Entrepreneurship and Enterprise Creation-1

NDAM (ECE21)ENTREPRENEURSHIP
PAPER: ENTERPRISE CREATION AND ENTREPRENEURSHIP

SPECIALTY: ALL HND SPECIALTIES
PAPER CODE: ECE21
SECTION ONE : ENTREPRENEURSHIP
SECTION TWO : ECONOMICS
SECTION THREE : COMPANY LAW
1
SECTION ONE : ENTREPRENEURSHIP
CHAPTER ONE
INTRODUCTION
1.1 Conceptual Definition of Entrepreneurs and Entrepreneurship
Entrepreneur/ship, just like management, has no single definition. There are many definitions
of entrepreneurship. Everyone seems to have his or her own views about what it is and in the
same way they have defined it. Let’s look at some of the various ways in which
entrepreneurship has been defined.
Definition of entrepreneur
An entrepreneur is a person who is action oriented, highly motivated, takes risks to achieve
goals
Adam Smith: Entrepreneur as a person who only provides capital without taking active part
in the leading role in Enterprise
Joseph A. Schumpeter: An entrepreneur is a one who innovates, raise money, assemble
input, choose managers and set the organization growing
Peter F. Drucker: An entrepreneur as one who always searches for changes, responds to it
and exploits it as on opportunity. Innovation in the pacific tools of entrepreneur, the means by
which they exploit change as an opportunity for a different business or service
Mohd. Arif
Entrepreneur a person, who has initiative in investment and decision, seeking all resource of
factor of production, resources of Management, Behavior, Cultural, Economical and Political
factor for establishing, innovation and founded enterprise, having assumption of risk, profit
and future growth.
To sum up in the light of the developments, there are some key elements of entrepreneurs.
These are:
 Ability to plan: Planning is one of the important skills of entrepreneurs as this is the
core of success in business. Without proper planning, new ventures are bound to fail.
As such the entrepreneur has to identify what needs to be accomplished to establish a
venture both in terms of human and financial capital
 Basic management skills: The entrepreneur should be able to have basic
management skills with regards to time, finances, money, as well as machinery. The
2
ability to manage people and resources properly allows you to acquire higher levels of
productivity
 Creativity: This is the start point of entrepreneurs. The ability to imagine and create
original ideas that can create wealth is paramount. For example Steve Job’s Apple,
Mark Zukerberg’s Facebook.
 Vision (identifying emerging opportunities)
 Innovation (creating new business or new ways of doing something)
 Risk bearing (taking risk and facing uncertainty)
 Organizing (collection and coordination of the necessary resources
HND 2021: The following skills are important for the entrepreneur to succeed:
- Ability to plan
- Basic management skills
- Creativity
- Self confidence
Analyze any two of these skills with concrete examples (15mks)
Entrepreneurship, like an entrepreneur, has no single definition. Entrepreneur is a person

while entrepreneurship is a process.
Definition of entrepreneurship
Entrepreneurship is the propensity of mind to take calculated risks with confidence to achieve
a predetermined business or Industrial objective. In substance, it is the risk-taking ability of
the individual, broadly coupled with correct decision-making
HND 2022
Differentiate between entrepreneurship and intrapreneurship
Intrapreneurs are self-motivated, proactive and action oriented people who take their
initiatives to pursue an innovative product or service within an enterprise. The difference
between intrapreneurs and entrepreneurs are;
 Entrepreneurs is the employer while the intrapreneur is the employee

 The entrepreneur receive profit as a reward while the intrapreneurs receives salary
 The entrepreneurs provide the capital for the establishment of the business while the
intrapreneurs does not
3
 The entrepreneurs the risk and suffer losses in the case of business failure while the
intrapreneur may only face unemployment in the case of business closure
 The entrepreneur may not take part in the day to day running of the business while
the intrapreneur is actively involve in the day to day running of the business.
In another view “Entrepreneurship refers to an action process of entrepreneur towards

establishing an enterprise.
Concept of Entrepreneurship
Entrepreneurship has long been described by researchers and writers with terms such as new,
innovative, flexible, dynamic, creative, and risk-taking.
According to Frank Knight, “It involves a specialized group or persons who bear ‘risks’
and meet the uncertainty”
Schumpeter (1883-1950) “Entrepreneurship is an innovative function. It is a leadership
rather than an ownership.” Entrepreneurship as defined essentially consists in doing things
that are not generally done in the ordinary course of business routine.
According to John Kao, “Entrepreneurship is the attempts to create values recognition of
business opportunity, the management of risk-taking appropriate to the opportunity and
through the communicative and management skills to mobilize human financial and material
resources necessarily to bring a project to fruition.” He has developed a conceptual model of
entrepreneurship. This model is presented in below
According to Kao, the most successful entrepreneur is one who adapts himself to the
changing needs of the environment and makes it hospitable for the growth of his business
enterprise.
According Peter Drucker (1909-2005), "Entrepreneurship" occurs when resource are
redirected to progressive opportunities not used to insure administrative efficiency.
4
1.2 Historical development of entrepreneurship

During the ancient period the word entrepreneur was used to refer to a person managing large
commercial projects through the provided to him. The concept of entrepreneurship was first
established in the 1700s, and the meaning has evolved ever since. Many simply equate it
with starting one’s own business. Most economists believe it is more than that. In the 17 th
Century a person who has signed a contractual agreement with the government to provide
stipulated products or to perform service was considered as entrepreneur.
In the 18th Century the first theory of entrepreneur has been developed by Richard Cantillon.
He said that an entrepreneur is a risk taker. If we consider the merchant, farmers and/or the
professionals they all operate at risk. For example, the merchants buy products at a known
price and sell it at unknown price and this shows that they are operating at risk. The other
development during the 18th Century is the differentiation of the entrepreneurial role from
capital providing role. The later role is the base for today’s venture capitalist.
In the late 19th and early 20 th Century an entrepreneur was viewed from economic
perspectives. The entrepreneur organizes and operates an enterprise for personal gain. To
some economists, the entrepreneur is one who is willing to bear the risk of a new venture if
there is a significant chance for profit. Others emphasize the entrepreneur’s role as an
innovator who markets his innovation.
In the middle of the 20th and early 21th Century the notion of an entrepreneur as an inventor
was established.
1.3 Entrepreneurial practice
That is the entrepreneurial practice, which act by the entrepreneurs, these action or practice
proceeds to the process of achievement of end result. In other words we can say that
entrepreneurship is the middlemen clause between entrepreneur and enterprise.
The practice of entrepreneurship involves different steps as well discipline like there is a
discipline Entrepreneurial Management.
The Entrepreneurial Process
The process of starting a new venture is embodied in the entrepreneurial process, which
involves more than just problem solving in a typical management position. An
entrepreneur must find, evaluate, and develop an opportunity by overcoming the forces
5
that resist the creation of something new. The process has four distinct phases: (1)
identification and evaluation of the opportunity, (2) development of the business plan, (3)
determination of the required resources, and (4) management of the resulting enterprise.
Identify and Evaluate the Opportunity
Opportunity identification and evaluation is a very difficult task. Most good business opport
unities do not suddenly appear, but rather result from an entrepreneur’s alertness to possibiliti
es, or in some case, the establishment of mechanisms that identify potential opportunities. Fo
r example, one entrepreneur asks at every cocktail party whether anyone is using a product
that does not adequately fulfill its intended purpose. This person is constantly looking for a
need and an opportunity to create a better product.
The assessment of the opportunity requires answering the following questions:
 What market need does it fill?
 What personal observations have you experienced or recorded with regard to that mar
ket need?
 What social condition underlies this market need?
 What market research data can be marshalled to describe this market need?
 What patents might be available to fulfill this need?
 What competition exists in this market? How would you describe the behaviour of thi
s competition? What does the international market look like?
 What does the international competition look like?
 Where is the money to be made in this activity?
Developing a Business Plan
A good business plan must be developed in order to exploit the defined opportunity. This is
a very time-consuming phase of the entrepreneurial process. An entrepreneur usually has
not prepared a business plan before and does not have the resources available to do a good
job. A good business plan is essential to developing the opportunity and determining the
resources required, obtaining those resources, and successfully managing the resulting
venture.
Determine the Resources Required
The resources needed for addressing the opportunity must also be determined. This
process starts with an appraisal of the entrepreneur’s present resources. Any resources
that are critical need to be differentiated from those that are just helpful. Care must be
taken not to underestimate the amount of variety of resources needed (including human
resources). The downside risks associated with insufficient or inappropriate resources
6
should also be assessed.
Establish and Manage the Enterprise

After resources are acquired, the entrepreneur must use them to implement the business plan.
The operational problems of the growing enterprise must also be examined and effectively m
anaged. This involves implementing a management style and structure, as well as determinin
g the key variables for success. A control system must be established, so
that any problem areas can be quickly identified and resolved. Some entrepreneurs have
difficulty managing and growing the venture they created.
HND 2020. Q2.

Identify and explain the stages that are involve in the entrepreneurial process (10mks)
1.4 Type of Entrepreneurs

Researchers who have studied entrepreneurial behaviour suggest that there are different types
of entrepreneurs. The various types of entrepreneurs are classified on certain parameters.
Some important classifications are described below:
1. On the Basis of Economic Development: Clarence Danhof classified entrepreneurs into
four groups on the basis of economic development.
A. Innovating Entrepreneurs: This type of entrepreneurship is characterized by aggressive
assemblage of information and the analysis of results deriving from novel combination of
factors of production. Entrepreneurs falling in this class are generally aggressive in
experimentation and exhibited shrewdness in putting attractive possibilities into practice.
They are the entrepreneurs who have creative and innovative ideas of starting a new business.
An innovating entrepreneur sees the opportunity for introducing a new technique or a new
product or a new market. He may raise money to launch an enterprise, assemble the various
factors, and choose top executives and the set the organization going. Schumpeter’s
entrepreneur was of this type. Innovative entrepreneurs thus, results in the creation of
something new. They are the contributors to the economic development of a country.
Innovating entrepreneurs are very commonly frond in undeveloped countries.
B. Adoptive or Imitative Entrepreneur: There is a second group of entrepreneurs generally

referred as imitative entrepreneurs. The imitative entrepreneurs copy or adopt suitable
innovations made by the innovative entrepreneurs. They does not innovate the changes
7
himself. They only imitates technology innovated by others. Such entrepreneurs are
particularly important in developing courtiers because they contribute significantly to the
development of such economies. Imitative entrepreneurs are most suitable for the developing
regions because in such countries people prefer to imitate the technology, knowledge and
skill already available in more advanced countries. In highly backward countries there is
shortage of imitative entrepreneurs also.
HND 2022: Differentiate innovators and imitators
C. Fabian Entrepreneur: The third type is Fabian entrepreneur. By nature these

entrepreneurs are shy and lazy. This type of entrepreneurs have neither will to introduce new
changes nor desire to adopt new methods of production innovated by the most entrepreneurs.
They follow the set procedures, customs, traditions and religions. They are not much
interested in taking risk and they try to follow the footsteps of their predecessors. Usually
they are second generation entrepreneur in a business family enterprise.
D. Drone Entrepreneur: The fourth type is Drone entrepreneurs who refuse to copy or use
opportunities that come on their way. They are conventional in their approach and stick to
their set practices products, production methods and ideas. In such cases the organization
loses market, their operations become uneconomical and they may be pushed out of the
market.
2. On the Basis of Type of Business: Under this category we can classify entrepreneurs as
described below:
A. Business Entrepreneurs: They are the entrepreneurs who conceive an idea for a new
product or service and then create a business to materialize their idea into reality. When they
establish small business units they are called small business entrepreneurs. In a majority of
cases, entrepreneurs are found in small trading and manufacturing business.
Trading Entrepreneur: There entrepreneurs undertake trading activities and are not
concerned with the manufacturing work. They identifies potentiality of their product in
markets, stimulates demand for their product line among buyers.
C. Industrial Entrepreneur: Industrial entrepreneur is essentially a manufacturer who
identifies the needs of customers and creates products or services to serve them. He is
product-oriented who starts through an industrial unit to create a product like electronic
industry, textile unit, machine tools.
8
D. Corporate Entrepreneur: These entrepreneurs used his innovative skill in organizing

and managing a corporate undertaking. A corporate undertaking is a form of business
organisation which is registered under some statute or Act like a trust registered under the
Trust Act, or a company registered under the Companies Act. These corporate work as
separate legal entity. He is thus an individual who plans, develops and manages a corporate
body.
E. Agricultural Entrepreneur: Agricultural entrepreneurs are those who undertake
agricultural activities as through mechanization, irrigation and application of technologies to
produce the crop.
3. According to the Use of Technology: The application of new technology in various

sectors of the national economy is essential for the future growth of business. We may
broadly classify these entrepreneurs on the basis of the use of technology as follows:
A. Technical Entrepreneurs: These entrepreneurs may enter business to commercially

exploit their inventions and discoveries. Their main asset is technical expertise. They raise
the necessary capital and employ experts in financial, legal- marketing and other areas of
business.
Non-technical Entrepreneur: Non-technical entrepreneurs are those who are not concerned
with the technical aspects of the product or service in which they deal. They are concerned
only with developing alternative marketing and promotional strategies for their product or
service.
C. Professional Entrepreneur: Professional entrepreneur is an entrepreneur who is
interested in establishing a business but does not have interest in managing it after
establishment.
4. According to Motivation: Motivation is the main force that promotes the efforts of the
entrepreneur to achieve his goals. An entrepreneur is motivated to achieve or prove his
excellence in their performance. According to motivation we can classify entrepreneur as:.
A. Pure Entrepreneur: A pure entrepreneur is the one who is motivated by psychological
economical, ethical considerations. He undertakes an entrepreneurial activity for his personal
B. Induced Entrepreneur: This type of entrepreneur is one who induced to take up an
entrepreneurial task due to the policy reforms of the government that provides assistance,
9
incentives, concessions and other facilities to start a venture.satisfaction in work, ego or

status.
C. Motivated Entrepreneur: New entrepreneurs are motivated by the desire for self-
fulfillment.
5. According to Growth: The industrial units are identified as high growth, medium growth
and low growth industries and as such we have ‘Growth Entrepreneur’ and ‘Super Growth
Entrepreneur.’
A. Growth Entrepreneur: He necessarily takes up a high growth industry and chooses an
industry which has sustained growth prospects.
B. Super-Growth Entrepreneur: This category of entrepreneurs is those who have shown
enormous growth of performance in their venture. The growth performance is identified by
the high turnover of sales, liquidity of funds, and profitability.
6. According to Entrepreneurial Activity: Based on entrepreneurial activity, entrepreneurs

are classified as novice, serial, and portfolio entrepreneur.
A. Novice Entrepreneur: A novice is someone who has started his/her first entrepreneurial
venture. A novice entrepreneur is an individual who has no prior business ownership
experience as a business founder, inheritor of a business, or a purchaser of a business.
B. A Serial Entrepreneur: A Serial Entrepreneur is someone who is devoted to one venture
at a time but ultimately starts many.
C. Portfolio Entrepreneur: A portfolio entrepreneur is an individual who retains an original
business and builds a portfolio of additional businesses through inheriting, establishing, or
purchasing them.
7. Other Entrepreneurs:
Social entrepreneurs
A. First-Generation Entrepreneurs:
B. Modern Entrepreneurs:
C. Women Entrepreneurs:
E. Habitual Entrepreneurs:
F. Lifestyle Entrepreneurs:
Etc
10
1.5 Entrepreneur vs. Entrepreneurship

