Introduction to Business

Course Policy
Course Description:
1. Understanding the business systems
2. Understanding the environment of business
3. Conducting business ethically and responsibly
4. Understanding entrepreneurship and new
ventures
5. Managing the business enterprise
6. Organizing a business enterprise
7. Managing human resource
8. Motivating and leading employees
9. Understanding marketing processes and
consumer behavior
10.Developing and pricing products
11.Distributing and promoting products

Introduction to Business
Course Policy (Contd.)
Text Book:
Business Essentials, 8th Edition by
Ricky W. Griffin & Ronald J. Ebert,
Prentice Hall

Reference Text:
Business.Today, Stephan P. Robbins,
Harcourt College Publishers
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Introduction to Business

Chapter 1:
Understanding Business Systems

Introduction to Business (Chapter 1)

In this chapter we will:
Define the nature of business
Identify its goals and functions
Discuss history of business
Describe different types of global
economic systems
Study demand and supply and its
affect on resource distribution
Discuss private enterprise and
various degree of competition

The Concept of Business and Profit

Business
An organization that provides goods or
services that are then sold to earn profits.
Profits
The difference between a businesss
revenues and its expenses. The rewards
owners get for risking their money and
time.
Consumer Choice and Demand
The freedom of consumers to choose how to
satisfy their wants and needs.
The freedom of business owners to decide
how to meet those wants and needs.
Opportunity and Enterprise
Success in business requires spotting a
promising opportunity and then developing
a good plan for capitalizing on it.
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The Concept of Business and Profit

(cont)
The Benefits of
Business
Provision of goods and services
Employment of workers
Innovation and opportunities
Increased quality of life and standard
of living
Enhanced personal incomes of
owners and stockholders
Tax payments support government
Support for charities and community
leadership
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The Evolution of Business

The Factory System and the Industrial
Revolution
Middle of the 18th century
Manufacturing was changed factory
system brought together material, worker
in one place and produced large
quantities
Low cost raw material
Specialization of labor
Mass production replaced a skilled worker
with a semi skilled worker trained to perform
one task, aided by a specialized equipment
Increased output
Laissez faire and the Entrepreneurial Era
During the 19th century
Government should not interfere in the
economy run business without regulations
Risk and entrepreneurship became the
practice
Difficult for competitors to enter the market7

The Evolution of Business (cont)

The Production Era
Early 20th century
Further increase output by scientifically studying
jobs and defining one best way to perform
Model of management was dubbed as scientific
management
Henry Ford introduced the assembly line
Fixed workstations
Increased task specialization
Concepts of scientific management
Moving the work to the worker
Growth and assembly line came at the cost of
worker freedom
Rise of labor unions
The Marketing Era
After world war II
Previously businesses had been production and
sales oriented
Now, businesses started to produce what customer
wanted
Choose what best suited their need by
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producing a variety of products

The Evolution of Business (cont)

The Global Era
The 1980s saw
Technological advances
Computer technology
Communication capabilities
Global economy
Advantages of other country
resources
The information Era
Use of internet
Small Vs large companies

Economic Systems
Economic System
A nations system for allocating its
resources among its citizens, both
individuals and organizations

Factors of Production
Labor: Human resources physical and
intellectual contribution
Capital: Financial resources
Entrepreneurs: Persons who risk
starting a business
Physical resources: Tangible things
used to conduct business
Information resources: Data and other
information used by businesses
Market forecast, economic data, knowledge
of people
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Types of Economic Systems

Planned Economy
A centralized government controls
all or most factors of production
and makes all or most production
and allocation decisions for the
economy.

Market Economy
Individual producers and
consumers control production and
allocation by creating combinations
of supply and demand.

Market
A mechanism of exchange between
buyers and sellers of a good or
service.
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Planned Economies

Communism
A system Karl Marx envisioned
in which individuals would
contribute according to their
abilities and receive benefits
according to their needs.
The government owns and
operates all factors of
production.
The government assigns people
to jobs and owns all businesses
and controls business decisions.
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Market Economics
Capitalism
The government supports private ownership
and encourages entrepreneurship.
Individuals choose where to work, what to
buy, and how much to pay.
Producers choose who to hire, what to
produce, and how much to charge.

Mixed Market Economy

Features characteristics of both planned and
market economies.
Privatization: The process of converting
government enterprises into privately owned
companies.
Socialism: The government owns and
operates select major industries such as
banking and transportation. Smaller
businesses are privately owned.
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Economics of Market System

Demand
The willingness and ability of buyers to
purchase a product (a good or a service).

Supply
The willingness and ability of producers to
offer a good or service for sale.

The Laws of Demand and Supply in a

Market Economy
Demand: Buyers will purchase (demand)
more of a product as its price drops and
less of a product as its price increases.
Supply: Producers will offer (supply) more
of a product for sale as its price rises and
less of a product as its price drops.
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Demand and Supply in a Market

Economy
Demand and
Supply Schedule
The relationships among different
levels of demand and supply at
different price levels as obtained
from marketing research, historical
data, and other studies of the
market.
Demand curve: How much product will
be demanded (bought) at different
prices.
Supply curve: How much product will
be supplied (offered for sale) at different
prices.
Market price (equilibrium price): The
price at which the quantity of goods
demanded and the quantity of goods
supplied are equal.

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Surpluses and Shortages

Surplus
A situation in which the
quantity supplied exceeds the
quantity demanded
Causes losses

Shortage
A situation in which the
quantity demanded will be
greater than the quantity
supplied
Causes lost profits
Invites increased competition
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Private enterprise in a Market

Economy System
Private Enterprise
Allows individuals to pursue
their own interests with
minimal government
restriction.

Elements of a Private
Enterprise System
Private property rights
Freedom of choice
Profits
Competition
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Degree of Competition
Perfect Competition
Prices are determined by supply
and demand because no single firm
is powerful enough to influence the
price of its product.
All firms in an industry are small.
The number of firms in the industry is
large.

Principles of perfect competition:

Buyers view all products as identical.
Buyers and sellers know the prices that
others are paying and receiving in the
marketplace.
It is easy for firms to enter or leave the
market.
Prices are set exclusively by supply and
demand and accepted by both sellers
and buyers.
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Degree of Competition (cont)

Monopolistic Competition
There are numerous sellers trying
to differentiate their products from
those of competitors so as to have
some control over price.
There are many sellers, though
fewer than in pure competition.
Sellers can enter or leave the
market easily.
The large number of buyers
relative to sellers applies potential
limits to prices.

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Degree of Competition (cont)

Oligopoly
An industry with only a few large
sellers.
Entry by new competitors is hard
because large capital investment is
needed.
The actions of one firm can significantly
affect the sales of every other firm in
the industry.
The prices of comparable products are
usually similar.
As the trend toward globalization
continues, most experts believe that
oligopolies will become increasingly
prevalent.
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Degree of Competition (cont)

Monopoly
An industry or market that has only
one producer (or else is so dominated
by one producer that other firms
cannot compete with it).
The sole supplier enjoys complete control
over the prices of its products; its only
constraint is a decrease in consumer
demand due to increased prices.

Natural monopolies: Industries in

which one firm can most efficiently
supply all needed goods or services;
typically allowed and regulated by
legislated acts and governmental
agencies.
Example: Electric company
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