Www.limkokwing.edu.my. What is Business? Chapter One.

www.limkokwing.edu.my

What is Business?

Chapter One

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What is Business?

John Calvin Coolidge, The 30th U.S. President

Born: 4 July 1872 Died: 5 January 1933

Birthplace: Plymouth, Vermont

Best Known As: President of the United States, 1923-29

"The business of America is business."

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Chapter 1 What is Business?

The objective of a business is to make profit 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 Profit = Total revenue – Total cost

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Summary Slide

Chapter 1 What is Business?

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Chapter 1 What is Business?

Some people or companies will always ruthlessly pursue their self-interest and try to cheat and defraud others. There is “externality”

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Chapter 1 What is Business?

Business has three dimensions of meaningA commerceAn occupation An organization

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Chapter 1 What is Business? Definitions of Business

Organization Occupation

Commerce

Business

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What is Business?

Business as a commerce Business as a commerce is the process that

people produce, exchange and trade goods and services

Suppose you start a new business, such as build a firm to produce BMW car, what do you need for the business? How to start the new business?

Suppose you want to build a new university, such as UIC, what would you do?

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Chapter 1 What is Business?Business as a Commerce

Four Productive Resources

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Chapter 1 What is Business? Business as a Commerce

Factors of Production • There are four crucial ingredients or productive

factors or resources of land, labor, capital and enterprise that are needed to profit from business

• They are limited in supply (scarcity)• Evaluate illustration of circular flow and relate

to all factors of production.

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Chapter 1 What is Business? Business as a Commerce

Factors of Production 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

These resources allow for the creation of a product and/or service that customers value a price

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Chapter 1 What is Business? Business as a Commerce

Factors of Production A company must use them efficiently and

effectively to produce goods and servicesTogether, the cost of acquiring and using these

four resources to make and sell goods and services determines a company’s operating costs

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Chapter 1 What is Business? Business as a Commerce

Business ModelThe 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

Business model is about profit pattern and is related to profitability

By reinvesting the profits the business increases its capital and contributes to the wealth of the owners

There is no rule of business that says all people need profit from business commerce, nor they will profit equally from the business system

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Chapter 1 What is Business?

Business as a commerce Law of Demand

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

Law of SupplySellers are more willing to supply a product as the

price increases and less willing to supply as the price decreases

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Chapter 1 What is Business?

Supply and DemandThe forces of supply and demand determine a

product’s market priceIn 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

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Chapter 1 What is Business? Business as a Commerce

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

There is another “hand”: visible hand

Market Efficiency - Market Failures

Adam Smith’s “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society can derive from a market.

But market failures can still happen.

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Chapter 1 What is Business?

Business as an occupation • Business as an occupation is the acquired set of

specialized skills and abilities that allows people to create valuable goods and services

• 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

• Increasing specialization, through the invisible hand of the market, leads to increasing profitability and the generating of more capital and wealth

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Chapter 1 What is Business?

Business as an organization

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

Evaluate “Destination CEO” Video and relate to Business as commerce

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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

• Business organizations develop an organizational structure, a set of task and authority relationships, to reduce transaction costs and increase profitability

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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

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Chapter 1 What is Business?Chapter 1 What is Business?

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Chapter 1 What is Business?Learning Objectives

After study this chapter, you should • 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.