Section One

The Nature Of Business

Terms And Concepts Related To Business

An economy is defined as a place or a country where resources are managed by a government to
bring about maximum benefits for the entire society.
Caribbean countries are characterized as developing economies. Developing economies are described
as those with their average income earned, rate of literacy and health services lower than
industrialized/developed nations. They are so characterized because they have a high potential for
growth and achieving the status of developed countries.
Early Caribbean economies dated from the Taino and Kalinago Indians who lived in simple villages.
These villages were ruled by a leader who organized all economic activities. They hunted, fished and
grew crops to provide the means of survival for their village. Present Caribbean economies are much
more sophisticated. For most Caribbean countries, it is consumer demand that drives the production
and distribution of goods and services.
Government manages the economy. They set the laws that govern households and businesses.
They provide the necessary services (road, water, transportation, communication etc,) so that
businesses may operate efficiently. Households and businesses must in turn pay their taxes.
Households consume the goods and services provided by firms. Households are known as
consumers.
Firms produce commodities/goods and services that satisfy needs and wants for its market. They
are the producers in an economy. They obtain and maintain markets through consistent advertising
and sales promotion.
Business enterprises are legal entities operating in an economy to provide goods and services at a
profit. Profits are the excess of earnings/revenue over its costs. Profits are an incentive for
businesses to continue operating. Businesses will close down if they are making losses. This is an
excess of cost over revenue. If costs are greater than expenses then a business entity is making a loss.
Whether man lives in a simple economy or in a more sophisticated one he must survive. He is seen as
an economic animal as in order for survival he must be involved in economic activities such as
production, consumption and exchange. He either produces the good he consumes or he is involved
with exchange through barter or money purchases. If he produces his own goods and provides his
own services, he is involved with direct production. However, if he obtains goods by bartering or by
purchasing them he is involved in indirect production
Barter is the exchange of goods or services for other good or services. This system is rarely practiced
in modern economies, but still occurs. For example, a Caribbean Government agreeing to exchange
its country’s bauxite for cars manufactured by an industrialized country. In early economies
individuals had to barter goods and services to obtain those commodities that they did not produce
for themselves. Money did not exist and so barter was the only means of exchange.
There were several problems with the barter system:
1. A common measure of value did not exist. Therefore some persons felt cheated, as what is being
exchanged is more valuable than what is received.
2. A double coincidence of wants may not exist. The wants of both persons wishing to trade must
coincide with what is being offered by each other. That is, an individual may wish to exchange what
he produces (e.g. animal skins for another commodity such as clay pots). However, if the individual
who makes the clay pots does not want skins then no trade will occur. This individual will need to
find someone with clay pots who wishes to obtain skins.
Specialization is defined as the division of labour. This is used in production processes in both
early and modern economies to complete tasks more efficiently. In the Taino Indian village, the men
would hunt and the women would tend crops. This is an example of simple specialization. Complex
specialization involves the breaking down of tasks into minute tasks, and assigning each task to an
individual or a unit group. For example, in a garment factory, a single dress will be sewn by several
persons, one person will sew the sleeves, and another will sew the collar. Simple specialization in
early economies resulted in the barter system, as man needed to trade to obtain those goods and that
he did not produce for himself.
The advantages of specialization include improved quality of output, and shorter production time,
because of the repletion of a single task. This results in increased efficiency, and reduced costs.
However, repletion of a small task may become boring and de-motivate employees to work
efficiently. Therefore quality may decline as well as output.

Instruments Of Exchange
The problems of the barter system created the need for a medium that could be used to facilitate
trade. Money solved the problems of the barter system. Money is anything that is acceptable for the
purchase of goods and services. Presently it is in the form of notes and coins. Early forms of money
included shells, beads, precious metals and stones.
The Characteristics of Money
1. Acceptable – money is universally accepted
2. Durable – long lasting
3. Divisible – Can be easily broken down into smaller units. E.g. $100 can be broken down into $10
bills and so facilitating the purchase of small quantities
4. Homogeneous – similar e.g. all $100 bills are the same in appearance
5. Convertible – easily exchanged for goods and services
6. Scarce – this ensures its value
7. Portable – easy to carry
Functions of Money
1. It is a medium of exchange i.e. since money is acceptable by all, persons will not have difficulties to
trade
2. A measure of value – the price of an item indicates its value
3. It is a store of wealth i.e. money can be easily stored/saved.
4. It is a standard for deferred payments. i.e. it can be used to repay debts over time.
Types of Money
1. Notes and Coins
2. Quasi Money/ substitute money – examples are postal orders, soda machine tokens, cheques and
credit cards.
3. Near Money – assets that can easily be turned into cash, e.g. certificate of deposits, bills of
exchange.
Cheques
A cheque is an order to the bank to make payments to the payee stated on it.

Credit Cards/Debit Cards

This allows the card holder to make payments by simply presenting the card to the seller. A credit
card facility is actually a loan given to a customer and thus it is repaid at an interest. A debit card is
issued against a customer’s account balance and is therefore not a loan.
Money Order
They can be used to make payments locally or overseas, as they are made out in the currency in
which they are to be paid. The payee will cash the money order at his bank.
Bank Draft
A bank draft is a cheque which guarantees payment to the receiver from the issuing bank. Bank
drafts can be made out to a payee in foreign currency and thus used for making overseas payments.
Bank drafts are obtained for a fee from a commercial bank.
Bill of Exchange
This is used to pay for goods bought overseas on credit. It is an order in writing from an exporter to
an importer requiring payments of a certain sum of money at a fixed future date. The time period
allowed is normally three months.
Electronic Transfer
This is a system used to transfer funds electronically rather than paper-based payment methods.
Examples include credit and debit card transactions, remittances (through companies such as
Western Union) and money transfers.
Tele-Banking
This system allows a bank’s customer to simply use the telephone to get his banking services done
rather than visiting the bank. Services include; checking account balances and transaction history,
opening a new account, transferring funds etc.
Internet Banking
This differs form tele-banking in that the internet is used to access the same services. Customers can
go on-line to view their balances and transaction history and transfer funds etc.
Ecommerce
Electronic commerce more popularly called ecommerce is the buying and selling of goods and service
using the internet. It allows for a full range of trading activities over the internet such as advertising,
placing orders, delivery and making payments.

Reasons Businesses Are Established

Starting a business is a lot of hard work. Therefore persons who decide to start a business must be
ready to dedicate a lot of time and energy to its start-up. It is also very costly and therefore capital
will have to be identified to inject into a new business.
Reasons for starting a Business:
1. Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a business
would give them the opportunity to be a successful business person and achieve financial
independence.

2. Being your own boss

You are able to make decisions about the direction and operation of the business.
3. To use your skills and knowledge for yourself
The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/fulfillment
Owning and operating a successful business will give a feeling of accomplishment.
5. To create employment for relatives, friends and community members
Business can assist in providing jobs for persons in communities with high levels of unemployment.

Forms Of Business Organizations

An organization is a system that groups people together towards establishing a common goal.
Business organizations are centered on creating goods and services for profit. There are several types
of business organizations that one can start.
Forms of Business Organizations:
Sole Trader
Partnership
Private Limited Liability companies
Public limited Liability Companies
Multinationals
Franchise
Conglomerates
Cooperatives
Nationalized Industries
Local and Municipal Authorities
Government Departments
All forms of business organizations can either be characterized as a part of the private sector or the
public sector.
The Private and Public Sector
All privately owned industries, services and other business activities are a part of the Private Sector.
All industries, services and any other business activities that are owned by the state are a part of the
Public Sector. For example, the commercial banks are a part of the Private Sector, and public schools
and hospital are a part of the Public Sector.

The sole trader

The sole trader as the title suggest is a single business owner. This person may employ several other
persons to work in the organization, but he has to make all decisions, acquire all the capital required
and other resources needed for the business on his own.
Advantages
Benefits of operating alone are: all profits are taken by the owner. Consultations are not necessary
for decision making and the legal requirements for start-up is very simple as the proprietor only
needs to submit the registration documents for the business.
Disadvantages
The sole proprietor must work for long hours resulting in little time for family. There is also limited
capital to inject into the business and he alone bears all the risk of the business. He does not have
limited liability and therefore if the business goes bankrupt he may lose his personal assets e.g. house
and car. There is a lack of expertise in areas of business where he is not knowledgeable which may
limit success.

Partnership
A partnership business is formed legally by a minimum of two and a maximum of twenty persons in
a business. There are two types of partnership forms:
-Limited Liability Partnership – at lease one partner must have unlimited liability
-Unlimited liability Partnership- all partners have unlimited liability.
A deed of partnership must be drafted which set out the terms and conditions of the partnership.
Types of Partners
-Ordinary/General Partners : take an active part in the running of the business.
-Sleeping Partners : invest in the business but do not take an active part in the business.
-Limited Liability Partners : assets will not be lost if the business goes bankrupt.
Advantages
Since more than one person is involved more capital can be raised to inject into the business. There
is more expertise and work load is shared. The risk of the business operation is also shared.

Disadvantages
All partners will be affected by the action of each partner since each person represents the business.
Decision making may be very slow if partners are not in agreement. There are high risks for partners
who do not have limited liability.
Limited Liability Companies
Limited Liability Companies are companies in which shareholders/investors are protected as they
will not lose their personal assets if the business goes bankrupt. They are not liable for the debts of
the company beyond their level of investment. Therefore if a shareholder buys shares in a company
valuing $5000 then he will only lose that $5000 invested and his personal assets.
There are two types of limited liability companies.
1. Private Limited Liability Company
2. Public Limited Liability Company
The Private Limited Company only allows friends, relatives and coworkers to purchase shares and to
be a part of the company. Its privacy is also protected by the fact that unlike the public limited
liability company, it does not have to publish its balance sheet in the newspaper. The public limited
company allows members of the public to purchase shares. The shares/stocks of public limited
companies are traded on the stock market.
Legally the private limited company can only have a minimum of two and a maximum of fifty
persons to join. Whereas the public limited liability company has a minimum of seven members and
there is no limit to the number of share holders that can join.
The legal procedures for both these types of companies are lengthy as they must submit the several
documents.
The Companies Act contains the laws relating to companies. To comply with certain requirements
which were laid down by the Companies Act, the promoters of the company must present the
following documents:
-The Memorandum of Association
-The Articles of Association
-Statutory Declaration
-Certificate of Incorporation
-Certificate of Trading

The private limited company may begin trading after receiving the certificate of incorporation, but
the public limited company must issue a prospectus inviting the public to subscribe for shares before
a certificate of trading is issued.
A main advantage of limited liability companies is that their shareholders enjoy limited liability.
This type of business is assured continuity of existence as it has several members. Unlike the sole
trading business that comes to an end if the owner dies or is very ill. These firms can access capital
for expansion by selling shares.
The disadvantages however, are that they are not easy to start due to the number of legal procedures
required. For the private limited liability company, shares are not easily transferable as other
members must agree to have persons join the company. However, shareholders in public liability
companies are not restricted to sell their shares to whomever they wish to.
Multinationals
A multinational company is a global organization directed from a main centre or office. Examples of
Multinational companies in the Caribbean are Shell, Kentucky Fried chicken and Digicel.
Some of the benefits of multinationals to the Caribbean are that they provide employment, introduce
advanced technology and provide well needed goods and services.
However, there are disadvantages. Profits earned are repatriated to the main centre in their home
country. They may exploit the workers by paying low wages and having them work long hours. They
cause unemployment when they close down to take advantage of cheaper labour and lower
operational cost in another country.
Franchise
Some businesses begin by the owner acquiring a franchise to operate under an already existing
business name. A franchise is an agreement between a franchisee (the person requesting permission
to set up business) and the parent company to allow the franchisee to sell its products or services.
Many multinational companies expand into new regions through franchises.
The franchisee bears the name of the parent company. They must abide by all the rules and
guidelines outlined by the parent company to sell its products. It pays royalties (a fee) to the parent
company to operate under its business name.
Conglomerates
This is a group of unrelated companies (e.g. a restaurant, shoe store a travel agency etc,) under one
umbrella. A parent company owns a controlling stake in each company which conducts business
separately.

Nationalized Industries
Nationalized industries are government owned and controlled businesses. A chairman and board of
directors are appointed by the government to run them. Businesses run by the government in most
countries tend to be those that provide essential services such as water, electricity and
transportation. Nationalized industries are beneficial to a country as they provide essential goods
and services at very affordable cost or free. For example, a water company providing standpipes to
rural communities. Although beneficial, they operate at high costs to the society as their operations
tend to be inefficient. They are supported by taxpayers money and do not operate on the basis of
making profits.
Cooperatives
They are business entities owned by their members who purchase shares to join them. They are
usually established because of a need existing among a number of persons who wish to acquire
particular goods and services at a reasonable cost. For example, members of a credit union purchase
shares in these entities in order to obtain loans at low interest rates.
There are several types of cooperative, for example, Retail/Consumer cooperatives and Producer
cooperatives. Shares invested in a retail cooperative are used to buy goods in bulk at a very low cost
and then resold to members. Producercooperatives may include a group of farmers who will obtain
raw material at a low cost.
Profits are distributed to members based on the amount of goods that they buy and not on the
amount of investment that they make in the business. At the annual general meeting, shareholders
elect their management committees from among their members and vote on proposals put forward.
Benefits of being a part of a cooperative are therefore obtaining goods and services at low costs and a
guaranteed market as members are also customers. A disadvantage is that its management may be
inexperienced as they are chosen from their membership.
Government Departments
These include the government ministries e.g. the Ministries of Finance and Education. A minister is
appointed in charge of each ministry. These departments are very important to the running of
government.
Local and Municipal Authorities are government bodies which are run by elected local officials,
e.g., the Kingston and St. Andrew Corporation (K.S.A.C.) in Jamaica. These bodies fulfill local needs
and allow for more balanced local development. They carry out duties such as cleaning gullies and
drains and fixing community roads.

