AN INTRODUCTION TO THE ECONOMIC ACTIVITY

30060 – MANAGEMENT
Management Book – Chapter 1

Nicola Misani
Department of Management & Technology
AN INTRODUCTION TO THE ECONOMIC ACTIVITY 2

AGENDA
1. WHAT IS MANAGEMENT?
2. THE GOALS AND NEEDS OF PEOPLE
3. TYPES OF GOODS
4. ECONOMIC ACTIVITY
5. INDIVIDUALS AND BUSINESS ACTIVITIES
6. THE ROLE OF ENTREPRENEURS, GOVERNMENTS, AND NON-PROFIT
 1.0
WHAT IS MANAGEMENT?
WHAT IS MANAGEMENT? 4

We define MANAGEMENT as

A range of decisions associated with the

acquisition, allocation, and integration of resources
(human, physical, financial, etc.) required to
perform a certain economic activity.
WHAT IS MANAGEMENT? 5

Key points
A range of decisions associated with the acquisition, allocation, and
integration of resources (human, physical, financial, etc.) required to perform
a certain economic activity.
WHAT IS MANAGEMENT? 6

Key points
A range of decisions associated with the acquisition, allocation, and
integration of resources (human, physical, financial, etc.) required to perform
a certain economic activity.
WHAT IS MANAGEMENT? 7

We define ECONOMIC ACTIVITY as

Actions that involve the production, distribution

and consumption of goods and services within a
society.
WHAT IS MANAGEMENT?

Why do we
perform
economic
activities?
WHAT IS MANAGEMENT? 9

Connecting pieces

PEOPLE NEEDS GOODS & ECONOMIC

MANAGEMENT
SERVICES ACTIVITY
 2.0
THE GOALS AND NEEDS OF PEOPLE
THE GOALS AND NEEDS OF PEOPLE 11

NEEDS: dissatisfaction due to the lack of something

GOALS: what people aim to VALUES: what is important to

achieve the life of people

— Needs, goals, and values differ across cultures and socio-economic

conditions
— They evolve over time
THE GOALS AND NEEDS OF PEOPLE 12

Maslow’s hierarchy of needs

In 1943, Abraham Maslow developed “a

theory of psychological health predicated on
fulfilling innate human needs in priority”.
Maslow observed that needs spans from the
tangible, such as food and water, to the
intangible, such as self-esteem and creativity.
THE GOALS AND NEEDS OF PEOPLE 13

Types of needs
NATURAL NEEDS ESSENTIAL/PRIMARY NEEDS
product of human biology universal (natural + certain social
needs)
VS.
VS.
SOCIAL NEEDS
NON-ESSENTIAL/SECONDARY
product of self and social NEEDS
interaction with others
social needs that are influenced
- RADICAL
fundamental to society,
by imitation, fashion, expectations
e.g., justice or freedom from others
- NON-RADICAL
belonging, friendship, etc.
 3.0
TYPES OF GOODS
TYPES OF GOODS 15

PRIMARY GOODS NON-ESSENTIAL GOODS

satisfy essential needs
VS satisfy non-essential needs
TYPES OF GOODS 16

COMPLEMENTARY GOODS SUBSTITUTES GOODS

you need both to satisfy need
VS you need one to satisfy need
TYPES OF GOODS 17

DIFFERENTIABLE GOODS COMMODITIES

Producers can add
VS there are
differentiating features no differentiating features
to the good
TYPES OF GOODS 18

CONSUMER GOODS INDUSTRIAL GOODS

for final use or consumption
VS used to produce other goods
TYPES OF GOODS 19

DISPOSABLE GOODS DURABLE GOODS

used once
VS used many times
TYPES OF GOODS 20

GOODS FOR INDIVIDUAL COLLECTIVE CONSUMPTION

Use or consumption VS Use or consumption
by single individuals by many individuals
at the same time
TYPES OF GOODS 21

PUBLIC GOODS (VS. PRIVATE): two definitions

1. the goods that are both non-excludable and

non-rivalrous in consumption

2. the goods produced by the State or its branches

(rather than firms, families or non-profits)
TYPES OF GOODS 22

Excludability and rivalry in consumption

EXCLUDABILITY IN CONSUMPTION RIVALRY IN CONSUMPTION
it is possible to prevent people from consumption by a consumer
accessing a good prevents consumption by others

EXAMPLES OF GOOD PRODUCED BY THE STATE

National security, culture, fresh air (non-excludable and non-rivalrous), highways
(excludable), timber (rivalrous)
 4.0
ECONOMIC ACTIVITY
ECONOMIC ACTIVITY 24

What does economic activity involve?

