Fundamentals of Business

8/8/2019 Fundamentals of Business

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Fundamentals of Business

And Economics

What this module is about

Goodmorning my dear student! Today! We talk about business and

economics.We deal about Business Categories,Growth in the Service Sector, and

Economic System.

What you are expected to learn

This module is especially designed for you. At the end of this module,

you are expecting to learn the following:

y Defined the businessy Identified the cateories of Businessy Discribe the growth in the service sectory Classified the economic system

How to learn from this module

You are now exploring Fundamentals of Business and Economics who

know someday you will become successful entrepreneurs, a business man, marketing

manager or any business professions. However, you have to:

y Study the lesson very welly Perform the activitiesy Answer the self check exercisey Answer the pretest and posttest

Ok! Are you ready now? Before proceeding take the pretest first, this is

to determine if you have advance knowledge in our topic for today.


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Lesson 1

The Business

Business is an organization in which basic resources such as materials and labor

are assembled and processed to provide goods or services to customers.

Businesses exist to fulfill a need, and provide investors a return from company

income after expenses and taxes are paid. This remaining money is profit. The goal of

earning a profit is a profit motive. Without a chance to earn a profit businesses have no

incentive for innovation and improvement.

For profit and not for profit (or non-profit) businesses are similar in many

ways. Both are generally corporations in which assets are held and business transacted in

the name of the corporation rather than the individuals involved. To survive and grow, both

need to generate or bring in more revenue than they spend on operations. Both are involved

in producing a good or service for society. And, of course, both are managed and run by the

people who are employed by the corporation.

Nonprofit organizations include schools, libraries, government agencies, and

museums. They do not have a profit motive, but they bring in revenue just like the for-

profit businesses. Fund raising, donations, and grants are some of ways nonprofitorganizations receive revenue. Both nonprofit and profit-seeking companies must have

resources to produce goods and services.


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Activity 1

The illustration bellow has something to do with the practice of business in our industries.

Write something about the pictures inside the circles. Use a white sheet of paper.

803/


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Activity 2

Cite some examples of Profit and nonprofit organizations

Profit Nonprofit1. 1.

2. 2.

3. 3.

4. 4.

5. 5.

Self Check

Identification: Complete each word by writing the missing letters to

know the correct answer._u _ i _ _s s 1. Is an organization in which basic resources such as

materials and labor are assembled and processed to providegoods or services to customers?

_o n_r o_i t_g__i z_t__n s 2. It include schools, libraries, government agencies, andmuseums. They do not have a profit motive, but they

bring in revenue just like the for-profit businesses.

P__f i t m__I v_ 3. The goal of earning a profit.

__c___e r____u e 4. Fund raising, donations, and grants are some of waysnonprofit organizations ____________.

_r__i t 5. The remaining money.


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Lesson 2

Categories of Business

This lesson dwells on business categories, and process or industry which are the

capital intensive and labor intensive.

Capital intensive means that requires large amounts of money and other financial

resources to produce a good orservice.

Some industries commonly thought of as capital intensive include oilproduction and refining, telecommunications and transports such as railways and airlines.

In all of the above industries, a large financial commitment is required just to getthe first unit of good or service produced. Once the upfront investments are made, there may

be economies of scale with regards to ongoing expenses and sales growth. But the initialhurdle to get into the business tends to keep the list of competitors small, creating high

barriers to entry.Labor intensive - A process or industry that requires a large amount of labor to

produce its goods or services. The degree of labor intensity is typically measured inproportion to the amount of capital required to produce the goods/services; the higher the

proportion of labor costs required, the more labor intensive the business.

Labor intensive industries include restaurants, hotels, agriculture and mining.

Activity 3

Write down five examples of each business category.

Producing goods/ Capital Intensive Producing Services/ Labor Intensive

1. 1.

2. 2.

3. 3.

4. 4.

5. 5.


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Self Check

Matching tupe. Match Column A with Column B. Write the letter of the correct answer

on the space before the number.

A B

_______ 1.Process or industry that requires a A. Labor intensivelarge amount of labor to produce its goods or services.

________ 2. Include restaurants, hotels, agriculture and mining B. Capital ________ 3.Requires large amounts of money and other financial C. labor Intensive

resources to produce a good orservice. ________ 4. The degree of labor intensity is typically measured in D. Capital intensive

proportion to the amount of _______. _______ 5. Include oil production and refining, telecommunications E. Capital and labor

and transports such as railways and airlines.


