Business
Management 113
Summaries
,Chapter 1- An Introduction to Business
and Economics
Business- Definition:
An organised effort of individuals to produce and sell, for a profit, the goods and services that satisfy
society’s needs.
Must be organised, must satisfy needs and must earn a profit.
The organised effort of individuals
Must combine four kinds of resources: Material, Human, Financial and Informational.
Material resources= Raw materials used in manufacturing process as well as building
and machinery.
Human resources= people who furnish their labour to the business in return for
wages.
Financial resources= money that is required to pay employees, purchase materials,
keep the business operating.
Informational Resources= Resources that tell the business how effectively other
three resources are being used and combined.
Types of businesses:
Manufacturing Businesses- process various materials into tangible goods.
Service businesses- provide services.
Marketing intermediaries- buy products from manufacturers and then resell them.
Satisfying Needs:
Ultimate goal of every firm= satisfy needs of every customer. People do not buy goods/
services to own them, they buy them to satisfy a need or want. Therefore, losing sight of
needs will make going rough.
Business Profit:
Receive money (sales revenue) in exchange for goods/ services.
Must pay expenses involves in doing business.
Revenue > expenses = profit
Negative profit= loss. Cannot continue producing at a loss for an indefinite period.
May have to file for bankruptcy if loss continues.
Stakeholders= all the groups/individuals who are affected by policies and decisions
made by an organisation.
,Types of Economic Systems
Economics= the study of how wealth is created and distributed.
Microeconomics= the study of decisions made by individuals and businesses.
Macroeconomics=the study of the national and global economy e.g. national
income, inflation etc.
Economy= the way in which people deal with the creation and distribution of wealth.
Factors of production= resources used to produce goods and services.
Land and natural resources= elements that can be used in the production process to
make products. E.g. crude oil, forests, land, water etc.
Labour= time and effort that we use to produce goods and services. Managers and
employees.
Capital= Money, facilities, equipment and machines used in operations of
organisations.
Entrepreneurship= activity that organises land, labour and capital. (Entrepreneur=
person who risks his/her time, effort, money to start a business)
Four economic questions that must be answered when determining type of economic
system used:
What goods and services- and how much of each- will be produced?
How will these goods and services be produced?
For whom will these goods/services be produced?
Who owns and controls the major factors of production?
1. Capitalism
An economic system in which individuals own and operate the majority of
businesses that makes goods/services.
Adam Smith- argued that society’s interests best served when individuals can
pursue own self interest. i.e. people will only work hard and invest long hours
if they can reap rewards (more pay).
Invisible hand= individual’s own personal gain benefits others and nation’s
economy. (Starting a business creates job opportunities etc.)
Four fundamental issues of capitalism:
, 1. The creation of wealth is the concern of private individuals, not the
government.
2. Private individuals must own private property and the resources used to
create wealth.
3. Economic freedom ensures existence of competitive markets that allow
both sellers and buyers to enter and exit the market as they choose.
4. The role of government should be limited to providing defence against
foreign enemies, ensuring internal order and furnishing public works and
education.
Market economy= an economic system in which businesses and individuals
decide what to produce and buy, and the market determines prices and
quantities sold.
Mixed economy= economy that exhibits elements of both capitalism and
socialism.
2. Command Economies
An economic system in which the government decides what goods and
services will be produced, how they will be produced, for whom available
goods and services will be produced for and who owns and controls all the
major factors of production.
2.1 Socialism
Key industries owned and controlled by the government.
Private ownership may be permitted to varying degrees
Usually people may choose their own occupations, but many work in state-
owned industries.
What to produce, how to produce it determined in accordance with national
goals.
Aims: equitable distribution of income, elimination of poverty, distribution of
social services to all need them.
Disadvantages: increased taxation and loss of motivation for both individuals
and business owners.
2.2 Communism
Advocates classless society where whose citizens together owned all
economic resources.
Emphasis placed on goods government needs rather than consumer
products, therefore shortage of goods.
Workers have little choice of jobs.