The term entrepreneur is often used interchangeably with “entrepreneurship”. But
conceptually, they are different yet they are just like the two sides of a coin. Entrepreneur and
entrepreneurship are co-related. The relationship between entrepreneur and entrepreneurship
is given in the table below
Assignment 1
State and explain the functions and roles of entrepreneurs
11
CHAPTER ONE
SMALL BUSINESS
Small business is a business which is independently owned and operated, not dominated in its
field of operation and meets certain standard of number of employee and capital. In general
there are two approaches to define a small business; measures of the size and economic/
control Criteria.
Some of the criteria’s to measure the size are
Number of employees: - for example in Ethiopian case it is Less than 30 employees (6-30). In
cameroon micro firms are 1-9 employees and small firms are 10-50 employees.
For the size criteria, enterprises are categorised into micro, small, medium and large
enterprise.
Micro Enterprise
It is a small business which sells goods and services to a local area or a local market. It
employs less than 10 persons generally and it is geographically restricted. Micro enterprises
are mostly found in developing country and economy, like Cameroon. It creates jobs in the
formal sector and micro enterprises aim to fill in the gap. They help the economy by not only
creating jobs but also lowering production costs, increasing purchasing power and providing
convenience. In fact, the government encourages micro enterprises, especially in low-income
areas in order to stimulate production. Examples the local tailor shop in your area may be called
a micro enterprise.
Small Enterprise
Small enterprise is a business which is independently owned and operated, not dominated in
its field of operation and meets certain standard of number of employee and capital. It
employs 10-49 employees. Small enterprises are important jobs creators, contributing to the
social stability of the area in which they activate. The SEs sector is the main source of
forming the middle class with a decisive role in maintaining the social-political stability in a
country. They increase the competitive state of the market, being sources of competitiveness,
making a better satisfaction of consumers needs. Examples here include village industries,
ancillary industries
12
Medium size Enterprise
Medium size enterprises (MEs) are businesses that maintain revenues, assets or a number of

employees that ranges from 50 to 249. Each country has its own definition of what constitutes
a small and medium-sized enterprise (SME). Small and mid-size enterprises (SMEs) play an
important role in the economy, employing vast numbers of people and helping to shape
innovation. Governments regularly offer incentives, including favourable tax treatment and
better access to loans, to help keep them in business. Examples are manufacturers,
wholesalers, engineers, transport companies etc
Large Enterprise
A large enterprise is an enterprise that employs from 250 employees and above. The
advantage that large firms have is that typically, they are more established and have greater
access to funding. They also enjoy more repeat business, which generates higher sales and
larger profits than smaller scale companies. As the owner of a small business, studying the
advantages of large firms can help you determine the optimal size for your company.
Examples in Cameroon are Guinness SA.
HND 2021 differentiate the type of enterprise according to size (10mks)
The importance and role of small businesses in an economy

The SEs have beneficial effects for the economic system through the roles they fulfil. Among
these, there are:
 Small enterprises are important jobs creators, contributing to the social stability of the
area in which they activate
 The SEs sector is the main source of forming the middle class with a decisive role in
maintaining the social-political stability in a country.
 They increase the competitive state of the market, being sources of competitiveness,
making a better satisfaction of consumers needs.
 The SMEs contribute in forming goods and services. Thus, they help in forming the
GDP and increasing the national exports and investitions.
 It combines factors of production that, in other conditions, probably wouldn’t be used,
like local resources or secondary products of big companies.
13
 The fact that SMEs are managed directly by their owners makes the system of
decision being simpler, depending on the talent and managerial abilities of them.
 Therefore, small and medium-sized enterprises show a higher flexibility and strength
in periods of secession, given by the capacity of adaptation on the changing market.
 They ensure the potential of future big companies development through the processes
of growth on which they take part.
 Focusing on innovative processes, both in technology and in management is another
important feature of SMEs.
 Small and medium-sized enterprises can easily integrate in a regional economical
network that contributes to development of that area and reduce the unemployment.
 Their low capacity contributes to the diminuation of bureaucratic practices and
avoidance of depersonalization of human relations because documents shorting and
information network in the company.
 Balances regional development
 Innovation: the commercial application of invention
 Imitating role
The features of small businesses

The role and importance of small and medium-sized enterprises derive from certain features
making them being more than a thumbnail of big enterprises, such as:
 Offering new jobs and being a propitious climate for employees perfectioning which
achieve the experience needed for transferring in large enterprises where the
motivation is bigger.
 The favouring of innovation and flexibility. Many new products and technological
processes were made in small and medium-sized enterprises because the big
enterprises tend to focus their efforts on improving old products, despite having
strong research departments, which they want to produce in larger quantities obtaining
general advantages of the dimensional economy. Big enterprises don`t have the same
flexibility as small and medium-sized enterprises.
 Stimulation of the competition- small enterprises (SEs) have an active role in creating
a new healthier and more competitive economy.
14
 Helping the big enterprises in certain activities which could be better supplied by
SEs. Thereby, if these enterprises would be immediately dissolved, big enterprises are
forced to unfold more activities that are not efficient for them.
 Producing goods and services efficiently. The fact that SMEs continues to survive in a
competitive economical environment is proof of their efficient activity.
 Personal character
 Limited scale of operation
 Indigenous resources
 Labor intensive
 Local area of operation
 Simple organization
Categories or types of Small Business
On the basis of capital invested, small business units can be divided into the following
categories:
Small Scale Industry
They invest in fixed assets of machinery and plant, which does not surpass than one crore.
For export improvement and modernization, expenditure ceiling in machinery and plant is
five crores.
Ancillary Small Industrial Unit
This industry can hold the status of an ancillary small industry if it supplies a minimum 50
per cent of its product to another business, i.e. the parent unit. They can produce machine
parts, components, tools or standard products for the parent unit.
Export Oriented Units
This industry can possess the status of an export-oriented unit if it exports exceeds 50 per
cent of its manufactures. It can opt for the compensations like export bonuses and other
grants awarded by the government for exporting units.
Small Scale Industries Owned by Women
15
An enterprise operated by women entrepreneurs in which they alone or combined share

capital minimum of 51 per cent. Such units can opt for the special grants from the
government, with low-interest rates on loans, etc.
Tiny Industrial Units
It is an Industrial or a company whose expenditure on machinery and plant does not exceed
Rs. 25 lakhs.
Small Scale Service and Business
It is a fixed asset investment on machinery and plant excluding land and building
Village Industries
The industries which are located in rural areas and manufacture any product performs any
service with or without the utilization of power is called village industries. They have fixed
investments on capital as per head, workers, and artisan.
Cottage Industries It is also known traditional or rural industries. These industries are not
covered by the capital investment criterion. Cottage industries are characterized by the
following features: These are organized by a single, with private resources. Use family labour
and local talent. Simple instruments are used. Small capital investment is involved. Simple
products are made and Indigenous technology is utilised.
Role of Small Enterprises in Economic Development
SEs plays an important role in the economic development of a country. Their role in terms of
production, employment generation, contribution to exports & facilitating equitable
distribution of income is very critical. The small and medium size enterprises (SMEs)
broadly consists of: The traditional cottage & household industries such as village industries,
handicrafts, and coir industries and Modern SMEs.
The traditional village and cottage industries as distinguished from modern SMEs are mostly
unorganized and located in rural areas and semi urban areas. They normally do not use power
operated machines/appliances & use relatively lower levels of investment & technology. But
they provide part time employment to a very large number of poorer sections of the society.
They also supply essential products for mass consumption & exports. The modern SMEs are
mostly defined in terms of the size of investment & labour force. The industries
16
(Development & Regulation) defines, SMEs having less than 50 workers with the aid of
power or less than 50 workers with the aid of power.
Specific Contributions of Small Scale Sector:
1. Small scale sector performs to the manufacturing sector and GDP as a whole is significant
in terms of its share in total value added.
2. SMEs can play a role in mitigating the problem of imbalance in the balance of payment
accounts through its export promotion.
3. While the large scale industries are expected to increase the inequities of income and
concentration of wealth, SMEs are expected to help widespread equal distribution of income
and wealth.
4. Small sector may provide opportunities to a large number of capable and potential
entrepreneurs who are deprived of appropriate opportunities.
5. It can help to release scarce capital towards productive use.
6. SMEs can reap the benefits of lean production and can find new cost-efficient techniques
of lean production.
7. As small units can use resources more efficiently to the full capacity without any wastage,
they may have higher allocation efficiency.
8. As the element of risk is low in SMEs, more resources will be employed by large number
of labor force.
9. They create jobs for the population
10. They increase infrastructural development of the country
HND 2022
Identify five (5) roles of entrepreneurship to the economic development of a country

(15mks)
Entrepreneurship and innovation

Innovation is the creation, development and implementation of a new product, processes and
services, with the aim of improving efficiency, effectiveness or competitive advantage.
17
The lines between these source areas of innovative opportunities are blurred, and there is
considerable overlap between them.
The life cycle of a small company
There is an interesting difference between the life cycle of a person and the life cycle of a
business. While there are some factors you cannot control, for the most part, you are
completely responsible for what happens in and with your business. Your business can grow
– or not – depending on how much planning and effort you put into it.
Your small business, like every business, will have its own life cycle. Some businesses start
fast, grow fast, and fail or succeed fast. Others start small and stay small, by design. Many
small businesses start slowly, then build fast, grow faster, buy other companies, or get sold
and melded into larger organizations. Most every major corporation in our country started as
a small business, much like the one you are currently planning.
Begin by learning about the typical life cycle stages of a small business.
1. An Idea, Not a Reality

A business idea is a concept that can be used for financial gain that is usually centred on
product or service that can be offered for money. This is the time from “Ahhh, I’ve got an
idea” to “New business plan complete, funding in place.” It can last a few months or as long
as a couple of years. This is the stage you’ve just completed. You took your idea and studied
it, analyzed it, refined it, and developed it to secure funding. Now, you’re ready to start doing
business. Challenge: Firm up your idea so it is workable. Secure funding. Collect all
18
resources needed to open business. Establish contracts to formalize partnership, and

ownership structure. Opportunity: Use creativity. Assemble a team.
2. Start-Up
This is where you are now. Your company exists as a legal entity, has its own bank account,
offices and equipment, one or more employee and perhaps, a management team. You are
enthusiastic and ready to do what needs to be done to get the business moving.
Think of the start-up stage as a huge steamroller. It requires a driver plus other resources to
be sure it works efficiently: mechanics to keep the engine working, fuel, laborers to prepare
the road in front of it, people to keep traffic away from its path. Challenge: Develop the
product or service. Be prudent and use resources, particularly financial ones, carefully.
Opportunities: Now is the time to test your business plan assumptions about the product or
service, target customers, demand, and costs of doing business.
3. Growing, Growing, Grown!
When you’re planning a new business, growth of the business is one of the main goals so it
seems strange that it could actually be a problem. Yet, it can be. Sometimes, growth can
create serious problems that may cause the business to collapse. Review the following
scenarios – are they familiar to you? Might they been possible roadblocks in your business?
Develop preventive strategies as soon as possible to avoid situations that might inhibit
efficiency and productivity in running your business. Challenge: The business needs to grow,
but growth requires expanded resources: larger facilities, more management team members,
expanded accounting and management systems, and more employees to record sales and
handle shipping. Opportunities: Sales growth is good, income is steady, cash flow is
generally positive.
4. A Comfort Zone, Until the Next Growth Spurt or Take-off
In this stage the key problems are how to grow rapidly and how to finance that growth. The
most important questions, then, are in the following areas: Delegation. Can the owner
delegate responsibility to others to improve the managerial effectiveness ? Cash. Will there
be enough to satisfy the great demands growth brings. Challenge: Decide if the business has
reached a plateau or the end goal. How is the cash flow? Opportunities: Consider your
future opportunities and some of the questions you’ll want to begin asking. Should I consider:
Continuing to grow my company through new product development? Continuing to work at
increasing sales? Buying another business?
19
Resource Maturity
The greatest concerns of a company entering this stage are, first, to consolidate and control
the financial gains brought on by rapid growth and, second, to retain the advantages of small
size, including flexibility of response and the entrepreneurial spirit.
Small business sector in Cameroon

By 2030, Cameroon plans to have a healthy, competitive and diversified manufacturing
sector able to reverse the current foreign trade structure (exports and imports) (MINEPAT,
2010, p. 51) by exporting more manufactured goods than primary products (Sevaistre, 2010) .
Given that the best economies are those in which governments have introduced rules to
facilitate market interactions without necessarily inhibiting business development (World
Bank, 2013). Local business development once again became a priority for the Cameroon
government in the early 2000s, when a number of structures were created to transform
political will into reality. They include two government ministries, the Ministry of SMEs,
social economy and handicraft (MINPMEESA) and the Ministry of Industry (MINIMIDT).
The mission of the former is to prepare, implement and assess government policy for the
development of small and medium-sized enterprises, the social economy and the craft sector.
They were followed some years later by the Investment Promotion Agency (API; presidential
decree n° 2005/310 dated September 1, 2005), the SME Promotion Agency (APME, created
in April 2013) and the National SME Bank (created in 2013).
In a Cameroonian context, small businesses are grouped in terms of size as seen below:
In Cameroon, there is an important breeding ground for small and medium-sized businesses
in most industries. These small companies, which are the main providers of jobs in the
country, have evolved in time in an environment where their weaknesses were not
sufficiently considered. Cameroonian SMEs make up40% of Cameroon’s GDP.
Challenges or factors affecting small businesses in Cameroon

These factors are economic political and sociocultural;
Economic factors
20
a. Inflation
Inflation influences entrepreneurship. Infact a high inflation rate means that value of wealth
decreases. Consequently, the purchasing power decreases. Consumers tighten up their belts
and thus, there are fewer opportunities for entrepreneurs. According to the National Statistics
Institute (INS), prices will continue to rise in Cameroon in 2021
b. Interest Rates
Low interest rates ease access to capital and make available resources required for private
investment. In the Sub-Saharan region, since banking institutions dominate the financing of
the economy, debt financing remains the main source of funding for entrepreneurs.
However, entrepreneurs generally face high lending rates and they cite access to capital as the
second constraint when they want to develop their activity. This limit both consumption and
the amount of capital that can be raised by business ventures.
c. Unemployment
Unemployment has a two-sided effect on small business success. In fact, when there is high
unemployment rate, people are pushed into entrepreneurship for survival. This helps to
reduce the number of unemployed, but it can also lead to limited earnings and limited
markets. The current enthusiasm about entrepreneurship in Cameroon is all about reducing
unemployment rates through self-employment. Unemployment rate in Cameroon decreased
to 4.20% in 2017.
d. Taxation
Many studies present taxation as one of the key factors inhibiting SME development. If tax
rates are high, they drastically reduce the profit incentive. According to the Laffer curve, ‘too
much taxes kill taxes.’ So, a good taxation system can serve as a catalyst to small business
dynamism and development. In the CEMAC zone, high taxes prevent
Cameroonian SMEs from growing.
e. Market research, which entails identifying and meeting needs of a targeted group of
people, is still limping in the small business sector. Little or no market research is conducted
by some small business owners. This leads to their early business failure
Political Factors
f. The Judiciary
It is vital for judiciary institutions to be reliable and independent. This provides security for
contracts, investments, and persons. They also serve as a legal protection against the violation
of intellectual property rights, enforce contractual obligations between parties and implement
competition laws.
21
g. Bureaucracy and corruption