8/23

Lesson 3

Growth in the Service Sector

One way to look at the structure of an economy is to compare the shares of its three mainsectorsagriculture, industry, and servicesin the countrys total output.

Everything that grows also changes its Structure. Just as a growing tree constantlychanges the shape, size, and configuration of its branches, a growing economy changes the

proportions and interrelations among its basic sectorsagriculture, industry, and services andbetween other sectorsrural and urban, public and private, domestic- and export-oriented.

Growth in the Service Sector

Goods- Producing Sector Service-Producing Sector

y Manufacturingy Constructiony Agriculturey Mining

y Wholesale and retaily Transportation and utilitiesy Finance and insurancey Other services

Service Industry has 2 main components, the goods-producing sector and the service sector.

The former includes agriculture, forestry, mining; fishing, construction and manufacturing. Thelatter includes noncommercial activities, such as health and welfare, education, religion and

charity; commercial services, such as restaurants, recreation, amusement, personal care, etc;trade, including wholesale and retail; transportation, communication and utilities; and financial

and legal, including INSURANCE, REAL ESTATE, BANKING and investment.The service sector defined. The broadest definition of the service sector encompasses all

industries except those in the goods-producing sector-agriculture, mining, construction, andmanufacturing. Under this definition, services include transportation, communication, public

utilities, wholesale and retail trade, finance, insurance, real estate, other personal and businessservices, and government. One variation on this definition of the service sector (or service-

producing sector, as it is frequently called) excludes government activities at all levels. A thirddefinition of the service sector is still narrower, including only private personal and business

services and excluding transportation, communication, wholesale and retail trade, finance,

insurance, and real estate .


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Activity 4

List down the things you have at home.

___________________________ ______________________________

___________________________ ______________________________ ___________________________ ______________________________

___________________________ ______________________________ ___________________________ ______________________________

___________________________ ______________________________

Have you ever thought of asking yourself the following questions?

Who do you think should be credited for providing us these this?

Certainly, the manufacturers of the products or the businessmen who are creative. Being

creative, they were able to innovate and produce products of the buying public.

Manufacturing sector comprises establishments engaged in the mechanical, physical, or

chemical transformation of materials, substances, or components into new products.Establishments in the Manufacturing sector are often described as plants, factories, or

mills and characteristically use power-driven machines and materials-handling equipment.However, establishments that transform materials or substances into new products by hand or in

the worker's home and those engaged in selling to the general public products made on the samepremises from which they are sold, such as bakeries, candy stores, and custom tailors, may also

be included in this sector.


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Self Check

Enumeration: Write your answer on your notebook.

Give two main components of Service Sector1.

2.

Give 4 Goods- Producing Sector1.

2.

3.

4. Give 4 Service - Producing Sector


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Lesson 4

The Economic System

Economic system - is the structure of production, allocation of economic inputs,

distribution of economic outputs, and consumption of goods and services in an economy. It is a

set of institutions and their social relations. Alternatively, it is the set of principles andtechniques by which problems of economics are addressed, such as the economic problem ofscarcity through allocation of finite productive resources.

The economic system is composed of people and institutions, including their relationships to

productive resources, such as through the convention of property. Examples of contemporaryeconomic systems include capitalist systems, socialist systems, and mixed economies.

"Economic systems" is the economics category that includes the study of respective systems.

There are a multitude of different economic systems found throughout the world. But in

most cases they will follow one of these four: market, mixed, command, and capitalist. Themajor concept that differentiates these economic systems apart from each other is their ability to

manage as well allocates appropriately their nations factors of production.

There are five factors of production that will be discussed in detail. Factors of productioncan be defined as the resources employed to both produce goods and render services through

these mediums, labor, entrepreneurs, natural resources, information resources, and capital.

Five production factors

Human resources

Capital Entrepreneurs

Knowledge Natural resources

y Human resources - The workers employed by a firm, represent the firms labor. Oftencalled people resources, labor can be described as being those mental and physicalabilities of workers. They transfer these technical skills to the development and growth of

any particular firm. For instance, to carry out the daily operations of a large business,such as Wal-Mart, requires a substantial labor force, i.e. to work in shipping and

receiving, cashiers, client relations etc. Through functional and job departmentalization,labor is effectively allocated within a given firm.


