foundation of business and economics

8/10/2019 Foundation of Business and Economics

1/36

Chapter One:

Foundation of Business

and Economics


2/36

Importance of Studying Business

Shape your answers

Sharpen your skills

Understand the business and economic

links within a country and between

countries


3/36

2. WHY WE STUDY BUSINESS?


4/36

2. Why We Study Bus iness ?

A.Increasing Dependence on OthersI) 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

V) Few people today produce everything they need.

Bus iness: The exchange of goods, serv ices or

money for mutual benefi t or prof i t

Barter : The exchange of goods w i thout us ingmone


5/36


6/36


B. International Opportunities

I) Being educated in business, people can

avail exciting opportunities in the 21stcentury

II) Joint ventures between different countries

lll) Investment across geographical boundaries

lV) Working for multinational comp

C. Standard of Living

Is a measurement with respect to both quantity

and quality.


7/36


The amount of goods and services that an

average family or individual views as

necessary.

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


8/36


Free Enterp rise:

A system in which private businesses are able

to start and do business competitively to earn

profits, with a minimal degree of government

regulation.D. Coping with the Change

Price change

New Product DevelopmentNeed Change

Unexpected events occurs


9/36


E. Preventing misconceptions

Understanding business also prevents our

accepting misconceptions, misinformationand inaccurate data as truth.


10/36

3. WHO ARE THE PEOPLE THATFORM THE CORE OF BUSINESS?


11/36

3. People Form The Core Of Business

A. Owners B. Managers

C. Employees D. Consumers

A. OwnersPeople who own a business, as well as those

who invest money in one and have right on the

business property, do so because they expectto earn profit


12/36


B. Managers

The person responsible for operating the businessmay be the owner (an owner-manager also calledan entrepreneur) or a professional manageremployed by the owner

I) The owner-manager sets his or her ownobjectives

II) A professional manager attempts toachieve objectives set by others. They areaccountable to the owners of the business


13/36


C. Employees

Employees supply the skills and abilities

needed to provide a product or service and to

earn a profit

D. ConsumersA person or business who purchases a good or

service for personal or organizational use.


14/36


Stakeholders

Stakeholders are people who affect, and are

affected by, the company. In other words,

stakeholders are people one who have shares orinterests in an enterprise.

Stakeholders in a company may include

shareholders, directors, management, suppliers,

government, employees, and the community.


15/36

4. WHAT ARE THE OBJECTIVES

OF A BUSINESS?


16/36

4. Business Objec t ives

Businesses must achieve their objectives to

remain in their operation.

Business objectives can be categorized as -

A. ProfitBusiness Prof itThe difference between business

income (revenue) and business expenses (costs)

Business profit is calculated by subtracting all costs,including taxes, from the revenue received from selling

a product or service in the marketplace.


17/36


A. Profit

Business Prof it(continued)

By conducting a number of activities, business

enterprise earns profit. These are-

Risk-taking The business may earn a profit when

it takes risk by entering a new market

or by competing head-on with

another business.

Evaluation

of demand

Business organizations that evaluate

consumer needs and demands can

earn substantial profits.


18/36


A. Profit

Business Prof it(continued)

Efficient

management

Efficient management, that is,

efficient planning, organizing,controlling, directing, and staffing

can earn satisfactory profits.

A major cause of business failureis improper or inadequate

management of people,

technology, materials, and capital.


19/36


A. Profit

Econom ic Prof i tEconomic profit is what

remains after both actual expenses and

opportunity costs are subtracted from income.

Opportunity costOpportunity costis the cost of

choosing to use resources for one purpose while

sacrificing the next best alternative use of those

resources.


20/36


A. Profit

Opportunity costExample:

Mr. Anis has a part-time job that pays him Tk. 1000

per week. He would like to spend a week at the beach

during spring break, and his employer has agreed togive him the time off, but without pay. What is the

opportunity cost here?

Ans: The Tk. 1000 in lost wages would be anopportunity cost of taking the week off to be at the

beach.