There is a high level of bureaucracy in Cameroon. This bureaucracy is generally linked with
corruption. It increases business costs and force entrepreneurs to offer uncompetitive
products and services. Tax inspectors, police officers, hygiene and epidemiological officers,
officials from ministries and other public bodies.
h. Political Instability
There is a relationship between business and politics. Business cannot develop without the
understanding and support of the politicians. Similarly, business strategy and business
activities influence politics and the Government. It is in the interest of businessmen to ensure
that the Government is stable and helpful to business. Government should also take the
business community into confidence while preparing and implementing plans for the
country’s development. Current political instability in Cameroon affect entrepreneurship.
Socioeconomic factors
i. culture of the people. Cultural differences may require business owners to master more
than one language, to trade easily. For example, an Anglophone doing business in Far North
needs to hurdles related to borrowing also imply, and so many small businesses shy away
from getting loans to further develop their businesses.
j. The small nature of small businesses pushes them to use cheap and less efficient
technology. For example, most small business owners don’t use computers due to the lack of
expertise. To improve on their service, they need to gain skills on how to use them, to
facilitate business growth.
k. The location choice of enterprises is an important factor as it determines how accessible

a business could be. Choices made by small business owners in Cameroon concerning what
sector to invest in and where to locate are not very suitable.
HND 2020. What are some the challenges to entrepreneurship in Cameroon and how can
you overcome them as an entrepreneur? (10mks)
Small Business Priorities in Cameroon

As small business owners, it is important to set business priorities straight and clear.
22
23
CHAPTER THREE
ENTREPRENEURIAL ORGANISATION
After identifying the business in any field e.g., Insurance, it is necessary then to have a legal
entity to be known in the society. The legal entity can be in any form of a business
organization. The various forms of organization are as follows:
1) Sole proprietorship
2) Partnership
3) Co-operative Society
4) Joint stock company (Private and Public limited companies)
These are explained in brief as follows:
SOLE PROPRIETORSHIP
The sole proprietorship is a form of business that is owned, managed and controlled by an
individual. He has to arrange capital for the business and he alone is responsible for its
management.
Features of Sole Proprietorship:
The important features of a sole-proprietary organization
include the following:
(i) Individual Initiative: One person is the owner in a sole- proprietary form of organisation.
(ii) Risk Bearing: The proprietor is the sole beneficiary of profits in this form organisation.
If there is a loss he alone has to bear it.
(iii) Management and control: Management and control of this type of organisation is the
responsibility of the sole proprietor.
(iv) Minimum government regulations: The government does not interfere with the
working of the sole proprietorship organisation.
(v) Unlimited liability: The sole proprietor has to bear the losses and is responsible for the
liabilities of the business. If the business assets are not sufficient to meet the liabilities, he
may also have to sell his personal property for that purpose.
(vi) Secrecy: All important decision taken by the owner himself. He keeps all the business
secrets only to himself.
Merits of Sole Proprietorship
Easy formation
Better Control
24
Sole beneficiary of profits

Benefits of small-scale operations
Inexpensive Management
Limitations of Sole Proprietorship:

Limitation of management skills
Limitation of Resources
Unlimited liability
Lack of continuity
PARTNERSHIP
Partnership is an association of persons who agree to combine their financial resources and
managerial abilities to run a business and share profits in an agreed ratio.
Features of Partnership:
(i) Existence of an agreement: Partnership is formed on the basis of an agreement between
two or more persons to carry on business who laid down in a document known as Partnership
Deed.
(ii) Engagement in business: A partnership can be formed only on the basis of a business
activity.
(iii) Sharing of profits and losses: In a partnership firm, partners are entitled to share in the
profits and are also to bear the losses, if any.
(iv) Agency relationship: The partnership business may be carried on by all or any of the
partners acting for all.
(v) Unlimited Liability: The liability of partners is unlimited as in the case of sole
proprietorship.
(vi) Common Management: Every partner has a right to take
part in the running of the business.
(vii) Restriction on transferability of share: No partner can transfer his share in partnership
to any other person. He may, however, do so with the consent of all other partners.
Merits of Partnership
Ease in formation
Pooling of financial resources
Pooling of managerial stalls
Balanced business decisions
25
Sharing of risks
Limitations of Partnership
Uncertainty of existence
Risks of implied authority
Risks of disharmony
Difficulty in withdrawal from the firm
Difficulties of expansion
CO-OPERATIVE ORGANISATION
A co-operative form of business organization is different from other forms of organization. It
is a voluntary association of persons for mutual benefit and its aims are accomplished through
self help and collective effort. The main principle underlying a cooperative organization is
mutual help, i.e., each for one and all for each.
Type of Co-operative Societies
Main types of co-operative societies are:
1. Consumers’ co-operative societies.
2. Producers’ co-operative societies.
3. Co-operative marketing societies.
4. Co-operative credit societies.
5. Co-operative farming societies.
6. Co-operative housing societies.
Merits of Co-operative Organisations

Easy to form
Open membership
Democratic management
Limited liability
Stability
Government patronage
Limitations of Co-operative Organisations

Limited capital
Inefficient management
26
Absence of motivation
Differences and factionalism among members
COMPANY
The company form of organisation is considered to be most suitable for organising business
activities on a large scale as it does not suffer from the limitations of capital and management
of other forms of organisation.
A company is defined as a voluntary association of persons having separate legal existence,
perpetual succession and a common seal. There are two types; public limited and private
limited company
Features of a Company
Registered body:
Distinct legal entity
Artificial person
Perpetual succession
Limited liability
Transferability of shares
Sources of capital for Businesses
Financing is needed to start a business and ramp it up to profitability. The different sources
for finance in a business are;
Equity Financing
Equity financing means exchanging a portion of the ownership of the business for a financial
investment in the business. The ownership stake resulting from an equity investment allows
the investor to share in the company’s profits. Equity involves a permanent investment in a
company and is not repaid by the company at a later date.
Personal Savings
The first place to look for money is your own savings or equity. Personal resources can
include profit sharing or early retirement funds
Life insurance policies - A standard feature of many life insurance policies is the owner’s
ability to borrow against the cash value of the policy. This does not include term insurance
because it has no cash value.
Home equity loans - A home equity loan is a loan backed by the value of the equity in your
home. If your home is paid for, it can be used to generate funds from the entire value of your
home.
27
Friends and Relatives Founders of a start-up business may look to private financing sources
such as parents or friends. It may be in the form of equity financing in which the friend or
relative receives an ownership interest in the business.
Venture Capital Venture capital refers to financing that comes from companies or individuals
in the business of investing in young, privately held businesses. They provide capital to
young businesses in exchange for an ownership share of the business. Venture capital firms
usually don’t want to participate in the initial financing of a business unless the company has
management with a proven track record.
Government Grants The governments often have financial assistance in the form of grants
and/or tax credits for start-up or expanding businesses.
Equity Offerings In this situation, the business sells stock directly to the public.
Banks and Other Commercial Lenders Banks and other commercial lenders are popular
sources of business financing.
Bonds
Bonds may be used to raise financing for a specific activity. They are a special type of debt fi
nuancing because the debt instrument is issued by the company.
Entrepreneurial strategies
Entrepreneurship involves identifying and exploiting entrepreneurial opportunities. However,
to create the most value entrepreneurial firms also need to act strategically. This calls for an
integration of entrepreneurial and strategic thinking. Strategic entrepreneurship is
entrepreneurial action with a strategic perspective. In short, strategic entrepreneurship is the
integration of entrepreneurial (i.e., opportunityseeking behavior) and strategic (i.e.,
advantageseeking) perspectives in developing and taking actions designed to create wealth.
There are several domains in which the integration between entrepreneurship and strategic
management occurs naturally with theoretical roots in economics.
Starting a new company,
Starting a business takes talent, determination, hard work, and persistence. It also requires a
lot of research and planning. Before starting your business, you should appraise your
strengths and weaknesses and assess your personal goals to determine whether business
ownership is for you.
Questions to Ask Before You Start a Business
 What, exactly, is my business idea? Is it feasible?
28
 What industry do I want to enter?

 What will be my competitive advantage?
 Do I want to start a new business, buy an existing one, or buy a franchise?
 What form of business organization do I want?
After making these decisions, you’ll be ready to take the most important step in the entire
process of starting a business: you must describe your future business in the form of a
business plan
starting from Scratch
The most common—and the riskiest—option is starting from scratch. This approach lets
you start with a clean slate and allows you to build the business the way you want. You select
the goods or services that you’re going to offer, secure your location, and hire your
employees, and then it’s up to you to develop your customer base and build your reputation.
Buying an Existing Business
If you decide to buy an existing business, some things will be easier. You’ll already have a
proven product, current customers, active suppliers, a known location, and trained employees.
You’ll also find it much easier to predict the business’s future success.
Getting a Franchise
Lastly, you can buy a franchise. A franchiser (the company that sells the franchise) grants
the franchisee (the buyer—you) the right to use a brand name and to sell its goods or
services. Franchises market products in a variety of industries, including food, retail, hotels,
travel, real estate, business services, cleaning services, and even weight-loss centers and
wedding services.
HND 2020; Define franchise
Buying an existing business and franchising,
The entrepreneurial experience always involves risk. One way to minimize the risk of
entrepreneurship is to purchase an existing business rather than to create a new venture.
mart entrepreneurs conduct thorough research before negotiating a purchase price for a
business. The following questions provide a good starting point:
Is this the type of business you would like to operate?
Will this business offer a lifestyle that you find attractive?
What are negative aspects of owning this type of business?
Are there any skeletons in the company closet that might come back to haunt you?
Is this the best market and the best location for this business?
29
Do you know the critical factors that must exist for this business to be successful?
Do you have the experience required to operate this type of business? If not, will the current
owner be willing to stay on for a time to teach you the “ropes”?
If the business is profitable, why does the current owner(s) want to sell? Can you verify the
current owner’s reason for selling?
If the business is currently in decline, do you have a plan to return the business to
profitability?
How confident are you that your turnaround plan will work?
Have you examined other similar businesses that are currently for sale or that have sold
recently to determine what a fair market price for the company is?
Advantages of buying an existing business
 Successful businesses often continue to be successful
 Leveraging the experience of the previous owner.
 The turn-key business
 Superior location.
 Employees and suppliers are in place
 Established trade credit
Disadvantages of Buying an Existing Business
 Cash requirements
 The business is losing money
 Paying for ill will
 Current employees are unsuitable
Franchising
Franchising is a concept whereby independent entities embark upon mutual cooperation, as a
part of which the franchisor (as the system’s organiser) transfers onto the franchisees, in
exchange for an appropriate fee, the recipe for a particular business activity and how it should
be operated. The relationships between those entities are based on a contract and lead to the
creation of a franchise network, constituting of entities that are independent legally, in terms
of ownership and financially, who are at the same time homogeneous from the point of view
of those purchasing offered products or services
Family Business
What is unique in family business or what distinguishes family firms from other types of
organisations is the influence of family on the firm. Note that the distinction between family
30
and non-family firm is not a matter of the size of the business , nor whether it is privately or
publically held.
Thus, the term family business conjures up different meanings to different people. While
some view it as traditional business, others consider it as community business, and still others
mean it as home-based business. Family firms deserve an approach to management that takes
into consideration what makes them unique: the fact that they are influenced by a particular
type of dominant coalition, a family that has a particular goals, preferences, abilities and
biases.
Types of Family Business:
It is not easy to distinguish between a family and non-family firms. Scholars have tried to
distinguish between the two on the basis of some cut-off level for family involvement in a
firm for example in the dimension of ownership or management. .As such, there are various
definitions of family business given looking at the different aspects of family business. For
the convenience of understanding, all definitions have been broadly classified into two types
based on the structure and process involved in family business.
Structured Definitions:
(i) Ownership Control
These definitions are given based on ownership and/ or management of family business.
Majority stake is required to control ownership or a decisive influence on a firm. But it is not
a necessary condition because control is possible even without a majority ownership stake. In
public limited companies a significant minority ownership may be enough to control strategic
decisions in a firm (such as appointment of Board Members and top management,
acquisition, disinvestment, restructuring etc.). An ownership stake of 20 to 25% is sufficient
for a share holder to have a decisive influence on strategic decisions.
(ii) Family Management:
Some researchers argue that a broad definition of a family business should incorporate some
degree of control over strategic decisions by the family and the intention to leave the business
in the family. Shankar and Astrachan (1996) note that the criteria used to define a family
business can include: Percentage of ownership; Voting control; Power over strategic
decisions; Involvement of multiple generations; and Active management of family members.
31
Some Scholars argue that firm only qualifies as a family business if it is family managed as
well as family owned. “Single family effectively controls firm through the ownership of
greater than 50 per cent of the voting shares; a significant portion of the firm’s senior
management is drawn from the same family.” — Leach et al. The CEO position may be
within the family in small firms. But in large firms it is not the case the CEO may be from
outside the family members also.
(iii) Transgenerational Focus:
There is a good deal of literature suggesting that what makes a family firm is its
transgenerational focus. That is, the wish to pass the firm on to future family generations
separated family firms from non family firms. The transgenerational outlook is indeed
important, as it represents a critical feature distinguishing family firms from other types of
closely held companies.
Some argue that, regardless of the ownership or management structure, a business can only
qualify as a family firm if it has remained under family control beyond the founding
generation.
Process Definitions:
These definitions are based on how the family is involved in the business.
(iv) Later Generational Control
The argument that firms held by the founding generation are not family firms is not
universally accepted. Many would argue that firms founded with the involvement of family
members or firms held by the founding generation with the intent of passing control on to
some future generation should qualify as family firms as well.
“Family business is a firm which has been closely identified with at least two generations of a
family and when this link has had a mutual influence on company policy and on the interests
and objectives of the family.” — R. G. Donnelley
In sum and substance, a family business can simply be defined as a business one that includes
two or more members of a family with financial control of the company. In other words, a
family business is one actively owned and/or managed by more than one member of the same
family.
32
In fact the simplification may cause some problems:
1. Overlooking the heterogeneity of family firms
2. Simplifying the definition of family
3. Underestimating the value of studying family involvement along various dimensions.
Characteristics:
The definitions of family business given above indicate the following characteristics of
family business:
a. A group of people belonging to one or more families run one business enterprise.
b. Position in family business is influenced by the relationship the family members enjoy
among themselves.
c. Family exercises control over business in the form of ownership or in the form of
management of the firm where family members are employed on key positions.
d. Family exercises the influence on the firm’s policy direction in the mutual interest of
family and business.
e. The succession of family business goes to the next generation.
Entrepreneurial venture
Entrepreneurial venture can be defined as an organisation that places innovation and

