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Summary - Business Management 113
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In-depth summary of business management 113 (semester 1) for Stellenbosch University students.
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BusinessManagement
113 Complete
1
,CHAPTER 1
BUSINESS: A DEFINITION
BUSINESS: The organised effort of individuals to produce and sell, for a profit, the goods and services that
satisfy society’s needs.
THE ORANISED EFFORTS OF INDIVIDUALS
For a business to be organised it must combine four kinds of resources: material, human, informational and
financial. There are 3 types of businesses:
1. Manufacturing businesses – process various materials
2. Service businesses – render services (eg. FedEx, Outsurance, ABSA)
3. Marketing intermediaries – buy products and resell them (eg. Makro, Game)
SATISFYING NEEDS
The ultimate objective of every firm must be to satisfy the needs of its customers. People generally do not
buy goods and services to just own them; they buy products and services to satisfy particular needs.
BUSINESS PROFIT
PROFIT: Money that remains after all business expenses have been deducted from sales revenue.
Negative profit – expenses > sales revenue (LOSS). Profit earned by a business becomes the property of the
owners. Purpose of a profit is to reward or a payment for a risk taken.
STAKEHOLDERS: All the different people or groups of people who are affected by the policies and decisions
made by an organisation. (Eg. Shareholders, consumers, employers, government)
TYPES OF ECONOMIC SYSTEMS
ECONOMICS: Study of how wealth is created and distributed.
ECONOMY: The systems through which a society creates and distributes wealth.
Experts study economics from 2 different perspectives:
Microeconomics: Study of decisions made by individuals and businesses.
Macroeconomics: Study of the national and global economy.
MICROECONOMICS MACROECONOMICS
Price of a single product Consumer price index
Changes in the price of a product Inflation
Production of maize Total output of goods and services
Firms decision to export its product Total exports of goods and services
Individual decision whether to work or not Total supply of labour in the economy
2
,Economic systems differ essentially in two ways:
1. The ownership of the factors of production and
2. How they answer four basic economic questions that direct a nation’s economic activity.
FACTORS OF PRODUCTION: Resources used to produce goods and services.
o Land and natural resources – elements that can be used in the production process.
o Labour – the time and effort that we use to produce goods and services.
o Capital – Money, facilities, equipment and machines used in the operation of organisations.
o Entrepreneurship – activity that organises land, labour and capital. Willingness to take risks and
the knowledge and ability to make use of other factors efficiently.
The way each system answers the four basic economic questions listed here, determines a nation’s economy.
1. What goods will be produced?
2. How will they be produced?
3. For whom? ( Target market)
4. Who owns and controls the major factors of production?
CAPITALISM
An economic system in which individuals own and operate the majority of businesses that provides goods
and services. It stems from the theories of the 18th-century Scottish economist Adam Smith. In his book
Wealth of Nations, he argued that a society’s interests are best served when the individuals within that
society are allowed to pursue their own self-interest. When individuals act to improve their own fortunes,
they indirectly promote the good of their community and the people.
INVISIBLE HAND: How an individual’s own personal gain benefits others and a nation’s economy.
Right to create wealth
Right to own private property and resources
Right to economic freedom and freedom to compete
Right to limited government intervention
Laissez-Faire Capitalism (“Let them do as they see fit”)
MARKET ECONOMY: Economic system in which businesses and individuals decide what to produce and buy
and the market determines prices and quantities sold. (Free-market
economy) CONSUMER PRODUCTS:
Goods and services purchased
MIXED ECONOMY: Exhibits elements of both capitalism and socialism. by individuals for personal
consumption.
3
, Households, made up of individuals, are the consumers of goods and services as well as owners of some of
the factors of production. They provide businesses with labour, capital and other resources and earn wages,
rent, dividends and interest in return.
Businesses exchange money for natural resources, labour, and capital and use these resources to produce
goods and services. Then they exchange their goods and services for sales revenue.
Governments’ responsibility is to promote and protect public welfare. Their numerous services are
important because they would either not be produced by private businesses or would be produced only for
those who could afford them.
COMMAND ECONOMIES
Economic system in which the government decides what will be produced, how it will be produced, who
gets what is produced and who owns and controls the factors of production. Answers to the economic
questions are determined through centralized government planning. Socialism and communism serve as
examples of command economies.
Socialism
Key industries are owned and controlled by the government. (eg. Transportation)
Small-scale private businesses may be permitted and workers may choose their own occupations.
Production is determined in accordance with national goals based on projected needs and the
availability of resources.
Distribution of goods and services are controlled by the state.
Aims: Equitable distribution of income, elimination of poverty, social services to all who need them,
elimination of economic waste of capitalistic competition.
Disadvantages: Increased taxation and loss of incentive and motivation for both individuals and
businesses.
Eg. France, Sweden and India.
Communism
All factors of production are owned and controlled by the government.
Production is based on centralized state planning to meet the needs of the state and not necessarily
the needs of its citizens.
State dictates occupational choices and sets prices and wages.
Intent is to create Karl Marx’s concept of a classless society where all contribute according to their
ability and receive benefits according to their needs.
Eg. North Korea, Cuba.
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