21/36


A. Profit

Opportunity costExample:

Ms. Mita Chowdhury is employed with a company that

pays her a salary of Tk. 240,000 per year. She is

thinking about leaving the company and returning toUniversity for attending MBA classes. Since returning

to university would require that she gives up her

Tk. 240,000 salary, the foregone salary would be an

opportunity cost of seeking further education.


22/36


B. Survival

This is an obvious objectives. Other objectives canbe attained only if the business survives.

C. Growth

Growth is an objective because the business doesnot stand still. Market share increase and increasedproductivity are important growth objectives.

D. Social responsibilityBusinesses, like each person in society, must accepttheir responsibilities in areas such as pollutioncontrol, eliminating discriminatory practices, and

energy conservation.


23/36

5. DEFINE ECONOMICS


24/36

5. Econom ics : The foundat ion o f bus iness

EconomicsThe study of how a society uses its scarceresources to produce goods and services and todistribute them for consumption.

At least three issuesare key to understandingeconomics :

(1) Resources(2) Goods & Services(3) Allocation of both resources and products


25/36


1. Resources

a.Natural Resources

Natural Resources are those resources providedin limited amounts by nature, such as oil, coal,water and timber etc.

Natural resources must be processed to becomea product or to be used to produce other goods or

services.b. Capital Resources

Capital Resources are goods produced for thepurpose of making other types of goods and

services.


26/36


1. Resources (continued)

Some capital resources are current assetshaving ashort life and are used up in the production process

fuel, raw materials, paper, and money etc.

Some are long-lived capital resources named asfixed capital, which are used repeatedly in theproduction processfactory buildings, PCs,

machinery etc.


27/36


1. Resources (continued)

c. Labor resources

Labor resources represent the human talent, skills

and competence, available in a nationdoctors,operators, teachers and so on.

Without human resources, no productive use ofeither natural or capital resources is possible.


28/36


B. Goods and Services

A nations resources are used to produce goods

and services that will meet peoples needs and

wants.

NeedsGoods and services people must

have simply to exist.

WantsThings people would like to have but

do not absolutely need for survival. Apersons want can be unlimited: as soon as

one want is satisfied, another is created.


29/36


B. Goods and Services

Needs Wants

Food, clothing, shelter,

medical care, etc.

Fashionable clothes,

luxury vacations,Camcorder etc.

C. Allocation

The process of choosing how resources will be

used to meet a societys needs and wants.


30/36


C. Allocation

a. Resource allocation

We must make choices about how the scarce resources are

to be used. To make these choices, we have to answer three

fundamental economic questions:

i. What goods and services will be produced, and

in what quantities?

ii. How will goods and services be produced, and by

whom?

iii.Who will use the goods and services?


31/36


C. Allocation

b. Product distribution

Besides scarce resource, the issue of allocation involves the

distribution of goods and services to the consumer.

The business earns a profit and the customer is satisfied

with the goods or services: the exchange provides mutual

benefit.

When goods and services get to the customers who want or

need them and mutual satisfaction occurs, both resources

and products have been well al located.


32/36

6.Economic Systems


33/36

6. 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


34/36

6. ECONOMIC SYSTEMS

Economic Systems

Capitalism or

Free-Market System

Right to ownership

Entitled to all profits

Right to choose job

Decide what toproduce

How to produce

Whom to sell to

Mixed

Freedom to start abusiness

Both state andprivate ownedindustries

Profits mostly inprivate sector

Communism or

Planned Economy

Planned system

State ownsindustries

Profits not

recognized State decides

occupation


35/36

6. ECONOMIC SYSTEMS

Economic Systems (continued)

A. Communism/ Planned Economy

An economy in which the government owns the

productive resources, financial enterprises, retail

stores and banks

B. Capitalism/ Free MarketPrivate enterprise

can produce almost everything

C. Mixed Economy

both private and government

produce and distribute goods and services


36/36

End of Chapter One

foundation of business and economics

Documents