opportunism at its heart in order to produce economic or social value. It can also be seen as a
as the concept of starting a small business to offer a product or service with the intention of
disrupting an industry or maximizing profit. Nevertheless, entrepreneurial ventures are often
highly correlated with entrepreneurial characteristics.
33
CHAPTER FOUR
BUSINESS PLAN
A Business Plan is a document that describes in detail how you propose to implement and ma
nage your business from Startupto Success. A business plan builds upon the results of the ini
tial analysis of your business idea and the findings and observations described in your formal
business proposal. It describes how you move from what you propose to how you start and g
row your business.
Some of the benefits of creating a formal plan for your business are:
 Provides a multi-year strategic direction for the business.
 Sets out a clear path to your short term and long term business goals.
 Allows you to anticipate future strengths, weaknesses, opportunities, and threats
to your business and create strategies to counter them.
 It provides a framework for resource and financial controls.
Becomes a useful tool for communicating with bankers, other lenders, suppliers
and customers to demonstrate that you have a solid plan and therefore should be support.
Business plans vary in style and content based on the type of business you plan to start.
But most business plans include the following:
1. Executive Summary:
In this section, you should provide an overview of the most important selling points of your b
usiness idea. Keep it succinct and to the point: a good way to think about it is that this may b
e the only part of the whole plan that gets read, so it should sell your business. This is often
consider the most important part of a business plan because of the following;
a. It gives readers an overview of the entire document
b. It allows readers easily understand the content of your business plan
c. Investors read the executive summary and decide if they will read through the entire
plan
d. It gives the business owner the opportunity to review the rest of the business.
e. It acts as a determinant to both investors and business owners in terms of investment
and growth respectively
The executive summary carries the vision and mission of the business.
HND 2022
What is an executive summary? Why is the executive summary often considered as
the most important part of a business plan? (15mks)
34
2. Company Description: Describe your business idea in this section. Elaborate on
what industry and what products/services your business will provide Include the
legal form of your business entity: sole proprietorship, partnership, corporation,
etc.; the business hours and the seasonability of the business, if appropriate. You
may also include the location of your planned business. Sometimes location of the
business may be the key to its success.
3. Strategic Plan: In this section, detail the vision, mission and values and strategies
you will follow to attain your business goals. Go over what you want to do, where
you want to go and how you will get there. Produce measurable and observable
strategic goals.
4. Market Analysis: Describe the results of your market analysis. Explain the industry
thatyou are selling into. Include target markets and descriptions of any specific custo
mers. Explain your marketing strategies and plans, including how you will deliver you
r goods or services to your target market. Explain your pricing strategies.
5. Competitive Analysis: You will need to explain who your competitors are and how
you can gain a competitive advantage. Explain your competition and compare your
business idea to them.
6. Impact of Technology: Provide an overview of the technology you will use, if any,
and how new developments in technology may or may not affect your business.
7. Business Operations: In this section, explain how you will conduct your business.
Focus on what makes you better than the competition as far as operations.
8. Management and Ownership: This is where you should outline the key personnel
that will be part of your business. Explain their skills, education and what they bring
to the company.
9. Organization and Personnel: Provide an explanation of your personnel needs in thi
s section. State how many employees you will need, how much you will pay them and
how they will
be paid. Also explain the personnel organizational structure. Make sure you go over t
he process for personnel recruiting, selection, evaluation and training.
10. Capital and Usage: In this section, you must detail what capital you will need, if
only for start-up or for operations, for how long and re-payment strategies. Start
with how much you will need to start followed by a realistic projection of needs. Inclu
de all sources as well as the applications of cash within the enterprise, highlighting ho
w that cash will be utilised.
35
11. Financial Information: In this section you make projections for future gains and los
ses. You should list them quarterly until the business breaks even then annual
reports are fine, if you are submitting a plan for a few years. Make sure you include
the following items in this section:
Recording: State how you plan to carry out the systematic recording of the enterprise’s
income and expenditures, assets, liabilities and owner’s equity, in order to determine its
financial performa-nce and financial position.
Breakeven analysis: the volume of sales sufficient to cover all fixed and
variable costs. It is the point where revenues equal costs.
Capital Equipment list: A statement that includes the details of the required operating
equipment and its corresponding dollar value.
Cash Flow Statements: Show the inflow of dollar from receipts into the
business, and the outflow in the form of expenditures made by the business.
Use your estimated figures for revenue and expenditures. If your funding options include a
request for funding that will span over the course
of a couple of year of operation, then you may want to include more in depth
financial information, based on realistic projections, such as:
Balance Sheet: It shows at a point in time the firm's position with regards to
assets, liabilities and net worth, or owners’ equities.
 Income Statement (Statement of Financial Performance): It shows all
the revenues and expenses over a specific time period, which result in the
profit or loss from those transactions and cash flow statements.
12. Appendices: Make sure you include all documents you used to substantiate your
business idea here. Include resumes, references, SWOT analysis, competitive
analysis, copies of studies done or anything else to back up information in the
business plan.
QUESTION HND 2020:

Identify any five (5) component of a business plan (5mks).
Why is a business plan important for an entrepreneur? (5mks)
STEPS IN PRODUCING A BUSINESS PLAN
Many of the steps in producing a business plan may have already been completed.
The Successful Business Plan identifies key steps in the production of a business
36
1.Layout or define you basic business concept. You have a business idea that you can
turn in to some form of business outline. Describe your proposed products and services.
2.Gather data on the feasibility and specific of your concept. This means conducting a marke
t analysis and competitor analysis.
3.Focus and refine your concept base on the data compiled. Produce a more detailed business
proposal, that includes a description of the market, how to gain the competitive edge, refinem
ent to your proposed products and services and other information you identified during your
data analysis. Produce pricing model/strategies.
4.Outline the specifics of your business. Make sure you address the nine building blocks of a
business model. Identify unique customer services or support that you need to provide to
ensure business success and customer satisfaction. Identify your marketing strategies.
Complete a strategic plan with strategic business goals.
5.Put your plan into a compelling format. Fill out the details of your business into a business
plan tailored for your unique business entity. Provide the financial data needed to convince
lenders and investors about the soundness of your plan.
6.Share the draft plan with others. Have them consider the risks and potential of success of
the business. Address any risks that they identify.
Importance of a business plan
1. To help you with critical decisions
2. To iron out conflicts in ideas and strategies
3. To avoid big mistakes
4. To prove the viability of business
5. To set better objectives and benchmarks
6. To better communicate objectives and benchmarks
7. To provide a guide for service provider
8. To secure financing
9. To better understand broader landscape
10. To reduce risk
Develop a compelling sales pitch to acquire financing necessary to a new venture.
Developing and delivering sales pitch comes naturally for some people and is very difficult
for others. Business owners must make sales pitches all the time: to buyers, consumers,
employees and investors in order to grow the company. Presenting the right information in a
37
convincing manner is the key to making the sale. In order to develop a good sales pitch the
owners of the business should take note of the following:
Know Your Audience
First identify the person who makes the purchasing decisions for your product category. Get
to know who you are meeting with and be prepared to provide the information he or she
needs.
Do Your Homework
Research the buyer’s needs, what their challenges are and how your product can help them
achieve their goals. Learn about their company, their industry and your competitors.
How Long Should Your Pitch Be
A good sales pitch gets the point across by captivating the audiences’ attention. Keep your
pitch simple, relevant and engage your audience.
Practice your pitch.
Watch yourself in a mirror or have a friend video you practicing your pitch. You will be
amazed at what you learn about your presentation skills when you watch yourself.
Expect Rejection
It is likely that you will hear “no” more than “yes”. Learn from a “no”. Ask for feedback:
What will it take to get a yes? Who else might be interested
Sales Pitch Content
Your sales pitch should tell your story and include:
• An introduction of yourself and your role in the company;
• A brief description of the company, operations, product(s) and channels of interest (retail,
foodservice, export);
• A description of product(s) being pitched;
• Why you decided to produce the product(s);
• An explanation as to what differentiates your product from the competition (i.e. your value
proposition);
• The market drivers and trends that your product addresses;
• Information on where you have successfully sold your product(s);
• Showing that you understand the buyer’s challenges and how you can help; and
• Sharing the next steps for your company.
Basics of Venture Marketing
38
Marketing is considered to be of utmost importance for the success of new ventures. New
ventures have distinct characteristics that distinguish them from larger, more established
organizations .
Characteristics of New Ventures and Their Environment
These characteristics include
• Newness of the organization
Stinchcombe (1965) argues that new organizations face substantial liabilities of newness.
These liabilities lead to higher failure rates of new firms compared to older ones. He suggests
that new firms have to define new roles and tasks, which is associated with high costs in time,
temporary inefficiency, worry, and conflict.
• Small size of the organization
New ventures usually start off as relatively small organizations with only a handful of
employees and very limited financial resources. Although some new ventures are able to
acquire venture capital and thus alleviate problems associated with resource scarcity.
• Uncertainty and turbulence
Liabilities of newness and smallness are exacerbated by problems of uncertainty. Uncertainty
is both an unavoidable aspect of entrepreneurship and of a valuable opportunity in that it
serves as a basis for asymmetrical perceptions among actors.
Distinct Challenges for Marketing in New Ventures
Each of the above-mentioned characteristics of new ventures and their environment
contributes to the challenges that young firms encounter in their marketing efforts.
Newness of the organization. First and foremost, new ventures are unknown entities to
potential customers and other parties, which often translates into a lack of trust in their
abilities and offerings.
The lack of exchange relationships of new ventures is challenging not only in the context of
customers, but also for other parties such as distributors and suppliers. In many industries,
establishing exchange relationships can be very difficult, as access to potential partners is
restricted and costly
Small size of the organization. Marketing in new ventures faces severe resource limitations in
terms of finances and personnel. In general, this limits the options and the scope of strategies
new ventures can pursue.
Uncertainty and turbulence
39
Due to the high degree of uncertainty and turbulence surrounding innovative solutions in new
markets, the predictability of market data is restricted and only limited information is
available for marketing planning.
Fundamentals of Entrepreneurial Management
It is based on the insight that in today’s business environment entrepreneurial management
skills are key for general managers and entrepreneurs alike. That allows you to acquire the
basics of entrepreneurial management. Fundamental marketing is all about
Generate and evaluate ideas for new business ventures
- Develop such ideas into business concepts
- Design a value-creating business model
- Determine the appropriate type of venture for the new business
- Select and apply the optimal mode for implementing the new venture
- Anticipate key resource constraints when launching new ventures
- Stage business-building actions in a smart way
- Prioritize and test key assumptions for new business initiatives
- Leverage symbols to acquire resources
- Present your ideas for new business ventures in an effective manner to others
Product design, operational art, and stock management
The design process refers to the development process of the design and the order in which the
design tasks are completed. Suitable design procedures and methods will lead to twice the
result with half the work. According to the arrangement of the process, it can be divided into
linear programs, parallel programs, and complex programs. It is an organic combination of
finding, analyzing, and solving problems.
Hence, good products need a good beginning in the design process. The design procedure is
the basis for guiding the steps of design process, while the design method is the guarantee for
effectively developing the design process and improving its quality.
Product design process
The research phase
The analysis and positioning stage
Conceptual design stage
Detailed design
Operational art
Operational art is defined today in joint doctrine as: The employment of market techniques to
attain strategic and/or operational objectives through the design, organization, integration,
40
and conduct of campaigns. Operational art translates the joint force strategy into operational
design, and, ultimately tactical action, by integrating the key activities at all levels in the
business.
The different stages of here are:
Describes Your Idea
Cognitive Dissonance
Conducting Customer Interviews
Document all the information you have gathered
Evaluate Test Results
Devising the Product Solution
Testing the Product Solution
Evaluation
Creating a Value Proposition Statement
Stock management
Inventory management is the branch of business management that covers the planning and
control of the inventory. Priority planning determines what materials are needed and when
they are needed in order to meet customers’ demands. Capacity planning determines the
amount of capacity required in each period to execute the priority plans.
Different inventory management approaches are required for different manufacturing

organizations. There are two forms of manufacturing organization: flow shop and job shop.
Inventory Classes
Materials flow from suppliers, through a manufacturing organization, to the customers.
The progressive states of a material are classified as raw materials, semi-finished goods,
finished goods, and work-in-process (WIP).
Raw Materials
Semi-finished Goods
Finished Goods
Work-In-Process (WIP)
41
Inventory Functions
Safety Stock;
Lot-size Inventory
De-coupling Stock;
Pipeline Inventory
Anticipation Inventory
Hedge Inventory Inventory
Exercise: Design a business investment for any new product of your choice
END
42
SECTION TWO : ECONOMICS
CHAPTER ONE
NATURE AND SCOPE OF ECONOMICS
1.0 Introduction
The word economics came from two Greek words: Oikos meaning Household and Nomos
meaning Management. This makes economics to be called Oikonomia meaning Household
Management. The subject economics was formally introduced in academic circles after the
publication of a book entitled ‘An Inquiry into Nature and Causes of Wealth of Nations’’
in 1776 by the Scottish Economist Adam Smith. Before his clear-cut definition, there was no
distinction between economics and other social sciences like sociology, philosophy, politics
etc.
1.1 Definition of economics
To understand the subject matter of economics, we tried to look at its different definitions by
different scholars. The basic concepts of economics are discussed in other to give a better
understanding of the definitions. There is also the need to understand the basic economic
problems of any society because other problems revolve around these problems. The various
definitions of economics are grouped under different headings as discussed below:
1.1.1 The Classical View of Economics
The Classical economists viewed economics as a science of wealth. Adam Smith, the father
of economics, in his book titled: ‘An Enquiry into the Nature and Causes of Wealth of
Nations’, defined economics as the science of wealth. According to Adam Smith, economics
is inquiries into nature and causes of wealth of nations.
1.1.2 The Neo- Classical View of Economics
The neo-classical economists led by Alfred Marshal gave economics a respectable place
among social sciences. Marshall defined economics as the study of mankind in the
ordinary business of life; it examines that part of individual and the social action which is
most closely connected with the attainment and use of material wellbeing Wealth was
regarded not as an end in itself but a means to an end because it was seen as the source of
human welfare.
43
1.1.3 Scarcity and Choice Definition by Lionel Robbins
Robbins criticized Marshall’s definition and provided his own definition in his book, “An
Essay on the Nature and Significance of Economic Science” in 1932. According to
Robbins, economics is the science which studies human behaviour as a relationship
between ends and scarce means which have alternative uses. This means that economics
is a human science. It involves maximizing satisfaction from scarce resource and the means
available for satisfying these ends (wants) are scarce or limited in supply.
1.1.4 Samuelson’s Growth Oriented Definition
The present trend in the world is the establishment of welfare states and improvement in the
standard of living through reduction in poverty, unemployment and income inequality. In line
with this trend Samuelson has given a definition of economics based on growth aspects.
According to Samuelson, “Economics is the study of how people and society end up
choosing with or without the use of money, to employ scarce productive resources that
could have alternative uses to produce various commodities over time and distribute
them for consumption, now or in the future, among various person or groups in the
society”.
1.2 The Scope of Economics
Economics as a subject is experiencing continuous growth. The frontier of the subject has
been widened after Alfred Marshall separated it from the term Political Economy. A
discussion on the scope of economics includes the definition of economics, whether
economics is an art or a science and whether it is a positive or a normative science.
1.2.1 Economics as an Art and a Science
There have been numerous questions whether economics is an art or a science. Economics is
an art as well as a science. Economics is an art because different theories and laws are
explained with the help of graphs, figures, tables, equations. Also economics make use of
assumptions which helps to define the conditions for the application of theories, laws and
relationship between economic variables. Economics is a science because it is a systematized
body of knowledge in which economic facts are studied and analyzed. Economics just like
science have laws and theories which trace out a causal relationship between two or more
phenomena. For instance the law of demand.
44
1.2.2 Economics as a Positive and Normative Science