Economic Systems
Every economy is faced with a fundamental economic problem. In every economy, whether rich or
poor, there are limited resources and unlimited wants i.e., the resources of a country are not enough
to satisfy the wants of all its citizens. Since the resources of a country is limited and wants unlimited,
choices will have to be made. For example, the government may have to decide whether to spend
more money on schools, hospitals, transportation or on road work. The process of choice begins with
a scale of preference. This is a list of all options in order of preference. For example
Scale of Preference:
-hospitals
-transportation
-schools
-road work
The option to build hospitals being placed at the top of the scale of preference indicates that this
choice is most preferred as it yields the greatest satisfaction from the resources to be spent.
Transportation is the opportunity cost of this choice as it is the second most preferred option that
had to be given up to accommodate the building of hospitals. Opportunity cost is defined as the next
best alternative foregone as a result of making a choice.
Economic Systems
An economic system is a programme that a country uses to organize production and the distribution
of goods and services, to maximize the benefits to its society. Economic systems vary worldwide. In
this lesson we will discuss four types. These are the Subsistence, Free Market, Planned and Mixed
economic systems. Governments choose particular economic programmes that will effectively
manage their economies, bring about economic growth and improve the lifestyles of its citizens. The
following economic questions must be answered by managers of economies.
1. What to produce?
2. How much to produce?
3. What methods of production are to be used?
4. How will goods and services be distributed?
Answers to questions 1, 2, & 4 will depend on the economic system of each country.
Subsistence Economic Systems
The Subsistence economic system as its name suggests are economies in which just enough is
produced by its citizens for their survival. Since there is no surplus wealth is not created. Subsistence
economies exist in many villages in Africa and South America among peoples who live in simple
societies.
Free Market Economic System also called Free Enterprise or Laissez Faire
Private individuals own the greater share of the property and capital resources that are used in the
production process. There is little or no government intervention in the economic activities of the
country. The government may provide essential services e.g. transportation and water. Therefore the
private sector provides the majority of goods and services.
Advantages
-Competition among business will result in increased quality of output and lower prices.
-Competition also leads to innovation i.e. newly invented goods, services and production processes.
-Consumers are free to choose the goods and services that they wish to purchase and therefore
production is based on their demands.
Disadvantages
-Consumer exploitation by suppliers may go unchecked by government as there is little or no
government intervention.
-There is an unequal distribution of wealth as goods are purchased by only those who can afford it.
-In the case of no government intervention public goods such as postal service, streetlights and roads
are not provided
The Planned or Controlled Economic System
Property and capital resources are owned by the government on behalf of the society. The
government makes all decisions concerning the use of the country’s resources and the distribution of
its output. Goods and services are provided through government-owned and run operations. These
include factories, telephone services, newspapers, television stations, etc.
Advantages
-There is a fair distribution of goods and services as the government determines how goods are
distributed.
-Citizens in these economies enjoy a least a basic standard of living as the government provides all
goods and services.
Disadvantages
-Resources are inefficiently allocated as consumers are not free to indicate their demand for goods
and services. Therefore resources are not sent to where they are most needed but into industries
based on the government’s decision.
-The lack of competition reduces innovation and the motivation to produce quality output.

The Mixed Economic System

The private and public sector are both involved in the production of goods and services.
The economic resources are owned by government and private individuals.
Advantages
-Consumer protection through the regulation of businesses by government.
-Economic benefits of competition coupled with goods and services provided by government for
those who cannot afford to access these through the market system.

Disadvantage
-Public sector companies tend to be inefficient as they are supported by taxpayer’s money.
-Government regulatory policies may reduce the enthusiasm of the private sector e.g. the setting of
prices of goods and services resulting in the closure of businesses.

Stakeholders And Their Role In Business Activities

Business owners must be aware of the various groups that they interact with for the successful
running of the business.
Owners
A business may be owned by a single individual (a sole trader), partners or by a group of
shareholders forming a company.
Role of Owners
They must provide the resources that are required for the business to operate efficiently. These
include the employment of workers, identifying suitable premise and procuring machinery,
equipment and raw materials. They must make timely decisions to ensure that the business remains
profitable. They must motivate employees to perform well.
Employees
They are employed to carry out assigned tasks to achieve the company’s objectives.
Role of Employees
Employees must work efficiently to accomplish tasks assigned. Accomplishing tasks may require
teamwork and therefore employees must have good interpersonal skills. Employees must adhere to
the rules and relations of the company.
Customers
They are the supporters of businesses in the economy. They purchase goods and services to satisfy
their needs and wants.
Role of Customers
They assist businesses in indentifying the goods and services to be produced based on their
demands. They also help business to identify changing trends in the market and so prepare business
operators for future demands.
Society
Businesses must be aware of the society as a whole, how its activities affect it and not only those who
are customers.
Role of Society
The production process may cause air pollution and discharge of harmful waste into rivers and
seas. The society keeps businesses in check by making them aware of their impact on society. They
write letters to the company and the media and speak on talk shows.
Government
They are the managers of the economy within which the business operates.
Role of Government
Regulate business activities to protect consumers. Government agencies ensure product standards as
well as that various legislations are adhered to ensure the protection of consumers’ rights.

Functions Of A Business
The functions of a business are:
1. To produce high quality goods and services that will satisfy needs and wants.
Entrepreneurs enter business to make profits. They must be very keen in identifying those goods and
services that will create high demand make profits.
2.To create employment
Business will need all categories of workers to carry out the various tasks required to achieve its
goals. If the business is profitable and expands then more workers will be needed for its operations.
3.To make a profit
The reason for the establishment of a business is to make profits. If businesses are not profitable, its
owners will not be encouraged to continue operating. Profits are used to reinvest in the business for
its expansion.

Role Of A Business Within A Community

Corporate citizen is the term used to describe the responsibilities that businesses have within their
environment. As a good corporate citizen business must strive to have a good relationship with their
community.
Good corporate citizenship includes:
-Support for the community through community projects, sports and youth clubs.
-Being environmentally aware by reducing pollution
-Providing job opportunities for community members e.g. a holiday work programme
 Section Two
Internal Organizational Environment

Functional Areas Of Business

Process Between Planning And The Operation Of A Business

Managers must continue to plan in order to ensure that its operations meet all long – term, medium-
term and short- term goals.
Long- term plans are made for 3 to 5 year periods. Long-term plans determine the direction of the
company. These plans set out Departments in a business organization are structured according to
certain functions. The departments of various organizations will differ depending on the type of
business. Below are four main functions that tend to be general to most organizations.
Production
The production department is responsible for transforming raw materials into finished products.
They are also responsible for quality control to ensure that required standards are met.
Finance/Accounts
The accounts department makes and receives all payments on behalf of the business and records all
financial transactions
Marketing
This department creates awareness for the firm products and motivates consumers to buy. They also
carry out market research to identify customer’s needs
Human Resources/Personnel
The human resource department recruits and selects staff for the business organization. They are
also responsible for staff training and welfare.

Functions Of Management
Planning
All managers must plan, that is, setting out steps for the attainment of future organizational
objectives. It involves formulating the policies and programmes for the firm.
Organizing
Organization reduces cost, time, chaos and conflicts. Managers must obtain all the necessary tools,
machinery and personnel for each task and arrange all tasks so that they are done in the most
efficient manner.

Directing
Managers must guide subordinates by giving them instructions to perform the tasks assigned.

Delegating
Delegating duties involves giving others (e.g. supervisors) the authority to have specific tasks
completed through the management of others. Therefore, supervisors will ensure that workers
complete tasks assigned. Delegation reduces the workload of the manager.

Controlling
Managers must continually measure the activities of subordinates, ensuring that all activities
conform to plan.

Coordinating
Managers must bring together all the various organizational tasks so that the organization may
function harmoniously.

Motivating
Managers must inspire workers to perform their tasks well.

Responsibilities Of Management
Management must be aware of their responsibilities to the various groups that they interact with for
the successful running of the business.

1. To the owners of the business (this also includes shareholders)

Managers are expected to ensure efficiency in all areas of the business.

2. To employees – Managers must pay adequate wages and provide good working conditions.
3. To customers – Managers must ensure that products are of good quality and are reasonably
priced.

4. To the society – Managers must find ways to reduce harmful air pollution and the discharge of
harmful waste created by the production process into rivers and seas.

5. To the government – Management should adhere to various government legislation and

regulation.

Organizational Charts
An organizational chart is a diagram of the organization of an enterprise. Its pyramid shape
illustrates the hierarchy system that exists in the organization. The most senior position in the
organization is placed by itself at the apex. The pyramid gets wider towards the bottom depicting the
greater number of workers at its base.

Those who have the power to issue commands have authority in an organization. In the organization
chart above the sales manager has the authority in the Sales department. All persons with the same
level of authority are placed at the same level on the chart. For example the sales manager and the
accounts manager have the same level of authority in their various departments.
Responsibility is the capacity to accept duties and to carry out their tasks. Both sales supervisors are
responsible to the sales manager.
The chart shows the following:
-each person’s position
-the number of levels of managers
-to whom each employee is responsible (reports) to
-the span of or (area) of control for senior staff members.

Types Of Organizational Charts

Line or Direct
The line organizational chart depicts a straight line of command. Authority is said to flow
downwards only in the line organization. The line organizational structure is found in schools or in
the military.

Functional Organizational Chart

The Functional organization chart is a diagram of an organization that is arranged by its functions.
For example, there is a manager in charge of marketing, and another in charge of production. This
type of organization has an advantage over the Line as experts are appointed to run each
department. All managers report to the General Manager.
The Functional organizational chart combines the straight line of command of the line organization
with horizontal dotted diagonal lines representing functional authority. The dotted diagonal lines in
the figure above show the authority that the Human Resource Manager has over other departments.
The Human Resource Manager is allowed authority in these department over human resource
matters only e.g. to hire and fire workers. He therefore cannot give directives on production or
marketing matters.
Line and Staff Organizational Chart

The Line and Staff organizational chart combines the line and functional organization with the
addition of staff personnel. Staff workers assist and advise line workers. Staff workers include
consultants, advisors, company lawyers, executive secretary, auxiliary workers etc. Staff officers do
not have authority, that is, the power to delegate tasks to subordinates in the organization. Their
main role is to advise and assist line officers. This is why there are no vertical lines connecting staff
officers to any other member of staff on the chart. They are therefore, placed at the side directly
below the line officer whom they assist or advise.
Committee Organizational Chart

Committees are advisory bodies. They are usually appointed to advise organizations. Examples of
committees include; parent teachers associations and student councils which are committees within
a school organization. Committees usually delegate certain duties to sub-committees. For example,
an executive committee may appoint a finance committee to advise it on financial matters. Note that
an element of the line organization exists in the committee organization as all sub-committees are
responsible to the executive committee.

Characteristics Of A Good Leader

A leader is someone who has been given authority over a group of individuals. His job is to motivate
the group to achieve the goals set out for it. Leadership is therefore about influencing or inspiring an
organized group towards the accomplishment of goals. Below are the characteristics of a good leader.

Integrity
It is important for a leader to posses this quality as it makes them trustworthy. They are perceived as
honest and therefore command the respect of their subordinates.

Good communication skills

Leaders should be able to communicate effectively with persons at all levels of the organization.
Manager must pass down directives as well as listen to workers opinions complaints and ideas. This
will foster good working relations among leader and followers.
Intelligent
This is a very important characteristic for leaders. It refers to being rational and having good
judgment when making decisions. Leaders are decision makers and therefore need to be
intelligent. This characteristic also refers to shrewdness and therefore describes someone who is
smart, perceptive and wise.

Devoted and Committed

A leader must be a role model for others. He/she should therefore believe in the goals of the group
and motivate others to achieve it. His/her continuous hard work will portray dedication and loyalty
to duty.

Leadership Styles
Autocratic or authoritarian style
This type of leader makes all decisions and asks members only to be obedient in following
orders. He will give detailed instructions and closely supervise subordinates.
Advantage
1. Time is not wasted consulting with others to reach a decision.
Disadvantage
1. Workers must comply with directives given by the leader and therefore the organization will
not benefit from workers initiative and innovative ideas.
2. This type of leadership does not contribute to team building since the leader is detached from
the followers.
Democratic/ Participative style
A democratic leader allows the participation of subordinates in decision making. The leader asks for
progress reports at intervals instead of continuous close supervision.
Advantage
1. Discussion between management and workers leads an improved relationship.
2. It encourages shared responsibility in decision making
Disadvantage
The variety of opinions to consider may slow down the decision making process.
Laissez-Faire style
This type of leader will give minimum directives and allow maximum freedom for workers to make
decisions about completing their tasks.
Advantage
The firm will benefit from the initiative and innovation of workers.

Disadvantage
It may lead to chaos in the organization. This type of style can only be used with persons that are very
self- motivated and disciplined.

Sources Of Conflict Within An Organization

Unfair treatment of workers
Unfair dismissal
Discrimination

Health related issues

The need for protective clothing
Poor ventilation
Harmful fumes from chemicals

Wages and fringe benefits

Nonpayment of allowances
Underpayment

Methods Used To Gain An Upper Hand During Periods Of Conflict

Workers organize themselves to collectively deal with conflicts. This is done through the trade union.
A Trade Union is an organization of persons employed in an industry who have joined together in
order to improve their wages and working conditions.
Methods used by Trade Unions
1. Strikes
2. Sick-out
3. Work-to-rule
4. Go slow
5. Picketing
Methods used by employers during conflicts
Union busting
Union busting is the prevention by management of the formation of a trade union within its
organization. The employer may explicitly state this to workers or covertly discourage its formation.
Lock out
A lockout refers to the refusal by an employer to allow workers into the business place during an
industrial dispute. This is a means of coercing workers to comply with management.
Scab labour
This is a derogatory term used to refer to workers hired to replace workers on strike.

Strategies Used To Resolve Conflicts

Collective Bargaining
Collective bargaining is the process whereby the union representative on behalf of the employees and
management, negotiate the terms of their agreement which are incorporated in the employees’
contract of employment. It is a means to reach an agreement between trade unions and employers.
The Role/Function of the Trade Union
1. To ensure better wages and working conditions for workers
2. To protect workers against arbitrary disciplinary actions.
3. To deal with grievances in accordance with the grievance procedures
The Grievance Procedure
A grievance is a complaint of a worker. A worker will have a complaint when:
a. he is treated unfairly. (e.g. cases of discrimination)
b. his health or safety is threatened (e.g. chemicals and dust at work etc)
c. there is a violation of the collective agreement or work rules. (e.g. if employers have not abided by
the agreement between management and the trade union.)
The grievance procedure is a set of steps which employees can use to solve any grievance that may
arise.
STEP 1 - The employee discusses the complaint with his or her supervisor. If the complaint is not
satisfactorily dealt with by the supervisor the employee may take the matter further.
STEP 2 - The employee will discuss the matter with the head of department.
STEP 3 - The employee, along with the union delegate, will discuss the matter with top
management.
STEP 4 - If the grievance still exists, the union official will seek conciliation or mediation from the
Ministry of Labour or any independent body, i.e. the friendly intervention of these bodies into the
dispute for the purpose of adjusting the differences.
STEP 5 - The matter is sent to arbitration, i.e. before the court where the judge will make the final
decision. Therefore both parties; employer and employee must accept the judges decision.

Guidelines: Good Management & Staff Relations

Good management worker relationship is important for efficiency, productivity and the retention of
staff.
Communication
Managers should not only give directives but encourage feedback from workers. Regular scheduled
meetings should allow workers the opportunity to voice their concerns and views. Some managers
have an open door policy making them available to all employees.
Motivation
Money is not a motivator for everyone and therefore managers must find ways of encouraging
workers to give their best performance. Other forms of motivation include recognition for a job well
done. High performing employees can be motivated by promotion, and being named employee of the
month. Allowing employees to be creative and bringing their innovative ideas to goods and services
is also a motivator.
Fairness
It is very important to handle all workers fairly without showing favouritism. If workers perceive that
they are not being fairly treated or that there is favouritism conflicts may arise among workers and
well as between management and workers.
Compassionate
Managers must show care when dealing with workers daily. Workers are not machines and cannot
be treated as such. Managers should try to understand each worker and their various issues. Workers
may have challenges with illnesses, family, financial etc. which may affect their performance on the
job.

Role Of Teamwork
Many firms adopt a teamwork approach to complete tasks more efficiently. For example a major
Caribbean airline encourages its workers to work as a team to achieve the main task of having each
flight leave on time. Workers therefore move to various positions if needed, to have each flight leave
on time.
Benefits of Teamwork
1. It improves the working relationship among workers
2. It increases communication
3. Skills and knowledge are passed on through the interaction
4. It satisfies the social needs of workers
Groups are formed naturally by persons with similar interest, common goals and similar past
experiences in an organization. The establishment of various clubs, work socials and outings will
encourage greater interaction among workers, better relationships and a teamwork approach to
completing tasks.