TECHNICAL TRANSACTIONS COMPLEMENTARY
TRANSFORMATION (SUPPORT) ACTIVITIES

Physical (i.e., To buy input and to sell Institutional structure

manufacturing) output. design
Spatial (i.e., Transactions (i.e., of organizational and
transportation) financial resources, human resources
labor, private goods..) management
Logical (i.e., banks)
link organizations to accounting and
other organizations and information
individuals. management
ECONOMIC ACTIVITY 25

The circular
flow model
Money moves through
society in 2 ways:
flowing from producers to
workers as wages,
and back to producers as
payment for products
 5.0
INDIVIDUALS AND BUSINESS ACTIVITIES
INDIVIDUALS AND BUSINESS ACTIVITIES 27

Individuals
and
business
activities
INDIVIDUALS AND BUSINESS ACTIVITIES 28

The role of individuals in business

OWNERS CUSTOMERS EMPLOYEES

— Provide resources to — Buy goods/services — Responsible for the

start a business offered by the work that goes on
— Can manage the business within a business
business
themselves or hire
employees to to do
so
INDIVIDUALS AND BUSINESS ACTIVITIES 29

Management
• Concerned with
acquiring,
developing and
using resources
(including people)
• Involves overseeing
firm’s operations to
ensure resources
are transformed
into goods/services
INDIVIDUALS AND BUSINESS ACTIVITIES 30

Marketing
• Focus on the 4 P’s –
product, price,
place/distribution and
promotion
• Involves planning and
developing products
that satisfy customers’
needs, and making
decisions about how
much to charge for
products and when and
where to make them
available
 INDIVIDUALS AND BUSINESS ACTIVITIES 31

Finance
• Refers to all activities
concerned with
obtaining and effectively
using money for
business operations
• Primary responsibility of
owners to provide
financial resources
either by borrowing
money from banks or
attracting additional
investors
 6.0
THE ROLE OF ENTREPRENEURS, GOVERNMENTS,
AND NON-PROFIT
THE ROLE OF ENTREPRENEURS, GOVERNMENTS, AND NON-PROFIT 33

Role of the entrepreneur

• The entrepreneur is an
individual who risks his/her
wealth, time, effort to develop
for profit an innovative
product

• Free-enterprise economy
provides necessary conditions
for entrepreneurs to succeed
THE ROLE OF ENTREPRENEURS, GOVERNMENTS, AND NON-PROFIT 34

Role of the government

— Preserves competition and protects
consumers, employees and the
environment through laws
and regulations

— Takes steps to minimize disruptive

effects of economic fluctuations and
reduces unemployment

— Spurs growth so consumers spend more

money and businesses hire more
employees

Think of the pandemic crisis:

what role played the government to safeguard economy?
THE ROLE OF ENTREPRENEURS, GOVERNMENTS, AND NON-PROFIT 35

Goal of non-profit business

— Organizations that may provide goods or services but do not have
the fundamental purpose of earning profits

— Why non-profit?
THE ROLE OF ENTREPRENEURS, GOVERNMENTS, AND NON-PROFIT 36

Characteristics of non-profit business

— Non-profits are organizations that 1) are private and 2) are not allowed
to distribute profits or assets
— Typical spheres of activity: culture, education, healthcare, protection of
the environment, social programs, trade associations, promotion of civil rights..
— They may pursue private interests of participants (e.g., trade associations),
sell products or services (e.g., universities), or provide public goods
(e.g., philanthropic foundations).
— They need skills related to management, marketing, and finance
— They may have employees, volunteers, or a combination of them
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