According to J.N Keynes, a positive science may be defined as a body of systematized
knowledge concerning what it is; it relates and describes facts without saying whether they
are good or bad. while a normative science is a body of systematized knowledge relating to
the criteria of what ought to be. It makes distinction between good and bad depending.
Economics is both a positive and normative science because positive economics sets about to
discover what is true about the economy, while normative economics evaluates whether the
facts found are good or bad.
Figure 1. The scope of economics
Scoped of economics
Subject matter Nature
Wealth Welfare Scarcity Growth Economic

concept concept concept concept Science Art
policy
Positive
science
Normative
science
1.3 Methodologies of Economic analysis
Economist develop models and theories to be used in explaining economic happening around
us e.g they would want to explain the production and consumption of goods and services,
employment of workers, balance of payment position, level of saving and investment, etc
Such economic theories laws and generalizations are obtained through two methods or
approaches which are the deductive and inductive method
Deductive method of economic analysis; The deductive consist of deriving conclusions from
general truths or principles. In other words it involves taking few general principles and
applying them to obtain conclusions on specific situations. An example of deductive method
45
is: because prices of most food stuff are high in the market, we conclude that the prices of
specific goods such as tomatoes are obviously high.
Inductive method of analysis in economics: this method deals with deriving conclusions
from particular to general situations
1.6 Microeconomics and Macroeconomics
Economics is divided into two major areas – Microeconomics and Macroeconomics
1.6.1 Microeconomics: - The word micro is derived from the Greek word mikros meaning
small. Microeconomics is a branch of economics that is concerned with the behavior of
individual consumers, firms, industries, commodities and prices. It studies how decisions
made by individuals and businesses affect the prices of goods and services.
1.6.2 Macroeconomics: - The word macro is derived from the Greek word makros meaning
large. It is that branch of economics that focus on the impact of choices on the total or
aggregate level of economic activities. Macroeconomics is the study of aggregates of
individuals, firms, prices and outputs. In other words, it studies the economy as a whole.
Differences and Similarities Between Micro and Macro Economics
Microeconomics differs from macroeconomics in that while microeconomics maps up close

how individuals make decisions and how these decisions affect the price and output of
various goods and services, macroeconomics analyses not individuals but aggregates of the
economy. While microeconomics studies how an individual firm employs its labours,
macroeconomics studies the total employment in a given economy. While microeconomics is
particularly concerned with the relative prices of goods and service; macroeconomics studies
total prices of all goods and services in the economy.
The division between microeconomics and macroeconomics is not rigid, they are interrelated.
What affects the part affects the whole while the whole is made up of the parts. For instance,
national income is the sum of the incomes of individuals, households, firms and industries.
Also aggregates that are studied in macroeconomics are nothing but individual quantities
which are studied in microeconomics. Moreover, modern macroeconomics is based upon the
study of microeconomics. Therefore, microeconomics and macroeconomics cannot be
isolated from each other.
HND 2022; Distinguish between microeconomics and macroeconomics
46
1.3 Basic Economic Concepts
1.3.1 Scarcity: - Scarcity means limited in supply. According to Thomas Sowell, the first
lesson of economics is scarcity. Put simply, scarcity is limited in supply relative to
demand. There are three categories of economic resources: Land, labour and capital. Each of
these resources exists in a finite, limited quantity. People have unlimited wants and since we
have a limited amount of resources it means we can only produce a limited amount of goods
and services, that is, the limited resources cannot produce enough to satisfy everyone’s
unlimited wants. This gives rise to the study of economics for better allocation of scare
resources among competing and insatiable needs so as to maximize welfare.
1.3.2 Choice: A choice is a comparison or selecting between alternatives. The problem of

scarcity leaves us in a situation in which we must constantly choose which of our wants we
will seek to satisfy. For instance, an individual consumer must choose among the types of
goods and services to consume because of his limited income. He must also choose between
spending on present consumption and saving for future consumption.
The firm with its limited capital must decide what to produce and what not to produce. A
situation where the firm wants to produce two commodities, the choice to produce more of
one would mean a resolve to produce less of the other.
The government is also forced to make a choice on the nature of public goods to provide for
the citizens. The government has the task of utilizing the scare resources effectively in order
to improve the welfare of the people. Scarcity gives rise to choice and making a choice
creates a sacrifice because alternatives must be given up leading to the loss of the benefits
which the alternative would have provided.
1.3.3 Scale of Preference: - In economics, it is assumed that man is rational in his choice
making, that is, if a man has to choose between one thing and another, it is expected that he
will always choose the alternative that will yield the greatest satisfaction. Similarly a firm
faced with how to make a choice between production of one product and another, will choose
the product that will yield the greatest profits. Scale of preference presents a list of wants
arranged in order of importance with the most pressing want listed first, followed by
the second most pressing need and so on.
1.3.4 Opportunity Cost: - Opportunity cost means forgone alternative. People must make
choices because of limited resources. Every choice has an opportunity cost and so the
47
satisfaction of one want involves forsaking the other. Therefore the real cost of satisfying any
want is the alternative forgone or the opportunity cost. For instance, suppose a community
uses a land and other resources to build a school instead of a factory, the opportunity cost of
choosing the school is the loss of the factory and what could have been produced by building
the factory. Also if a student misses his lecture on economics because he wants to go to the
cinema, the cost to him is the lectures that he decides to miss. Opportunity cost of any choice
is the value of the best alternative forgone in making it and not simply the amount spent on
that choice.
1.4 The Concept of Production Possibility Curve (PPC)
We have seen the concepts of scarcity, choice and opportunity cost. The relationship between
these concepts can be illustrated using the production possibility curve (PPC). The PPC is
also known as the production possibilities frontier (PPF), production possibilities boundaries,
the transformation curve, the transformation boundary or frontier.
The PPC is curve that indicates the maximum combination of two goods or services that can
produced by an economy or some economic entities when all her resources are fully and
efficiently utilised with its present state of technology. The PPC is also seen a boundary
between the combination of goods that can be produced and those that cannot be produced at
a given time with the available resources and level of technology.
1.4.1 Construction of the PPC
a) Assumptions of the PPC Analysis

 Only two goods are produced which could be capital and consumer goods or good x
and good y
 There exist a given stock of resources which are fixed in quantity and quality
 Resources are efficiently utilised
 There is full utilisation of technology
 There exist a fixed state of technology
 The economy is operating at full employment
 The time factor remain unchanged
 Factors of production are perfectly mobile within the two industries
 Resources are substitutable at the margin
48
b) The Production Possibilities Schedule
This is a table which shows various quantities of two goods (consumer and capital goods)
which a country or an economy can produce with its limited resources and technological
knowhow.
For example, consider the production possibility schedule for an economy z.
Consumer good (x) 25 50 75 100 125
Capital good (y) 30 55 75 90 100
From the schedule above draw the production possibilities curve for the economy Z.
NB
From the table above, the PPC can be plotted taking into consideration the following:
 Reverse one side of the data so that the production figures under one good should be
in ascending order and the other in descending order if this has not been done.
 Adjust the production combination by causing the ascending figures to start with zero
while the descending figures to end with zero if this has not been done.
 Plot the adjusted production combinations and connect the plotted points to arrive at
the PPC
Combinations A B C D E F
Capital goods
Consumer good (x) 0 25 50 75 100 125
Capital good (y) 100 90 75 55 30 0

Y
B
C
100 H
80
60
40 G
49
20
0
From the graph above, it is observed that with its limited resources fully and efficiently
utilised, the country can produce any of the combination A to F. If all resources are
dedicated to capital goods, then a maximum of 100 units of capital goods and zero unit of
consumer goods will be produced. On the other hand, if all resources are dedicated to
consumer goods then a maximum of 125 units of consumer goods and zero units of
capital goods will be produced. However, if the country desires a mix of the two goods
which is most likely to the case, then she can choose any of the combinations from B to
E. It should be noted that A and F are less likely to occur.
Points along the PPC (A to F) are attainable and represent full and efficient utilisation of
resources. This means that when a country is operating on its PPC, it is not possible to
increase the output of one of the good without reducing that of the other good.
Point inside the PPC (point G ie 40 units of capital and 20 units of consumer goods) is
attainable but undesirable because it depicts a condition of underutilisation of resources.
Features of country at this point are; underemployment or existence of idle resources,
economic inefficiency, excess capacity, underutilisation of resources, less than full use
technology etc. Moving from this point to the PPC indicates actual economic growth.
Point outside the PPC (point H ie 90 units of capital goods and 60 units of consumer
goods) is desirable but unattainable with respect to present productive capacity. Moving
from the PPC to point will indicates potential economic growth. This is as a result of
increase in the country’s productive capacity.
1.4.2 Scarcity, Choice, Opportunity Cost and the PPC
As mention earlier, the PPC seeks to explain the concepts of scarcity, choice and
opportunity cost.
a) Scarcity; scarcity is limited in supply relative to demand. It is illustrated in the PPC

above by the point outside the PPC (point H) which is unattainable due to unavailable
or scarce resources even though it is desirable.
b) Choice; choice is selecting from a number of alternatives due to scarce resources.
Given the available resources, a country cannot achieve all its combination and she
must therefore settle for any one of the combination along the PPC from point A to F.
50
Opportunity cost: opportunity cost is the cost of the next best alternatives sacrifice or
forgone. When a country is already on the PPC, more one good ie from point C(75 units of
capital goods) to point B (90units of capital goods) will be achieve only by reducing some
quantity of consumer goods which is 25 units (50 -25 units) given those resources and level
of technology. It should be noted here that the shape of the PPC has an implication on the
concept of opportunity cost.
1.5 Central Economic Problems of any Economy
All modern economies have certain fundamental or basic economic problems to deal with.
The limited resources have led to the problem of how to assign the scare resources in order to
achieve maximum satisfaction. There is the need to economize and utilize these resources in
the most efficient manner in order to satisfy the welfare of the society. These problems are
called central economic problems because other problems revolve around them. They are:
1.5.1 What to produce: - This has to do with the problem of allocation of resources among
different goods and services. It involves selection of what should be produced and in what
quantity in order to satisfy consumer wants as best as possible using the available resources.
The society has to choose among different kinds of goods and decide on how to allocate
resources among them, for instance whether to produce capital goods or consumer goods.
The society also needs to determine the specific quantity of each type of good to be produced.
In a market economy, the choice of what to produce is made by the buyers in other to fulfill
their needs. Government can through its laws determine what to produce in a given economy.
But the production of one good means a reduction in the production of another.
1.5.2 How to Produce: -This problem refers to selection of appropriate technique of

production, that is, how to combine resources in other to produce goods and service in a more
efficient way and at a minimum cost. A combination of resources (factors) implies a
technique of production. The technique of using a combination which involves less capital
and more labour is known as labour-intensive mode of production while a combination of
more capital and less labour is capital-intensive mode of production. The decision on which
resource combination to use depends on availability of factors and their relative prices.
Therefore, it is in the interest of the society that factors should be combined in a manner that
maximum output can be produced at minimum cost, using least possible scarce resources.
51
1.5.3 For whom to produce: - This economic problem focuses on how the national product
is to be distributed among the members of the society, that is, how the consumer goods and
capital goods will be distributed. The society has to decide who receives the outputs produced
in the economy because human wants are unlimited. Should the economy produce goods for
those with high incomes or for those with low income? What demographic group should
production be targeted at? The money income of the people determines the distribution of
output in the society. The greater ones money income, the greater the quantity of goods the
person will purchase from the market. Sometimes the supply of goods are in short supply
leading to government intervention through price legislation, rationing or through quotas.
What provision should be made for economic growth?
This problem deals with how to decide on how much saving and investment should be made
for future economic growth. No society or individual would like to use all its scarce resources
for only current consumption or else future production will remain stagnant leading to a
decline in the levels of living. The society should devote a part of its resources for the
production of capital goods and for the promotion of research and development activities.
Capital and technological progress achieved in this way will lead to production of consumer
goods in the future and increase standard of living.
HND 2022 Identify and explain four (4) fundamental questions that every society is to
resolve and why
Economic System
An economic system is a means by which societies or governments organize and distribute

available resources, services, and goods across a geographic region or country. Economic
systems regulate the factors of production, including land, capital, labor, and physical
resources. Countries must decide to distribute its resources to meet it needs. Countries do this
through economic systems.
Types of Economic Systems
There are many types of economies around the world. Each has its own distinguishing
characteristics, although they all share some basic features. Each economy functions based on
a unique set of conditions and assumptions. Economic systems can be categorized into four
main types: traditional economies, command economies, mixed economies, and market
economies.
52
Traditional economic system
The traditional economic system is based on goods, services, and work, all of which follow
certain established trends. An economic system in which economic decisions are based on
customs and beliefs. It relies a lot on people, and there is very little division of labor or
specialization. In essence, the traditional economy is very basic and the most ancient of the
four types. Some parts of the world still function with a traditional economic system. It is
commonly found in rural settings in second and third world nations, where economic
activities are predominantly farming or other traditional income-generating activities.
Examples: Villages in Africa and South America; the Inuit tribes in Canada; the caste
system in parts of rural India
There are usually very few resources to share in communities with traditional economic
systems. Either few resources occur naturally in the region or access to them is restricted in
some way. Thus, the traditional system, unlike the other three, lacks the potential to generate
a surplus. Nevertheless, precisely because of its primitive nature, the traditional economic
system is highly sustainable. In addition, due to its small output, there is very little wastage
compared to the other three systems. Exchange of goods is done through Bartering:
trading without using money. Its advantages are predictable job and lifestyle while it is
disadvantageous in that resources are limited with limited production.
Command economic system
In a command system, there is a dominant centralized authority – usually the government –

