Deck 3: Economic Challenges Facing Contemporary Business

Question 1

Microloans Aid Women's Businesses Almost half of American workers are women, including working mothers. Regardless of income, all saw their economic status deteriorate during the recession. In a recent survey, although most women thought conditions would improve eventually, more than half of working mothers say they are working more hours just to meet basic needs.In response to the demands of childcare and earning a living, many women have started their own businesses. After a career in the fashion industry, Tory Burch launched a successful design company. Learning from her own experience as a working mother, she later established the Tory Burch Foundation. Her research revealed some grim statistics: the majority of poor people in the United States are women. Having a child is one of the leading factors when a woman's income falls below the cost of living. Single mothers are most likely to be self-employed-but are also in the greatest danger of poverty.Inspired by microloan organizations in the developing world, Burch formed a partnership with ACCION USA, a microlender in the United States. At $500 to $50,000, ACCION USA's loans are somewhat larger than those in developing nations, but many have the same purpose: "to economically empower women." Their clients have low to moder-ate incomes and are more likely to be rejected by traditional banks, so these microloans are essential to their success. Forty percent are women, and more than 80 percent are members of minority groups. ACCION USA reports that more than 90 percent of these microloans have been repaid. Burch says, "I like microfinance . . . because it isn't charity in the traditional sense. . . . It gives entrepreneurs the opportunities many of us take for granted, and it is sustainable. . . . It's also incredibly important to the economic recovery of our country."
Why might having a baby cause a single mother's income to fall?

Answer 1

Since a mother has to look after her baby, she has to sacrifice her occupation, whether it is her own business or work with an organization. In this way, a baby may cause a decline in the income of a single mother.

Question 2

On your own or with a classmate, go online to research the economy of one of the following countries. Learn what you can about the type of economy the country has, its major industries, and its competitive issues. (Note which industries or services are privatized and which are govern-ment owned.) Take notes on unemployment rates, monetary policies, and fiscal policies. Present your findings to the class.
a. China
b. New Zealand
c. India
d. Sweden
e. Mexico
f. Canada
g. Brazil

Answer 2

The Indian Economy is a mixed economy having ninth position in term of GDP and fourth in terms of PPP in the world. Following are the main highlights of Indian economy. GDP growth is expected to around 5.3% (2012-2013) while unemployment rate is expected to rise from 9.3% to 9.4% in 2013.
Main industries of Indian economy are: textiles, chemical, mining, chemical, food processing, steel, transportation equipment, cement, petroleum, software and pharmaceuticals.
Monetary Policy
The Monetary Policy is the financial statement, traditionally declared twice in a year in India, on the basis of which the Reserve Bank of India try to ensure stability in price in the economy. These factors comprise - interest rates, money supply and the inflation.
Fiscal Policy
It discusses about the Expenditure and Revenue policy of the Government of India which is normally used to cure economy downturn and maintain stability of economic condition of the country.

Question 3

Describe a situation in which you have had to make an economic choice in an attempt to balance your wants with limited means. What factors influenced your decision?

Answer 3

It was a situation when I had very limited money to purchase the branded wrist watch, in this situation I had to make an economic choice in an attempt to balance my wants with limited money. It was an expensive watch which is out of reach with the available money, so opt for the local branded watch instead of original brand. In this situation following were the factors which influenced my decision to not purchased the branded watch.
a) My income
b) Price of the wrist watch
c) Price of other brands
d) Future expectation
e) Consumer in the market for the particular brand

Question 4

What are the four stages of the business cycle? In which stage do you believe the U.S. economy is now? Why?

Question 5

How does microeconomics impact business? How does macroeconomics affect business? Why is it important for businesspeople to understand the fundamentals of each?

Question 6

What is the gross domestic product? What is its relationship to productivity?

Question 7

Tax Credits for an Energy Star To encourage Americans to save energy and reduce pollution, the Environmental Protection Administration (EPA) launched the "ENERGY STAR" program in 1992. Later, the Energy Department and the EPA began granting makers of appliances and building materials the familiar ENERGY STAR seal if their products met federal standardsfor energy efficiency. The American Recovery and Reinvestment Act of2009 revised a program begun earlier that awards federal income-taxcredits to consumers who buy these products. The stimulus package also contains funds for rebates to consumers who buy new, ENERGY STAR-qualified appliances. Each U.S. state and territory has developed its own rebate plan.Hybrid gas-electric vehicles and those using alternative fuels are eligible for tax credits, as are plug-in electric vehicles. You can also get a tax credit equivalent to 10 percent of the cost if you convert a conventional vehicle to a plug-in, electric-drive motor.In the state-administered rebate program, replacing certain appliances with qualified ones will not only get you a rebate but will also lower your utility bills. Depending on climate, geography, and other factors, your state may choose from among boilers, central or room air conditioners, washing machines, dishwashers, freezers, oil and gasfurnaces, heat pumps (air source and geothermal), refrigerators, and water heaters.Certain kinds of home improvements are eligible for tax credits. You might invest in a new, qualified central air-conditioning system, heat pump, or furnace. If you live in a cold climate, you might choose to insulate or seal your windows. You might install a biomass stove that burns agricultural and wood waste, plants and residues, or wood pellets. Not only will you get a tax credit, you will also see long-run savings on your fuel bill and help protect the environment.
How will paying out rebates and granting tax credits stimulate the economy?