Strategies For Effective Communication

Communication is defined as a two-way process which involves the conveying of information from
(sender) to (receiver). The need for effective communication is very important when dealing with the
human factor from recruitment to retirement in the organization.
For communication to be effective there must be feedback.
Means of Communication
1. Oral – This includes all types of spoken communication, e.g. interviews and meetings.
2. Written – This includes all things that are written, e.g. reports and letters.
3. Visual – This includes all things which can be seen, e.g., posters and films.
The primary objective of communication in any organization is to get work done.
Types of communication
Formal Communication -These are official methods approved by management.
These includes meetings, announcement on notices boards, memoranda, messages over public
address systems, interviews, performance appraisals, company magazines. etc.
Informal Communication -These are unofficial methods of communication.
These include: rumours and the grapevine, secret signs and gestures as well as casual conversation
between employees.
Barriers to Communication
1. Distortion of messages e.g. rumours or the grapevine can easily distort messages.
2. Inappropriate forms of transmission e.g. a notice of a formal meeting must be conveyed in writing
and not by word of mouth. If this type of meeting is not conveyed in writing it may seem casual and
unimportant.
3. Physical barriers e.g. faulty telephone connections, defects in mechanical or electronic equipment,
and poor postal services.
 Management Information System
Managers need information to assist them in making important timely decisions and predictions for
future plans. Management information system is a computer based business information system
designed to produce information needed for the successful management of a department or business
(Before MIS managers had to rely on manually prepared reports at intervals). However, with
increased global competition firms must be more proactive in the market place. Information must
therefore be at the manager’s disposal at any point in time when needed.
The manager of a retail store may require at any point in time information on sales volume for
particular items so that decisions on future purchases can be made. A computer programme is then
designed to meet the specifications of the report which the manager will need. The format and the
content of each report required will be used to design the programme. The manager will then be able
to receive the information required by requesting the specific report. The necessary data will be
retrieved from the data base, processed and automatically presented in the format specified.
Benefits
MIS is very cost effective as it reduces the need for labour to compile and analyze data. Once
information enters a company’s database, MIS will compile and analyze the data to give managers
meaningful information to make decisions. Data e.g. items sold or stock entering the stock room will
be inputted by the various department staff. MIS will have required reports available in a much
shorter time than manual preparation of reports.
MIS is a decision support system used to analyze business activities. MIS at anytime can provide
information required for decision making. This can be used to assess present performance and
therefore assist managers to improve the company’s performance so that the firm is more
competitive.
Challenges
Although very beneficial and is therefore desirable for businesses MIS is an expensive venture and
small firms will be challenged to set up this system. In addition to the set up cost for MIS business
will have to consider the continuous maintenance costs. The cost of training present employees to
interact with the new system must also be factored in to the total cost.
 Personal Needs Satisfied Through Employment
Managers must be aware of the various needs of workers. If these needs are adequately satisfied
through work, then workers will be motivated to improve performance.
Basic Needs
Employment is very important for the economic survival of individuals. If employees receive
adequate pay then these needs will be satisfied. Some employees may also receive allowances and
fringe benefits. Once the basic needs of survival (food, clothing and shelter) are met, employees will
be aware of higher level needs.
Security Needs
A job should not only provide adequate pay to satisfy basic needs but it should also give workers
security. This need can be satisfied through the provision of health benefits, insurance and pensions.
Social Needs
The employee spends on average eight hours each day at work. We are social beings and therefore
need human interaction. This need can be satisfied by the establishment of after work activities and
through a teamwork approach to accomplishing tasks.
Self-Esteem Needs
Managers can satisfy this need through promotion and ways of recognizing those who have
performed well.
Self-actualizing Needs
This need is satisfied by giving subordinates opportunities to create and pursue innovative ideas so
that they can realize their capacities to the fullest.
 Section Three

Establishing A Business

Role Of An Entrepreneur
An entrepreneur is one who undertakes the risk of investment to create and market a good or service
for financial gains. He is very perceptive and takes advantage of business opportunities that will
generate high profits. Entrepreneurs can be sole traders, partners in a business or a group of
shareholders.
Entrepreneurs are of vital importance to an economy. They are motivated by their own self-interest
to make profits and in so doing provide employment, create goods and services and generate revenue
impacting on the economy’s level of national income and hence potential for economic growth.
The entrepreneur is a shrewd investor and takes calculated risks i.e. ones that minimize loss when
choosing investment opportunities. The entrepreneur is the conceptualizer of the initial business
idea. He must identify the best resources that suit the business operation and ensure the efficiency of
each resource employed. For example, training workers, using machinery to increase labour
productivity, maximizing the use of factory and shop space and borrowing money at low interest
rates. The entrepreneur must continuously evaluate the performance of his ventures. Information
can be garnered from the balance sheets and Management Information Systems.

Personal Qualities of an Entrepreneur

Entrepreneurship requires the following characteristics for success:
1. The creativity to innovate new product and ideas.
2. The drive and determination to be successful.
3. The ability to take calculated risks.
4. The flexibility to adapt to changes in the market and industry.
5. Very goal- oriented to purposely and aggressively accomplish task and meet objectives.
 Reasons Persons Establish Their Own Businesses
1.Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a business
would give them the opportunity to be a successful business person and achieve financial
independence.
2. Being your own boss
You are able to make decisions about the direction and operation of the business.
3. To use your skills and knowledge for yourself
The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/fulfilment
Owning and operating a successful business will give a feeling of accomplishment.
6. To create employment for relatives, friends and community members
Businesses can assist in providing jobs for persons in communities with high levels of
unemployment.

Steps In Establishing A Business

1. Conceptualization
All business ventures begin with the conceptualization of an idea. At this initial stage the product or
service idea is envisioned. Most Entrepreneurs identify a need in the market i.e. a service that is not
being provided or a product that does not exist. If the product or service already exists then ideas to
make improvements may be conceptualized.
2. Research
The entrepreneur is a shrewd investor and takes calculated risks. Before investing money in a
business venture a market research must therefore be done to ascertain the extent of the need for the
product or service. This helps to minimize losses. A market research involves gathering information
about a potential market to help an investor make decisions about entering that market.
3. Identification of resources
What resources are needed to start the business?
If the market research is favourable the entrepreneur must now identify the necessary resources to
operate business. The resources required are land, labour and capital. Land refers to location or
place used to set up a business. This may be bought, rented or family home. Labour employed must
be qualified and skilled to efficiently carry out their duties. Capital includes money, raw material and
assets such as machinery and equipment.
4. Creation of a business plan
Preparing a business plan is very important before the start of a business. This will help the business
to ascertain whether or not the business will be profitable. A business plan outlines the goals of a
business and the strategies that will be employed to achieve them. Usually financial institutions
require that a business plan be presented when a loan is requested for business investment.
5. Acquisition of funds
There are several ways of acquiring funds to start a business. There are a myriad of financial
institutions that are willing to assist small businesses once their business plans are deemed
workable. The investor must weigh the advantages and disadvantages of acquiring funds from the
various financial institutions. The cost of borrowing i.e. the interest rate charged and the length of
the repayment period are factors to consider.
Funds may be borrowed from friends and relatives that may attract a lower or no repayment cost and
a more flexible repayment schedule. Funds can also be acquired from personal savings. Encouraging
partners or selling shares are ways of avoiding high costs of capital.
6. Operation of a business
A business must be efficiently operated to ensure high quality goods and service. This is important to
keep existing customers and for business growth. Many companies employ an operation manager to
design and oversee its operations. This person develops and manages the various processes used to
create goods and services efficiently to ensure customer satisfaction.

Functional Areas In The Operation Of Businesses

Departments in a business organization are structured according to certain functions. The
departments of various organizations will differ depending on the type of business.
Production
The production department is responsible for transforming raw materials into finished products.
They are also responsible for quality control to ensure that required standards are met.
Finance/Accounts
The accounts department makes and receives all payments on behalf of the business and records all
financial transactions
Marketing
This department creates awareness for the firm products and motivates consumers to buy. They also
carry out market research to identify customer’s needs
Human Resources/Personnel
The human resource department recruits and selects staff for the business organization. They are
also responsible for staff training and welfare.
The Purchasing Department
This department is responsible for the purchasing of the firms raw material, stationery and goods for
re-sale.
Customer Service/ Customer Relations Department
This Department bridges the gap between a business and its customers. it deals with customers’
queries, advising and assisting customers to place orders and handling customers’ complaints.
Legal Department
This department is concerned with legal problems that might arise for the company. For example,
compensation for employees and customers, who have brought lawsuits against the company.
Research and Development (R&D)
This department is involved with research to explore ways of improving the company’s existing
products, developing new ones and identifying efficient processes to increase production. This
department works closely with the marketing department as products developed must satisfy
consumers’ needs.

Sources Of Research In Establishing A Business

Firms embark on research to uncover information about consumer preferences, the level of
competition in the market, responses to advertisement etc.
Sources of Information
Data may be collected from primary or secondary sources.
(a)Primary Data
Primary data is originally collected data. This data will be obtained by interviewing, observing or
distributing questionnaires to the sample population.
(b) Secondary Data
Secondary data is information that has already been collected by someone else originally. This data
will be therefore obtained from books, newspapers, magazines, libraries and publications of various
institutions.
the firm’s overall strategy to move from its present position to where it intends to be. Long-term
plans include expansion plans and plans to create new products and services. Long-term plans are
made by the directors or persons in senior management positions of a company.
Medium-term plans range from 1 to 2 years. They are made by department managers or persons
in middle management positions. Medium term plans include increasing the efficiency of a
department in order to increase the quality and quantity of output. This would involve implementing
training programmes for staff and identifying equipment that would increase efficiency.
Short-term plans are made daily, weekly and monthly by supervisors or persons in lower level
management positions. These plans are centred on meeting daily, weekly and monthly production
targets.

Regulatory Practices Instituted By Governments

A business is not considered a legal entity if it is not registered as business in the country where it
operates. All persons desirous of starting a business must first be registered with the government
agency authorized to carry out registration of business in their country.
A sole trader only needs to register his business by meeting the requirements outlined for sole
traders by the registering office and filling out the required documents.
Partnerships are also registered by the completion of a registration document. The names of all the
partners must be listed on the document. Partners in a business are advised to draft a Deed of
Partnership. This document sets out all the rules that govern the partnership and will thus help to
prevent conflict among partners.
The formation of public and private limited liability companies involves the preparation of a number
of documents.
The Companies Act contains the laws relating to companies. To comply with certain requirements
which were laid down by the Companies Act, the promoters of the company must present the
following documents:

1. The Memorandum of Association – this document governs the company’s relationship with
the outside world. It contains:
(a) The name of the company
(b) The address of the registered office
(c) The objectives of the A statement of limited liability to members
(d) The amount of capital to be raised by the selling of shares and the types of shares to be issued
(e) The number of shares to be taken by the directors
(f) Statement of intent to form a limited liability
2. Articles of Association – this document contain the internal rules and regulations which
govern the company. It contains:
(a) The rights and obligations of the directors
(b) The procedures for calling an annual general meeting
(c) Procedures for electing directors
(d) The borrowing powers of the company
In order to effect the registration of a company, the Memorandum and Articles of Association must
be prepared by a lawyer or any person named in the articles as a director or company secretary and
sent to the companies registering office.
3. Statutory Declaration – this document states that the promoters of the company have
compiled with the Companies Act. It is a signed statement from each director certifying their
willingness to serve.
4. Certificate of Incorporation
Once all three documents above have been submitted and the Registrar of Companies is satisfied that
all is in order, it will enter the name of the company on the register, and issue a certificate of
incorporation. The certificate of incorporation is proof that all requirements of the Companies
Act have been complied with. The certificate of incorporation establishes the firm as a legal body.
5. The Incorporated Company
A company always means an incorporated company. If a company is not incorporated, it is really a
large partnership. Every business that has more than twenty shareholders must be registered as an
incorporated company. The advantage of incorporation is that each member’s liability is limited. At
this stage it is only the private limited company that may begin trading.
6. The Prospectus
The public limited liability company must first publish its prospects inviting the public to subscribe
for shares. This may be a publication in the newspaper or in another public media. The prospectus
will contain information on the assets, liabilities and profit levels of the company.
7. Certificate of Trading
Once the public limited liability company has collected the total amount of share capital stated in the
memorandum, the company will then be issued with a Certificate of Trading. This will allow the
company to start trading.
 Advantages & Disadvantages: Types Of Businesses
Sole Traders
Advantages
1.Benefits of operating alone are: all profits are taken by the owner.
2. Consultations are not necessary for decision making
3. the legal requirements for start-up is very simple as the proprietor only needs to submit the
registration documents for the business.
Disadvantages
1.The sole proprietor must work for long hours resulting in little time for family.
2.There is also limited capital to inject into the business
3. he alone bears all the risk of the business.
4.He does not have limited liability and therefore if the business goes bankrupt he may lose his
personal assets e.g. house and car.
5.There is a lack of expertise in areas of business where he is not knowledgeable which may limit its
success.
Partnership
Advantages
1.Since more than one person is involved, more capital can be raised to inject into the business.
2.There is more expertise and work load is shared.
3. The risk of the business operation is also shared.
Disadvantages
1.All partners will be affected by the action of each partner since each person represents the business.
2. Decision making may be very slow if partners are not in agreement.
3. There are high risks for partners who do not have limited liability.
Private Limited Liability Company
Advantage
1.A main advantage of limited liability companies is that their shareholders enjoy limited liability.
2.This type of business is assured continuity of existence as it has several members, Unlike the sole
trading business that comes to an end if the owner dies or is very ill.
3. This firm can access capital for expansion by selling shares.
4. This business also has privacy as its balance sheet does not have to be published.
Disadvantage
1.The disadvantage is that they are not easy to start due to the number of legal procedures
required. 2.For the private limited liability company, shares are not easily transferable as other
members must agree to have persons join the company. However, shareholders in public liability
companies are not restricted to sell their shares to whomever they wish to.
Public Limited Liability Company
Advantages
1.A main advantage of limited liability companies is that their shareholders enjoy limited liability.
2.This type of business is assured continuity of existence as it has several members. Unlike the sole
trading business that comes to an end if the owner dies or is very ill.
3.This firm can access capital for expansion by selling shares.
Note that these advantages are similar to the private limited company. However,
added advantages are that shares are easily transferrable as they may be sold to
anyone on the stock market and it provides a means of investment for shareholders
who buy shares at low prices and sell when stock prices rise.
Disadvantage
1.The disadvantage however, are that they are not easy to start due to the number of legal procedures
required
2. the large size of these businesses tend to be difficult to manage.

Sources Of Capital In Setting Up A Business

Capital is one of the resources required to set up a business establishment.
Capital mainly refers to those assets that are used to start and continuously operate a business.
Fixed capital includes machinery, equipment and vehicles owned by the company. These assets are
so called because they cannot easily be turned into cash.
Circulating capital includes raw materials, finished and semi-finished, goods, bank and cash
balances. These assets can easily be converted into cash.
Sources of Capital
- Personal savings of the owner or owners
- Assistance from friends and family
- Loan from a financial institution
- Selling shares
The significance of collateral in accessing capital to establish a business

Collateral is anything of value that is used to secure a loan. It is required by financial institutions for
the approval of loans. If the loan is not repaid then the financial institution has the authority to seize
the borrower’s collateral. Forms of collateral include: bank balances, motor vehicle, dwelling house,
land, machinery and equipment etc.