that controls a significant portion of the economic structure. Also known as a planned system,
the command economic system is common in communist societies since production decisions
are the preserve of the government. Examples: Cuba, former Soviet Union, North Korea etc
In theory, the command system works very well as long as the central authority exercises
control with the general population’s best interests in mind. However, that rarely seems to be
the case. Command economies are rigid compared to other systems. They react slowly to
change because power is centralized. That makes them vulnerable to economic crises or
emergencies, as they cannot quickly adjust to changing conditions. This system has not been
very successful & more and more countries are abandoning it.
Market economic system
53
Market economic systems are based on the concept of free markets. In other words, there is
very little government interference. The government exercises little control over resources,
and it does not interfere with important segments of the economy. Instead, regulation comes
from the people and the relationship between supply and demand. Examples are the US.
The market economic system is mostly theoretical. That is to say, a pure market system
doesn’t really exist. Why? Well, all economic systems are subject to some kind of
interference from a central authority. For instance, most governments enact laws that regulate
fair trade and monopolies. From a theoretical point of view, a market economy facilitates
substantial growth. Arguably, growth is highest under a market economic system. A market
economy’s greatest downside is that it allows private entities to amass a lot of economic
power, particularly those who own resources of great value. The distribution of resources is
not equitable because those who succeed economically control most of them.
Mixed system
Mixed systems combine the characteristics of the market and command economic systems.
For this reason, mixed systems are also known as dual systems. Sometimes the term is used
to describe a market system under strict regulatory control.
Many countries in the world follow a mixed system. Most industries are private, while the
rest, composed primarily of public services, are under the control of the government. Mixed
systems are the norm globally. Supposedly, a mixed system combines the best features of
market and command systems. However, practically speaking, mixed economies face the
challenge of finding the right balance between free markets and government control.
Governments tend to exert much more control than is necessary. Examples of a mixed
economic system is Cameroon, Nigeria, France etc
Summarily, economic systems are grouped into traditional, command, market, and mixed
systems. Traditional systems focus on the basics of goods, services, and work, and they are
influenced by traditions and beliefs. A centralized authority influences command systems,
while a market system is under the control of forces of demand and supply. Lastly, mixed
economies are a combination of command and market systems.
HND 2020. Briefly distinguish between a market economy from a planned economy. (4mks)
54
CHAPTER TWO
PRICE THEORY
There are different methods of price determination. One of them is price mechanism. Prices
are determined through the interaction between demand for and supply of the goods in goods
markets or resources in resources market. Economists differentiate between two types of
prices: money price and relative price.
The money price of a good or service is the amount of money needed to buy it; i.e., it equals
the actual money paid for the good. The relative price of a good is the ratio of its money
price to the money price of the next best alternative good. A relative price is a measure of
what you must give up to get one unit of a good or service. Therefore, relative price is a
measure of the opportunity cost of this good. Example: If the price of a TV is $600 and the
price of a PC is $300, then The money price of the TV = $600. The relative price of the TV =
600/300  2PCs
2.1 DEMAND
In economics demand means effective demand. Demand (D) is defined as the different
quantities of a good or service that consumers are willing and able (ready) to buy at different
prices within a given time period.
The quantity demanded (Qd) of a good or service is a specific amount that consumers are
ready (they plan) to buy at a particular price during a given period of time assuming other
factors influencing the purchase of goods and services are constant.
Demand schedule is a table that lists the quantities of a good a consumer is willing and able
to buy at each price level in a given time period.
Demand curve is a graphical representation of the demand schedule. Demand curve can be
considered as the willingness-and-ability-to-pay curve. It shows the maximum price a
consumer is willing to pay for that quantity of a good or service. For a example we have the
demand schedule and curve below;
55
From the above information, there is an inverse (negative) relationship between price and
quantity demanded, ceteris paribus. This gives us the Law of Demand which states that
more is demanded at lower price than at higher price.
Change in Quantity Demanded vs. Change in Demand (Movements vs. Shifts)
It is important to make a distinction between the change in demand and the change in
quantity demanded to distinguish a shift in the demand curve from a movement along
demand curve.
Change in the quantity demanded: Changes in the quantity demanded refers to the
movements along a “fixed” demand curve as a response to a change in the good's own price,
ceteris paribus. An increase in quantity demanded is caused by a decrease in price while a
56
decrease in quantity demanded is caused by an increase in price. This can been seen in the
graph below;
Change in demand: When one or some of the factors influencing demand change, with the
price of the good remains constant the demand will change and the demand curve will shift
rightward or leftward. The shift in demand refers to the change in the quantity demanded at
every given price. Consider the graph below;
In this case, even though the price of the good remains constant the quantity will either rise or
fall as shown in the graph above. When the other factor causes the demand to shift to the
right, the move from D1 to D2, then this is referred to as an increase in demand. This is
because; at the same price of P1 the quantity that consumers plan to buy increases from Q1 to
Q2. Likewise, when the other factor causes the demand curve to shift to the left, the move
from D1 to D3, then this is referred to as a decrease in demand. This is because; at the same
price of P1 the quantity that consumers plan to buy decreases from Q1 to Q3.
Factors that Affect Demand (Determinants of Buying Plans)
Aside from the price of the good, there are other variables that obviously do influence
consumers’ decisions on how much of a good they are willing and able (ready) to buy. These
factors that affect demand include:
57
Change in Consumers’ Incomes: The influence of consumers' income on demand depends

on whether the good is normal good or inferior good. For a normal good, an increase in
income increases demand for the good and shifts the demand curve rightward; (examples
include cloths, cars, vacations) For an inferior good, an increase in income decreases
demand for the good and shifts the demand curve leftward. Examples of inferior goods
include used cars or used furniture. Inter-city bus is another example of an inferior good.
The Prices of Related Goods: Goods are either related or unrelated to each other for
consumers. When two goods are unrelated, then the change in the price of one good will
have no impact on the demand for the other good. Substitutes: Substitute goods in
consumption are goods that can be used or consumed in place of one another. For example,
black pen and blue pen that I usually use in class. Complements: Two goods are
complements in consumption if they are normally consumed together. For example, cars and
gasoline. Change in the price of one will influence the change in the demand of the other.
Expectations about the Future: If the price of a good is expected to rise in the future,
current demand increases and the demand curve shifts rightward and vice versa.
Tastes and Preferences: People with the same income have different demands if they have
different preferences.
The Number of Buyers in the Market (Population): The larger the population or the
buyers of the good, the greater is the demand for the good.
Advertisement: a successful advertisement will lead to an increase in the quantity demanded
of good and vice versa
HND 2022; distinguish with aid of diagram between change in quantity demanded and
change in demand
Briefly explain five (5) that may cause change in demand
2.2 SUPPLY
Supply is derived from a producer's desire to maximize profits. Profit is the difference
between revenues and costs. The supply of a good or service refers to the quantities of a good
or a service that producers are willing and able (ready) to produce (sell) at different prices in
a given time period, ceteris paribus.
The quantity supplied (Qs) of a good or service is one particular amount that producers plan
to sell during a given period of time at a particular price assuming other factors influencing
the production of goods and services are constant.
58
Supply schedule. This is a table that shows a the quantity suplly of a good and their
respective prices.
Supply curve is a graphical representation of the supply schedule that shows the relationship
between quantity supplied of a good and its price when all other influences on producer's
planned sales remain the same. We can view the supply curve as a "minimum-price-supply"
curve. For each quantity, the supply curve shows the minimum price a supplier must receive
in order to produce that unit of output. This can be seen in the schedule and curve below;
From the above diagram there is a positive (direct) relationship between price and quantity
supplied. The quantity of a good supplied in a given time period increases as its price
increases, ceteris paribus. This gives us the Law of Supply which states that more is
supplied at a higher price than at a lower price.
Change in Quantity Supplied vs. Change in Supply (Movements vs. Shifts)
Change in the quantity supplied: Quantity supplied changes as a result of the change in the
good own price and referred to as movement along the same supply curve. Price is not
constant along a given supply curve.
59
An increase in price from P1 to P2 increases the quantity supplied from Q1 to Q2. Vice versa
for a decrease.
Changes in supply: An increase in supply results in a rightward shift and a decrease in the
supply results in a leftward shift.
At a price of P1 in the graph, when the supply curve shifts right from S1 to S2, then quantity
increases from Q1 to Q2. When the other factors cause the supply curve to shift left, from S1
to S3, the amount supplied decreases from Q1 to Q3.
Factors Affecting Supply
Aside from the price of the good, there are other factors, which affect the suppliers'
willingness and ability to supply a good or service. Determinants of market supply include:
Change in the Cost of Factors of Production: If the price of resource used to produce a
good rises, the minimum price that a supplier is willing to accept for producing each quantity
of that good rises. So a rise in the price of productive resources decreases supply and shifts
the supply curve leftward. The reverse is true for decline.
Changes in Technology: New technologies means that either production increases with the
same level of resources or that fewer resources are needed to produce the same level of
output. If fewer resources are needed to produce the same level of output when technology
increases then production costs will fall causing supply to increase (shift right).
Changes in the Price of Related Goods:
Similar to demand where goods are related in consumption, goods are also often related in
production. The prices of related goods or services that firms produce influence supply. It
depends on whether the goods are substitutes or complements.
Expectations about the Future: If the price of a good is expected to fall in the future,
current supply increases and the supply curve shifts rightward and vice versa.
Number of Sellers: The larger the number of suppliers of a good, the greater is the supply of
the good. An increase in the number of suppliers shifts the supply curve rightward.
60
2.3 EQUILIBRIUM: DETERMINATION OF PRICE AND QUANTITY

Equilibrium is a situation in which opposing forces balance each other. A market
equilibrium is a situation in which the price accepted by producers for the last unit (marginal
cost) is equivalent to the price the last consumer is willing and able to pay (marginal benefit).
The third law of demand and supply states that equilibrium the quantity demanded is equal to
quantity supplied. We will analyze the equilibrium using tables, diagrams and mathematical
equations through the following example.
C. Mathematical Illustration of Equilibrium, Surplus, and Shortage

Example:
Suppose the demand equation is P = 7 – 0.01 Qd,
and the supply equation is P = 1 + 0.01 Qs
(a) Find Q* and P*
61
Since at equilibrium there is only one market price accepted by buyers and sellers and since
Qd = Qs = Q*, then we rewrite these two equations
as
P* = 7 – 0.01 Q*
P* = 1 + 0.01 Q*
Since the left-hand side in both equations is equal the right-hand side must be equal. So
equate the right-hand side of the two equations
7 - 0.01 Q* = 1 + 0.01 Q*
7 – 1 = 0.01Q* + 0.01 Q*
To get the equilibrium price substitute the equilibrium quantity in either demand or supply
equation
So, P* = 7 – 0.01 (300) = 4 (using demand equation),
or P* = 1 + 0.01 (300) = 4 (using supply equation)
Exercise
Find the quantity when p=5 and p=2 and then compare.
Assignment
Suppose the demand curve for a good is
Qd = 700 – 100P
And the supply curve is
Qs = - 100 + 100P
a. Determine the equilibrium price and quantity of the good
b. Determine whether there is a surplus or shortage at P = 5
c. Determine whether there is a surplus or shortage at P = 2
Elasticity
We are going to talk about price, income and cross elasticity of demand
Price elasticity of demand (PED)
A measure of the rate of change in the quantity demanded with respect to price, holding all
other determinants of demand constant.. In other words, it is the percent change in quantity
demand from a 1 percent change in price.
62
Percentage change∈quantity demanded ∆ Qd P

PED = or .
percentage change∈ price ∆p Q
When a one percent change in price leads to a greater than one-percent change in quantity
demanded, the demand curve is elastic. (PED> |1|))
In general elastic if (e When a one-percent change in price leads to a less than one percent
change in quantity demanded, the demand curve is inelastic. (0 > PED> -1)
In general inelastic if (e < |1|). When a one-percent change in price leads to an exactly one
percent change in quantity demanded, the
Demand curve is unit elastic. (PED= -1)
In general unit elastic if (e = |1|)
Determinants of the Price Elasticity of Demand
These are several factors that can cause the price elasticity of demand to change or to be
different for different goods.
1. The existence of substitutes. If you can easily switch from one good to another, the price
elasticity of demand for either good tends to be elastic. The price elasticity of demand for
Pepsi will be elastic because you can buy Coca-Cola instead. If there are no good substitutes,
the price elasticity of demand tends to be inelastic.
2. Nature of the good (Necessities vs. Luxuries). If you think something is a necessity,
your demand will tend to be more inelastic; for something you think is a luxury, your demand
will tend to be more elastic.
3. Definition of the market. The way you define the market affects how the elasticity will
turn out. In general, the broader the market the lower the elasticity of demand. Demand for
Fords is more elastic than demand for cars in general. Why? There are more substitutes for
Fords than for cars in general. If the price of a Ford goes up, you can just buy some other
kind of car. If the price of all cars goes up, maybe you can buy a truck or a motorcycle
instead, but that’s not really the same as a car. This is why the elasticity of demand for Fords
will be higher than that of all cars in general.
4. Time period under consideration. The longer the time period you look at, the more
elastic demand will become. This is because you will have more time to find substitutes.
Question
HND 2020: State and explain any three factors that affect price elasticity of demand
(6mks)
EXAMPLE
63
Income elasticity of demand (YED): measures degree of shift of demand curve as income
Percentage change∈quantity demanded ∆ Qd I
changes. It is calculated as YED = = or .
percentage change∈Income ∆I Q
Cross price elasticity of demand(XED): measures degree of shift of demand curve when
the price of a substitute changes. IT IS CALCULATED AS;
Percentage change∈quantity demanded of Good X ∆ Qdx Py
XED = or .
percent age change of Good Y ∆ Py Qx
2.4 CONSUMER BEHAVIOUR

UTILITY
Definition
Consumer purchase a good because of the satisfaction he hopes receives from it. This
satisfaction is refers to as utility.
Therefore utility is the satisfaction consumers derive from the goods they consume, activities
they engage in or services they used. Utility as demonstrated by two schools of thought in
economics can be cardinal and ordinal utility.
Cardinal and ordinal utility
Cardinal utility is that which is measurable in units called utils. While ordinal utility is that
which is not measurable in units like utils but consumer here can states their preferences from
64
one good to another e.g. for good x, y, and z. consumer may prefer good x to y and y to z. all
this are to quantify satisfaction.
Total utility and marginal utility
It very necessary to distinguish between total utility and marginal utility;
a) Total utility (TU); this is the total satisfaction a persons gains from all the units of
commodity consume within a given period of time. E.g if a student takes five oranges a day;
the TU is the total satisfaction derives from these oranges.
b) Marginal utility (MU);
This is the additional satisfaction a person gains or derive from consuming one extra unit
within a given period of time. E.g. the satisfaction a student will derive from consuming the
sixth orange is refer to as the marginal utility.
change ∈TU ∈good x Δ TU

MU = = = MU
change∈the quantity of good x ΔQ x
EXAMPLE
Consider the table below for good x with TU, calculate the MU and sketch both the total
utility and the marginal utility on a graph
QX TUX MUX
0 0 -
1 15 15
2 29 14
3 32 3
4 34 2
5 35 1
6 35 0
7 34 -1
8 32 -2
9 29 -3
Util
ity
4
0
TU
3
0 65
2
0
1
0
NDAM 2 4 6 8 1 Quan (ECE21)ENTREPRENEURSHIP
M 0 tity
U
The Law of Diminishing Marginal Utility
The law states that as the quantity of a good consume increases the additional satisfaction
from them (MU) diminishes within a given period of time as seen from the graph above.
Notes; when marginal utility is zero, the individual are at the point of satiety and when it is
negative, the individual is said to have disutility.
2.6 THEORY OF PRODUCTION

Production is basically an activity of transformation, which connects factor inputs and
outputs. In the Short run At least one input is fixed and All changes in output achieved by
changing usage of variable inputs
• Long run. All inputs are variable and Output changed by varying usage of all inputs.
Production Function
It describes the technical relationship between inputs and output in physical terms. It can also
be seen as the maximum amount of output that can be produced from any specified set of
inputs, given existing technology. Production function to only two: capital (K) and labour
(L).
A firm’s long-run production function is of the form Q = f(Ld, L, K, M, T, t)

• where Ld = land and building; L = labour; K = capital; M = materials; T = technology; and,
t = time.
• Technical efficiency
Achieved when maximum amount of output is produced with a given combination of inputs
• Economic efficiency
Achieved when firm is producing a given output at the lowest possible total cost
Short Run Production
• In the short run, capital is fixed Only changes in the variable labor input can change the
level of output
• Short run production function
66
Total Product: It gives maximum of output that can be produced at different levels of one
input, assuming that the other input is fixed at a particular level.
• Marginal Product: Change in the output resulting from a very small change in one factor
input , keeping the other factor
inputs constant.
• Average Product: Total production for per unit of output.
The law of diminishing returns