Question 8

What are the effects of inflation on an economy? What are the effects of deflation? How does the Consumer Price Index work?

Question 9

Credit card regulations. Several new federal regulations governing credit cards went into effect recently. Visit the Web site listed here and click on "New Credit Card Rules." After reviewing these rules, prepare a brief report highlighting the most significant changes. http://federalreserve.gov/creditcard/

Question 10

What does a nation's unemployment rate indicate? Describe what type of unemployment you think each of the following illustrates:
a. discharged armed forces veteran
b. bus driver who has been laid off due to cuts in his or her city's transit budget
c. worker who was injured on the job and must start a new career
d. lifeguard
e. dental hygienist who has quit one job and is looking for another

Question 11

Five Guys Burgers and Fries: A Simple Recipe for Success When his two oldest sons declared they were not going to college, Jerry Murrell supported their decision. To keep the boys close tohome and employed, he and his wife, Janie, used the money intendedfor their tuition to open a hamburger take-out shop in Arlington, Virginia. From this small beginning, Five Guys and a Burger (named for Murrell's five sons) grew to 570 franchises in the United States and Canada. All the Murrells' sons eventually joined the company, which the family still owns and runs.Very early, Murrell realized that in order to compete with the fast-food chains, Five Guys would have to concentrate on food. All the restaurants feature the same simple, red-and-white-tile décor. The meat for the burgers-80 percent lean-is always fresh, never frozen. Burgers are made to order, with a selection of 17 toppings. The buns are toasted on a grill for better taste, rather than in a bun toaster. The potatoes for the fries, which are cooked in peanut oil, all come from northern Idaho, where they grow more slowly. Because Five Guys insists on the highest-quality ingredients, its food prices change according to what the company pays its suppliers.The family tried some experiments that failed, such as serving coffee and a chicken sandwich. Aside from a very few kinds of hot dogs, they have stayed with the original burger-and-fries formula that first brought them success.The food-industry research firm Technomic named Five Guys the fastest growing chain for a recent year. That same year, the company took in an estimated $570 million-up 50 percent from the previous year. "We figure our best salesman is our customer," Murrell says. "Treat that person right, he'll walk out the door and sell for you."
How might supply and demand determine what the com-pany pays its suppliers?

Question 12

Explain the difference between monetary policy and fiscal policy. How does the government raise funds to cover the costs of its annual budget?

Question 13

Microloans Aid Women's Businesses Almost half of American workers are women, including working mothers. Regardless of income, all saw their economic status deteriorate during the recession. In a recent survey, although most women thought conditions would improve eventually, more than half of working mothers say they are working more hours just to meet basic needs.In response to the demands of childcare and earning a living, many women have started their own businesses. After a career in the fashion industry, Tory Burch launched a successful design company. Learning from her own experience as a working mother, she later established the Tory Burch Foundation. Her research revealed some grim statistics: the majority of poor people in the United States are women. Having a child is one of the leading factors when a woman's income falls below the cost of living. Single mothers are most likely to be self-employed-but are also in the greatest danger of poverty.Inspired by microloan organizations in the developing world, Burch formed a partnership with ACCION USA, a microlender in the United States. At $500 to $50,000, ACCION USA's loans are somewhat larger than those in developing nations, but many have the same purpose: "to economically empower women." Their clients have low to moder-ate incomes and are more likely to be rejected by traditional banks, so these microloans are essential to their success. Forty percent are women, and more than 80 percent are members of minority groups. ACCION USA reports that more than 90 percent of these microloans have been repaid. Burch says, "I like microfinance . . . because it isn't charity in the traditional sense. . . . It gives entrepreneurs the opportunities many of us take for granted, and it is sustainable. . . . It's also incredibly important to the economic recovery of our country."
Why do you think that the payback rate on microloans is so high?

Question 14

What is the difference between the budget deficit and the national debt? What are the benefits of paying down the national debt? What might be the negative effects?

