nederlander Concerts
Nederlander Concerts is based in Los Angeles, one of the two biggest markets in the U.S. concert industry (New York is the other). The company specializes in booking and promoting musical artists like the Goo Goo Dolls, Maroon 5, and Cyndi Lauper in small- to mid-sized venues across the western United States. It owns some of the theaters, amphitheaters, and arenas, including the Greek Theatre in Los Angeles, the Santa Barbara Bowl, the San Jose Civic Theater, and the Grove in Anaheim, and it rents space for concerts and events in other third-party venues along the West Coast. Nederlander Concerts also partners with some of California's major cities such as Santa Monica and San Jose to manage or operate their civic theaters and present events there.
Since Nederlander Concerts deliberately focuses on small- to mid-sized venues, it can offer a unique concert experience that brings audiences and performers closer together. It can therefore sell that high-quality experience at a higher price than seats in a bigger theater yield, and it can more often count on selling out the house, which helps the company and the artists to profit. The concert company's chief operating officer says, "The key areas or departments of the company include talent-buying and marketing, operations, finance, and business development… I have a talent-buying team, I have a marketing team, we have a general manager of the building, we have a substantial team of people who take care of the fans, take care of the artist, and look after the shows that we buy. We're in a competitive market, and it's pretty interesting what we do."
Although it might seem odd that the concert business is a competitive one, in fact Nederlander Concerts competes with other promoters (like Live Nation) not just for audiences at its events but for bookings by popular artists. Therefore, it counts as its clients or customers musicians as well as music lovers, and the performers need to be happy with the financial deal they are getting. As Nederlander's chief operating officer explains, "It's not always easy to get the show; there is competition… We have a great reputation with the artist. But also there's one other factor, and that's making the deal. That's making your best offer. That's trying to think about whether the agent is… telling you that your competition is paying more, willing to go more. You have to get your own 'I won't go above' number and stop bidding (for the act), or you have to say, 'Okay, I'll pay a little bit more and try to get the show.' So there's a real gamesmanship between agent and buyer… the art of the deal is something we live with every day."
Given the talent, how does Nederlander find the audience? Says its vice president of marketing, "It's learning about the market, and picking up every newspaper you can find, listening to every radio station you can find, watching all of the TV, all the news programming … it still comes back to, who is the artist, and who is their audience? And how do you find them?... The number one reason why people don't go to a show, so they say, is that they don't know about it. Which is infuriating. But we just try to make that percentage of people … smaller, and smaller, and smaller."
When everything is going well, the company profits. "Where we like to do most of our business, and in fact is where we probably do 90 percent of our business, is in the venues that we own or operate, so that the risk profile of those shows goes down … we have more revenues coming in to ensure that we're able to cover the cost, including the cost of talent, and then walk away with a greater profit." 19
Give an example showing how Nederlander Concerts uses each of the four factors of production.

Question 13

Is gross domestic product a reliable indicator of a nation's economic health? What might be a better indicator?

Question 14

Describe the relationship among profit, business risk, and the satisfaction of customers' needs.

Question 15

Discuss this statement: "Business competition encourages efficiency of production and leads to improved product quality."

Question 16

What are the four basic economic questions? How are they answered in a capitalist economy?

Question 17

In our business system, how is government involved in answering the four basic economic questions? Does government participate in the system or interfere with it?

Question 18

Explain the invisible hand of capitalism.

Question 19

Choose one of the challenges listed on page 29 and describe possible ways in which business and society could help to solve or eliminate the problem in the future.

Question 20

Describe the four basic assumptions required for a Laissez-Faire capitalist economy.

Question 21

Why is the American economy called a mixed economy?

Question 22

Based on Figure 1.5, outline the economic interactions between business and households in our business system.
Figure 1.5 The Circular Flow in Our Mixed Economy

Question 23

How does capitalism differ from socialism and communism?

Question 24

How is productivity related to the unemployment rate?

Question 25

Define gross domestic product. Why is this economic measure significant?

Question 26

How is the producer price index related to the consumer price index?

Question 27

What are the four steps in a typical business cycle? How are monetary and fiscal policies related to the business cycle?

Question 28

Choose three of the economic measures described in Table 1.2 and describe why these indicators are important when measuring a nation's economy.
Table 1.2 Common Measures Used to Evaluate a Notation's Economic Health

Question 29

Identify and compare the four forms of competition.

Question 30

Explain how the equilibrium, or market, price of a product is determined.

Question 31

Four different environments that affect business were described in this chapter. Choose one of the environments and explain how it affects a small electronics manufacturer located in Oregon. Why?