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y Capital - Capital can be described as being the funds necessary to operate a business. Topurchase and make best possible use out of materials and natural resources requirescapital, for smaller firms, perhaps less capital, for larger firms, greater capital would be

needed. Capital is often needed at the beginning of the firms business life cycle, in orderto get the new business up and running. Further, capital will be needed to keep the

business afloat. A more common source of capital for most firms is the funds provided by

personal investors, i.e. venture capitalists. Capital is often acquired through banks loansand other lending organizations.

y Entrepreneurs - An entrepreneur is a particular person, who will organize their efforts, inorder to raise capital, mange labor, as well any needed natural resources, to manufacture

their goods, and to provide a range of services, in order to generate a profit. The twomajor differences between an entrepreneur and a small business owner, is that

entrepreneurs have larger aspirations to expand i.e. globally, as well they are generallyseen as risk takers.

y Knowledge - focused on the production and management of knowledge in the frame ofeconomic constraints, or to a knowledge-based economy.

y Natural resources - Such natural resources include, land, water, trees, minerals, metalsetc. These are all items used in production of particular firms products. For example,ExxonMobil will need oil, to keep their business going, so they would need to acquire oil,

either through land or water.

y Information Resources-This is the most recently added factor of production. This can bedescribed as being the needed information generated by government forecasts and

statistics, a firm forecast of profits/sales. Furthermore, this includes how the organizationmakes best use of the information they obtain to better the firms position within a given

economy.

What each of these terms mean to an economy can be described as follows:

Terms Meaning ofTerms

Capitalism An economic system based on the

Survival of the fittest.

Socialism An economic system based on You get

your share no matter what yourcontribution is.

Communism An economic system based on You put in

your fair share; you get your fair share.


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CAPITALISM

This term was first coined by Karl Marx to describe a system in which small group ofpeople own large amount of money, land, resources. It puts all the economy is the hands of

wealthy business people with the only aim of maximizing profits. Such economies remain free ofgovernment intervention with all the policies being determined by private individuals. The result

is monopoly, and a huge gap in the earnings among the employer class and the worker class.Though its very good for trades and industries to flourish, it can lead to worker exploitation and

unethical business pratices. Laissez-Faire capitalism which means pure capitalism with nogovernment intervention is said to have never existed in practice.

SOCIALISM

It is considered to be the transitional phase between the capitalism and communism. Thus, youwould find all communists advocating for socialism because it lays the foundations for

communism. It advocates an egalitarian society where everyone shares equal wealth and power.There is a considerable disagreement over how the distribution should take place. Hence,

socialism can be said to be between extreme capitalism and extreme communism with it beingnearer to communism.

Socialism is liberal. More people have say in how the economy works.

COMMUNISM

According to Karl Marx, this is the final stage towards development of egalitarian society. Hereall the resources are state-owned and it determines its distribution based on the needs in an effort

to bring about equality.

Communism is conservative. Fewer and fewer people have any say in how the economyworks. By using state coercion to fulfill unmet demands, it restricts individual freedom.Communism necessarily takes the form of totalitarianism or the tyranny of all over one since its

upto the state to decide who gets what. Historically, communist societies have been characterizedby the absolute rule of a revolutionary party leader, beneath whom everyone is equally

subservient.

It becomes very difficult for such an economy to survive in a large population when it becomesdifficult for equal distribution of resources.

A free market is a market in which there is no economic intervention and regulation by the

state, except to enforce private contracts and the ownership of property. It is the opposite of acontrolled market, in which the state directly regulates how goods, services and labor may be

used, priced, or distributed, rather than relying on the mechanism of private ownership.Advocates of a free market traditionally consider the term to imply that the means of production

is under private, not state control as well. This is the contemporary use of the term "free market"by economists and in popular culture; the term has had other uses historically.


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A free-market economy is an economy where all markets within it are unregulated by any partiesother than those players in the market. In its purest form the government plays a neutral role in

its administration and legislation of economic activity neither limiting nor actively promoting it.