Features Of A Business Plan

A business plan is a document outlining the goals of a business and the strategies to achieve these
goals. It is mainly prepared by new businesses or by ones making major changes.
Executive Summary
The Executive Summary is a synopsis of the full business plan. It presents the salient points of the
plan. It contains information on the purpose of the business, its methods of operation and future
expectations.
History of the business
This section gives full details on previous operations of a business. For a new business it will explain
where the idea came from and the reasons for starting the business.
Mission Statement
The Mission Statement gives the overall goal of a business as well as its values. It serves as a guide to
the operation o the business. For example: providing the highest quality goods and services.
Business goals and objectives
The firms’ short-term, medium-term and long-term goals and the time in which these are to be
achieved is outlined in this section.
Organization
The business must state the ownership structure and give details of the management team.
SWOT Analysis
Looks at the strength and weaknesses of the business
E.g. Strengths – strategic location, years of experience
Weakness – Loans at affordable interest rates,
Industry Analysis
How has the industry changed in the past few years and who are the other firms in the industry.
Product /Service Description
Describe clearly the product or service that you will be offering.
Market Analysis
Describe your target market and your competitors.
Marketing Strategy
Explain the various promotional, pricing and distribution strategies.
Operations
Explain how the business will function on a day-to-day basis. For example: Procurement of raw
materials, the use of technology and operating methods.
Sales Forecast
What amount of sales the business expects to make on a monthly basis.
Start –up Cost
The total amount needed to start the new business, giving a detailed description of what the money
will be used for.
Operating costs
E.g. fixed Costs (rent, insurance and salary) and variable costs (utilities and wages)
Projected Cash Flow
An estimate of how much you expect to earn periodically once you start operating.
Acquisition of Funds
Information on how funds will be obtained e.g. personal savings, borrowing from friends and family,
borrowing from financial institutions or by selling shares

Purpose Of A Feasibility Study

It is research done to ascertain the viability/feasibility of a business idea or any other venture. It
asses the business idea in terms of its operational costs, expected revenue flows, level of competition
etc. Its main purpose is to find out if the business idea will be workable. If the business idea is found
to be feasible a business plan is may drafted to obtain financial support.

Ethical And Legal Issues

Business owners are required to obey all legislation concerning the operations of a business. These
include, paying taxes, business registration, obtaining licenses when required etc. Business owners
should also operate their business based on integrity. This involves:
- Environmental awareness – reducing pollution and harmful effluents in the rivers and seas.
- Avoiding tied selling (marrying of goods)
- Misleading advertising (untruths about goods advertised)
- Untrue sale price – For example, writing the word sale on items for which the price remains the
same.
- The use of market dominance to squeeze firms out of the industry- For example large firms may
drop the price of their goods so low that small firms are unable to compete with them.

Consequences Of Unethical And Illegal Practices

Illegal business practices will result in legal consequence for business. This may include large fines
the loss of the business. Legislation also protects consumers, competitors and society from unethical
practices of a business.
 Section Four

Concept Of A Contract
A contract is an agreement that is enforceable by law. A contract therefore has legal implications for
the parties who enter into a contract. A mere agreement is not legally binding and therefore neither
of the parties is liable if anyone breaks the agreement.
What makes a contract different from an agreement?
A contract requires not only an agreement between parties but also something of value must be
passed from one party to the next to make the contract binding. For example, you offer to sell a
friend your used text books for $1000.00. After inspecting your textbooks the friend agrees and pays
$1000.00. The $1000.00 paid here is the consideration i.e. something of value that is passed from
one party to the next. Consideration is the price paid for a promise. You promised to let your friend
have your textbooks if he paid $1000.00. This $1000.00 makes the agreement binding. You are
therefore obligated to deliver the books to your friend and cannot decide to sell the books to someone
else or to ask for a higher price.
Your neighbour asks you to mow his lawn after which he will pay you $200.00. You accept this offer
and mow the lawn. The work done here is an act of forbearance. You are giving something of value to
your neighbour to receive payment for the job. The consideration in this case is the work done by
you. It is the price that you have paid for the promise to be paid money for the job. Consideration
passes from promise to promise.
Characteristics Of A Simple Contract
There must be offer and acceptance. The offerer is the party that makes the offer and the offeree is
the person that the offer is being made to. There must a clear offer and clear acceptance for a
contract to be binding.
Consideration is the price paid by one party for the promise of the other. Thus if one party promises
to provide goods or services, something of value must be given in exchange. This may be in the form
of money, goods, services or it may be an act of forbearance.
The capacity to contract – Parties to the contract must be over 18 years, of sound mind, not under
the influence of drugs or incarcerated.
There must be no force, misrepresentation or fraud. Persons should not be forced to sign a contract
e.g. blackmail. They should not be lied to e.g. giving the wrong year of a car. Fraud may involve
forging someone’s signature.
There must be an obvious intention to create legal relations.This is based on the actions of the
parties e.g. offer, acceptance and consideration.
A contract must be legal- thus, agreements made between parties concerning illegal drugs and any
other illegal activity is not a contract.

Differences Between A Simple & A Speciality Contract

A simple contract can be made orally, in writing or by the implications deemed from the actions of
the parties. A specialty contract must be signed by the parties sealed, for example with a company
seal and finally it must be delivered.
Examples of specialty contracts include:
1. Mortgages and leases for over three years
2. Sale of land
3. Contracts of insurance
4. Hire purchase agreements
5. Transfer of company shares
6. Assignments of copyright

Difference Between An Offer & An Invitation To Treat

An invitation to treat is not an offer but an invitation to bid or bargain for an item. For example, at
an auction persons may bid on various items presented. An invitation to treat also occurs also when
goods are advertised for sale in the media or in shop windows. Goods in a shop window or goods
advertised are not an offer by the owners of the goods but are technically an invitation for interested
persons to make an offer.

Conditions Under Which Offer And Acceptance Are Communicated

An offer must be very clearly made. An offer can be made to one person, a group or to the whole
world. For example, offering a reward for a lost wallet is an offer to anyone finding the wallet. In
cases where there is a counter-offer the original offer is no longer valid. A counter offer is an implied
rejection of the original offer. Foe example: John offers to sell Paula a laptop for $10,000. Paula
subsequently offers him $8000.00 as she thought $10,000 was too expensive. Paula has rejected
John’s original offer and has made a counter-offer of $8,000.
Acceptance must also be clear. In the case of a counter offer a clear acceptance to the new offer must
be identified.
Contracts may be made orally, in writing or they may be implied.
Oral Contracts
Are based on what the parties said. For example, asking someone to wash your car for payment
Written Contracts
Both offerer and offeree must sign the contract document
Implied Contracts
Implied Contracts are made by the observed actions of the parties involved. For example, someone
who sits at a table in a restaurant and places an order has implied that he will pay for the food that
will be served.

Ways In Which Contracts May Be Terminated

Contracts may be brought to an end:
(a) By performance of the parties i.e. each party completing his obligations as stipulated by the
contract.
(b) By frustration i.e. an event through no fault of the parties that make one party unable to
perform the contract. For example: if one party suffers a prolonged illness which makes him unable
to perform the contract.
(c) By lapse of time i.e. if the time limit set for the contract to be executed by both parties has been
passed. For example, sellers of real estate usually require that the buyers pay the full balance on the
property within a certain time period after the initial down payment has been made.
(d) By the mutual agreement of all parties.
(e)If one of the parties become bankrupt after the contract has been signed.
(f) By changes in law i.e. where a legal contract is rendered illegal through changes in law.
(g) By notice e.g. some firms require that employees give at least one month notice when resigning
their positions.
(h) If one party dies.
(i) By breach of contract-When one party defaults on his part of the agreement i.e. he does not
perform his part of the contract.

Validity Of Contracts
Mr. Larry was delighted to see a 50% discount on his favourite brand of shoes at a shoe store 15 miles
away. He took sometime off from work to travel to the store. When he arrived at the store he was told
that that the brand advertised was sold out but he could choose from other brands available. Mr.
Larry was very angry and requested that he be refunded his travelling expenses.
Is the owner of the store obligated to refund Mr. Larry his travelling expenses?
Answer
The advertisement appearing in the newspaper is not an offer by the store but an invitation to treat.
Therefore readers were being invited to make an offer for items advertised. The owners of the store
are therefore in no way obligated to Mr. Larry.
Hope stopped at a convenience store on her way home to purchase a few items. She handed the
cashier he credit card and was surprised when she was told that it declined. She apologized and
explained that she did not know why her card declined but she will call the bank in the morning.
Susan further explained that she had just enough cash with her to get home and so she could not pay
for the goods. The cashier was very angry and asked the manager to intervene. The manager insisted
that she pay for the goods.
Is Sandra obligated to pay for the goods?
Answer
Sandra has entered into a contract with the convenience store. She made the offer at the cashier
counter when she presented the goods to be cashed. The cashier accepted the offer by cashing the
goods. In this situation it is up to the manager of the convenience store to accept Hope’s apology.

Why Documentation Is Necessary In Business Transactions

Business documents provide information needed for the business to function efficiently. Information
is required for accounting purposes to ascertain whether profits or losses are being made.
Documents are also needed as evidence for example orders placed for goods and payments made.
Documents also provide information on commodities in stock and prices.

Business Documents For Various Purposes

(a) Letter of Enquiry is sent by persons who wish to be informed of what goods and services and
the prices of these that a company offers for sale.
(b) The company may resend either a quotation or a catalogue
A catalogue is a booklet with a brief description and pictures of articles for sale. Since a catalogue is
costly, some companies opt to send a quotation instead. A quotation lists all the goods in stock along
with their prices.
(c) If there is an interest to purchase an item in the catalogue then an order letter is sent requesting
goods to be supplied.
The following three documents (items d, e & f) accompany goods delivered.
(d) Delivery Note must be signed by the person receiving the items ordered. This is proof that
goods were delivered. A copy of the delivery note is given to the buyer.
(e) Consignment noteis sent when the firm does not have its own transportation. A transport
company is paid to deliver the goods. A consignment note will be prepared by the consignor (the
sender) and given to the transport company. It contains information about the destination of goods
and the name of the consignee (the receiver).
(f)An Invoice is a bill sent with goods delivered. Invoices may also be sent after goods have been
delivered.

Terms 5% 30 days – A Discount of 5% will be given if the customer pays within 30 days. E & OE –
means errors and omissions, i.e. if any mistakes were made on the invoice the company will make
the correction.
(g) Pro forma Invoice is a temporary invoice. It is used in cases where funds are being borrowed
from financial institutions to purchase items. The institution may request a pro forma invoice as
proof of items to be purchased when the loan is disbursed. It may also be sent with goods not
ordered and in this instance is a form of advertising. If the customer is interested in the items sent,
an actual invoice is sent.
(h) Credit note is issued to a customer when there has been an overcharge on an invoice due to
faulty arithmetic, when goods have been returned because of damage or refunds requested for goods
not received. A credit note is printed in red.
(i) Debit note is sent to a customer whenever there is an undercharge or omission on the invoice.
(j) Statement of Account is a document from a supplier to a customer outlining all the
transactions carried out over a particular period. A statement is usually sent monthly.
(k)A receipt is given for cash payment.
(l) Stock cards are used to keep a record of all stocks entering and leaving the stockroom. This
procedure ensures that stock level do not fall below a minimum resulting in the depletion of stocks.

Import License
This document gives a business permission to import goods into a county. It is used by governments
to restrict the importation or to limit the amount of certain goods imported. Quotas are sometimes
used to protect local industries as they specify the quantity of certain goods importers are allowed to
import.
b. Certificate of Origin
This document states the country in which the goods were manufactured. This is important for
Caribbean countries as goods from other Caribbean countries enter duty free. Goods imported from
outside the region are taxed.
c. Shipping Note
This document provides details about the goods to be shipped, e.g. type and number of items and the
destination of the goods.
d. Bill of Lading
The Bill of Lading is a contract of carriage between the seller of the goods (exporter) and the shipping
company transporting the goods. It is also a document of title as a copy must be presented by the
importer before he can claim the goods.
It includes the following information: The number of packages, the weight of each piece, the
contents, the port of departure and destination, the name of the ship, the senders name and address
and receivers name and address
e. Dirty Bill
If the words dirty are added to the bill of lading, then the goods delivered are damaged.
f. The Airway Bill
This document is used when goods are transported by air. It contains similar information as the bill
of lading. It is not a document of title and the consignee named need not have a copy to collect the
goods.
g. Insurance Certificate – (Marine Insurance)
This document provides protection for the goods being shipped against loss or damage at sea.
h. Bill of Sight
This document is completed if for any reason the documents required for importing goods are not
available. It is completed giving details of the consignment and method of transportation.

Instruments Of Payment
The instrument used to make payments will depend on the sum of money being paid and whether
the transaction is a local or an external one.
Cheques
A cheque is an order to the bank to transfer payments from an individual’s account (the
payer’s/drawer’s account) to credit another individual’s account (the payee’s account) or to pay the
payee on presentation of that cheque.

Credit Transfer
A customer of a bank may use this system by instructing the bank to transfer money from his account
to an account at any other bank.
Standing Order/Banker’s Order
This allows regular monthly payments to be made from a customer’s bank account to a named payee.
The customer must complete and sign a standing order form instructing the bank to make payments.
Credit Cards/Debit Cards
This allows the card holder to make payments by simply presenting the card to the seller. A credit
card facility is actually a loan given to a customer and thus it is repaid at an interest. A debit card is
issued against a customer’s account balance and is therefore not a loan.
Postal Order
Postal orders are cheques issued in specific values by a post office. The value of each postal order is
printed on it and a price depending on its value is paid for each. The postal order will be sent to the
post office of the payee as designated by the payer.
Money Order
These can be purchased from a bank or a post office. They can be used to make payments locally or
overseas, as they are made out in the currency in which they are to be paid. The payee will cash the
money order at his bank.
Telegraphic Money Order
The sender must first pay the sum to be sent over the counter of the post office. A telegram is sent to
the payee informing him to collect money at his local post office. He must present proof of his
identity.
Bank Draft
This is a cheque that is used to make payments overseas. Bank drafts are obtained for a fee from a
bank and are made out to a named payee in foreign currency.
Bill of Exchange
This is used to pay for goods bought overseas on credit. It is an order in writing from an exporter to
an importer requiring payments of a certain sum of money at a fixed future date. The time period
allowed is normally three months.
Letters of Credit/ Documentary Credit
This is a sent from an importer’s bank to an exporter guaranteeing payment to the exporter for goods
to be supplied. The exporter must present a clean bill of lading, certificate of origin and a certificate
of insurance to the importers bank.
Irrevocable Letter of Credit
Once an exporter receives this letter of credit the importer cannot cancel payments for goods to be
supplied without the exporter’s permission.