Question 15

Choose one of the following products and describe the dif-ferent factors that you think might affect its supply and demand.
a. UGG boots
b. Kindle
c. Miles by Discover credit card
d. newly created name-brand drug
e. bicycling tour in Europe

Question 16

Case 3.1 Nuclear Energy: Making a Comeback? In the 2010 State of the Union address, the president called for more clean-energy jobs, with expansion of nuclear power as an alternative energy source. He declared, "To create more of these clean energy jobs, we need more production, more efficiency, more incentives. And that means building a new generation of safe, clean nuclear power plants in this country." Other countries, such as Great Britain, are already planning to build new nuclear plants. Although none have been built in the United States for many years, the 104 currently operating plants generate almost 20 percent of America's electricity. Wind and solar energy together generate less than 5 percent.An alloy of enriched uranium powers nuclear reactors. How large is the world's supply of uranium? How long will it last?
Uranium, a metal, is relatively common and can be found in rocks and even seawater as well as in ore deposits in the earth. With 24 percent, Australia has the largest supply overall, but Kazakhstan recently declared that it had surpassed Australia's output. Canada has less than 10 percent of the world's supply, but has the highest concentration of top-quality ore. Worldwide, about 67,00 tons of uranium are used each year. At current demand, that supply is expected to last about 70 years. The World Nuclear Association (WNA) predicts that nuclear reactor capacity will increase by about 27 percent in the next decade and that the demand for uranium will grow by 33 percent in response. There is some debate about when the demand for uranium will be greater than the supply that can be mined economically. Antinuclear activists point out that mineral resources are nonrenewable. Just as the world will eventually run out of oil and coal, it will also run out of uranium. Some analysts believe that this will happen sooner rather than later. Environmentalists object to destructive mining techniques. In Australia, activists are concerned with the land rights of indigenous Australians. Another potential road-block is that uranium mining in general is impeded by a lack of infrastructure and a shortage of experienced workers, factors that drive up processing costs. And, a still-unsolved and crucial problem is how to manage safe, long-term storage of spent nuclear rods, which continue to emit radioactivity.The World Nuclear Association disagrees with these assessments.
First, not all uranium deposits have been discovered. Since 1975, the number of known deposits has tripled. Advances in geological research and more exploration will detect many more. As mining techniques improve, known deposits that are currently unreachable will become economically accessible. The WNA predicts that at current rates of usage, known supplies will last 200 years rather than 70 or 80.
Second, ore deposits are not the only sources of uranium. It is also found in nuclear weapons, available because of various disarmament treaties. The end of the Cold War in the late 1980s also meant the end of the nuclear arms race. Nuclear warheads contain high-quality enriched uranium. Utility companies and governments also have stockpiles of the metal.
Third, research is ongoing to make enrichment facilities and reactors more energy efficient.
Fourth, unlike oil or coal, uranium can be recycled from spent nuclear fuel rods and from tailings (uranium left over from the enrichment process). These techniques should also improve over time. Other sources, such as phosphates and seawater, could become economically viable in the future.
What factors do you think will affect the supply and demand curve for nuclear energy?

Question 17

Draw supply and demand graphs that estimate what will happen to demand, supply, and the equilibrium price of cof-fee if these events occur:
a. Widely reported medical studies suggest that coffee drinkers are less likely to develop certain diseases.
b. The cost of manufacturing paper cups increases.
c. The state imposes a new tax on takeout beverages.
d. The biggest coffee chain leaves the area.

Question 18

Case 3.1 Nuclear Energy: Making a Comeback? In the 2010 State of the Union address, the president called for more clean-energy jobs, with expansion of nuclear power as an alternative energy source. He declared, "To create more of these clean energy jobs, we need more production, more efficiency, more incentives. And that means building a new generation of safe, clean nuclear power plants in this country." Other countries, such as Great Britain, are already planning to build new nuclear plants. Although none have been built in the United States for many years, the 104 currently operating plants generate almost 20 percent of America's electricity. Wind and solar energy together generate less than 5 percent.An alloy of enriched uranium powers nuclear reactors. How large is the world's supply of uranium? How long will it last?
Uranium, a metal, is relatively common and can be found in rocks and even seawater as well as in ore deposits in the earth. With 24 percent, Australia has the largest supply overall, but Kazakhstan recently declared that it had surpassed Australia's output. Canada has less than 10 percent of the world's supply, but has the highest concentration of top-quality ore. Worldwide, about 67,00 tons of uranium are used each year. At current demand, that supply is expected to last about 70 years. The World Nuclear Association (WNA) predicts that nuclear reactor capacity will increase by about 27 percent in the next decade and that the demand for uranium will grow by 33 percent in response. There is some debate about when the demand for uranium will be greater than the supply that can be mined economically. Antinuclear activists point out that mineral resources are nonrenewable. Just as the world will eventually run out of oil and coal, it will also run out of uranium. Some analysts believe that this will happen sooner rather than later. Environmentalists object to destructive mining techniques. In Australia, activists are concerned with the land rights of indigenous Australians. Another potential road-block is that uranium mining in general is impeded by a lack of infrastructure and a shortage of experienced workers, factors that drive up processing costs. And, a still-unsolved and crucial problem is how to manage safe, long-term storage of spent nuclear rods, which continue to emit radioactivity.The World Nuclear Association disagrees with these assessments.
First, not all uranium deposits have been discovered. Since 1975, the number of known deposits has tripled. Advances in geological research and more exploration will detect many more. As mining techniques improve, known deposits that are currently unreachable will become economically accessible. The WNA predicts that at current rates of usage, known supplies will last 200 years rather than 70 or 80.
Second, ore deposits are not the only sources of uranium. It is also found in nuclear weapons, available because of various disarmament treaties. The end of the Cold War in the late 1980s also meant the end of the nuclear arms race. Nuclear warheads contain high-quality enriched uranium. Utility companies and governments also have stockpiles of the metal.
Third, research is ongoing to make enrichment facilities and reactors more energy efficient.
Fourth, unlike oil or coal, uranium can be recycled from spent nuclear fuel rods and from tailings (uranium left over from the enrichment process). These techniques should also improve over time. Other sources, such as phosphates and seawater, could become economically viable in the future.
Describe what type of competition you predict will arise in the nuclear energy industry.

