CAMBRIDGE

INTERNATIONAL COLLEGE
Business Economics & Commerce
[modules 1 to 6]
Presented by

S. Ntoah-Boadi
 Outline
• Economic systems and activities
• Demand and Supply
• The Role of Commerce
• Price, Demand and Elasticity
• The Distributive Trade
• Documents used in Commerce
 Economics defined
• Ask participants to give the definition of
economics.
 Definition of economics
• It is the science which concentrates on
understanding the complex forces which
lie behind the production which will satisfy
our wants or requirements.

• The social framework within which

production and other economic activities
take place is called the economic system
 Economic law
• It is a theoretical principle propounded
after observation or extracted from
practice. It is characterised by:
1. Causes and effects [it is statistical]
2. Reaction of a fraction of a large number
of people hence cannot predict the
reaction of any one specific individual.
3. Facilitates planning and forecasting in
business.
 Definition cont.
• Players in the economic system though
play their respective roles are
interdependent. They include
• The household
• The business
• The government
• The financial sector
• Overseas thus, import and export
 Cont.
• The economic system provides answers to
questions such as:
• What to produce
• How to produce
• When to produce
• Where to produce
• Who to produce
• For whom to produce
• Etc.
 Why economics
• To study man in his effort to:
• Earn a living
• Appreciate the forces that influence
behaviour
• Make efficient use of scarce resources
[income]
• The amount of money which will be spent
in paying to satisfy wants or needs is
income
 Sources of income
• employment [wages and salaries]
• Profit or gain from business
• Rent income
• Investment income [interest and dividend]
• Pensions
 Planning and forecasting in
business
• Plans are predetermined routes to the
achievement of certain objectives or targets.
• It is concerned with future activities
• It is based on forecast.
• Forecasting is the prediction of expected pattern
of future events. An accurate forecast reduces
the degree of uncertainty and makes plans more
reliable.
 utility
• It is the benefit or satisfaction one derives
from consuming or possessing a good or
service.
• It influences a want or a need
• It is an indirect measure of price
• It increases in total but at a diminishing
rate as and when one consumes or
possesses more of a product.
 production
• It is defined as the creation of utility
• It is aimed at satisfying wants
• It requires the use of agencies called the
factors of production. [land, labour, capital
entrepreneur]
• It involves the provision of goods [tangible]
or service [intangible]
 Factors of production
• land: collection of all natural resources used in production.
• Labour: manual and mental efforts undertaken for reward
• Capital: all material resources other than land and labour used in
production.
1. exist as a result of past production
2. assist future production
3. not wanted for their own sake
• Entrepreneur: this person provides specialised kind of labour.
it coordinates the other factors
it takes all the risks
it controls
its reward is profit

Production takes place within an economic system which can be:

capitalist or
communism
 Commerce and economics
• Whereas economics is concerned with
production commerce is concerned with
the transfer of the result of production from
the producer to the consumer
• The trader depends on the economist
• The trader makes the work of the
economist more useful.
 Division of labour cont 1.
• Its advantages are:
• 1. greater skill of workers
• 2. encourages specialisation in where
one has the aptitude
• 3. use of simply machine to perform
routine task
• 4. less capital required
 Division of labour cont.2
• The associated demerits are:
• 1. monotony
• 2. decline of craftsmanship
• 3. greater risk of disruption.
 Division of labour cont. 3
• It is limited by:
• 1. the size of the market
• 2. the process involve in production.
 Uses and value of money
• Money is any thing that is generally recognised
as having a fixed value and generally accepted
throughout society.
• it comes in different forms such as:
1. some commodities
2. some precious metals [by weight]
3. coins
4. goldsmiths’ receipts [origin of paper curreny]
5. bank notes
 Uses of money cont. 1
• The functions of money are:
• 1. medium of exchange
• 2. measure of value
• 3. store of wealth
 Demand and supply
• Market is defined in economics to mean all the
ways by which buyers and sellers come into
contact in order to exchange goods and/or
services.
• Demand is the quantity of a product that buyers
are willing and able to purchase at each and
every possible price that the product could be
sold at.
• The quantity to be purchased at a given price is
the quantity demanded.
 Demand and supply cont. 1
• Supply is the quantity of a product that sellers will wish to sell or
supply at each possible price that the product can be sold at.
• At a given price the quantity sold is the quantity supplied.
• The equilibrium price is the price at which quantity supplied equals
quantity demanded
• A demand curve shows the relationship between the price of a
product and the demand for that product in a graph form. It slopes
downward from left to right.
• The supply curve shows the relationship between the price of a
product and the supply of that product in a graph. It slopes upward
from left to right.
• The price mechanism is a system that allows the free interplay of
demand and supply to determine the price of a product. It describes
the tendency for the price to change little by little until there is
market equilibrium.
 Demand and supply cont. 2
• Factors affecting demand and the demand
curve.
• the price of complementary and substitute
• the incomes of purchasers
• preferences, tastes and fashions
• the number of potential buyers
• weather and seasonal factors
• the price of the product in question.
 Demand and supply cont. 3
• Factors affecting supply include
• technology
• costs
• External regulation
• the price of the product
• efficiency
• level of profit and investment
• change of business [competition]
•
 Value of money