Insurance And Assurance

Insurance is a means of protection from financial loss. Insurance is generic for all types of insurance
and assurance. However, insurance differs from assurance in that insurance covers risks that may
occur e.g. theft, fire, accident etc., and assurance covers events that will occur such as death.
The parties to the insurance contract are the insurer (the company offering protection) and the
insured (the person seeking protection). Payments are made by the insured for this service. The
price charged for insurance is called a premium. The contract is known as the policy.
Insurance Principles
The purpose of insurance is to compensate persons insured who suffer loss. It is based on the
principle of indemnity, that is, to restore the insured to his original position before he suffered
loss. Insurance therefore as a principle neither makes the insured worse off or better off than before
loss was incurred. For example, if Mr. Green suffered damages valuing $500,000 subsequent to a
fire at his home, he will be compensated exactly $500,000 to repair his house.
Principles of Insurance
Indemnity-Restoring the insured to his original position
Insurable interest–The insured must have a vested interest in what is being insured. For example,
someone is not allowed to insure his neighbour’s house.
Utmost Good Faith -The insured must be truthful concerning the information pertaining to the
policy contract.
Proximate Cause - The damage caused must be close or proximate to the event insured against. For
example, if someone has an accident policy that includes death occurring as a result of an accident,
this person will not be compensated if death is caused by disease.
Contribution – This principle prevents persons insuring identical risks on the same property with
several companies and thus profiting if they suffer loss. For example, an individual may insure his
car with three insurance companies hoping to be compensated by all three. He will not succeed as the
insurance companies will each only pay a portion of the claim.
Average Clause – This clause sets a limit to the size of the compensation, which depends on the
proportion of the true value of the asset paid up by the insured. For example, a homeowner insures
his home for $100,000 which is half the true value of $200,000. His house was partially destroyed
by fire on the insurance company for $50,000 worth of damage. The insurance company only paid
him $25,000 as he was only insured for 50% of the true value of the house presently.
Subrogation -This is an extension of the principle of indemnity, that is, the insured should be
reinstated to his exact position before the loss. For example, if a vehicle is totally wrecked and the
insurance company pays the insured the value of the car, the wrecked vehicle will be claimed by
insurance company.
How does insurance Work?
How are insurance companies able to pay its clients large sums of money to compensate them for
loss? They operate on the basis of risk pooling. Premiums from large numbers of persons with the
same risks are pooled and only those who suffer loss are compensated. The insurance company can
predict the percentage of losses based on past data. The premiums charged are based on the number
of losses predicted plus the cost to operate the business and profits to be realized. For example, a
particular insurance company may insure one thousand persons for risk against car theft. Only two
percent of those insured may suffer lass and therefore the insurance company can afford to assist
those persons.
Types Of Insurance Policies
1.Life Assurance
(a)Whole Life Assurance
Payment will be made upon the death of the insured. The beneficiaries of the insured will be paid.
(b) Endowed Assurance
Payments are made at the end of specific periods. The Endowment policies may be paid at the end of
twenty or thirty years or at the age of retirement. If death occurs before the end of the endowment
period insured, then the beneficiaries of the insured will be paid.
2.Term and Business Insurance
(a) Fire Insurance
Covers loss or damages to assets by fire
(b) Burglary Insurance
Covers loss due to goods stolen and damages to property caused by theft
(c) Bad Debts Insurance
Covers debts that cannot be collected
(d) Plats Glass Insurance
Covers the replacement of shop windows as well as any injury to staff and customers that may be
caused by its breakage
(e) Fidelity Guarantee Insurance
This protects a firm against loss due to the misappropriation of funds by employee, customers or
other persons.
(f) Employers’ Liability Insurance and Public Liability
Covers injury incurred by staff or visitors on a business location due to the negligence of the firm,
e.g., customers slipping on a wet floor.
(g) Motor Insurance
Third party – Only third parties e.g. passengers are covered. The driver and car is not covered.
Comprehensive – Covers loss due to damages to the driver and third parties.
(h) Marine Insurance
This policy covers loss due to damages of ships and cargo at sea.

Types Of Insurance Policies

1.Life Assurance
(a)Whole Life Assurance
Payment will be made upon the death of the insured. The beneficiaries of the insured will be paid.
(b) Endowed Assurance
Payments are made at the end of specific periods. The Endowment policies may be paid at the end of
twenty or thirty years or at the age of retirement. If death occurs before the end of the endowment
period insured, then the beneficiaries of the insured will be paid.

2.Term and Business Insurance

(a) Fire Insurance
Covers loss or damages to assets by fire
(b) Burglary Insurance
Covers loss due to goods stolen and damages to property caused by theft
(c) Bad Debts Insurance
Covers debts that cannot be collected
(d) Plats Glass Insurance
Covers the replacement of shop windows as well as any injury to staff and customers that may be
caused by its breakage
(e) Fidelity Guarantee Insurance
This protects a firm against loss due to the misappropriation of funds by employee, customers or
other persons.
(f) Employers’ Liability Insurance and Public Liability
Covers injury incurred by staff or visitors on a business location due to the negligence of the firm,
e.g., customers slipping on a wet floor.
(g) Motor Insurance
Third party – Only third parties e.g. passengers are covered. The driver and car is not covered.
Comprehensive – Covers loss due to damages to the driver and third parties.
(h) Marine Insurance
This policy covers loss due to damages of ships and cargo at sea.

Importance Of Insurance To Businesses

Entrepreneurs invest a wealth of resources into the start-up and continuous operation of a
business. If the entrepreneur suffers any form of loss such as fire or burglary etc. the business may
take a long time to recover. Insurance is therefore very important to the business community. The
principle of indemnity ensures that an entrepreneur receives enough compensation to continue the
business with minimum effects.
 Section Five
Production
Factors Of Production
The term ‘factors of production’ refers to the resources that are combined in the production
process to create goods and services.
These are:
Land - natural resource
Labour – human resource
Capital – man made resource
Entrepreneur – human resource
Land includes all natural resources such as soil, seas, rivers, forests, minerals, vegetation etc.
Labour is categorized as skilled, semi-skilled, unskilled or professional workers
Capital includes assets such machinery, equipment and vehicle owned by the company. Capital also
includes raw materials, finished and semi-finished, goods, bank and cash balances.
The entrepreneur is the owner and risk taker in a business venture. He is responsible for
combining all the factors of production.

Industries Developed From Natural Resources In The Caribbean

Caribbean countries have been blessed with a plethora of natural resources. The industries
developed from these natural resources have created employment as well as foreign exchange
earnings from exports.
Examples:
Crude oil is a natural resource of Trinidad. The petroleum industry employs nationals and earns
foreign exchange for the country.
Clay is found in abundance in Barbados. Pottery making is a large industry in Barbados.
Bauxite is found in abundance in both Jamaica and Guyana. The Alumina industry is an important
foreign exchange earner. Alumina is exported to be further processed to make aluminium products.
Guyana also has very large forest areas and has developed a very vibrant lumber and timber
industry. Lumber is used in the construction industry.
Lime stone is processed to make cement in Jamaica.

Difference Between Production And Productivity

Production is the process of combining units of inputs (natural, man-made and human resources) to
create output (goods and services) capable of satisfying human needs and wants.
Productivity is the increase of output from each unit in the production process. There are several
ways of achieving productivity. These include the training of workers and the introduction of
machinery and equipment into the production process.
Importance of Productivity
Productivity increases output. High productivity results in lower cost per unit of output resulting in
higher levels of profit for a business. For example, a factory worker can produce 10 items in an hour
and he subsequently produces 20 units in the same hour after some training. His productivity has
doubled and the business will benefit from a fall in unit cost as more units are being produces at the
same costs of production.
Higher profits for the firm will mean more funds available for its expansion, new business ventures
and community support. It may also wish to pass on the benefits of lower costs to consumers in the
form of lower prices.

Effects Of Migration
Migration is the permanent movement of workers from one location to the next in search of better
opportunities.
Internal Migration
Migration within a country e.g rural –urban migration. This is migration of persons from rural
communities to the city areas.
External Migration
Migration of persons from one country to another – For example, the migration of Caribbean people
to developed countries such as the United States and England.
Effects of Migration
Internal (Rural –Urban migration)
-The loss of persons from rural areas impacts on the level of output and development of these areas.
-It also impacts negatively on the level of commodities available for export form these regions.
-The influx of workers in urban areas increases competition for jobs, houses, health facilities, schools
etc.
External Migration (Caribbean to developed countries)
-Professional and skilled workers who migrate reduce the level of skills available in their countries
resulting in a brain drain effect. This will impact on growth and development.
-They increase competition for jobs, houses, health facilities and schools in their new territory.
-Money earned by Caribbean nations in foreign countries is sent home to support their families
reducing poverty and making foreign exchange available for their respective countries.
-Caribbean professional and skilled workers contribute to the growth of developed countries

Role Of The Entrepreneur : Decision Making Process

The entrepreneur organizes the factors of production to create goods and services. The most suitable
location, qualified workers, and the right equipment and machinery will ensure efficient production.
It is therefore important for him to make the right decisions concerning the employment of the
required resources for his business. He must also make decisions on systems and processes to be
applied in the production process.

Role Of Capital In Production

Capital refers to assets such as machinery, equipment, inventory and cash that are used to start and
continuously operate a business.
Fixed capital includes machinery, equipment and vehicles owned by the company. These assets are
so called because they cannot easily be turned into cash.
Circulating capital includes raw materials, finished and semi-finished, goods, bank and cash
balances. These assets can easily be converted into cash.
Tools and machinery are necessary for products to be fashioned from raw material e.g. mineral
mining, oil drilling and lumbering. These assets also increase productivity for example sewing with
a machine as opposed to sewing by hand. Venture capital is needed for business start-up. The
business owner will need equipment, funds for promotion etc. to start the business. Working
capital is the cash available for the daily operation of the business. It is used to pay workers, utilities
and purchase raw materials.

Levels Of Production
Subsistence
This is the lowest level of production. Subsistence productions refers to output from the production
process that is just enough for the survival. This amount of production is therefore not adequate to
meet all needs and wants of a family, community or a country. For example, subsistence farming
involves the production of crops to feed the family and for survival. Wealth is not created as whatever
is produced is consumed.
Domestic Production
Domestic production refers to production that is more than survival level. It provides output that is
enough to satisfy domestic needs and wants. Excess is not available for export. However, production
is adequate to supply local demand.
Surplus or Export
This level of production is adequate to supply local demand and for export. Large industries can
produce large quantities of output to satisfy local consumption and earn foreign exchange from
export, for example, the sugar and banana industries.

Primary Production
This includes all kinds of extractive industries such as agriculture, mining and fishing.
Secondary Production
This includes manufacturing such as assembling, refining and construction (building) industries.
Tertiary Production
This includes all kinds of service industries such as transportation, communication and tourism.

Cottage Industry
Cottage industry is a generic term for any type of home–based production business. The term is
specifically used to describe industries of a craft nature e.g. basket weaving, carving and pottery. This
type of home–based business is not difficult to start as it requires little capital to purchase tools and
employs family members. These small scale businesses are important to an economy. They utilize
local raw materials such as clay for pottery, wood for carving and straw for baskets. They earn
foreign exchange from selling to tourist at craft markets and fairs.

Linkgae Industries
This refers to industries that are connected because they depend on each other to obtain or to sell
raw materials.
Forward Linkage
If the final product or finished products of one industry is used in another industry as its raw
material then a forward linkage occurs. For example, sugar produced from a sugar factory is used by
a bakery to make pastries. Sugar is therefore the end product of one industry and used as raw
material in another. Other examples include agriculture and canning, lumber and construction and
cattle farming and meat processing.
A backward linkage occurs when the demands of an industry leads to the establishment of other
industries to produce for the needs of this industry. For example, the establishment of several
multinational fast food restaurants in the Caribbean has led to new businesses being established to
supply these restaurants with raw materials (vegetables, ground provisions, meats and paper based
products).

Factors That Determine Business Location

The location identified for the operation of a business will impact on its success or failure. An
unsuitable location can result in high operational costs or low sales volume. Business owners must
therefore consider the following factors when choosing a location.
The proximity to customers
It is important that business owners give customers easy access to goods and services. Shopping
plazas in very central locations are very popular locations for businesses. Many companies now opt
for selling online and therefore do not need to be centrally located.
The proximity to raw materials
It is more cost effective for a business that uses raw materials that are heavy and or bulky to locate
close to the source of raw material. For example, bauxite processing plants are located close to
mining areas and sugar factories are located close to sugar fields.
Availability to suitable labour supply
A business will need adequate number of workers who posses the skills suitable for the creation of its
goods and services.
Adequate Infrastructure
Firms will locate where there are adequate supplies of water, lighting, airports, seaports, good roads,
transportation, and communication facilities.

Functions Of A Small Business

Supplying goods and services that satisfy demand
Identifying a particular need in a market and developing a product that will supply that market need
improves standard of living and increases the overall revenue (GNP) earned in a country. Small
businesses have the advantage over large businesses to identify changing market trends as they are
closer to the customers. They are also able to produce unique products to suit the needs of each
customer.
Creating employment
Small businesses account for a large percentage of total employment in Caribbean economies.
Making profits
The main purpose of starting and operating a business is to make profits. Profit makes it worthwhile
for the entrepreneur to continue business. Profit earned may be reinvested to expand the business.

Effects Of Growth On A Business

Small businesses that are efficient, creative and are cognizant of changing market trends are poised
for growth. Growth impacts on the business organizational structure and the business operations.
The creation of new posts and departments as a result of specialization and expansion will change
the organization’s structure. More workers will also be employed resulting in greater specialization
or division of labour (more workers will mean that tasks can be subdivided into smaller tasks).
There will also be an increase in the internal communication systems (telephone, mail etc.) to
accommodate this expansion. More factory and office space, equipment and furniture will be
required to facilitate expansion.
As the business expands it can take advantage of economies of scale. Economies of scale refers to the
benefits that firms are able to enjoy because of expansion.
Internal Economies of Scale
This refers to the benefits enjoyed by a firm because of it’s own expansion. These include:
-Technical Economies of Scale - Expanding businesses will need to purchase machinery and
equipment to supply the level of output required. With the use of machines productivity will rise and
the firm will experience technical savings as unit cost of production will decline.
-Marketing Economies – Expanding businesses can take advantage of bulk buying and receive
discounts on raw materials.
-Financial Economies -Larger firms will access loans more easily and at a cheaper interest rate
than small firms since they already have established reputations and adequate collateral.
-Managerial Economies -The employment of experts who will specialize in various management
functions such as marketing, personnel, accounting and production will increase efficiency and thus
output.
External Economies of Scale
External economies refers to the benefits enjoyed by a business because it is part of a well-organized
industry and not because of its own expansion. Thus any businesses whether large or small can reap
these benefits as long as it is part of an industry enjoying these benefits. Benefits include;
government subsidies offered to particular industries, tax holidays and reduced duties on items
imported.
Diseconomies of Scale
A diseconomy of scale refers to the disadvantages arising from the expansion, such as:
1. High Advertising Cost: This becomes a diseconomy when the percentage increase in a firm’s
advertising cost is much greater than the percentage increase in its revenue.
2.High maintenance cost for machinery and equipment.
3.Increased difficulty in controlling the organization.
 Economical And Social Implications Of Technological Development
Technological development increases the quality and quantity of output. This results in the lowering
of unit cost of production which may be passed on to consumers in the form of lower prices. When
goods and services become more affordable the standard of living of citizens will rise.
Developing countries employ both labour and capital intensive methods of production. Labour
intensive industries include banana and craft and capital intensive industries include petroleum and
bauxite.
There are three methods of production:
Labour Intensive Production
This method of production utilizes mainly manual labour along with a limited amount of machinery
Capital Intensive Production
This method of production utilizes mainly machinery along with a limited number of workers.
Automation
Automation is the further stage of mechanization. This production process is carried out
automatically with little or no human involvement. For example, the automated teller machine
(ATM).
Computer Aided Design (CAD)
Computer aided design is a computer software used in the product design process to produce designs
with greater accuracy, speed and flexibility. Its powerful computer graphics allow product designers
to produce 3-dimensional objects, which can be fully examined and tested before they are
implemented.
Advantages include:
-accuracy
-speed
- it is easier to make adjustments since changes are made on the computer
-reduces cost of the design process
Mechanization and automation results in increased output but reduces the amount of labour
required in the production process. This creates unemployment in Caribbean countries. Workers
must be retrained for new developing industries such as information technology. New industries will
absorb the fall out of workers from other industries.
 Section six
Marketing
Difference Between Market And Marketing
A market is any space within which trade takes place between buyers and sellers for a well defined
product. This space can be a produce market, a shop, internationally between countries or over the
internet.
Marketing is all those activities that facilitate trade. These include activities that identify consumers’
needs such as market research and those activities that satisfy consumers needs e.g., packaging and
distribution. Marketing activities therefore support the marketing of goods and services.