Question 19

Tax Credits for an Energy Star To encourage Americans to save energy and reduce pollution, the Environmental Protection Administration (EPA) launched the "ENERGY STAR" program in 1992. Later, the Energy Department and the EPA began granting makers of appliances and building materials the familiar ENERGY STAR seal if their products met federal standardsfor energy efficiency. The American Recovery and Reinvestment Act of2009 revised a program begun earlier that awards federal income-taxcredits to consumers who buy these products. The stimulus package also contains funds for rebates to consumers who buy new, ENERGY STAR-qualified appliances. Each U.S. state and territory has developed its own rebate plan.Hybrid gas-electric vehicles and those using alternative fuels are eligible for tax credits, as are plug-in electric vehicles. You can also get a tax credit equivalent to 10 percent of the cost if you convert a conventional vehicle to a plug-in, electric-drive motor.In the state-administered rebate program, replacing certain appliances with qualified ones will not only get you a rebate but will also lower your utility bills. Depending on climate, geography, and other factors, your state may choose from among boilers, central or room air conditioners, washing machines, dishwashers, freezers, oil and gasfurnaces, heat pumps (air source and geothermal), refrigerators, and water heaters.Certain kinds of home improvements are eligible for tax credits. You might invest in a new, qualified central air-conditioning system, heat pump, or furnace. If you live in a cold climate, you might choose to insulate or seal your windows. You might install a biomass stove that burns agricultural and wood waste, plants and residues, or wood pellets. Not only will you get a tax credit, you will also see long-run savings on your fuel bill and help protect the environment.
Which would you prefer to receive-an income-tax credit or a rebate? Why?

Question 20

Case 3.2 Smart Phones: Recession Proof and Growing: The ascent of the smart phone has been one of the most revolutionary developments in electronics. Among the many models available are the the Nokia N900, the Apple iPhone, Research in Motion's BlackBerry, the Palm Treo, and the Motorola Droid, with others in the works. Microsoft is planning to launch smart phone software to rival Apple's. Despite the recent recession, smart phones have remained wildly popular in the United States and abroad. The numbers are staggering. In one recent quarter, 53 million smart phones were shipped worldwide. Nokia led the global market with almost 40 percent of market share. The BlackBerry was second, with just over 20 percent. The iPhone was third, with over 16 percent. Other smart phones
had a combined market share of just over 24 percent.Competition among the smart phones will almost certainly remain strong and is likely to become stronger. Two influential factors are coverage and applications. The new Droid from Motorola is giving the iPhone a run for its money. The Droid runs on the Verizon network, whereas AT&T has exclusive rights to the iPhone. Verizon has wider network coverage than AT&T, but AT&T allows iPhone users to multitask on one handset. At present, prospective buyers must choose between quality of coverage and multitasking. The coverage issue may become moot, however, because some predict that Apple may soon unlock the iPhone, and AT&T will no longer be the sole carrier. In applications, or "apps," the iPhone has far sur-passed any other smart phone. It leads in number of app developers, number of apps, and number of people who have downloaded those apps. Applications number in the hundreds of thousands; Apple alone has 75,000. Most are free; others (about 18 percent) cost just a few dollars. Apps range from weather to games to music to news. A typical user downloads 20 apps, with games far in the lead. Apple recently celebrated its one-billionth iPhone download.
Here are some predictions for the smart phone industry:
• Some analysts forecast that sales of smart phones will increase four-fold by 2013, and fees for smart phone apps in the United States alone will increase ten-fold to $4.2 billion. As they grow ever more powerful and more versatile, smart phones could very well replace laptops in the future.
• Smart phones will account for an increasing share of the mobile-phone market. In a recent year, 1.2 billion mobile phones were shipped worldwide; of these, 190 million were smart phones. That percentage is expected to rise.
• As we have seen, application stores will experience a boom. The iPhone already has plenty of games, so analysts suggest app writers should develop other types of software, such as business apps. The BlackBerry has plenty of business applications, so writers should develop more games.
• Location-based services, which already include GPS, will increase. Droid users can download step-by-step spoken directions via Google. You'll be able to use your smart phone to trace a package or find your friends so you can meet for a movie. Advertisers may be able to have pop-up ads on the maps you download. Manufacturers are expected to launch other devices in addition to smart phones. Some are already available. Amazon's e-reader Kindle is facing competition from the Barnes & Noble Nook. Apple's iPad tablet is expected to function as a media viewer as well as an e-reader. As this decade unfolds, devices and applications will be limited only by the developers' imaginations.
How has the rapid development of technology affected competition in the mobile-phone industry?

