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What is Business?. McGraw-Hill/Irwin Introduction to Business. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter One. Chapter 1 What is Business?.
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What is Business? McGraw-Hill/Irwin Introduction to Business © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter One
Chapter 1 What is Business? • Differentiate the three meanings of business as commerce, occupation and organization and identify the four main kinds of productive resources. • Understand the forces of supply and demand determine fair or market price. • Appreciate how a company’s business model is the source of its competitive advantage and the difference between profit and profitability • Recognize the way specialization and the division of labor through the “invisible had of the market” lead to increasing profit and wealth. • List the reasons why business organizations are created to structure business exchanges and facilitate business commerce.
Chapter 1 What is Business? Definitions of Business • Business has three dimensions of a meaning • A commerce • An occupation • An organization
Chapter 1 What is Business? Definitions of Business • Business as a commerce is the process that people produce, exchange and trade goods and services
Chapter 1 What is Business? Definitions of Business • Business as an occupation is the acquired set of specialized skills and abilities that allows people to create valuable goods and services
Chapter 1 What is Business? Definitions of Business • Business as an organization is the system of task and authority relationship that coordinates and controls the interactions between people so that they work toward a common goal
Chapter 1 What is Business? Definitions of Business • Business as a system is a combination of business commerce, occupations, and organizations that produces and distributes the goods and services that create value for people in a society
Chapter 1 What is Business? Factors of Production • Regardless of meaning there are four crucial ingredients or productive factors or resources of land, labor, capital and enterprise that are needed to profit from business
Chapter 1 What is Business? Factors of Production • These four productive factors or resources of land, labor, capital and enterprise that are needed to profit from business and are limited in supply (scarcity) • A company must use them efficiently and effectively to produce goods and services
Chapter 1 What is Business? • Together, the cost of acquiring and using these four resources to make and sell goods and services determines a company’s operating costs
Chapter 1 What is Business? • Owners/managers are the enterprise of the business, while the people are the labor and the capital buys materials, machinery • The land may provide a specific location or a URL in cyberspace. The land may provide a specific location or a URL in cyberspace
Chapter 1 What is Business? • These resources allow for the creation of a product and/or service that customers value a price
Chapter 1 What is Business? • The company’s business model not only outlines the plan for these resources but creates a competitive advantage in the value of its product and generates profitable sales revenue • By reinvesting the profits the business increases its capital and contributes to the wealth of the owners
Chapter 1 What is Business? • All business activity is self-interested and competitive, and this competition may benefit people and society when it leads resources to be employed in their most profitable use
Chapter 1 What is Business? Supply and Demand • The forces of supply and demand determine a product’s market price • In turn, supply and demand are the result of peoples’ subjective judgment of the value or utility they will receive from supplying or consuming a particular product
Chapter 1 What is Business? Law of Demand • Reflects the usefulness or utility from that product • Given the price of a product or service, we generally demand less quantity of it as the price increases and demand more of it as the prices decreases
Chapter 1 What is Business? Law of Supply • Sellers are more willing to supply a product as the price increases and less willing to supply as the price decreases
Chapter 1 What is Business? • There is no rule of business that says all people need profit from business commerce, nor they will profit equally from the business system
Chapter 1 What is Business? • Some people or companies will always ruthlessly pursue their self-interest and try to cheat and defraud others
Chapter 1 What is Business? • Through the process of specialization and the division of labor, business occupations develop and increase the amount of goods and services people can produce and trade
Chapter 1 What is Business? • Increasing specialization, through the invisible hand of the market, leads to increasing profitability and the generating of more capital and wealth
Chapter 1 What is Business? • Through this “invisible hand” of the market, the interaction of business commerce and occupation determines the standard of living, wealth, and prosperity of people, groups, and society • It also determines how profit will be shared between people and groups in a society
Chapter 1 What is Business? • Business organizations are created to reduce transaction costs, the costs that arise from business commerce and from the process of specialization and the division of labor
Chapter 1 What is Business? • Business organizations develop an organizational structure, a set of task and authority relationships, to reduce transaction costs and increase profitability
Chapter 1 What is Business? • No rules exist that specify how the profit created from business commerce or occupations will be distributed or even who will receive it
Chapter 1 What is Business? • Your chance of pursuing a profitable occupation that allows you to accumulate capital depends on your ability to take part in the “great game of business”
