Pdf - Week 01 Understanding The Business System

CHAPTER 1

Understanding The Business System

The Concept Of Business and The Concept Of Profit • Business is an organization

that provides goods or services to earn profits • Profits represent the difference

between a business’ business’s revenues and its expenses

Presented by: Anna Riana Putriya

What Are Factors of Production? Resources used in the production of goods and services— services—labor, capital, entrepreneurs, physical resources and information resources

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3. Entrepreneur is an individual who accepts the risks and opportunities involved in creating and operating a new business venture

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Factors of Production 1. Labor/ Labor/Human resources / Intelectual Capital are the physical and mental capabilities of people as they contribute to economic production 2. Capital are the funds needed to create and operate a business enterprise

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Economic Systems Around the World An economic system is a nation’ nation’s system for allocating its resources among its citizens.

4. Physical resources are tangible things organizations use in the conduct of their business

5. Information resources are data and other information used by business

Can you name any others ? [email protected]

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Types of Economic Systems

1. Planned Economy Relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions. The Kremlin is shown above.

Planned Economies Socialism

Communism

(Mixed Market)

What Is Communism?

Capitalism vs. Market

Planned economy in which the government owns and operates all factors of production

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2. Market Economy

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What is Market? Mechanism for exchange between the buyers and sellers of a particular good or service

What Is Capitalism?

Relies on individuals to control production and allocation decisions through supply and demand

Market economy that provides for private ownership of production and encourages entrepreneurship by offering profits as an incentive

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Circular Flow in a Market Economy

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3. Mixed Market Economy Features characteristics of both planned and market economies • Privatization is the process of converting government enterprises into privately owned companies • Socialism is a partially planned system in which the government owns and operates selected major industries

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Demand and Supply in a Market Economy

The Laws of Supply and Demand

• Demand is the willingness and ability of buyers to purchase a good or service

The law of demand: Buyers will purchase (demand) more of a product as its price drops and less as its price increases.

• Supply is the willingness and ability of producers to offer a good or service for sale

The law of supply: Producers will offer (supply) more of a product for sale as its price rises and less as its price drops.

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What Is the Market Price (or Equilibrium Price)? ProfitProfit-maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal

Pizza Price

2000

Surplus

D

S

1500

Market Equilibrium

1000 500

Four elements: – – – –

Private Property Rights Freedom of Choice Profits Competition

Shortage

0 Low

Private Enterprise and Competition in a Market Economy Private enterprise is an economic system that allows individuals to pursue their own interests without undue governmental restriction.

High

2500

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2

4

6

8

10

12

14

16

Quantity

18

20 High

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Degrees of Competition

Oligopoly

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Degrees of Competition

Monopolistic Competition

One

Many

Monopoly

Perfect Competition

Sellers [email protected]

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3

Evolution in Business Production Era

Marketing Era

Laissez--Faire & Laissez Entrepreneurship Era

Global Era

Industrial Revolution

Information & Internet Era [email protected]

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