Question 21

Unemployment. In the United States, the Bureau of Labor Statistics (BLS) compiles and publishes data on unemployment. Go to the BLS Web site (http://www.bls.gov) and click on "Unemployment." Read through the most recent report and answer the following questions:
a. What is the current unemployment rate in the United States? How does it compare to other developed countries?
b. Which state has the highest unemployment rate? Which state has the lowest unemployment rate?
c. What is the so-called underemployment rate?

Question 22

Case 3.2 Smart Phones: Recession Proof and Growing: The ascent of the smart phone has been one of the most revolutionary developments in electronics. Among the many models available are the the Nokia N900, the Apple iPhone, Research in Motion's BlackBerry, the Palm Treo, and the Motorola Droid, with others in the works. Microsoft is planning to launch smart phone software to rival Apple's. Despite the recent recession, smart phones have remained wildly popular in the United States and abroad. The numbers are staggering. In one recent quarter, 53 million smart phones were shipped worldwide. Nokia led the global market with almost 40 percent of market share. The BlackBerry was second, with just over 20 percent. The iPhone was third, with over 16 percent. Other smart phones
had a combined market share of just over 24 percent.Competition among the smart phones will almost certainly remain strong and is likely to become stronger. Two influential factors are coverage and applications. The new Droid from Motorola is giving the iPhone a run for its money. The Droid runs on the Verizon network, whereas AT&T has exclusive rights to the iPhone. Verizon has wider network coverage than AT&T, but AT&T allows iPhone users to multitask on one handset. At present, prospective buyers must choose between quality of coverage and multitasking. The coverage issue may become moot, however, because some predict that Apple may soon unlock the iPhone, and AT&T will no longer be the sole carrier. In applications, or "apps," the iPhone has far sur-passed any other smart phone. It leads in number of app developers, number of apps, and number of people who have downloaded those apps. Applications number in the hundreds of thousands; Apple alone has 75,000. Most are free; others (about 18 percent) cost just a few dollars. Apps range from weather to games to music to news. A typical user downloads 20 apps, with games far in the lead. Apple recently celebrated its one-billionth iPhone download.
Here are some predictions for the smart phone industry:
• Some analysts forecast that sales of smart phones will increase four-fold by 2013, and fees for smart phone apps in the United States alone will increase ten-fold to $4.2 billion. As they grow ever more powerful and more versatile, smart phones could very well replace laptops in the future.
• Smart phones will account for an increasing share of the mobile-phone market. In a recent year, 1.2 billion mobile phones were shipped worldwide; of these, 190 million were smart phones. That percentage is expected to rise.
• As we have seen, application stores will experience a boom. The iPhone already has plenty of games, so analysts suggest app writers should develop other types of software, such as business apps. The BlackBerry has plenty of business applications, so writers should develop more games.
• Location-based services, which already include GPS, will increase. Droid users can download step-by-step spoken directions via Google. You'll be able to use your smart phone to trace a package or find your friends so you can meet for a movie. Advertisers may be able to have pop-up ads on the maps you download. Manufacturers are expected to launch other devices in addition to smart phones. Some are already available. Amazon's e-reader Kindle is facing competition from the Barnes & Noble Nook. Apple's iPad tablet is expected to function as a media viewer as well as an e-reader. As this decade unfolds, devices and applications will be limited only by the developers' imaginations.
How does this technology affect supply and demand in the mobile-phone industry?

Question 23

Go online to research one of the following government agencies-its responsibilities, its budget, and the like. Then make the case for privatizing it:
a. Veterans Administration
b. Bureau of the Census
c. Smithsonian Institution
d. Transportation and Security Administration
e. Social Security

