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Chapter One: Foundation of Business and Economics

Business Defined
A profit seeking activity that provides goods and services that satisfy consumers needs

Five Social & Economic Roles of Business

Provide society with necessities Provide people with jobs Pay taxes Reinvest profits into the economy Success as a business helps the economy

Profit vs. Not-For Profit

Profitwhat remains after all expenses have been deducted from business revenue. Not-For Profitprofit is not the motive for being. However the business must still run efficiently and effectively. The purpose of the revenue is key.

I. Why We Study Business ?

A. Increasing Dependence on Others I) Over the years, people have become more and more dependent on each others II) Mutual dependence

III) Use business system effectively

IV) Be a part of business Business: The exchange of goods, services or money for mutual benefit or profit Barter: The exchange of goods without using money

I. Why We Study Business

B. International Opportunities I) Being educated in business, people can avail exciting opportunities in the 21st century II) Multinational companies, joint ventures C. Standard of Living A measure of how well a person or family is doing in terms of satisfying needs and wants with goods and services I) Minimal amount of government interference & II) A free market business system

Free Enterprise A system in which

private businesses are able to start and do business competitively to earn profits, with a minimal degree of government regulation

I. Why We Study Business

D. Coping with changes - Business is dynamic - Coping with predictable and unpredictable changes E. Preventing Misconceptions - Misconception, misinformation and inaccurate data

II. People Form The Core Of Business

A. Owners People who own a business, as well as those who invest money in one and have right on the business property, do so because they expect to earn profit B. Managers The person responsible for operating the business may be the owner (an owner-manager also called an entrepreneur) or a professional manager employed by the owner I) The owner-manager sets his or her own objectives II) A professional manager attempts to achieve objectives set by others. They are accountable to the owners of the business

II. People Form The Core Of Business

C. Employees

Employees supply the skills and abilities needed to provide a product or service and to earn a profit
D. Consumers

A person who purchases a good or service for personal use

III. Business Objectives

A. Profit

1. Business Profit The difference between business income (revenue) and business expenses (costs): selling price all costs of making and selling a product including taxes
By conducting a number of activities, business enterprise earns profit. These areRisk-taking Evaluation of demand Efficient management

2. Economic profit what remains after expenses and opportunity costs are subtracted from income Opportunity cost the cost of choosing to use resources for a purpose, which results in sacrificing the next best alternative for the use of those resources B. Survival, Growth and Social responsibility

Economics: Scarce Resources The study of how Natural resources a society uses its scarce resources Human resources to produce and Capital distribute goods Entrepreneurs and services

Natural Resources Resources provided in limited amounts by nature, such as oil, coal, water and timber etc. Capital Resources Goods produced for the purpose of making other types of goods and services current assets having a short life and are used up in the production process - raw materials, paper etc. fixed capital (long term in nature) used repeatedly in the production process factory buildings, PCs, machinery etc. Labor Resources The human talent, skills and competence, available in a nation doctors, operators, teachers and so on.

IV. Economics: The Foundation of Business

B. Goods and Services A nations resources are used to produce goods and services that will meet peoples needs and wants Needs Goods and services people must have simply to exist food, clothing, shelter, medical care etc. Wants Things people would like to have but do not absolutely need for survival fashionable clothes, luxury vacations etc. C. Allocation The process of choosing how resources will be used to meet a societys needs and wants

V. ECONOMIC SYSTEMS An economic system is an accepted way of organizing production, establishing the rights and freedom of ownership, using productive resources and governing business transactions in a society. There are 3 basic types of systems

Economic Systems
Capitalism or Free-Market System
Right to ownership

Planned system

Planned system

Entitled to all profits

Right to choose job Decide what to produce How to produce Whom to sell to

State owns basic industries

Some private industries

State owns industries

Profits not recognized

Profits only in private sector

State influences job choice

State decides occupation

A. Communism/ Planned Economy An economy in which the government owns the productive resources, financial enterprises, retail stores and banks B. Capitalism/ Free Market Private enterprise can produce almost everything C. Socialism/ Mixed Economy both private and government produce and distribute goods and services

Government usually plays a role in supplying defense, roads, education, pensions and some medical care In mixed economy, markets are generally free and competitive

Capitalism Type of economic system characterized by private ownership of capital and by competition among businesses seeking profit. Consumers have freedom of choice in purchasing goods and services in selecting an occupation or a school etc Freedom of enterprise means, businesses and individuals with the capital may enter essentially any legal business venture they wish Competition refers to the rivalry among businesses for consumer money