Supply and demand is an economic model of price determination in a market. It concludes thatin a competitive market, the unit price for a particular good will vary until it settles at a pointwhere the quantity demanded by consumers (at current price) will equal the quantity supplied by

producers (at current price), resulting in an economic equilibrium of price and quantity.

Competition between suppliers is supposed to be one of the key things that makes capitalismwork, and in a broad sense it does a fairly good job in as much that it doesn't rely too heavily on

the integrity of the players.

With that mood-setting out of the way, let me now describe what I see as one of the pitfalls offree-market capitalism: the two-edged natue of competition. In order to be a competitive success,

there are two general approaces that one can take. The first is to be good at what you do. This isthe kind of competitive technique that makes capitalism work. In principle, the market will

reward those who are particularly good at what they do. In practice this is only true on average:there are plenty of counterexamples; but take it as given for the moment that this principle more

or less works.

The second means of being a competitive success involves being good at impeding your

competitors. Putting it another way, one can be a competitive success by excelling atunsportsmanlike behaviour. It sounds distinctly unglamorous, and probably unethical to boot, but

the market knows nothing of glamour or ethics: only competitive success. Thus, if one can getaway with bending the rules in one's favour, or creating a playing field that is not level in a

general sense, one can also be a competitive success.

MONOPOLYA market structure in which one firm sells a unique product into which entry is blocked in which

the single firm has considerable control over product price and in which nonprice competitionmay or may not be found.

Examples / Importance

1. Public utilities: gas, electric, water, cable TV, and local telephone service companies, are oftenpure monopolies.

2. First Data Resources (Western Union), Wham-O (Frisbees), and the DeBeers diamondsyndicate are examples of "near" monopolies. (See Last Word.)

3. Manufacturing monopolies are virtually nonexistent in nationwide U.S. manufacturingindustries.

4. Professional sports leagues grant team monopolies to cities.5. Monopolies may be geographic. A small town may have only one airline, bank, etc.


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OLIGOPOLYA market structure in which a few firms sell either a standardized or differentiated product into

which entry is difficult in which the firm has limited control over product price because ofmutual interdependence (except when there is collusion among firms) and in which there is

typically nonprice competition.

Examples include many industrial products such as steel and large consumer durables such asappliances, the top cigarettes and beer companies.

MonopolisticCompetitionA market structure in which many firms sell a differentiated product into which entry is

relatively easy in which the firm has some control over its product price and in which there isconsiderable nonprice competition.

Examples are grocery stores and gas stations

Pure Competition.A market structure in which a very large number of firms sell a standardized product into

which entry is very easy in which the individual seller has no control over the product price andin which there is no nonprice competition; a market characterized by a very large number ofbuyers and sellers.

Examples : Agricultural products such as potatoes and wheat


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Activity 5

The illustration bellow has significant relations to our economy. Write

something about the pictures inside the circles. Use a white sheet of paper.


17/23

Self Check

Identification: Write the correct answer on the space provided before the number.

_________ 1. Is the structure of production, allocation of economic inputs, distribution of

economic outputs, and consumption of goods and services in an economy.

_________ 2. A market structure in which many firms sell a differentiated product into which

entry is relatively easy in which the firm has some control over its product price

and in which there is considerable nonprice competition.

_________ 3. A market structure in which a very large number of firms sell a standardized

product into which entry is very easy in which the individual seller has no control

over the product price and in which there is no nonprice competition; a marketcharacterized by a very large number of buyers and sellers.

_________ 4. A market structure in which one firm sells a unique product into which entry is

blocked in which the single firm has considerable control over product price and inwhich nonprice competition may or may not be found.

_________ 5. A market structure in which a few firms sell either a standardized or differentiated

product into which entry is difficult in which the firm has limited control overproduct price because of mutual interdependence (except when there is collusion

among firms) and in which there is typically nonprice competition.


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PRETEST

Directions: Choose the correct answer. Write the letter of the correct answer in your answernotebook.