• The value of money is its purchasing

power. It is dependant of price.
• The higher the price the lower the value of
money and vice versa.
• The value of money is measured by index
numbers.
• The value of an index number is
influenced by:
the weighting given to each product
 Role of commerce cont. 1
• Categories of enterprises are:
• 1. industrial
extractive
processing or refinery
manufacturing
construction
• 2. trading/distributive
wholesalers
retailers
• 3. service
 The role of commerce
• Commerce is the transferring of
commodities in a usable condition from the
producer to the consumer. It takes place
within the public and private sectors of the
economy.
 Types of business units
• In the private sector the common business
units are:
• sole-proprietorship
• partnership
• limited liability company
 Business units cont. 1
• Sole-proprietorship business is the one
owned and controlled by one person.
• It has the following advantages
good knowledge about the business
rapid decision making
easy to control
personal contact with customers/suppliers
sole owner of profit.
 Business units cont. 2
• Disadvantages of sole-proprietorship
• indispensability of the owner
• absence of specialisation
• inadequate capital
• unlimited liability

• Partnership is the relationship which subsists

between two or more persons carrying on
business in common with a view to profit
 Business units cont. 3
• Advantages of partnership:
specialisation among partners
no effect of absence
good decision due to consultation

• Demerits.
strained relationship may exist
delay in decision making
unlimited liability
 Business units cont. 4
• A business unit owned by unlimited number of persons who contribute capital and acquire
ownership by acquiring shares in the business. It is a legal entity separate from the owners.
• It may be either private or public

• advantages:
artificial personality
frequently have huge capital
continuity
greater specialisation
limited liability.

Source of capital:
Initial.
issue of shares: ordinary share
preference share

additional.
issue of new shares
loan or mortgage from bank

issue of debenture
 Division of labour
• Division of labour is the performance of
different types of work by different people.
• It involves the division of type of work and
subdivision into individual task or group of
related tasks to ensure greater proficiency
 Utility cont.
• The law of diminishing marginal utility states that the
utility of each additional unit decreases as more of a
commodity is consumed.
• Marginal utility is the extra or additional satisfaction
obtained from consuming one additional or extra unit of a
product.
• The extra unit that provides the extra satisfaction is
called the marginal unit.
• The consumer is aimed at maximising satisfaction from
the limited income.
• The consumer is at equilibrium when he arranges his
purchases of all goods such that the marginal utility of
each product is equal.
 Price, Demand and Elasticity.
• Price elasticity of demand is a measure of how
responsive quantity demanded is to a small change in
price of that product. It is always a negative figure
• It provides useful information for pricing decision
• The higher the price elasticity the more sensitive quantity
demanded is to price changes and vice versa.

• Interpretation of PED
PED>-1 elastic
PED<-1 inelastic
PED=-1 unit elastic
 Price, Demand Elas. Cont.1
• For elastic: increase in price reduces
revenue and vice versa.
• For inelastic: increase in price increases
revenue and vice versa.
• For unit elastic: change in price does not
affect revenue.
 Price, demand and Elas. Cont. 2
• Factors affecting price elasticity of demand include:
availability of substitutes
type of product [ necessity/luxury.
proportion of income spent on the product
time
life span of the product
taste.

Cross price elasticity of a product measures how sensitive the quantity

demanded of a product is to changes in the price of a related
commodity.
Percentage in qty demanded of y divided percentage in price of x.
It is positive for substitutes and negative for complementary products.
 Market structures
• The common types are:
• competitive market
• monopolistic market
• oligopoly.

• Pricing strategies
• purpose
• maximise revenue
• increase sales
• protect the market.

• The strategies include

• a low price strategy involving
• penetration pricing
• barrier to entry pricing
• promotional pricing

• a market price strategy

• a high pricing strategy or skimming pricing.

 Price discrimination
• It is the practice of charging different prices to different
customers for the same commodity.
• Its forms
• first degree [reservation price]
• second degree [for varying quantities]
stepped or blocked
quantity discount
third degree
market skimming
peak-time
bunding
geographical
 The distributive trade
• The business activities that links the
producer to the consumer. Firms that are
involved in this trade do buying and selling
• There are many different channels of
distribution.

• Those involve are wholesaler and retailers

• Direct distribution to retailers.
 Types of retail businesses
• Co-operative enterprise
• Department stores
• Supermarkets and hypermarkets
• Do-it-yourself and garden centres
• Franchising
• Mail order businesses
• Door-to-door selling
• Selling by telephone
• Unsolicited selling
• Club
• Selling on the internet.
 Business credit
• Forms of business credit
• credit purchase
• monthly accounts [credit on calendar month
• fixed periods of credit
• credit cards
• debit cards
• in-store credit cards
• leasing, contract hire or rental
• instalment sales
• hire purchase
 Credit control
• Checking on creditworthiness.
• bank reference
• trade reference
• use of trade enquiry agency.

• Credit policy and liquidity [refer]

 Discounts

• It is a reduction from the quoted price of a product.

• It comes in various forms, namely
trade discount: a reduction from the recommended
retail price [RRP].
for bulk purchases
for resale
quantity discount: offered to encourage larger
purchase. It is normally on a sliding scale.
cash discount: given to entice a customer buy and
pay for at once.
regular custom discount: to induce a customer to
buy regularly from a particular shop.
prompt payment discount:
 Business documents
• Businesses require the right information in order to carry
out their operations efficiently.
There are two main sources
internal [mostly from documents]
external
clients
suppliers
employees
financial institutions and trade organisations
government organisations
 Documents cont. 1
• The key features of records
serve the purpose [relevant]
be accurate
readily available
up to date.
Some documents
forms
enquiries
quotations
estimates and tenders
orders
acknowledgements of orders
 Documents cont. 2
Invoices
proforma invoice
credit note
statements of account
bank cheque
cheque counterfoils
paying-in slips
receipts
petty cash voucher
delivery note
goods received note.
End, thank you.