Chapter 1the role of business in our economic setting

Prepared by:Ms. Ghazala Shamim

Business

•“An organization that provides goods and services to earn or maximize a profit.”

•“An organization engaged in producing and selling, at a profit, goods and services that consumer’s needs and wants.”

Key points about business

•Produce goods and services•Seek profit•Try to satisfy consumer’s needs and wants

Produce goods and services• Goods• A commodity, or a physical, tangible item that satisfies

human want or need. Such as credit card, beverages, ice creams.

• Services• An activities that benefits consumers or other

businesses. It is an intangible products such as accounting, banking, consultancy, education, insurance, expertise, medical treatment or transportation.

Types of business

•Require the same functions or activities to be performed to operate the business.

•Use the same inputs to produce the final goods and services.

Activites of business

•Creates a product or service•Market the product or service to the

consumer•Account for the financial transaction•Hire, train and evaluate employees•Acquire financing •Process information

Management functions of business•Plan what it wants to accomplish •Organize its resources•Acquire the people to operate the

business•Guide the people to operate the business•Monitor progress

How to operate business

Input Process Output

Factor of production

•Input or resources used to produce goods and services.

•The four resources are;• Land • Labor • Capital• Entrepreneurship

•Land:• Land is the natural resources that can be

used to produce goods and services.

•Labor:• Labor is the total human resources

required to turn raw materials into goods and services.

•Capital:• Capital is the total of tools, equipment,

machinery and buildings used to produce goods and services.

•Entrepreneurship:• Entrepreneur is an individual who takes

initiatives to bundle resources in innovative ways and is willing to bear the risk and/or uncertainty to act.

profit

•Profit is the amount of money remaining from a firm’s sales revenues after it deduct its total expenses.

•It is the reward to the business.•Profit is the ultimate goal of business.

Economic system

•It is the method a society uses to allocate its resources and meet its needs for goods and services.

•Types of Economic system• Capitalism• Communism• Socialism

Capitalism

•It is an economic system in which both the factors of production and the businesses are owned by private individuals.

•It not concern by the government.•Private enterprise system, an economic

system in which businesses or enterprises are privately owned.

Principles or rights of the private enterprises system•Right to private ownership of property•Right to freedom of choice•Right to compete •Rights to profits

Types of capitalism

•Two types of capitalism• Pure capitalism• Mixed capitalism

Pure capitalism

•It is also known as market economy.•It is an economic system in which

economic decisions are made freely according to the market forces of supply and demand.

•Government does not interfere in the economic system is called laissez-faire or hands off approach.

Producing goods and services

•A household, in economic terms, is any person or group of people living under the same roof and functioning as an economic unit.

•5 triggers a series of action.

Mixed capitalism

•An economic system based on a market economy with limited government involvement.

•Two primary tool:• Power of tax• Power of spend

•Government own entities•Government agencies that regulate the

activities of some businesses•Government involves employer employee

relations

Communism

•In which the government controls the factor of production.

•Central government planner make all the decision about production and resource allocation.

•Supply, demand and competition have no influence in this system.

Socialism

•It is an economic system in which the government controls the operation and direction of basic industries but private ownership also exists.

•Government take a decisions.•The industries normally under control of

the government.

Mixed economic system

•In this economic system, in which there is both private and government ownership and production of goods and services.

•There is more than one economic system at work in the country.

•Economic system are not static.

The performance of economic system

•Gross National Product (GNP):• The GNP accounts for all goods and

services a country produces, no matter where they were produced.

•Gross domestic Product (GDP):• The total market value of all goods and

services that a country produces in a year with in its national boundaries.

Standard of living

•The degree of material wealth in a country.• It shows that how well an individual is

doing to satisfy his or her needs for goods and services.

•Productivity:•A final measure of economic performance

is productivity.• It is the amount of outcome for a given

amount of input.

Business today and tomorrow

• Environmental protection• International interdependence• International business competition • Quality• Family and work• Cultural diversity• Technological changes • Productivity • Social responsibility

Why study business

•The impact of business •Career choice•Business ownership