The law of diminishing returns, states that with a given state of technology if the quantity of
one factor input is increased , by equal increment , the quantities of other factor inputs
remaining fixed , the resulting increment of total product will first increase but decreases
after a particular point.
Assumptions
• State of technology is given.
• One factor of production must always be kept constant at a given level.
• The law is not applicable when two inputs are used in a fixed proportion.
67
At the point O, the factor input labor is equal to zero, the value of total product will also be
zero. Obviously the value of
MP and AP will be zero. So all the three curves, TP, AP and MP starts from the origin.
• TP curve is first convex from below and then concave. AP is maximum at the point B, and
also AP = MP.
Since the MP curve is must be decreasing when the average product is maximum, the MP
curve reaches maximum before the AP curve.
 When AP is rising, MP is greater than AP
 When AP is falling, MP is less than AP
 When AP reaches it maximum, AP = MP
Stage of Increasing Returns:
AP is increasing and the MP is greater than the AP. Up to point B on the TP curve Stage I
exist. AP is increasing, but MP is increasing first up to point A then decreasing.
Stage of Decreasing Returns
Both AP and MP is decreasing. But MP is positive. The portion of TP curve between B and C
represents this stage.
Stage of Negative Returns
TP is diminishing and the MP is negative. The portion of TP curve which lies to the right of
point C represents this stage.
68
2.7 THEORY OF COSTS

Cost is best described as a sacrifice made in order to get something.
Types of Costs
Costs can be categorized into seven types:
Accounting and economic costs: To an accountant or any other individual other than an
economist, cost refers to the monetary expenses incurred by a firm in the course of producing
a commodity. Explicit costs are the payments to outside suppliers of inputs. Therefore, the
“economic cost” (opportunity cost of production) is made up of both the explicit and the
implicit cost. Implicit cost, are the imputed value of the entrepreneur’s own resources and
services.
Production cost: In the production process, many fixed and variable factors (inputs) usually
capital equipments are used. They are being employed at various prices. The expenditures
incurred on them are the total costs of production of a firm. Such costs are divided into two:
total variable cost and total fixed costs.
Private and social cost: Private costs are the costs incurred by a
firm in producing a commodity or service. It includes both implicit and
explicit cost.
Sunk costs: This refers to all the costs that have been incurred and definitely not recoverable
or changeable whether the particular project or business goes on or not.
COST FUNCTIONS
Cost functions are derived functions. They are derived from the production function which
describes the available efficient methods of production at any given period of time.
Thus, there are three concepts of total cost in the short run: Total fixed costs (TFC), total
variable costs (TVC), and total costs (TC).
TC = TFC + TVC
Unit cost of production
69
Average Fixed Cost (AFC): The AFC at any given level of output is total fixed cost divided
by output. In symbol, this becomes
Average Variable Cost (AVC): The average variable cost at any given level of output is
total variable cost divided by output. In symbol, it becomes:
Average Total Cost (ATC): In the short-run analysis, average cost is more important than
total cost.
The short run average total cost (SAC) at any given output level is obtained by simply
dividing total cost by the output level:
Note that
70
Market structures
The differ categorised into perfect and imperfect markets
For imperfect markets we have monopoly, oligopoly, monopolistic competition, duopoly etc.
71
72
73
Summarily, the different between the different markets can be seen as follows:
Assignment: Illustrate the different method of price determination for the respective factors
of production
74
CHAPTER THREE
NATIONAL INCOME
Introduction
Macroeconomics is that branch in economics that studies the country as a whole while
making implications to national issues that affect the entire economy and not individual units
within the economy.
Macroeconomics objectives are:
 To achieve a substantial economic growth

 To reduce the rate of inflation
 To reduce unemployment
 To maintain a balanced of payment equilibrium
 To guarantee equitable distribution of income and wealth
 To ensure environmental protection
 To ensure that the there is a balanced budget
Macroeconomics policies are:
Monetary policy
Monetary policy is the use of interest rates, control of the money supply and the availability
of credit to achieve macroeconomic objectives. Monetary policy instruments are interest
rates, open market operations, funding, reserve requirements, special deposit etc.
Fiscal policy
Fiscal policy is the change to government expenditure and rates of taxation to achieve
macroeconomic objectives. Fiscal policy instruments are Changes in government spending
(G) and Changes in taxation (T). The government’s budget (fiscal) balance is the difference
between government spending and taxation
It should be noted here that the combination between the monetary and fiscal policy is refers
to as the demand-side policies.
Supply-side policies
Supply-side policies are those designed to boost the productive capacity of the economy.
They fall into two main categories, market based and Interventionist.
75
The market base are: Cutting corporation tax, Removing regulations, Privatisation and
deregulation and Lower income tax — to encourage labour supply while the Interventionist
policies are Improved education — to boost productivity and reduce labour immobility and
Improved infrastructure — to attract businesses and boost labour mobility.
Measurement of national income
Firstly, national income is the money value of all goods and services produce within a
country within a period of one year. Production generates income. Income is used for
expenditure, and expenditure, in turn, leads to further production. There are three phases of
circular flow of national income. So there are three methods of measuring national Income.
They are
(A) Output or value added method
(B) Income method
(C) Expenditure Method.
Output or value added method
With the help of this method national income is estimated at production level. At production
level national income is the value of final goods and services produced in a country within
the domestic territory plus net factor income from rest of the world. In this method following
steps are involved:
Firstly, all the producing enterprises in an economy are broadly classified into three industrial
sectors according to their activities (primary, secondary and tertiary).
Secondly: Net value added of each producing unit of the economy is estimated from their
gross value of output which is calculated by multiplying total volume of goods produced with
their prices. After deducting the sum of value of intermediate goods (IG), depreciation and
net indirect taxes (NIT) from value of output we get net value added at FC of the producing
units.
Thirdly: Net National Product at factor cost is obtained by adding net factor income from
ROW to net domestic product at factor cost.
Example:
Income method
Income method is used for measuring national income at distribution level. According to this
method, national income is estimated by adding incomes earned by all the factors of
production for their factor services during a year. If includes the following steps:
(i) Firstly: Classify the production units into primary, secondary and tertiary sector. The
classification is same as in value added method
76
(ii) Secondly: Estimate the following factor incomes paid out by the production units in each
industrial sector.
Thirdly: Take the sum of factor payments by all the industrial sectors to arrive at the net
domestic product at factor cost. .
Lastly: Add net factor income from abroad to the net domestic product at factor cost to arrive
at net national, product at factor cost.
Expenditure method
Expenditure incurred on final goods is final expenditure. Final goods are those goods which
are demanded for final consumption and investment. The demand for final consumption and
investment is made by all the four sectors of the economy, namely, households, firms and the
government and rest of the world.
Firstly: Estimate the expenditure incurred on the final products of all the sectors of the
economy.
Secondly: Deduct consumption of fixed capital (Depreciation) and net indirect taxes from
gross domestic product at market price to get net domestic product at factor cost.
Thirdly: Add net factor income from abroad to the net domestic product at factor cost to
obtain net national product at factor cost which is the national income.
The circular flow of national income
Equilibrium in the circular flow of income can be gotten from two methods
the aggregate demand and aggregate supply method
In equilibrium, planned spending must equal actual spending in the economy. Exante
spending must equal ex post spending.
•Expenditure is the sum of its components:
Y = C+I+G+NX
•C is consumption, I is investment, G is government spending, and NX is net exports (exports
minus imports).
Injections and Withdrawals
•Injections into the circular flow of income must equal withdrawals:
•S +T+M = I+G + X
•S is Saving, T is Taxes, M is imports, I is investment, G is government spending, and X is
exports
From the above analysis (C+I+G+NX), components of aggregate demand are consumption,
investment, government expenditure and net export.
77
Multiplier-Accelerator Interaction
Multiplier effect comes about because injections of new demand for goods and services
into the circular flow of income can stimulate further rounds of spending – in other words
“one person’s spending is another’s income” – and this can lead to a bigger eventual effect on
output.
Multiplier = 1 / (sum of the propensity to save + tax + import)
Therefore if there is an initial injection of demand of say £400m and
 The marginal propensity to save = 0.2
 The marginal rate of tax on income = 0.2
 The marginal propensity to import goods and services is 0.3
Then the value of national income multiplier = (1/0.7) = 1.43
An initial change of demand of £400m might lead to a final rise in national income of 1.43 x
£400m = £572m
The accelerator effect
The accelerator effect describes how the level of spending on capital investment will be
influenced by how quickly demand is growing in the economy. Consider a business or an
industry where demand is rising at a strong pace.
The accelerator model works on the basis of a fixed capital to output ratio. For example if
demand in a given year rises by
£4 million and each extra £1 of output requires an average of £3 of capital inputs to produce
this output, then the net level of investment required will be £12 million.
78
CHAPTER FOUR
MONEY
The word "money" can mean many things. It is used with different connotations in our
everyday speech. On the one hand, if people say that a person has a lot of money, they
usually mean that the person is wealthy. On the other hand, to economists money has a very
specific meaning. They define money as “anything that is generally accepted in payment
for goods and services or in the repayment for debts.”
The evolution of money
In the past, most society employs the barter system for exchanges though it suffers lots of
setbacks like the problem of double coincidence of wants. Most societies used a commodity
with some intrinsic value for money. In order to function as money, the commodity had to be
widely acceptable, which means that everyone had to be willing to accept it as a payment for
goods or services. Early forms of commodity money were, for example, animal skins in
Alaska, salt in Nigeria, cattle in East Africa, tobacco in America, or shells in Thailand.
Objects like these were not only used to buy goods, but also to pay for marriages, fines, and
debts. Although everyday objects were extremely practical forms of money, they
nevertheless had disadvantages as well. Firstly, it was a problem to store some of them for a
long time. Secondly, the accurate measurement of their value was not easy. Difficulties arose
when using these objects to plan financial activities for the future or when splitting
commodities into smaller amounts or units.
For the above reasons, some societies started to use precious metal, such as gold and silver.
They have been popular commodity monies because they could be used for various purposes
– jewellery, dental fillings etc. - as well as for transactions. People in Mesopotamia e.g.,
began using such metals about 4,500 years ago. Until several hundred years ago, these metals
functioned as a medium of exchange in most societies, except for the most primitive ones.
This new metal money was an important advance, since it was easier to carry and lasted for a
long time. Despite the advantages of metal money, these metals were still quite heavy and it
was hard to transport bigger sums, e.g. for large purchases, such as land or houses. Other
problems with gold and silver have occurred when governments debased them.
Due to the above mentioned disadvantages of gold and silver, banks evolved in 16 and 17th
century in England. Merchants used to store their gold there and in return received a
79
statement indicating how much they had deposited. This statement could be signed over to
other persons when the merchants wanted to buy something. As a result, paper currency,
which are pieces of paper that function as a medium of exchange. Initially, paper money was
guaranteed to be convertible into an adequate quantity of precious metal or coins. In most
countries this system has evolved into paper currency that is issued by the government’s
decree (“fiat”). This means that this currency has to be accepted as legal tender. It is called
fiat money which is not convertible into precious metal anymore and has no intrinsic value.
For instance, today’s coins only have a token value that means the face value exceeds the
value of the metal.
Paper currency and coins can easily be stolen and can be expensive to transport because of
their size. As a consequence, with the development of modern banking, cheques were
invented. Despite the advantages, it is very time consuming to trade a cheque for currency.
This may result in difficulties if something has to be paid quickly. Furthermore, it takes a
few days until the bank will credit the account with a cheque that a person has deposited.
Due to the development of the computer and advanced telecommunication technologies, new
advances in the payment system were made, like the invention of the electronic funds
transfer system (EFTS) e.g. debit and credit cards (American Express, Visa, etc.).
Functions of money
Medium of exchange: Money in the form of currency or cheques is a medium of exchange,
since in our economy people use it to buy goods and services. Without a medium of exchange
we would live in a barter economy where goods and services were exchanged directly for
other goods and services. When relying on barter, people have to satisfy the “double
coincidence of wants”.
Unit of Account: A second function of money is its serving as a unit of account. Unit of
account means that money provides standardised terms in which prices are quoted and debts
are recorded.
Store of value: Finally, money also functions as a store of value. This means that purchasing
power is transferred from the present to the future. A person might decide to keep a fraction
of the money that she or he received by exchanging his or her labour in order to spend it later.
Standard of differed payment: Money has made it possible for people to carry out
transactions and Make payment on a later date.
HND 2020: Identify and explain any five (5) functions of money (10mks)
80
Demand for money

By the demand for money we mean the desire for holding money to use, one must hold
money. If people desire to hold money, there is a demand for money. Generally the quantity
of money people hold depends on the following:
1) The price level
2) The interest rate
3) Real GDP
4) Financial innovation
The demand for money: the amount of money people wish to hold is determined by three
motives:
 Transactions demand
 Precautionary demand
 Asset demand (speculative demand)
Transactions Demand
Holding money as a medium of exchange to make payments. The stock of money people hold
to pay everyday predictable expenses. The level varies directly with nominal national income.
This view was developed by classical economists and Keynes (1936) followed the classical
view in his theory of liquidity preference.
Precautionary Demand
Holding money to meet unplanned/ unpredictable expenditures and emergencies, Keynes
believes that the precautionary money balances people wants to hold are determined
primarily by the level of transactions they expect to make in the future. These transactions
are proportional to income. When income rises, precautionary balances increases in order to
provide the same degree of protection.
Asset Demand
Keynes’s speculative motive: Keynes argues that people believe that there is a “normal
value” of interest rate. If the current interest rate is low, people will expect the interest rate to
rise and bond price to fall in the future. If the fall in bond price outweighs the interest gain,
people will suffer capital loss. Thus, they will demand more money because the zero return
on money exceeds the negative return on bond. If the current interest rate is high, people will
expect the interest rate to fall and bond price to rise in the future. If the rise in bond price
outweighs the interest fall, people will enjoy capital gain. Thus, they will demand less money
81
because the capital gain exceeds the zero return on money. Asset/Speculative demand for
money is negatively related to interest rates.
The demand for money curve
The amount of money demanded for transactions and Precautionary purposes are fixed given
the level of income. Asset demand is determined by the opportunity cost of holding money
(the interest rate) according to Keynes. This can been seen for example in the graph below;
The supply of money

The supply of money is determined by the monetary authorities like the central bank of every
country. In this case, it is said to be fixed by the monetary authorities.
Theory of liquidity preference: Keynes’s theory that the interest rate adjusts to bring money
supply and demand into balance.
Money Market Equilibrium
The interest rate is determined by the supply of and demand for money. At any given moment
in time, the quantity of real money supplied is a fixed amount since the central bank can
influence the supply of money. This can been seen for example in the graph below;
82
Changes in the value of money

Quantity theory of money: a theory asserting that the quantity of money available determines
the price level and that the growth rate in the quantity of money available determines the
inflation rate. According Milton Friedman, Inflation is always and everywhere a monetary
phenomenon” The immediate effect of an increase in the money supply is to create an excess
supply of money. (Once again, please be reminded that increase in money supply does not
mean that it automatically increases the money holding by the people. It must go through the
process that interest rates lower and money demand increases.) People try to get rid of this
excess supply in a variety of ways. They may buy goods and services with the funds. They
may use these excess funds to make loans to others. These loans are then likely used to buy
goods and services. In either case, the increase in the money supply leads to an increase in the
demand for goods and services. Because the supply of goods and services has not changed,
the result of an increase in the demand for goods and services will be higher prices.
Functions of Commercial Banks