Question 24

Case 3.3 Secret Acres: Selling Comics Is Serious Business: Just about everyone remembers a favorite comic book from childhood-whether it was Spiderman, Tin Tin, or even Garfield. Leon Avelino and Barry Matthews readily acknowledge that they are kids in grown-up bodies with real day jobs (Avelino works for Sports Illustrated and Matthews is an accountant for an e-commerce firm) who happen to love comic books and their latest incarnation, graphic novels. Their love for comics in all forms-along with the desire to start their own business-led them to found Secret Acres, a comic book and graphic novel publisher based in New York City. In addition to publishing several works from up-and-coming authors (they have eight books on their list so far), the Secret Acres duo sells books from independent distributors. Often asked whether they think Secret Acres willsucceed or fail in the next few years, Avelino quips, "People think we're too small to fail anyway." He laughs but then adds, "That pisses me off. I think we can totally fail." But Avelino and Matthews have no intention of failing. Acknowledging that Secret Acres faces many economic challenges if it's going to hang on and eventually succeed, Matthews observes, "Every decision we make, we know what the outcome is going to be because it's all small and it's very close to us." Right now, Secret Acres can use its small size to build relationships with its customers. "We are able, because we're small, to produce a very specific kind of comic book, a specific kind of graphic novel, that appeals to a specific audience," explains Matthews. "I love that. We have a lot of control over what we do and we're not doing anything specifically to turn a buck." That said, the accountant in Matthews knows that in order to stay in business, Secret Acres must sell enough books to push unit costs down, keeping production expenses and prices as low as possible. Matthews also refers to relationships with book stores, which are personal because he and Avelino do all the communicating themselves. "When you have a small group of stores you are selling from, you have to collect from them on a one-to-one basis," says Matthews. Sometimes the relationship becomes awkward when Matthews or Avelino has to remind a book store owner personally of an unpaid balance. Another challenge facing the duo is the uncertain future of the print publishing market. The introduction of e-readers such as Amazon's Kindle and Barnes & Noble's Nook creates a new delivery system for printed work. While the e-reader hasn't created the sensation among consumers that its manufacturers had hoped (some competing models have already disappeared from the marketplace), online delivery of printed matter is alive and well-and it's likely that some form of e-reader will eventually catch on. "Publishers are nervous because no one knows how popular e-readers will be in the long run," says Matthews. Another phenomenon that has taken hold over the last decade is the graphic novel, the fiction genre that combines comic book techniques with the longer, more complex structure of a novel. Graphic novels are particularly popular among teens and college students, but they have received serious attention from the literary world. College courses are now taught around the graphic novel, and the American Library Association publishes a list of recommended graphic novels for teens each year. A firm like Secret Acres could capitalize on a literary trend that continues to gain ground. Matthews and Avelino haven't quit their day jobs yet. They know it will be awhile before they can call themselves full-time publishers. But they love the comic book business and they are willing to wait for the good times they believe are ahead. "We have faith in the fact that if these books find the right audience, they'll do fine," says Avelino. "I'm OK with bei ng patient. We need to keep going long enough to build a back list that is self-supporting." And Secret Acres already has a following among comic fans-their secret is out.
What steps might Matthews and Avelino take to create demand for their books? How must a small business like Secret Acres balance supply with demand?

Question 25

Describe the four different types of competition in the pri-vate enterprise system. In which type of competition would each of the following businesses be likely to engage?
a. large drug stores chain
b. small yoga studio
c. steel mill
d. large farm whose major crop is corn
e. Microsoft

Question 26

Case 3.3 Secret Acres: Selling Comics Is Serious Business: Just about everyone remembers a favorite comic book from childhood-whether it was Spiderman, Tin Tin, or even Garfield. Leon Avelino and Barry Matthews readily acknowledge that they are kids in grown-up bodies with real day jobs (Avelino works for Sports Illustrated and Matthews is an accountant for an e-commerce firm) who happen to love comic books and their latest incarnation, graphic novels. Their love for comics in all forms-along with the desire to start their own business-led them to found Secret Acres, a comic book and graphic novel publisher based in New York City. In addition to publishing several works from up-and-coming authors (they have eight books on their list so far), the Secret Acres duo sells books from independent distributors. Often asked whether they think Secret Acres willsucceed or fail in the next few years, Avelino quips, "People think we're too small to fail anyway." He laughs but then adds, "That pisses me off. I think we can totally fail." But Avelino and Matthews have no intention of failing. Acknowledging that Secret Acres faces many economic challenges if it's going to hang on and eventually succeed, Matthews observes, "Every decision we make, we know what the outcome is going to be because it's all small and it's very close to us." Right now, Secret Acres can use its small size to build relationships with its customers. "We are able, because we're small, to produce a very specific kind of comic book, a specific kind of graphic novel, that appeals to a specific audience," explains Matthews. "I love that. We have a lot of control over what we do and we're not doing anything specifically to turn a buck." That said, the accountant in Matthews knows that in order to stay in business, Secret Acres must sell enough books to push unit costs down, keeping production expenses and prices as low as possible. Matthews also refers to relationships with book stores, which are personal because he and Avelino do all the communicating themselves. "When you have a small group of stores you are selling from, you have to collect from them on a one-to-one basis," says Matthews. Sometimes the relationship becomes awkward when Matthews or Avelino has to remind a book store owner personally of an unpaid balance. Another challenge facing the duo is the uncertain future of the print publishing market. The introduction of e-readers such as Amazon's Kindle and Barnes & Noble's Nook creates a new delivery system for printed work. While the e-reader hasn't created the sensation among consumers that its manufacturers had hoped (some competing models have already disappeared from the marketplace), online delivery of printed matter is alive and well-and it's likely that some form of e-reader will eventually catch on. "Publishers are nervous because no one knows how popular e-readers will be in the long run," says Matthews. Another phenomenon that has taken hold over the last decade is the graphic novel, the fiction genre that combines comic book techniques with the longer, more complex structure of a novel. Graphic novels are particularly popular among teens and college students, but they have received serious attention from the literary world. College courses are now taught around the graphic novel, and the American Library Association publishes a list of recommended graphic novels for teens each year. A firm like Secret Acres could capitalize on a literary trend that continues to gain ground. Matthews and Avelino haven't quit their day jobs yet. They know it will be awhile before they can call themselves full-time publishers. But they love the comic book business and they are willing to wait for the good times they believe are ahead. "We have faith in the fact that if these books find the right audience, they'll do fine," says Avelino. "I'm OK with bei ng patient. We need to keep going long enough to build a back list that is self-supporting." And Secret Acres already has a following among comic fans-their secret is out.
How might Secret Acres make the most of an economy that is recovering slowly? What advantages and disadvantages might the firm have over a large publishing company?

