Business Management

Business Management

Scarcity • Just as individuals deal with a shortage of resources, so do societies • Resources, in this case, are the items that go into the making of goods and services • Lack of resources is called Scarcity • The Principle of Scarcity states that there are limited resources for satisfying unlimited wants and needs

Opportunity Cost • To have one thing may mean giving up something else – Opportunity Cost • When dealing with scarcity and opportunity cost, it is important to think of the best way to use the item that is in short supply

Opportunity Cost • What are some examples of Opportunity Cost for high school kids and teenagers?

Factors of Production • Factors of Production are all the economic resources necessary to produce a society’s goods and services, such as the wheat that grows in the ground, the tractor that harvests it, the labor that turns it into flour, and the distribution system that delivers it to the marketplace • The four factors of production are: • natural resources • labor resources • capital resources • entrepreneurial resources

Natural Resources • Natural Resources are raw materials from nature that are used to produce goods (trees, water, and grains) • Can often be processed in various ways to create goods • Even synthetic or artificially produced materials are made by combining or changing natural resources (nylon is derived from coal, water, and air)

Natural Resources cont’d • The economy of many countries is primarily based on its natural resources • Countries, like Japan, with little land and scarce natural resources must import them • Some natural resources (wheat and cattle) are renewable resources, which means they can be reproduced. • Other resources are limited and nonrenewable resources(coal, iron, and oil)

Labor Resources • Labor Resources are people who make the good and services for which they are paid • Can be skilled or unskilled • Can be physical or intellectual (teachers, coal miners, bank managers, and farm workers)

Capital Resources • Capital Resources, or capital goods,are the things used to produce goods and services, such as buildings, materials, and equipment (not the same as capital, or money) • Delivery trucks, supermarkets, cash registers, and medical supplies

Entrepreneurial Resources • Entrepreneurial Resources are used by people who recognize opportunities and start businesses • Individuals who start and direct businesses to produce goods and services to satisfy needs or wants • Different than Labor Resources, which are the people who actually produce the goods or services • Entrepreneurship is the process of recognizing a business opportunity, testing it in the market, and gathering the resources necessary to start and run a business • An Entrepreneur is an individual who undertakes the creation, organization, and ownership of a business

Economic Systems

Economics • Economics is the study of how individuals and groups of individuals strive to satisfy their needs and wants by making choices • No society has enough productive resources available to produce everything people want and need

Economics • Societies make economic decisions by answering three economic questions: • What should be produced? • How should it be produced? • Who should share in what is produced?

What should be produced? • Deciding to use a resource for one purpose means giving up the opportunity to use it for something else, which is called an opportunity cost

How should it be produced? • The methods and labor used as well as the quality of items produced • In a country with many workers but few capital resources, it is likely that little equipment and larger amounts of labor are used in producing goods

Who should share in what is produced? • In most societies, people can have as many goods and services as they can afford to buy • The amount of income people receive determines how many goods and services they can have

Economic Systems • Economic Systems are the methods societies use to distribute resources • Each system answers the three basic economic questions in different ways • Two basic types of economic systems are a Market Economy and a Command Economy

Market Economy • A Market Economy (also called a private enterprise system, the free enterprise system, or capitalism)is an economic system in which economic decisions are made in the marketplace • The Marketplace is where buyers and sellers meet to exchange goods and services, usually for money

Market Economy • Resources are privately owned • Citizens can own their own homes, land, and businesses • Business owners decide how their businesses will be run, what to produce and sell, and how much to charge • The government works to promote free trade and prevent unfair trade practices • Consumers choose their occupations and decide where to live, where to shop, and what to buy • People who have labor skills that are in demand earn higher incomes than those who do not • There is an uneven distribution of income • Individuals are responsible for being informed and making careful decisions

Price • Price is the amount of money given or asked for when goods and services are bought or sold • The price for an item is determined through the interactions of supply and demand

Supply • Supply is the amount of goods and services that producers will provide at various prices • Producers want a price for their goods and services that will cover their costs and result in a profit

Demand • Demand is the amount or quantity of goods and services that consumers are willing to buy at various prices • The higher the price, the less consumers will buy • The lower the price, the more consumers will buy

Equilibrium Price • The Equilibrium Price is the point at which the quantity demanded and the quantity supplied meet

Competition • In a market economy, competition is observed • Competition between similar businesses is one of the basic characteristics of a free enterprise system • Competition encourages businesses to produce better products at lower prices to attract more customers

Profit • Entrepreneurs take risks to make Profits • Profit Motive is the desire to make a profit • Profit is the reward for taking a risk and starting a business

Command Economy • A Command Economy is an economic system in which a central authority makes the key economic decisions • The government dictates: • what will be produced • how it will be produced • who will get the goods *The government owns and controls all the resources and businesses*

Command Economy cont’d • There is little choice of what to buy • Goods that are not considered necessities are often unavailable • Prices are controlled by the state • There is no incentive to produce a better product since there is no competition • Highly-skilled workers may earn the same wages as low-skilled workers

Moderate Command Economy (Socialism) • In a moderate command economy, also called Socialism, there is some form of private enterprise • The state owns major resources (airlines and steel companies) and makes the key economic decisions • Individuals own some businesses

Mixed Economies • Few nations have a pure market economy or a pure command economy • Most nations have a Mixed Economy, which is an economy that contains both private and public enterprises • Combines elements of capitalism and socialism

Mixed Economies cont’d • In the U.S. the government provides things such as defense, education, and aid to those with lower incomes • These are characteristics of a command economy • The U.S. is primarily a market economy, which means the market makes more of the decisions regarding the allocation of resources than the government (also true of Japan) • The more government control over the economy, the more socialistic the economy is

This is important because ______

Business Management