A commercial bank is financial institutions that accepts deposits from the general public and
also gives out loans and carry out other services to the public. Examples of commercial banks
in Cameroon include; Afriland First Bank, United Bank for Africa (UBA), Ecobank, National
Financial Credit etc. The two most distinctive features of a commercial bank are borrowing
and lending, i.e., acceptance of deposits and lending of money to projects to earn Interest
(profit). In short, banks borrow to lend. Functions of commercial banks are classified in to
two main categories—
(A) Primary functions and (B) Secondary functions.
83
(A) Primary Functions:

1. It accepts deposits:
A commercial bank accepts deposits in the form of current, savings and fixed deposits.
(i) Current account deposits: Such deposits are payable on demand and are, therefore,
called demand deposits. These can be withdrawn by the depositors any number of times
depending upon the balance in the account. These accounts are generally maintained by
businessmen and Industrialists who receive and make business payments of large amounts
through cheques.
(ii) Savings account deposits:
These are deposits whose main objective is to save. Savings account is most suitable for
individual households. They combine the features of both current account and fixed deposits.
They are payable on demand and also withdraw able by cheque. Interest paid on savings
account deposits in lesser than that of fixed deposit.
(iii) Fixed deposits (Time deposits):
Fixed deposits have a fixed period of maturity and are referred to as time deposits. These are
deposits for a fixed term, i.e., period of time ranging from a few days to a few years. These
are neither payable on demand nor they enjoy cheque facilities. They carry higher rate of
interest.
2. It gives loans and advances:
The second major function of a commercial bank is to give loans and advances particularly to
businessmen and entrepreneurs and thereby earn interest. This is, in fact, the main source of
income of the bank. A bank keeps a certain portion of the deposits with itself as reserve and
gives (lends) the balance to the borrowers as loans and advances in the form of cash credit,
demand loans, short-run loans, overdraft as explained under.
(i) Cash Credit: An eligible borrower is first sanctioned a credit limit and within that limit he
is allowed to withdraw a certain amount on a given security. Interest is charged by the bank
on the drawn or utilised portion of credit (loan).
(ii) Demand Loans: A loan which can be recalled on demand is called demand loan. There is
no stated maturity. The entire loan amount is paid in lump sum by crediting it to the loan
account of the borrower.
(iii) Short-term Loans:
Short-term loans are given against some security as personal loans to finance working capital
or as priority sector advances. The entire amount is repaid either in one instalment or in a
number of instalments over the period of loan.
84
(B) Secondary Functions:

Apart from the above-mentioned two primary (major) functions, commercial banks perform
the following secondary functions also.
3. Discounting bills of exchange or bundles: A bill of exchange represents a promise to pay
a fixed amount of money at a specific point of time in future. It can also be encashed earlier
through discounting process of a commercial bank.
4. Overdraft facility: An overdraft is an advance given by allowing a customer keeping
current account to overdraw his current account up to an agreed limit. It is a facility to a
depositor for overdrawing the amount than the balance amount in his account.
5. The bank acts as an agent of its customers and gets commission for performing
agency functions as under:
(i) Transfer of funds
(ii) Collection of funds
(iii) Payments of various items
(iv) Purchase and sale of shares and securities
(vii) Letters of References
6. Performing general utility services; The banks provide many general utility services,
some of which are as under:
(i) Traveller’s cheques
(ii) Locker facility
(iii) Underwriting securities issued by government, public or private bodies.
(iv) Purchase and sale of foreign exchange (currency)
HND 2020:
a. Define a commercial bank and cite two examples in Cameroon (3mks)
b. What are the main functions of commercial bank? (10mks)
Credit creation by commercial Banks
The central bank produces money while commercial banks increase the supply of money by
creating credit which is also treated as money creation. Commercial banks create credit in the
form of secondary deposits.
(i) Primary deposits (initial cash deposits by the public) and (ii) Secondary deposits (deposits
that arise due to loans given by the banks which are assumed to be redeposited in the bank.)
85
Money creation by commercial banks is determined by two factors namely (i) Primary
deposits i.e. initial cash deposits and (ii) Legal Reserve Ratio (LRR), i.e., minimum ratio of
deposits which is legally compulsory for the commercial banks to keep as cash in liquid form.
Broadly when a bank receives cash deposits from the public, it keeps a fraction of deposits as
cash reserve (LRR) and uses the remaining amount for giving loans. In the process of lending
money, banks are able to create credit through secondary deposits many times more than
initial deposits (primary deposits).
Suppose a man, say X, deposits 2,000 dollars with a bank and the LRR is 10%, which means
the bank keeps only the minimum required 200 as cash reserve (LRR). The bank can use the
remaining amount 1800 (= 2000 – 200) for giving loan to someone. (Mind, loan is never
given in cash but it is redeposited in the bank as demand deposit in favour of borrower.) The
bank lends 1800 to, say, Y who is actually not given loan but only demand deposit account is
opened in his name and the amount is credited to his account.
This is the first round of credit creation in the form of secondary deposit (1800), which equals
90% of primary (initial) deposit. Again 10% of Y’s deposit (i.e., 180) is kept by the bank as
cash reserve (LRR) and the balance 1620 (=1800 – 180) is advanced to, say, Z. The bank gets
new demand deposit of 1620. This is second round of credit creation which is 90% of first
round of increase of 1800. The third round of credit creation will be 90% of second round of
1620. This is not the end of story.
Total Credit creation = Initial deposits x 1/LPR. Where 1/LPR is the money multiplier.
Sources Government revenue and Expenditure
Government get her revenue from different sources;

Tax: A tax is a compulsory levy imposed by a public authority against which tax payers
cannot claim anything. It is not imposed as a penalty for only legal offence. The essence of a
tax, as distinguished from other charges by the government, is the absence of a direct quid
pro quo (i.e., exchange of favour) between the tax payer and the public authority.
(i) It is a compulsory contribution, to the state from the citizen. Anyone refusing to pay tax is
punished under law. Nobody can object to taxation on the ground that he is not getting the
benefit of certain state services,
(ii) It is the personal obligation of the individual to pay taxes under all circumstances,
(iii) There is no direct relationship between benefit and tax payment
86
Rates: Rates refer to local taxation, i.e., taxation levied by (or for) local rather than central
government. Normally rates are proportional to the estimated rentable value of business and
domestic properties. Rates are often criticised as being unrelated to income.
Fees: Fee is a payment to defray the cost of each recurring service undertaken by the
government, primarily in the public interest.
Licence fee: A licence fee is paid in those instances in which the government authority is
invoked simply to confer a permission or a privilege.
Surplus of the public sector units: The government acts like a business- person and the
public acts like its customers. The government may either sell goods or render services like
train, city bus, electricity, transport, posts and telegraphs, water supply, etc. The government
also earns revenue from the production of commodities like steel, oil, life-saving drugs, etc.
Fine and penalties: They are the charges imposed on persons as a punishment for
contravention of a law. The main purpose of these is not to raise revenue from the public but
to force them to follow law and order of the country.
Gifts and grants: Gifts are voluntary contribution from private individuals or non-
government donors to the government fund for specific purposes such as relief fund, defence
fund during war or an emergency. However, this source provides a small portion of
government revenue
Printing of paper money: It is another source of revenue of the government. It is a method

of creating extra resources. This method is normally avoided because if once this method of
financing is started, it becomes difficult to stop it.
Borrowings: Borrowings from the public is another source of government revenue. It

includes loans from the public in the form of deposits, bonds, etc. and also from the foreign
agencies and organisations.
Problems of unemployment and economic growth and development
These factors are classify into economic and none economic factors
a) Economic factors
1) Capital Formation: The strategic role of capital in raising the level of production has
traditionally been acknowledged in economics. It is now universally admitted that a country
87
which wants to accelerate the pace of growth, has no choice but to save a high ratio-of its
income, with the objective of raising the level of investment. Great reliance on foreign aid is
highly risky, and thus has to be avoided. Economists rightly assert that lack of capital is the
principal obstacle to growth and no developmental plan will succeed unless adequate supply
of capital is forthcoming.
2) Natural Resources: The principal factor affecting the development of an economy is the
natural resources. Among the natural resources, the land area and the quality of the soil,
forest wealth, good river system, minerals and oil-resources, good and bracing climate, etc.,
are included. For economic growth, the existence of natural resources in abundance is
essential. A country deficient in natural resources may not be in a position to develop rapidly.
In fact, natural resources are a necessary condition for economic growth but not a sufficient
one. Japan and India are the two contradictory examples.
3) Marketable Surplus of Agriculture: Increase in agricultural production accompanied by

a rise in productivity is important from the point of view of the development of a country. But
what is more important is that the marketable surplus of agriculture increases. The term
‘marketable surplus’ refers to the excess of output in the agricultural sector over and above
what is required to allow the rural population to subsist. In case a country fails to produce a
sufficient marketable surplus, it will be left with no choice except to import food grains
which may cause a balance of payments problem.
4) Conditions in Foreign Trade: The classical theory of trade has been used by economists
for a long time to argue that trade between nations is always beneficial to them. In the
existing context, the theory suggests that the presently less developed countries should
specialize in production of primary products as they have comparative cost advantage in their
production. The developed countries, on the contrary, have a comparative cost advantage in
manufactures including machines and equipment and should accordingly specialize in
them.Foreign trade has proved to be beneficial to countries which have been able to set-up
industries in a relatively short period. These countries sooner or later captured international
markets for their industrial products. Therefore, a developing country should not only try to
become self-reliant in capital equipment as well as other industrial products as early as
possible, but it should also attempt to push the development of its industries to such a high
level that in course of time manufactured goods replace the primary products as the country’s
principal exports.
88
5) Economic System: The economic system and the historical setting of a country also
decide the development prospects to a great extent. There was a time when a country could
have a laissez faire economy and yet face no difficulty in making economic progress. In
today’s entirely different world situation, a country would find it difficult to grow along the
England’s path of development. The Third World countries of the present times will have to
find their own path of development. They cannot hope to make much progress by adopting a
laissez faire economy. Further, these countries cannot raise necessary resources required for
development either through colonial exploitation or by foreign trade.
B) Non-Economic Factors in Economic Development:
1) Human Resources: Human resources are an important factor in economic development.

Man provides labour power for production and if in a country labour is efficient and skilled,
its capacity to contribute to growth will decidedly be high. The productivity of illiterate,
unskilled, disease ridden and superstitious people is generally low and they do not provide
any hope to developmental work in a country. But in case human resources remain either
unutilized or the manpower management remains defective, the same people who could have
made a positive contribution to growth activity prove to be a burden on the economy.
2) Technical Know-How and General Education: It has never been, doubted that the level
of technical know-how has a direct bearing on the pace of development. As the scientific and
technological knowledge advances, man discovers more and more sophisticated techniques of
production which steadily raise the productivity levels.
3) Political Freedom: Looking to the world history of modern times one learns that the
processes of development and underdevelopment are interlinked and it is wrong to view them
in isolation. We all know that the under-development of India, Pakistan, Bangladesh, Sri
Lanka, Malaysia, Kenya and a few other countries, which were in the past British colonies,
was linked with the development of England. England recklessly exploited them and
appropriated a large portion of their economic surplus.
4) Social Organisation: Mass participation in development programs is a pre-condition for

accelerating the growth process. However, people show interest in the development activity
only when they feel that the fruits of growth will be fairly distributed. Experiences from a
number of countries suggest that whenever the defective social organisation allows some elite
groups to appropriate the benefits of growth, the general mass of people develop apathy
89
towards State’s development programs. Under the circumstances, it is futile to hope that
masses will participate in the development projects undertaken by the State.
5) Corruption: Corruption is rampant in developing countries at various levels and it

operates as a negative factor in their growth process. Until and unless these countries root-out
corruption in their administrative system, it is most natural that the capitalists, traders and
other powerful economic
6) Desire to Develop: Development activity is not a mechanical process. The pace of

economic growth in any country depends to a great extent on people’s desire to develop. If in
some country level of consciousness is low and the general mass of people has accepted
poverty as its fate, then there will be little hope for development. According to Richard T.
Gill, “The point is that economic development is not a mechanical process; it is not a simple
adding- up of assorted factors. Ultimately, it is a human enterprise. And like all human
enterprises, its outcome will depend finally on the skill, quality and attitudes of the men who
undertake
END
90

Entrepreneurship and Enterprise Creation-1

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Entrepreneurship and Enterprise Creation-1

Uploaded by

Copyright:

Available Formats

NDAM (ECE21)ENTREPRENEURSHIP

PAPER: ENTERPRISE CREATION AND ENTREPRENEURSHIP

SECTION ONE : ENTREPRENEURSHIP

SECTION TWO : ECONOMICS

SECTION THREE : COMPANY LAW

SECTION ONE : ENTREPRENEURSHIP

1.1 Conceptual Definition of Entrepreneurs and Entrepreneurship

Entrepreneurship, like an entrepreneur, has no single definition. Entrepreneur is a person

Differentiate between entrepreneurship and intrapreneurship

 Entrepreneurs is the employer while the intrapreneur is the employee

In another view “Entrepreneurship refers to an action process of entrepreneur towards

1.2 Historical development of entrepreneurship

Establish and Manage the Enterprise

HND 2020. Q2.

1.4 Type of Entrepreneurs

B. Adoptive or Imitative Entrepreneur: There is a second group of entrepreneurs generally

HND 2022: Differentiate innovators and imitators

C. Fabian Entrepreneur: The third type is Fabian entrepreneur. By nature these

D. Corporate Entrepreneur: These entrepreneurs used his innovative skill in organizing

3. According to the Use of Technology: The application of new technology in various

A. Technical Entrepreneurs: These entrepreneurs may enter business to commercially

incentives, concessions and other facilities to start a venture.satisfaction in work, ego or

6. According to Entrepreneurial Activity: Based on entrepreneurial activity, entrepreneurs

1.5 Entrepreneur vs. Entrepreneurship

Medium size Enterprise

Medium size enterprises (MEs) are businesses that maintain revenues, assets or a number of

HND 2021 differentiate the type of enterprise according to size (10mks)

The importance and role of small businesses in an economy

The features of small businesses

Categories or types of Small Business

Small Scale Industry

Ancillary Small Industrial Unit

Export Oriented Units

Small Scale Industries Owned by Women

An enterprise operated by women entrepreneurs in which they alone or combined share

Tiny Industrial Units

Small Scale Service and Business

Role of Small Enterprises in Economic Development

Specific Contributions of Small Scale Sector:

5. It can help to release scarce capital towards productive use.

9. They create jobs for the population

10. They increase infrastructural development of the country

Identify five (5) roles of entrepreneurship to the economic development of a country

Entrepreneurship and innovation

1. An Idea, Not a Reality

resources needed to open business. Establish contracts to formalize partnership, and

Small business sector in Cameroon

Challenges or factors affecting small businesses in Cameroon

g. Bureaucracy and corruption

k. The location choice of enterprises is an important factor as it determines how accessible

Small Business Priorities in Cameroon

Sole beneficiary of profits

Limitations of Sole Proprietorship:

Merits of Co-operative Organisations

Limitations of Co-operative Organisations

 What industry do I want to enter?

Types of Family Business:

(iv) Later Generational Control

In fact the simplification may cause some problems:

1. Overlooking the heterogeneity of family firms

2. Simplifying the definition of family

3. Underestimating the value of studying family involvement along various dimensions.

e. The succession of family business goes to the next generation.