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Business Management 113 Summary
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A summary of the work in the textbook covered in Business Management 113.
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Business Management 113 – NotesChapter 1 – An Introduction to Business and Economics
A business –
is the organized effort of individuals to produce and sell, for a profit, the
goods and services that satisfy society’s needs
For a business to be successful, it must contain four kinds of resources, namely:
Human resources
Material resources
Informational resources
Financial resources
A
business must combine all four resources effectively to be successful.
Stakeholders are all the different people or groups of people who are affected
by the policies, decisions, and activities made by an organisation.
Profit is what remains after all business expenses have been deducted from
sales revenue.
Economics is the study of how wealth is created and distributed.
Within that, microeconomics is the study of decisions made by individuals and
businesses while macroeconomics is the study of the national and global
economy.
Factors of production are the resources used to produce goods and services.
Land and natural resources
Labour
Capital
Entrepreneurship
Four basic economic questions:
1. What goods and services will be produced?
, 2. How will these goods and services be produced?
3. For whom will these goods and services be produced?
4. Who owns and controls the major factors of production?
Economic Systems
Capitalism
An economic system in which individuals own and operate the majority
of businesses that provide goods and services.
Capitalism stems from the theories of 18th century Scottish economist,
Adam Smith.
The basic idea is that if individuals act to improve their own fortunes,
they indirectly promote the good of their community. Smith call this the
invisible hand.
In a capitalist society, the government acts only as a rule-maker and
umpire. Laissez faire describes this idea, implying that there should be no
government interference in the economy.
Most Western countries’ economic systems are rooted in capitalism but
do, however, contain elements of socialism. They are thus known as
mixed economies.
The circular flow in a mixed economy
, Command Economies
In a command economy, the government decides which goods and services will
be produced, how they will be produced, for whom they will be produced, and
who owns and controls the major factors of production.
Socialism
Key industries are owned and controlled by government.
Private ownership of smaller businesses is permitted to various degrees.
What and how to produce are determined in accordance with national
goals.
The government controls distribution of goods and services to the
extent that it controls taxes, rents and wages.
Socialism aims to distribute income and services and eradicate poverty.
Communism
Communism is based on the theories of Karl Marx.
It aims to form a classless society in which all citizens own all economic
resources.
All workers would then contribute to society according to their ability
and receive benefits according to their need.
Measuring Economic Performance
Productivity is the average level of output per worker per hour. It improves the
efficiency of an economy. By reducing costs and enabling workers to work more
efficiently, a nation can improve productivity. Increased productivity can,
however, have negative outcomes, as it may cause higher unemployment rates
due to the fact that fewer workers are needed to do the same jobs as in the past.
Economic Indicators
The gross domestic product (GDP) of a nation is the total monetary value of all
goods and services produced by all the people within a country in a one-year
period.
Inflation is the general rise in the level of prices, while deflation is the general
decrease in prices and, therefore, the opposite of inflation.
The unemployment rate is a good indicator of the health of an economy, as it is
the percentage of a nation’s labour force that is unemployed.
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