Chapter 1: Intro to Business

The Idea of Business and Profit

  • Businesses produce or sell products for profit

  • Profit is defined as: Profit=Revenue−ExpensesProfit = Revenue - Expenses

  • Non-Profit Organizations: provide goods and services but don't seek profit

    • Examples implied: schools, hospitals

  • The concept of business and profit includes the goal of earning returns from activities

The Factors of Production

  • Resources used by firms to create goods and services

    • Capital

    • Natural resources

    • Human resources (labour)

    • Entrepreneurs

    • Information resources

Economic Systems Around the World

  • Command Economies

    • Communism: government owns and operates all industries

    • Government makes resource distribution decisions

  • Socialism

    • Government owns and operates critical industries (utilities and major institutions)

    • Individuals own non-critical businesses

  • Market Economies

    • Economic basis is supply and demand

    • Political basis is capitalism

    • Ownership of the factors of production is open

    • Buyers and sellers have freedom of choice

    • The market is the mechanism for the exchange of goods and services

  • Capitalism

    • Encourages entrepreneurship and the private ownership of the factors of production

    • Encourages profit making as an incentive

    • Operates under the concept of supply and demand

Interactions Between Business And Government

  • Government as Regulator

    • Regulates through administrative boards, tribunals, and commissions

    • Promotes healthy competition between businesses

    • Protects consumers

    • Achieves social goals

    • Protects the environment

  • Government as Taxation Agent

    • Revenue Tax

    • Progressive Revenue Tax

    • Regressive Revenue Tax

    • Restrictive Tax

  • Government as Provider of Incentives

    • Provides aid and financial assistance

    • Provides incentives to stimulate growth

    • Creates revenue and employment

Government as Provider of Essential Services

  • All three levels of government provide various services

    • Highways

    • Postal service

    • Money (currency/monetary functions)

    • Military

    • Education

    • Health services

    • Sewer and sanitation

    • Emergency services

Private Enterprise and Competition

  • Occurs in a market economy with little government restriction

  • Under this system, individuals:

    • Can own property

    • Have freedom of choice

    • Have the freedom to earn profits

    • Have the freedom to compete

Degrees of Competition

  • Perfect Competition

    • Many sellers

    • Product is basically identical

    • Relatively easy to enter industry

    • Individual firms have no control over price

  • Monopolistic Competition

    • Few to many sellers; product is seen as unique to buyers (not identical across all sellers)

    • Different brands have minor control over pricing

  • Oligopoly

    • Few large suppliers dominate

    • High barriers to entry

    • Similar products

    • Prices gravitate toward a common "market price"

  • Monopoly

    • One producer and source of supply

    • Unique product

    • Complete control over price

    • No competitors