Management 113
Summaries
,Chapter 1- An Introduction to Business
and Economics
Business- Definition:
An organised effort of individuals to produce and sell, for a profit, the goods and services that satisfy
society’s needs.
Must be organised, must satisfy needs and must earn a profit.
The organised effort of individuals
Must combine four kinds of resources: Material, Human, Financial and Informational.
Material resources= Raw materials used in manufacturing process as well as building
and machinery.
Human resources= people who furnish their labour to the business in return for
wages.
Financial resources= money that is required to pay employees, purchase materials,
keep the business operating.
Informational Resources= Resources that tell the business how effectively other
three resources are being used and combined.
Types of businesses:
Manufacturing Businesses- process various materials into tangible goods.
Service businesses- provide services.
Marketing intermediaries- buy products from manufacturers and then resell them.
Satisfying Needs:
Ultimate goal of every firm= satisfy needs of every customer. People do not buy goods/
services to own them, they buy them to satisfy a need or want. Therefore, losing sight of
needs will make going rough.
Business Profit:
Receive money (sales revenue) in exchange for goods/ services.
Must pay expenses involves in doing business.
Revenue > expenses = profit
Negative profit= loss. Cannot continue producing at a loss for an indefinite period.
May have to file for bankruptcy if loss continues.
Stakeholders= all the groups/individuals who are affected by policies and decisions
made by an organisation.
,Types of Economic Systems
Economics= the study of how wealth is created and distributed.
Microeconomics= the study of decisions made by individuals and businesses.
Macroeconomics=the study of the national and global economy e.g. national
income, inflation etc.
Economy= the way in which people deal with the creation and distribution of wealth.
Factors of production= resources used to produce goods and services.
Land and natural resources= elements that can be used in the production process to
make products. E.g. crude oil, forests, land, water etc.
Labour= time and effort that we use to produce goods and services. Managers and
employees.
Capital= Money, facilities, equipment and machines used in operations of
organisations.
Entrepreneurship= activity that organises land, labour and capital. (Entrepreneur=
person who risks his/her time, effort, money to start a business)
Four economic questions that must be answered when determining type of economic
system used:
What goods and services- and how much of each- will be produced?
How will these goods and services be produced?
For whom will these goods/services be produced?
Who owns and controls the major factors of production?
1. Capitalism
An economic system in which individuals own and operate the majority of
businesses that makes goods/services.
Adam Smith- argued that society’s interests best served when individuals can
pursue own self interest. i.e. people will only work hard and invest long hours
if they can reap rewards (more pay).
Invisible hand= individual’s own personal gain benefits others and nation’s
economy. (Starting a business creates job opportunities etc.)
Four fundamental issues of capitalism:
, 1. The creation of wealth is the concern of private individuals, not the
government.
2. Private individuals must own private property and the resources used to
create wealth.
3. Economic freedom ensures existence of competitive markets that allow
both sellers and buyers to enter and exit the market as they choose.
4. The role of government should be limited to providing defence against
foreign enemies, ensuring internal order and furnishing public works and
education.
Market economy= an economic system in which businesses and individuals
decide what to produce and buy, and the market determines prices and
quantities sold.
Mixed economy= economy that exhibits elements of both capitalism and
socialism.
2. Command Economies
An economic system in which the government decides what goods and
services will be produced, how they will be produced, for whom available
goods and services will be produced for and who owns and controls all the
major factors of production.
2.1 Socialism
Key industries owned and controlled by the government.
Private ownership may be permitted to varying degrees
Usually people may choose their own occupations, but many work in state-
owned industries.
What to produce, how to produce it determined in accordance with national
goals.
Aims: equitable distribution of income, elimination of poverty, distribution of
social services to all need them.
Disadvantages: increased taxation and loss of motivation for both individuals
and business owners.
2.2 Communism
Advocates classless society where whose citizens together owned all
economic resources.
Emphasis placed on goods government needs rather than consumer
products, therefore shortage of goods.
Workers have little choice of jobs.
