Chapter 1

1. Chapter 1 Business and Environment دكتور / أحمد ابراهيم حامد

2. Scarcity and choice • Individuals as consumers within an economy require a large number of goods and services. However, most individuals' incomes restrict them in what they can buy, while others who are more rich can spend part of their income to buy even luxury goods. • The purpose of the economic activity is : • to narrow down the gap between poor and rich people ,and • to cover the unlimited human needs with the limited resources. دكتور / أحمد ابراهيم حامد

3. Scarcity means that resources are not enough to meet the unlimited human needs and wants. • A choice must be done as some needs can be satisfied while others cannot. • All the choices made by people, whether they are individuals, businesses or governments, involve opportunity cost. In making a choice a person will have a scale of preferences. • Opportunity cost,, is the next best alternative forgone (have had to do without). دكتور / أحمد ابراهيم حامد

4. Satisfying needs and wants: • Our needs and wants depend on what we already have and what we would like in the future. • Some people may see their needs as being food, water, clothing, shelter and safety, while others who have their basic needs met, may want more luxury items such as cars, holidays and meals out. This may show the difference between a need and a want. • A need is an essential item for survival, one cannot do w/o. دكتور / أحمد ابراهيم حامد

5. A want is non-essential item, however, brings happiness when you get it. • Business exists to meet these needs and wants by producing goods and services. دكتور / أحمد ابراهيم حامد

6. A service A non-physical item that can be purchased A good A physical item that can be purchased Consumer goods Producer goods Durable a chair Single use a chocolate bar Durable Piece of machinery Single use rawmartial Classification of goods and services Hybrid goods دكتور / أحمد ابراهيم حامد

7. Satisfying needs and wants of human being can be done through: Production Specialization Inter dependence Production is the manufacturing of goods and the provision of services to satisfy people's needs and wants دكتور / أحمد ابراهيم حامد

8. Stages of production (Types of Business activities) • Primary production: • Is the first stage of production, where raw materials and natural resources are extracted from both land and sea (includes mining, fishing, farming. ) دكتور / أحمد ابراهيم حامد

9. Secondary production: • Is the second stage of the production process • whereas the raw materials of the primary stage are processed and turned into manufactured goods. • This stage includes manufacturing or construction processes. دكتور / أحمد ابراهيم حامد

10. Tertiary production: • It involves the productions of services rather than goods. • Tertiary production helps with the distribution and exchange of both primary and secondary production. • It is divided into commerce and direct services دكتور / أحمد ابراهيم حامد

11. (refers to the exchange of goods services in the society) Wholesale Retail Foreign Import Commerce Trade home Export Aids to trade Transport / warehousing / Finance /information / insurance / telecommunication /advertising Banking Direct services personal : hairdressing Public: education / health دكتور / أحمد ابراهيم حامد

12. The factors of production: • In order for businesses to produce goods and services, they need the basic tools for production which are known as factors of production they are: land - labour - capital - enterprise. • Land:is defined as all the natural resources and therefore it includes soil, forests, rivers, temperature, rainfall, seas, oceans, minerals (coal, iron ore, tin and oil) . دكتور / أحمد ابراهيم حامد

13. Labour: Is the physical or manual efforts also includes the mental and intellectual skills which individuals use in production • labour can be classified into skilled labour, semi-skilled labour and non-skilled labour. • Skilled labourare those whose jobs need a lot of education and training like doctors and engineers. • Semi-skilled labourare those whose jobs need some education and training like carpenters. • Non-skilledlabour are those whose jobs do not need any education or training like housekeepers. دكتور / أحمد ابراهيم حامد

14. Capital:Refers to things that the business owns and uses to create goods and to provide services. There are three forms of capital. • Fixed capital:is long - lasting capital that will not be changed frequently (premises and equipment). • Current capital:refers to the items that can be changed into cash (stock and debtors). • Liquid capital:is cash in till or cash to bank (the payment to capital is interest). دكتور / أحمد ابراهيم حامد

15. Enterprise:is similar to labour but it is separated because enterprise: is the unique ability that certain people have, to organize the factors of production, to produce goods and services and to make profit or loss. • On other words, enterprise brings the factors of production together and make best allocation of resources possible. • Entrepreneur is defined as the "one who sees opportunity, undertakes risk to exploit the opportunity and organizes the necessary resources". دكتور / أحمد ابراهيم حامد

16. Specialization (division of labour) • In early societies, individuals themselves used to produce all the products they needed. Whenever, they produced a surplus they used to exchange some of it for the other products they didn't produce. This is known as barter system. دكتور / أحمد ابراهيم حامد

17. The introduction of money solved one of the problems of barter system in that it allowed individuals to specialize. • In Specialization , the work should be broken into smaller tasks and each worker is assigned to one or more of these tasks. • On other words, individual specializes in doing one particular job دكتور / أحمد ابراهيم حامد

18. Benefits of division of labour • Repetition increases efficiency .. the quality of work improves as the workers specialize in one task. • Creativity increases as the specialized staff often invent new methods of performing their jobs. • Higher output .. specialization allows employees to perform their duties in a high speed. • Economies of scale - by increasing workers' productivity, division of labour reduces the costs of production whereas the fixed costs will be divided onto a large number of produced units. دكتور / أحمد ابراهيم حامد

19. Disadvantages of division of labour • Boredom: monotonous and repetitive work will lead to boredom among workers. • Delay: the absence of one worker will hinder the business process since no body can replace him. • Decline in crafts: automation involved in modern industries lead to decline of personal skills and crafts. • Unemployment: heavy industries producing in large scale (called capital intensive industries) resulted in regional unemployment. دكتور / أحمد ابراهيم حامد

20. Interdependence of business: • Interdependence of between different stages of production • Ex.: a chocolate manufacturer relies on primary producers to supply its raw materials, namely Cocoa beans. Importing the beans means that a chocolate manufacturer must also depend on the tertiary sector to do so (Transportation, insurance, banking, telecommunication, advertising, distribution). دكتور / أحمد ابراهيم حامد

21. i.e.: beans would be imported by transport services (road or sea), telecommunication, insurance and banking processes would be needed. The manufacturer may also requires the services of an advertising agency to bring the product to the notice of the consumer. Wholesalers may purchase the product in bulk from the manufacturer. Retail outlets would then purchase the product to sell it to consumers دكتور / أحمد ابراهيم حامد

22. Interdependence between business and government • The government will require the chocolate manufacturer to pay taxes on the profits made from his production. In return, the government benefits the manufacturing as a whole in the sense of providing the infrastructure, (namely roads, energy water supplies, communication, safety … etc). دكتور / أحمد ابراهيم حامد

23. The role of the state in the economy • It is essential to any economy to answer the 4 Ws & H questions as follows: • What to produce. • When to produce. • Who will produce. • Who will benefit from what produced. • How to produce. • The decisions about production depend mainly on the government orientation (economic and political) whereas production is normally controlled by: دكتور / أحمد ابراهيم حامد

24. Socialist Capitalist Government Government and private sector Private sector individuals & firms Planned economy Mixed economy Market economy دكتور / أحمد ابراهيم حامد

25. Comparison between market, mixed and planned economies: دكتور / أحمد ابراهيم حامد

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27. Interest groups and business دكتور / أحمد ابراهيم حامد