Marketing Activities
Market research – the process of gathering information about potential customers.
Packaging – creating a suitable package for product usage and for advertising
Branding - differentiating the product of a company from other brands and establishing loyal
customers.
Pricing - identifying the right price that will encourage sales
Advertising – methods used such as the media to inform and encourage the purchase of goods and
services
Sales promotion – short-term methods used to encourage consumers to buy during a specified
period
Distribution - methods used to make the product available to consumers. For example wholesale,
retail or internet.

The Marketing Mix

The marketing mix also referred to as the 4 Ps of marketing, categorizes all the various strategies
used in the marketing of goods and services. These categories are product, promotion, pricing and
place.
(1) Product this includes product designing, packaging, labelling and branding.
(2) Promotion advertising, public relations and sales promotions.
(3) Pricing includes various pricing strategies and methods.
(4) Place distribution of products.
 Market Research
Market research is the gathering, recording and analysing of data to address the marketing problems
of a business. Market research must be specific to the problem of a business. The marketing problem
must therefore be clearly identified so that the appropriate market research may be conducted.
Types of Market Research
Consumer Research – garners information on consumers’ feelings, thoughts and reactions towards a
company’s good or service.
Product Research – determines customer acceptance of the product.
Distribution Research – used to identify the most suitable channel of distribution for particular
products.
Advertising Research- Identifies the most suitable media to present the advertising message.
The Marketing Research Process
This consists of five steps:
1. Identifying or defining the problem.
2. Developing information sources.
3. Collecting the information.
4. Analysing the data by using charts and graphs
5. Presenting the findings.
Reasons for Conducting a Market Research
Market research provides managers with current, relevant, accurate and reliable information
concerning competitors, advertising, distribution and potential and loyal customers. This
information assists managers in making decisions about packaging, product design, pricing,
distribution and advertising.

Factors That Influence Consumer Behaviour

The following factors will cause consumers to either increase or decrease their demand for a product.
-The price of a commodity
Consumers can afford to buy more of a good when its price falls and less when its price rises.
-The prices of other goods and services (substitutes and complements)
Substitute products are those that can be used alternatively as they satisfy the same need for a
consumer. For example, a weekly shopper may decide to purchase fish instead of chicken because the
price fish has fallen significantly less than the price of chicken. Therefore either fish or chicken will
be adequate for dinner. If by the next week the price of fish rises and becomes more expensive than
chicken then the consumer will opt for chicken.
Complements are goods that are used together e.g. bread and butter. If the price of butter rises then
its demand will fall and so will the demand for bread. Conversely if the price of butter falls, its
demand will rise and so too will the demand for bread.
Income of consumers
As income level rises consumers will demand more goods and services
-Taste and Preferences
A change in consumers taste for goods and services will impact their demand.. For example, changes
in fashion will result in a drastic decline in demand for an out going fashion and a rise in demand for
what is trendy.
-Expectations of a future Rise in Price
If consumers expect the price of a commodity to rise in the near future, they will try to purchase
more now, before the price increases.
-Brand Loyalty
Brand loyalty will ensure a continuous demand for a product regardless of changes in its price or the
prices of other goods and services.
-Spending Patterns
Consumer spending surveys compile information on consumer spending patterns based on income
levels. This informs businesses of what goods and services are in demand.
-Changes in the size of the population
A population decline will cause demand to fall in a particular region. One reason for a population
decline in a region is migration.
Types Of Market Structures
The term market structure refers to the level of competition experienced by businesses in an
industry. This factor determines the nature of the product sold, how easy it for new businesses to
enter that industry and the amount of information available concerning that industry.
Monopoly
A monopoly exists when only one supplier has control over an entire market for a particular good or
service. Examples of monopoly in Caribbean countries are a single electricity and water supplier
which may be owned by the government or a private company.. The monopolist sells a product for
which there are no close substitutes. The monopolist controls the market because it is difficult for
other firms to enter such industries. The challenges include high start-up costs and difficulty in
obtaining strategic raw materials or information regarding business operation. The monopolist has
great market power and can therefore set the price of products sold in the market.
Oligopoly
Oligopoly describes a market structure in which there are few large firms. They offer the same
product for sale and compete aggressively for market dominance. Examples of firms in this market
structure are telecommunications and petroleum companies. Entry into this industry is also difficult
as start-up costs are very high, there is control of strategic raw material and information is not easily
available.
Perfect Competition
This market structure is characterized by many buyers and many sellers of a product. The product is
not unique as it is available from many sellers. Firms in this market structure are price takers as they
cannot sell above the price of their competitors. Firms must accept the market’s price as there are
several competitors. There is perfect knowledge about the business and there are no barriers of high
start-up cost and control of strategic raw materials.
Monopolistic Competition
Similar to perfect competition this market structure involves many sellers. However, this market
structure differs from perfect competition in that each firm sells a branded product. Firms in this
market structure are a monopolist for their brand. There is freedom of entry and exist into the
industry as there are no barriers such as strategic raw material, very high start –up cost and lack of
information.

How Price Is Determined

The price of a good tells us the value of that product in terms of money. A rational consumer will try
to get the greatest value for money spent on goods and services. He will therefore weigh and compare
the prices of commodities before making a decision to purchase.
Prices in a market economy are determined by the level of demand and the level of supply for each
particular product.
The demand for a particular product is the amount that consumers are willing and able to buy at a
given price. The law of demand states that when prices are high demand will fall and when prices are
low demand rises ceteris paribus (meaning all other things remaining unchanged.).
The supply of a particular commodity is the amount that firms are willing and able to supply at a
given price. When prices are high supply will rise and when prices are low supply fall. Suppliers are
willing to sell more at higher prices as profits will be high, and unwilling to sell large quantities when
prices fall because of low profit margins.
The equilibrium price in a particular market is the price at which consumers and suppliers are
willing to trade a certain quantity of a commodity. For example, consumers are willing to buy 55
litres of milk at $3 and suppliers are willing to supply 55 litres at that price. If the price increases to
$4 there will be a fall in demand to 30 litres as some consumers are not willing to buy milk at this
price.
Illustrating Price Equilibrium

The demand and supply curves are drawn from the demand and supply schedules. Price is measured
on the vertical axis and quantity on the horizontal axis. The demand curve slopes downwards from
left to right and the supply curve slopes upwards from left to right. The intersection of the two
curves indicates the equilibrium price and quantity.

Packaging And Presentation Of Goods

Packaging refers to designing and producing the container that holds the product. A good package
must identify, protect and advertise the product. It must also make the product convenient to use.
Therefore products such as toothpaste are best packaged in a tube as it has to be squeezed out. Milk
must be pored from its container. Egg containers are so shaped to hold them securely.
A package must also sell the product. It must first attract customer to buy. It must provide
information about the product i.e. ingredients, amount of contents, price, the name and address of
the manufacturer and instructions for usage. The brand name is also displayed on the package.
Branding
A brand is any identifiable feature of a product which makes it different from its competitor. A brand
may be a name, term, symbol, design or combination of these. Examples of brand names include:
Avon and Colgate. A brand symbol e.g.

represents the Nike brand. A branded product will increase the value of the product in the eye of the
consumer.

Copyright, Patent & Trademark

Copyright is a form of intellectual property right that legally protects the creators and innovators of
original works. Copyright protects creators’ expressions such as music, painting, movie, photograph,
writings etc. Individuals who wish to use works that are copyrighted must request permission from
its creator. Copyright law allows creators of original work to be paid for them. Other forms of
intellectual property rights are patents and trademark.
Patent protects innovation. It excludes others from making and selling that invention for a number
of years.
Trademark legally protects brand names. It gives the seller exclusive rights to use a particular
brand name.

Methods Of Promoting Sales

Promotion includes all forms of advertising, public relations and sales promotion.
Advertising is the paid presentation of goods or services through the media for the purpose of
encouraging consumer patronage. The media refers to television, radio, magazines, newspapers,
billboards, websites etc.
The Purpose of Advertising
-to attract attention
-to inform customers
-to increase sales
Sales Promotion
Sales promotion is a marketing strategy that is used to induce customers to buy immediately.
Examples of sales promotion methods are:
a. A sale on items.
b. Bargain packs, e.g. ‘two for price of one’.
c. Coupons. These are printed in the daily newspaper or magazines. The holders of coupons
are allowed a discount on the items bought.
d. Games, e.g. guessing riddles
e. Contest. Purchasers may receive a prize if they are the winners of a contest.
f. Trading Stamps. These are given to purchases with each item bought. Booklets filled with
these stamps may be returned by customers for goods, services or money in exchange.
g. Loss–Leader. A loss-leader is a product that is in high demand and is therefore used to attract
consumers to a business location by cutting its price very low. The business uses a loss leader to
attract large number of persons to its location so that other items will be sold. The profits lost on this
product will be made up on the high sales turnover of the other products that will be bought along
with the loss-leader.
Public Relations
Public relations activities are aimed at creating a favourable impression of a business in the eyes of
the public. Public includes its customers, its suppliers, the government and the surrounding
community. Public Relations activities include sponsorship of local sporting events, press
conferences, and donations to charity.

Techniques Of Selling
These are methods used to sell products more effectively by focusing on each customer’s personal
needs. Selling techniques include:
1. Personal Selling
2. After-sale services such as warranty and installation
3. Merchandising
4. Good Customer Relations
Personal Selling
This is the use of sales persons to present and sell goods and services of a firm. Sales persons
promote a firm’s goods directly to a specific consumer. They locate new customers, provide display
services, demonstrate the use of products, deliver goods, collect payments and provide the firm with
feedback
After Sales Services
Customers are entitled to these services once they have made a purchase. They include delivery,
installation and warranty. These services are free and therefore usually encourage consumers to buy.
Merchandizing
Merchandizing refers to self service methods of sale. This is used in supermarkets and department
stores. It allows for a better display of goods and creates a more comfortable shopping environment.
Good Customer Relations
Building good relationships with customers ensures customer satisfaction, repeat customers and
recommendation to new customers. The sales staff must be trained in the principles of good
customer relations. This entails, listening to customers being helpful and polite.

Terms Of Sale
A business establishment may offer its customers various terms to settle accounts.
Cash
This is preferable by most businesses and therefore customers are encouraged to make cash
payments. They are usually offered a lower payment amount for goods bought for cash.
Credit
Customers are allowed to pay at intervals over a short- term, usually one to three months to settle
outstanding balances.
Hire Purchase
Hire-purchase is a long term payment plan e.g. 24 – 36 months. Interest is charged to the customer
increasing the amount owed.
Cash Discount
A cash discount is a reduction in the price of a good that is paid for immediately or over a short
period of time by a customer. For example, if a an appliance store offers 5% discount on items
bought for cash then 5% of the sale price would be deducted from the actual bill
Trade Discount
A trade discount is the reduction in the price of a good given by a manufacturer or a wholesaler to a
retailer to allow the retailer to make a profit or to encourage bulk buying. Thus if an appliance
manufacturer offers 10% trade discount to retailers then 10% of the catalogue price or the quoted
price would be deducted from the retailers’ actual bill.

Consumer Organizations
Consumerism is defined as the education and the protection of consumers to prevent their
exploitation.
Consumer exploitation includes:
-overcharging
-offering poor quality goods and services
-short measurements and weights
Consumerism is practised by various groups in the economy: the government, private nstitutions,
and private firms.
Consumerism practiced by the government
This is done through various government agencies. These include:
1. The Consumer Affairs Commission – This institution was set up to disseminate information
about consumer rights and responsibilities as well as provide consumers with an avenue for
redress if they are exploited.
2.
Consumer Rights
-The right to safety
-The right to be informed
-The right to choose
-The right to be heard
-The right to redress
-The right to consumer education
-The right to a healthy environment
Consumer Responsibility
-The responsibility to beware
-The responsibility to be aware
-The responsibility to think independently
-The responsibility to speak out
-The responsibility to complain
-The responsibility to be an ethical consumer
-The responsibility to respect the environment and avoid waste, littering and contributing to
pollution.
2. The Fair Trading Commission – This agency was set up to administer the fair trading act. It is
concerned with matters such as; Tied selling (marrying of goods), misleading advertising (untruths
about goods and services presented for sale), untrue sale (an announced sale for which the price of
items remain the same).and the use of market dominance to squeeze firms out of the industry (For
example, large firms may drop the price of their goods so low that small firms are unable to compete
with them.)
3. The Bureau of standards -The bureau carries out regular checks on business enterprises to ensure
that goods and services offered for sale meet the standards stipulated by this institution.
4. The Ombudsman
The Ombudsman is a government official who protects the rights of citizens who may suffer any kind
of injustice from dealing with a government agency or a government official. For example, the
Ombudsman will investigate the death of a loved one due to the negligence of a public hospital.
Consumerism practiced by private Institution
-Local consumer groups
-Radio talk show hosts listens to consumers’ complaints
Consumerisms practiced by private firms
-Offering warranty/guarantees on items sold
-Labels carry information on ingredients, nutritional content and health risks that may be associated
with the product.