1. A process or industry that requires a large amount of labor to produce its goods orservices.a. Nonprofit organizationsb. Labor intensivec. Capital intensived. Business

2. Requires large amounts of money and other financial resources to produce a good orservice.a. Nonprofit organizationsb. Labor intensivec. Capital intensived. Business

3. is a market in which there is no economic intervention and regulation by the state, except toenforce private contracts and the ownership of property

a. Marketb. Free marketc. Oligopolyd. Demand

4. A market structure in which a few firms sell either a standardized or differentiatedproduct into which entry is difficult in which the firm has limited control over product

price.a. monopolyb. Oligopolyc. Free marketd. Monopolistic competition

5. A market structure in which one firm sells a unique product into which entry is blockedin which the single firm has considerable control over product price and in which

nonprice competition may or may not be found.a. Monopolistic competitionb. monopolyc. Oligopolyd. Free market


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6. Is the structure of production, allocation of economic inputs, distribution of economic outputs,and consumption of goods and services in an economy. It is a set of institutions and their social

relations.a. Economic system

b. Free marketc. Businessesd. Market

7. Focused on the production and management of knowledge in the frame of economicconstraints, or to a knowledge-based economy.a. Knowledgeb. Human resourcesc. Natural resourcesd. Information Resources

8. An economic system based on the Survival of the fittest.a. Capitalismb. Socialismc. Communismd. Capital

9. An economic system based on You get your share no matter what your contribution is.a. Capitalismb. Socialismc. Communismd. Capital

10.An economic system based on You put in your fair share; you get your fair share.a. Capitalismb. Socialismc. Communismd. Capital


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POSTTEST

Directions: Read each item carefully and select the best answer by writing its letter in your

answer notebook.

1. A process or industry that requires a large amount of labor to produce its goods orservices.a. Nonprofit organizationsb. Labor intensivec. Capital intensived. Business

2. Requires large amounts of money and other financial resources to produce a good orservice.a. Nonprofit organizationsb. Labor intensivec. Capital intensived. Business

3. is a market in which there is no economic intervention and regulation by the state, except toenforce private contracts and the ownership of property

a. Marketb. Free marketc. Oligopolyd. Demand

4. A market structure in which a few firms sell either a standardized or differentiatedproduct into which entry is difficult in which the firm has limited control over productprice.

a. monopolyb. Oligopolyc. Free marketd. Monopolistic competition

5. A market structure in which one firm sells a unique product into which entry is blockedin which the single firm has considerable control over product price and in whichnonprice competition may or may not be found.

a. Monopolistic competitionb. monopolyc. Oligopolyd. Free market


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6. Is the structure of production, allocation of economic inputs, distribution of economic outputs,

and consumption of goods and services in an economy. It is a set of institutions and their socialrelations.

a. Economic systemb. Free marketc. Businessesd. Market

7. Focused on the production and management of knowledge in the frame of economicconstraints, or to a knowledge-based economy.

a. Knowledgeb. Human resourcesc. Natural resourcesd. Information Resources

8. An economic system based on the Survival of the fittest.a. Capitalismb. Socialismc. Communismd. Capital

9. An economic system based on You get your share no matter what your contribution is.a. Capitalismb. Socialismc. Communismd. Capital

10.An economic system based on You put in your fair share; you get your fair share.a. Capitalismb. Socialismc. Communismd. Capital


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Assessment of Your answers

Dear student, if you got scores between 9-10 correctly, excellent! It shows that you

understood and remembered what we have discussed. Congratulations!If you got correct scores between 7-8, very good! You remembered most of the things we

have discussed, Check those question you did not answer correctly and see why you forgot theiranswers.

If you correct answers was form 5-6 that was good. What you have remembered wereprobably the ones close to your hearth. I suggest that you read the text again and try to answer

the questions once more.Finally, if you have a score between 1-4, I suggest that you read the lessons again and see

where you have forgotten some details. After reading the parts where you met some difficulty,try to answer the test again and see if your score will improve. Good luck!

Goodbye now my dear student. Hope to see you again.

ANSWER KEY

Pretest/ Posttest

1. B2. C3. C4. B5. B6. A7. A8. A9. B10.C

Lesson 1: Self Check

1. Business2. Nonprofit organization3. Profit motive4. Receive revenue5. Profit


1. A2. C3. D4. B5. D


1. Goods- Producing Sector2. Service-Producing Sector

Goods-producing sector

1. Manufacturing2. Construction3. Agriculture4. Mining

Service-Producing Sector

1. Wholesale and retail2. Transportation and utilities3. Finance and insurance4. Other services


1. economic System2. monopolistic completion3. pure competition4. monopoly5. oligopoly


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Fundamentals of Business