Question 27

Gross domestic product. Visit the Web site of the Bureau of Economic Analysis (http://www.bea.gov) and access the most recent statistics on the U.S. GDP. Prepare a brief report. What is the current GDP? What is the difference between real and nominal GDP? What are the individual components that make up GDP?

Question 28

Case 3.3 Secret Acres: Selling Comics Is Serious Business: Just about everyone remembers a favorite comic book from childhood-whether it was Spiderman, Tin Tin, or even Garfield. Leon Avelino and Barry Matthews readily acknowledge that they are kids in grown-up bodies with real day jobs (Avelino works for Sports Illustrated and Matthews is an accountant for an e-commerce firm) who happen to love comic books and their latest incarnation, graphic novels. Their love for comics in all forms-along with the desire to start their own business-led them to found Secret Acres, a comic book and graphic novel publisher based in New York City. In addition to publishing several works from up-and-coming authors (they have eight books on their list so far), the Secret Acres duo sells books from independent distributors. Often asked whether they think Secret Acres willsucceed or fail in the next few years, Avelino quips, "People think we're too small to fail anyway." He laughs but then adds, "That pisses me off. I think we can totally fail." But Avelino and Matthews have no intention of failing. Acknowledging that Secret Acres faces many economic challenges if it's going to hang on and eventually succeed, Matthews observes, "Every decision we make, we know what the outcome is going to be because it's all small and it's very close to us." Right now, Secret Acres can use its small size to build relationships with its customers. "We are able, because we're small, to produce a very specific kind of comic book, a specific kind of graphic novel, that appeals to a specific audience," explains Matthews. "I love that. We have a lot of control over what we do and we're not doing anything specifically to turn a buck." That said, the accountant in Matthews knows that in order to stay in business, Secret Acres must sell enough books to push unit costs down, keeping production expenses and prices as low as possible. Matthews also refers to relationships with book stores, which are personal because he and Avelino do all the communicating themselves. "When you have a small group of stores you are selling from, you have to collect from them on a one-to-one basis," says Matthews. Sometimes the relationship becomes awkward when Matthews or Avelino has to remind a book store owner personally of an unpaid balance. Another challenge facing the duo is the uncertain future of the print publishing market. The introduction of e-readers such as Amazon's Kindle and Barnes & Noble's Nook creates a new delivery system for printed work. While the e-reader hasn't created the sensation among consumers that its manufacturers had hoped (some competing models have already disappeared from the marketplace), online delivery of printed matter is alive and well-and it's likely that some form of e-reader will eventually catch on. "Publishers are nervous because no one knows how popular e-readers will be in the long run," says Matthews. Another phenomenon that has taken hold over the last decade is the graphic novel, the fiction genre that combines comic book techniques with the longer, more complex structure of a novel. Graphic novels are particularly popular among teens and college students, but they have received serious attention from the literary world. College courses are now taught around the graphic novel, and the American Library Association publishes a list of recommended graphic novels for teens each year. A firm like Secret Acres could capitalize on a literary trend that continues to gain ground. Matthews and Avelino haven't quit their day jobs yet. They know it will be awhile before they can call themselves full-time publishers. But they love the comic book business and they are willing to wait for the good times they believe are ahead. "We have faith in the fact that if these books find the right audience, they'll do fine," says Avelino. "I'm OK with bei ng patient. We need to keep going long enough to build a back list that is self-supporting." And Secret Acres already has a following among comic fans-their secret is out.
How would you categorize the competition that Secret Acres faces?