Links In The Distribution Chain

Manufacturers must find the most efficient ways of getting the goods manufactured into the hands of
consumers.
The channels/chains of Distribution
Channels of distribution refer to the means by which commodities reach the hands of consumers
from the plant of manufacturers. This may be done directly from the manufacturer to the consumer
or indirectly through middlemen such as wholesalers and retailers.
Types of Channels
1. Direct Channel – Manufacturer – Consumer
Goods are bought directly from the producer e.g. purchasing furniture from a manufacturer.
2. Indirect channels (a) Manufacturer – Retailer – Consumer
Goods are bought from a middle man e.g. a retailer. Retailers display goods, sell in small convenient
quantities and offer credit. They therefore aid manufacturers in moving goods quickly.
3. Indirect channel (b) Manufacturer –Wholesaler – Retailer – Consumer
The wholesaler is a second muddle man/link on the chain. The wholesaler purchases in bulk from
the manufacturer and stores them in large warehouses. They therefore assists manufacturers by
moving large amounts of items from plant Retailers purchase goods from wholesalers and sell them
in smaller quantities to consumers.
 Methods Of Retailing
There are several methods by which retailers can offer items for sale.
Community Shops and Convenient Stores
These locations tend to serve a particular community. Opening hours include all weekend days,
holidays and very late in the evenings. Costs for some commodities that are not government
controlled tend to be higher than other types of retail outlets. Community shops in particular cut and
shape products to suit customers and offer credit.
Department Stores
These stores carry a several lines of goods under one roof. A department store may feature a clothing
department, household items, stationery, hardware etc. It provides convenience to customers who
can pick up several items in one place, and allows the businessman the cost effectiveness of operating
several business entities in one location.
Mail Order
Companies that retail through mail order benefit from reduced operational cost of location and staff.
Since display areas are not required only an office and storage facility are necessary for the operation
of this business. Orders are made from catalogues and goods are delivered by courier or mailed to
customers. This saves time and effort of consumers to visit shopping locations.
E-commerce
Orders are made by customers over the internet from the websites of businesses. Payments are also
made over the internet. Packages are delivered by mail or courier.
Tele- marketing
Tele –marketers introduce the company’s goods and try to obtain orders via the telephone.
Vending Machines
These self-service machines are placed at various locations by their owners. Customers are required
to place the required funds inside these machines and are then instructed on how to make their
choice. The machine then dispenses the product. This type of business is very cost effective as owners
may only pay a fee for locating the vending machine.

Problems Of Distribution
Distribution locally is challenged by poor road conditions and difficult terrain especially in the rural
areas. Spoilage of perishable goods is very costly and therefore types of transportation used must be
equipped to carry perishable goods.
Problems encountered in Overseas Transportation
The challenges faced in transporting goods internationally will impact foreign exchange earnings.
These challenges include:
-misdirection of goods – goods mistakenly sent to the wrong destination
-flight delays
-strikes by airport and ship port workers.
-narcotics found in containers
-pilferage- goods stolen in transit.
Measures to mitigate problems of distribution
-careful checks before loading packages for shipment
-contingency plan when strikes occur
-public awareness on the consequences of narcotics found in containers
-making persons responsible for any goods lost in their care
 Section seven
Business Finance

Role Of Commercial Banks

-Commercial bank accepts money deposits and therefore provides a safe place for saving money.
-Offering loans and overdraft to persons who need financial assistance.
-Assisting customers to easily make payments through standing orders, current accounts and debit
cards.
Services offered by Commercial banks
-Commercial banks provide advisory services to clients who wish to borrow a loan to make
investments and persons who wish to purchase securities.
-Safety deposit boxes at the bank are used to store safely items that individuals deem as highly
valuable.
-Selling travelers cheques.
-Credit cards allows persons to purchase items by using funds that the bank makes available. There
is a limit to how much the bank makes available to credit card holders.

Functions Of The Central Bank

-The Central Bank has the sole authority to issue notes and coins.
-The Central Bank is a banker to the government as it keeps the government accounts.
-It manages the national debt.
-It is a banker to all banks as commercial banks must keep an account with the central bank.
-A lender of last resort-The commercial banks and all other financial institutions can count on the
central bank for financial assistance.
-It is a financial agent for government. The government uses the Central Bank to carry out its
economic policies. These policies are known as monetary policies.
Monetary policies
These are policies used to affect the level of the money supply to bring about high employment, price
stability and sustainable economic growth. The money supply is composed of notes and coins in
circulation plus deposits in commercial banks. If this supply is too high then inflation will occur. If
the supply is too low the economy may experience an economic depression.
Decreasing the money supply
When the money supply is too high monetary policies such as high interest rates, selling certificates
of deposits and treasury bills and increasing the cash reserve ratio are used to discourage borrowing
and spending.
Increasing the money supply
To increase the money supply the opposite must be done. Monetary policies such as low interest
rates, buying securities from other financial institutions and decreasing the cash reserve ratio are
used to encourage borrowing and spending. When interest rates are lowered citizens will borrow
funds and reduce savings to purchase assets and consumption items. This will increase the money
supply in the economy. The government may wish to increase the money supply to boost an
economy when there is an economic decline. As the money supply rises demand for goods and
services will rise resulting in the expansion of the business sector and the level of employment.

Relationship Between The Central Bank And Commercial Banks

The Central Bank is the head of the financial system. All financial institutions including commercial
banks are regulated and monitored by the Central Bank.
All commercial banks must keep an account with the Central Bank. These balances are used for
cheque clearing purposes between banks. Payments for cheques between banks are set off at the
Central Bank’s clearing house. The Central Bank can also demand commercial banks to deposit a
certain percentage of their total deposits with the central bank in order to control the money supply.
The Central Bank is a lender of last resort and will aid commercial banks when needed. The Central
Bank dictates the interest rate that commercial banks can offer by setting the bank rate. This is the
interest rate set by the Central Bank and the rate at which commercial banks and the Central Bank
do business, e.g. loans offered by the Central Bank to commercial bank.

Strategies To Manage Personal Income

Subsequent to the deduction of taxes and other statutory payments the income earner must manage
his money to maximize its use. He must exercise and develop habits of careful spending and saving
techniques. A good money manager will budget.
A budget outlines how much of an individual’s income is to be spent on his various expenses; it
disciples an individual to live within the constraints of his personal income. The process of preparing
a budget involves the record keeping of past expenditures, and making decision based on these about
future expenditures. Priorities must be set to meet basic needs and a systematic plan for savings to
achieve future goals.
 Sources Of Short & Long Term Financing
Short-term capital may be accessed through the money market. Institutions in the money market
include commercial banks, merchant banks, credit unions and discount houses. Borrowers are
required to repay within a short-term e.g. 1 to 5 years.
Long –term capital may be accessed through building societies, the stock exchange, unit trust
companies and development banks. Borrowers are given a much longer repayment periods e.g. up to
20 years.

Savings And Investments

Savings is defined as money set aside or not spent from ones personal income. Money saved is most
effective in an interest bearing facility such as a commercial bank to keep up with inflation which
(meeting turn, sou sou, box hand).
Investment is defined as methods of increasing wealth. It differs from savings as it involves risks.
Earning from capital invested is usually amuch higher than interest earned on savings. Forms of
investments include: unit trust companies, the stock exchange and starting a business.

Stock Market
The stock market facilitates the trading of stocks/shares between buyers and sellers. The Stock
Exchange is the governing body that overseas and regulates the activities of the stock market.
Companies that wish to obtain capital to expand may offer shares for sale on the stock market. It is
therefore essential to the expansion of businesses in an economy. It provides a form of investment
for persons who are very speculative and will buy stocks for resale at higher anticipated prices.
Types of speculators/stock market investors
Bears
These are speculators who sell securities because they expect the price to fall soon. A bear market is a
stock market that is slow moving i.e. investors are not keen on buying stocks.
Bulls
These are speculators who buy securities because they think the price will rise soon. A bull market
that is very active with high interest in the buying and selling shares.
Stags
Stags are short term speculators. They are also known as day traders. They carefully watch the
movement of stock prices and buy stocks with the intention of quick resale for profits.
Cross List
Cross listing occurs a company lists shares on more than one stock exchange. It not only lists stocks
for sale on the exchange in the country which it operates but also on other exchanges.
Stock Broker
This is someone who is authorized to buy and sell shares. Persons wishing to buy or sell shares must
contact a stock broker who will buy or sell shares on their behalf
 Section Eight
Role of Government in an Economy

Responsibilities Of A Government In An Economy

Governments are appointed by citizens to manage the affairs of their country. Their responsibilities
include:
-Ensuring the security of a state- Government must maintain law and order internally. This is
realized through legislation, the court of justice and the police force. Externally the armed forces
protect citizens against external threats.
-Protection and general welfare of citizens - Government is responsible for the general
health and education of citizens. Welfare programmes must be provided for those who are very poor
and vulnerable.
-Management of the economy – Governments are appointed by citizens to efficiently manage
the economy to bring about growth and development. This includes: encouraging local and foreign
investment, controlling inflation, maintaining the foreign reserve (NIR), curbing balance of
payments deficits and achieving high levels of employment.
-Protecting the environment – Sustaining the environment is important to the well-being of
citizens. Ways of protecting the environment include: legislation to prevent further degradation,
zoning to protect wildlife areas from disruption by development of factories, shopping and
residential areas and taxation to reduce the level of pollution by firms.
Ways In Which Businesses Protect The Environment
1. Business owners must adhere to the various legislation set out by government and reduce pollution
in rivers, seas and the atmosphere.
2. Establish business in the zones legally allocated to reduce the impact of noise and air pollution in
residential areas.
3. Being part or initiating environmental projects such as beach clean up and planting trees.

Ways By Which Government Regulates Business Activities

Consumers must be protected from business owners who are eager to sell without taking into
consideration the well-being of customers. Consumers must be protected from overcharging, poor
quality goods and services and short measurements and weights.
Consumers are protected by legislation delegated to various government agencies. These agencies
include:
1. The Consumer Affairs Commission- aids consumers with redress
2. The Fair Trading Commission- investigates cases of tied selling and misleading advertising.
3. The Bureau of standards – set standards for goods and services to be sold on the market.
4. The Ombudsman- investigates injustices suffered by citizens from dealing with a government
agency or official.
Consumer Protection Laws
-The Food and drugs Act
-The Standards Act
-The public Health Act
-The weights and measures Act
-The processed food Act
-The hire purchase Act
Hire Purchase Law
Buyers and sellers must sign the hire purchase contract. The seller must state the cash price, down
payment and monthly instalments and total to be paid. Goods cannot be repossessed by the seller
once the buyer pays up to three quarters of the hire purchase price.
Price controls
Price controls are levied on certain good and services to prevent suppliers from increasing prices. For
example basic food items such as corn meal, flour, rice and sugar.

Zoning Laws
These laws protect the environment by identifying certain wildlife areas that should not be disrupted
by development. Therefore, areas are designated for factories, shopping centres and residential, away
from protected wildlife.
Taxation
Firms that pollute the atmosphere, rivers and seas are charged a tax for the harm caused to the
environment. This forces firms to find methods to reduce pollution to avoid this penalty.
 Purpose Of Taxation
Taxes are mainly used to finance the expenses incurred by government to manage an economy.
These expenses include: health care, education, garbage collection and operating government
business entities. Taxation is also used by government for several other purposes.
a. To reduce pollution by taxing offending firms
b. To discourage unhealthy lifestyle e.g. a tax on cigarettes
c. To protect local and infant industries by taxing imports
d. To achieve greater equality of wealth and income. Revenue from taxation is used to help the very
poor e.g. providing food stamps.
e. To improve the balance of payments (BOP) by increasing the duties charged on imported goods.
f. To control spending in an economy thus reduce inflation

Direct And Indirect Taxes

Direct taxes are paid by individuals directly from income earned or on the value assets owned to the
income tax department.
Types of Direct Taxes
Income Tax – This is a tax on earned income- individuals pay a percentage of their income.
Corporate Tax
This is a tax on the profits of companies
Capital Gains Tax
This is a tax on the proceeds resulting from the sale of assets, e.g. houses, land etc.
Capital Transfer and Estate Duties
This is a tax on the transfer of property (gifts) and on legacies (death duties)
Other Direct Taxes
These include: stamp duties, motor vehicle duties land taxes, etc.
Indirect taxes are paid to the income tax department through the suppliers of goods and services.
These taxes are levied on consumption and therefore are paid by individuals when purchasing
commodities.
Value Added Tax (Ad Valorem Tax)
This is the tax levied on goods as each stage of production. This tax generally is known as a General
Consumption Tax (G.C.T.).
Purchase Tax
This tax is placed on specific goods at retail outlets. Theses include gasoline, tobacco, rum etc.
Excise Duties
A tax placed on goods manufactured within a country. This tax is paid by the manufacturer of the
product.
Customs Duties
This is a tax on imports i.e. goods entering the country.

Regressive, Progressive And Proportional Taxation

Progressive Taxation
A progressive tax system levies a higher percentage of tax on high income earners compared to lower
income earners. This ensures that higher income earners pay a larger proportion of their income
than lower income earners.
Regressive Taxes
A regressive tax system levies a smaller percentage of tax on higher income earners compared to
lower income earners. This results in higher income earners paying a smaller proportion of their
income in taxes than lower income earners. For example, a purchase tax of 10% charged on a
commodity which values $100 is bought by a high income earner who receives $10,000 weekly and
also by low income earner who receives $1000 weekly. Both income earners will pay $10.00 in
taxes. This $10 represents a much higher percentage of the lower income earner’s pay which is .01%
than the higher income earner which is only .001% of his income
Proportional Taxation
Under this system all taxpayers pays the same proportion of their income in taxes. The same
percentage tax is levied on both high and low income earners. Therefore if the percentage tax
charged is 10% of income then each person will pay that proportion of their income.

Government Assistance Offered To Businesses

The survival and growth of the business sector will reduce unemployment, increase GDP and foreign
exchange earnings. This sector must therefore be support and encouraged by government.
Financing
Government assists local businesses by providing loans at low interest rates.
Protecting local industries
Custom duties charged on imported goods to protect local producers

Tax concessions
Reduced tax rates or tax holidays offered to industries will encourage production.
Subsidies
The cost of production is subsidised to reduce this cost to producers. For example, a subsidy offered
on fertilizer to farmers.
Promotion
Local and international trade shows as well as general advertisements promoting business locally
and overseas, for example, advertisements encouraging tourist to visit the region.
Training
Government agencies set up to provide technical and managerial training.

Social Services Provided By Governments

These services are provided by government to ensure the well-being of all citizens.
Education
An effective national education plan will ensure that the innate skills, talents and abilities of
individuals are harnessed and developed to their fullest potential. High levels of literacy and
numeracy will increase productivity.
Health
The economic development of any nation is dependent upon its population being physically and
mentally healthy. For someone to be productive he or she must be in good health.
Roads and Transportation
Proper Infrastructure such as roads, railways, sea and airports coupled with an efficient
transportation system are important to a country’s economic activities. Roads and transportation
facilitate trade of goods and services.
National Insurance Scheme
National Insurance Schemes protect the elderly and other categories of vulnerable persons within a
society. The elderly have contributed to the development of a nation and must be adequately
provided for when they no longer a part of the labour force.
 Section Nine
Social Accounting And Global Trade

Factors That Determine A Country’s Standard Of Living

The standard of living is defined as the level of wealth experienced by a county which is indicated by
the average disposable income of the population, ownership of capital equipment, the level of
research and access to modern technology and the quality and quantity goods and services enjoyed
by citizens.
Level of goods and services available: goods and services are needed to satisfy the needs and wants
of a society.
Average disposable income: per capita GNP reveals the average amount of earnings of each person
in an economy.
Ownership of capital equipment: Capital goods/investment goods are used to create consumer
goods and services locally and for export.
Research and technology leads to innovation and increases production.
Whereas the standard of living is measured by physical quantity, a country’s quality of life is
determined by the quality of goods and services enjoyed by citizens. These include: safety (low crime
rates), good diet and nutrition, environmental quality, quality of heath and educational facilities, life
expectancy, rate of infant mortality and the access to public utilities such as water.