Question 29

Some businesses automatically experience seasonal unemployment. Increasingly however, owners of these businesses are making efforts to increase demand-and employment-during the off-season. Choose a classmate to be your business partner, and together select one of the following businesses. Create a plan for developing business and keeping employees for a season during which your business does not customarily operate:
a. children's summer camp
b. ski lodge
c. inn located near a beach resort
d. house painting service
e. greenhouse

Question 30

Case 3.3 Secret Acres: Selling Comics Is Serious Business: Just about everyone remembers a favorite comic book from childhood-whether it was Spiderman, Tin Tin, or even Garfield. Leon Avelino and Barry Matthews readily acknowledge that they are kids in grown-up bodies with real day jobs (Avelino works for Sports Illustrated and Matthews is an accountant for an e-commerce firm) who happen to love comic books and their latest incarnation, graphic novels. Their love for comics in all forms-along with the desire to start their own business-led them to found Secret Acres, a comic book and graphic novel publisher based in New York City. In addition to publishing several works from up-and-coming authors (they have eight books on their list so far), the Secret Acres duo sells books from independent distributors. Often asked whether they think Secret Acres willsucceed or fail in the next few years, Avelino quips, "People think we're too small to fail anyway." He laughs but then adds, "That pisses me off. I think we can totally fail." But Avelino and Matthews have no intention of failing. Acknowledging that Secret Acres faces many economic challenges if it's going to hang on and eventually succeed, Matthews observes, "Every decision we make, we know what the outcome is going to be because it's all small and it's very close to us." Right now, Secret Acres can use its small size to build relationships with its customers. "We are able, because we're small, to produce a very specific kind of comic book, a specific kind of graphic novel, that appeals to a specific audience," explains Matthews. "I love that. We have a lot of control over what we do and we're not doing anything specifically to turn a buck." That said, the accountant in Matthews knows that in order to stay in business, Secret Acres must sell enough books to push unit costs down, keeping production expenses and prices as low as possible. Matthews also refers to relationships with book stores, which are personal because he and Avelino do all the communicating themselves. "When you have a small group of stores you are selling from, you have to collect from them on a one-to-one basis," says Matthews. Sometimes the relationship becomes awkward when Matthews or Avelino has to remind a book store owner personally of an unpaid balance. Another challenge facing the duo is the uncertain future of the print publishing market. The introduction of e-readers such as Amazon's Kindle and Barnes & Noble's Nook creates a new delivery system for printed work. While the e-reader hasn't created the sensation among consumers that its manufacturers had hoped (some competing models have already disappeared from the marketplace), online delivery of printed matter is alive and well-and it's likely that some form of e-reader will eventually catch on. "Publishers are nervous because no one knows how popular e-readers will be in the long run," says Matthews. Another phenomenon that has taken hold over the last decade is the graphic novel, the fiction genre that combines comic book techniques with the longer, more complex structure of a novel. Graphic novels are particularly popular among teens and college students, but they have received serious attention from the literary world. College courses are now taught around the graphic novel, and the American Library Association publishes a list of recommended graphic novels for teens each year. A firm like Secret Acres could capitalize on a literary trend that continues to gain ground. Matthews and Avelino haven't quit their day jobs yet. They know it will be awhile before they can call themselves full-time publishers. But they love the comic book business and they are willing to wait for the good times they believe are ahead. "We have faith in the fact that if these books find the right audience, they'll do fine," says Avelino. "I'm OK with bei ng patient. We need to keep going long enough to build a back list that is self-supporting." And Secret Acres already has a following among comic fans-their secret is out.
Do you think Secret Acres should pursue online distribution through e-readers and other delivery systems? Why or why not?

Question 31

Five Guys Burgers and Fries: A Simple Recipe for Success When his two oldest sons declared they were not going to col-lege, Jerry Murrell supported their decision. To keep the boys close tohome and employed, he and his wife, Janie, used the money intendedfor their tuition to open a hamburger take-out shop in Arlington, Virginia. From this small beginning, Five Guys and a Burger (named for Murrell's five sons) grew to 570 franchises in the United States and Canada. All the Murrells' sons eventually joined the company, which the family still owns and runs.Very early, Murrell realized that in order to compete with the fast-food chains, Five Guys would have to concentrate on food. All the restaurants feature the same simple, red-and-white-tile décor. The meat for the burgers-80 percent lean-is always fresh, never frozen. Burgers are made to order, with a selection of 17 toppings. The buns are toasted on a grill for better taste, rather than in a bun toaster. The potatoes for the fries, which are cooked in peanut oil, all come from northern Idaho, where they grow more slowly. Because Five Guys insists on the highest-quality ingredients, its food prices change according to what the company pays its suppliers.The family tried some experiments that failed, such as serving coffee and a chicken sandwich. Aside from a very few kinds of hot dogs, they have stayed with the original burger-and-fries formula that first brought them success.The food-industry research firm Technomic named Five Guys the fastest growing chain for a recent year. That same year, the company took in an estimated $570 million-up 50 percent from the previous year. "We figure our best salesman is our customer," Murrell says. "Treat that person right, he'll walk out the door and sell for you."
Why do you think Five Guys and a Burger prospered during the recent recession?

Question 32

Distinguish between the two types of planned economies. What factors do you think keep them from flourishing in today's environment?