National Income
The national income of a country is the total income earned by that country from the production of
goods and the provision of services in a given year after deducting depreciation. It therefore
measures the level of economic activity of a country within a year. Note depreciation of assets is
taken into account when measuring national income.
Gross Domestic Product (GDP)
GDP is the total money value of all output produced within a country over a year. The word
‘domestic’ refers to income earned from local production only.
Gross National Product (GNP)
GNP is the total money value of all output produced over one year, both within a country and from
its overseas investments.
Therefore GNP = GDP + overseas earnings by nationals
Net National Product (NNP) or National Income (NI)
NB: The definition for national income includes adjustments for depreciation.
National Income (NI) = GNP- depreciation
Since GNP figures do not accurately measure the standard of living, the following indices may be
used.
Per capita GNP
This is calculated by dividing a country’s GNP by its total population. That is,
GNP
Total population
Thus if a country’s GNP is $40,000,000 and its total population is 5,000, its per capita GNP would
be $8,000.
40,000,000 = 8,000
5000
Thus each citizen enjoys on an average $8,000 worth of goods and services.

Economic Growth And Development

Economic growth is the expansion of national income. The rate of expansion is usually measured
from one year to the next. Economic growth can be achieved if countries increase their capacity to
produce.
Economic Development is sustained economic growth accompanied by policies that bring about
structural changes such as increase in exportation, decrease in importation, lesser dependence on
foreign aid and important infrastructural development. These changes will allow for higher levels of
national income.
Investment in education is important for a country’s economic growth and development. Education
increases productivity as individuals who are trained and knowledgeable will be more efficient.
Education is the process of imparting knowledge, skills, beliefs and cultures to empower and
influence behaviour.
The long-term returns to investments in human capital will reduce poverty.

International Trade
It is an advantage for countries to be self-sufficient, but there are reasons why trade must take place
between nations.
Reasons for International Trade
(a) Lack of certain natural resources to produce essential goods. Oil which is important to economic
life must be imported into countries that do not posses that natural resource.
(b)Lack of capital, technology and specialist labour to manufacture certain goods on a large scale.
For example, Caribbean countries import machinery equipment and vehicle.
(c)Differences in climatic conditions, e.g. many tropical countries import grapes and strawberries as
these produce need cool climates to survive.
(d)Differences in the cost of production between countries. This reason is based on the principle of
comparative advantage which states that benefits will be gained from trade if countries produce
goods in which they have a relative advantage. Therefore, if two countries both produce cars and
coffee but each is more efficient at producing or produces either at a lower opportunity cost either
car or coffee, then trade can take place. The country that is more efficient at producing coffee should
put all its resources into coffee and import cars from the other country that is efficient in producing
cars.

Balance Of Trade & Balance Of Payment

A countries balance of payments account records all the flow of money between residents of that
country and the rest of the world. A country’s balance of payments thus shows the difference
between the receipt for goods and services exported and payments made for goods and services
imported and movements of capital in and out of the account. The two main parts of the balance of
payments accounts are the current account and the capital account.
The current account records payments for imports and exports of goods and services. The balance of
trade or visible balance records imports and exports of physical goods only. The current balance
includes both the balance of trade and net invisible trade balance. A negative balance is a deficit
balance and a positive balance is a surplus balance. In the table below there is a balance of trade
deficit for 2001 (-800) and in 2002 (-1000). There is a current account surplus of US$200MN in
2001 but a deficit of US$300MN in 2002.
Example BOP for Country X (US$MN)

Balance of Trade/Visible balance = Export ($) – Imports ($)

Invisible balance = Net transportation +net interest & profits + net government
Net figures are arrived at by subtracting payment from the receipt for each service. For example,
subtracting the out flow of money spent by locals on trips overseas from payments received from
visiting tourist, will give a net figure for tourism.
Current Balance = visible balance + invisible balance
The capital account
The capital account or financial account shows the flows of capital between countries i.e. Flows of
capital into a country and flows of capital leaving a country.
The Balance of Payments Accounts must balance
The sum of the current account and the capital account must be zero. A firm’s balance sheet shows
its financial position after one year of trading. The balance of payment similarly shows the countries
financial position on a yearly basis. Similar to a firm’s balance sheet the balance of payments account
must balance, since a debit or a credit balance must be covered in some way.
Credit items are- Inflows /receipts
Debit items are- outflows /payments
 Balance Of Payment Problems
If a country continues to experience deficits in its visible and or invisible balances it will affect its
level economic activity. Deficits mean there is not enough money to purchase the goods and services
required by citizens.
Methods of Correcting Balance of Payment Problems
1. Tariffs (taxes on imports)
Taxes increase the cost of items imported and therefore will discourage imports. This may encourage
the purchase of cheaper local imports.
2. Import licences
Only holders of this licence can import particular goods and services. Government can restrict the
importation of certain goods and services e.g. those that compete with local goods.
3. Quotas
Restrictions on the quantity of a type of commodity to be imported.
4. Total ban of certain commodities.
5. Exchange Control
This is various forms of control by government on the purchase and sale of foreign currencies by
citizens and foreigners. Example: limiting the amount of foreign exchange that residents can leave
the country with, banning the use of foreign currencies locally and having a fixed exchange rate.
6. Encouraging export
Incentives given to exporters.
7. Devaluation – the price of foreign currency is increased against the local currency thus
discouraging its purchase.
8. Special Drawing Rights -Drawing on the resources of the International monetary fund
9. Importing on credit – Purchasing on credit delays payments in the short term
10. Accepting gifts from other countries – This reduces the need to spend foreign exchange.
11. Borrowing from other countries – This represents inflows into the Balance of payments accounts
 Section 10
Regional And Global Business Environment
Economic Institutions And Systems
Caribbean Community Common Market (CARICOM)
A common market is an association of countries that have joined together to bring about the
harmonious development, continuous economic expansion and increased stability of the countries
involved. CARICOM was formed in July 1973 when Barbados, Trinidad and Tobago, Jamaica and
Guyana signed the treaty of Chaguaramas. Since then the following Caribbean countries have joined:
Antigua and Barbuda, Belize, Dominica, Barbados, Suriname, Grenada, Montserrat, St. Kitts &
Nevis, St. Lucia, St. Vincent and the Grenadines and Bahamas and Haiti.
Associate members of CARICOM are Anguilla, Bermuda, British Virgin Island and Turk and Caicos.
Objectives of CARICOM
-Improved standard of living.
-Expansion of trade.
-Joint negotiations internationally.
-Co-ordination on foreign and economic policies.
-Full employment of labour and other factors of production.
-Economic integration.
Caribbean Single Market and Economy (CSME)
The CSME was established in 2006. It seeks to transform the common market into a single market
and economy. It was established to deepen the integration among Caribbean states and to respond
effectively to the challenges and opportunities globally.
Objectives of CSME:
-Deepening economic integration.
-Free trade of services.
-Free movement of capital, labour and the freedom to establish business enterprises anywhere
within CARICOM states.
-Widening of membership.
-A common currency/single currency.
Caribbean Development Bank
The CDB is a regional financial institution. It finances regional projects that contribute to the
economic growth and development of the region. Sectors financed by the CDB includes:
infrastructure, tourism, mining and refining, agriculture, agriculture, manufacturing, heath and
education.
The objectives of the Caribbean Development Bank are:
-Supporting regional and local financial institutions
-Assisting borrowing member countries to optimize the use of their resources
-To mobilize financial resources regionally and internationally
-To support capital markets
-Stimulating growth
-Supporting business activities
The World Bank
The aim of the World Bank is to reduce poverty worldwide. It therefore assists developing countries
by providing loans for projects such as housing, infrastructure and industry. The World Bank
provides long term loans for developmental purposes. It is used interchangeably with the
International Bank for Reconstruction and Development (IBRD). However, the IBRD is only one of
the five agencies of the World Bank.
The five agencies of the World Bank are:
-International Bank for Reconstruction and Development (IBRD)
-International Development Association (IDA)
-International Finance Corporation
-Multilateral Investment Guarantee Agency (MIGA)
-International Centre for Settlement of Investment Disputes (ICSID)
Inter-American Development Bank (IADB)
The IADB was established in 1959 for the purpose of assisting Latin American and Caribbean
countries. It offers loans, lines of credit and technical assistance to member governments for social
and economic development. Areas of assistance include: agriculture, industry, mining health,
tourism and infrastructure.
The Organization of Eastern Caribbean States (OECS)
OECS was formed in 1981 for the purpose of promoting cooperation among member states. These
countries include Montserrat, Anguilla, Antigua, Dominica, Grenada, St. Kitts and Nevis, St. Lucia
and St. Vincent, Anguilla and the British Virgin Islands are associate members.
Eastern Caribbean Common Market (ECCM)
The objectives: Creating a single financial and economic space
Organization of American States (OAS)
The OAS was established for the main purpose of increasing interdependence and solidarity, and
promoting regional co-operation and the peaceful settlement of disputes among the member
countries. These countries include: North and South America, Canada and the Caribbean.
Economic Commission for Latin American Countries (ECLAC)
The ELAC was established in 1948 for the main purpose of integrating Latin American countries for
their development. Caribbean countries were later included in the ELAC. Their objectives include:
-Guaranteeing equal rights and opportunities
-Economic integration of Latin American and Caribbean countries.
-Reinforcing economic ties among countries of Latin America and other nations of the world
-Economic development of Latin America
Association of Caribbean States (ACS)
The ACS was established in 1994 to promote cooperation among Caribbean countries. Its objectives
include:
-The strengthening of regional cooperation and integration
-Preserving the environmental integrity of the Caribbean Sea
-Promoting the sustainable development of the Caribbean
The European Union (EU)
The European Union is an economic and political partnership between its 27 member countries. It is
a single market economy with the euro as its common currency.
These countries include: Spain, Luxemburg, Britain, France Portugal, Italy, Greece, Belgium,
Germany, Denmark, Finland, Sweden and Switzerland.
Their objectives include:
-Free movement of people services and capital
-Removal of customs duties and quotas among members
-Establishment of common policies for agriculture and transport
-Establishment of a common tariff and common policies towards other countries
-Economic cooperation
-Promoting equal rights
-Fighting climate change
World Trade Organization (WTO)
The WTO is an international organization that monitors and regulates trade among the nations of
the world based on trade agreements by member states. The WTO replaces the General Agreement of
Tariffs and Trade (GATT).
Their main aim is to encourage the free flow of trade among nations.
Their objectives include:
-discouraging unfair trading practices e.g. export subsidies and selling products below cost to gain
market share
-settling disputes among members
-environmental protection
-monitoring and reviewing the trade policies
-reducing trade
Caribbean Basin Initiative (CBI)
CBI allows certain Caribbean and Central American products duty free entry into the United States.
Products exported include chemicals, manufactured goods, fresh fruits and vegetables.
Oil Producing Exporting Countries (OPEC)
OPEC is an organization of 12 oil –exporting countries. This organization was established in 1960 for
the purpose of unifying the petroleum policies of member countries.
Objectives include:
-Regular supply of petroleum products on the world market
-A steady income for producers
In 1976 OPEC established a special fund to provide financial assistance to developing countries.
OPEC countries: Kuwait, Venezuela, Iran, Iraq, Angola, Saudi Arabia, Algeria, Ecuador, Libya,
Nigeria, Qatar, United Arab Emirates
CARIBCAN
The agreement allows preferential duty free access to the Canadian market for almost all imports
from Commonwealth Caribbean Countries.
Its main objectives are:
-to enhance the Commonwealth Caribbean’s existing trade
-improve economic development prospects of the region
-promote new investment opportunities
-encourage economic integration and cooperation within the region
-to encourage long term investments through development projects.
North American Free Trade Agreements NAFTA
This agreement allows duty free entry of goods among Canada, United States and Mexico.
Free Trade Area of the Americas (FTAA)
The FTAA is an expansion of NAFTA. It is an organization of 34 countries of the Americas including
North and South America, Canada and the Caribbean except for Cuba. It s objectives include
economic prosperity, free market of goods and services and democracy.
 Economic And Social Problems In The Caribbean
Unemployment
Globalization has contributed significantly to unemployment in the Caribbean. With the removal
trade barriers, some industries have not been able to compete globally. The lack adequate skills that
are required for the new industrial paradigm for example, information technology skills have also
contributed to the problem of unemployment.
A high level of unemployment among the young people of the Caribbean may results in various
social problems, as survival may depend on illegal activities.
Reasons for unemployment
-firms e.g. multinationals closing down
-lack of investment to create new businesses
-lack of skills training
Population density
Population density Refers to the average number of people living on every square kilo meter in a
country. The formula used for calculating population density is:
Density of population
= Total population
Area (sq. km.)
Very high population densities can indicate overpopulation. This occurs when the facilities in a
location, are not able to serve the number of persons in that location. This will cause heavy
competition for jobs, schools, health facilities etc.
Migration
Caribbean people migrate to first world countries in search of opportunities such as employment and
education. When skilled and professional workers migrate, Caribbean countries may experience
shortages in critical areas such as health care. Loss of skilled workers from industry will also retard
growth and development. Social problems may arise when children are left in the care of
grandparents and other relatives who have challenges to discipline them.
Debt burden
Many Caribbean countries have high debt- to-GDP ratios. This ratio is the amount of national debt
of a country as a percentage of its Gross Domestic Product. High debt-to-GDP can stifle an economy
as a large portion of its GDP is consumed in debt payment and very little is left for investment in the
economy. A very low debt- to- GDP ratio is desirable for economic growth and development.
Sourcing Capital and raw materials
While the Caribbean might be rich in certain natural resources such as bauxite, oil and gold the
region lacks other very important resources such as capital and entrepreneurial skills. Capital is
important as it increases production through the use of machinery, equipment and money invested.
The spirit of entrepreneurship is necessary for the creation of new business ideas and
entrepreneurship skills are important for the successful running of the businesses.
Economic dualism in the region
Economic dualism occurs in countries where there exist two opposite economic sectors. One sector is
characterized by development, capital intensive industries, large scale farming and technological
advancement, and the other sector is characterized by subsistence farming, labour intensive
industries, handicraft industries and simple trading means of survival.

Possible Solutions To Economic And Social Problems

Access to Foreign Direct Investment (FDI)
Foreign Direct Investments refers to capital investments into factories, machinery and equipment by
a foreign company or an individual. FDI is important for the development of Caribbean economies as
they are challenged by their high debt- to-GDP ratios and increased global competition for export
earnings. Attracting foreign direct investment is a way for Caribbean countries to obtain capital for
growth and development.
Benefits of FDI include:
-Employment for nationals
-Increased access to global markets
-Introduction of advanced technologies and processes
-Improvement in human resource skills
Development of human resource
Investment in human resources is imperative for Caribbean economies to compete
globally. Improving the value of human resources through education and training will increase the
productive capacity of Caribbean countries.
Development of manufacturing sector
The manufacturing sector creates value added products which increases export earnings for
Caribbean economies. Developing the manufacturing sector therefore will impact on the potential
economic growth of a country.
Methods of developing the manufacturing sector:
-Encouraging Foreign Direct Investment
-Retooling
-Research and development
-Technological advancement