CHAPTER 1

Understanding The Business System
Presented by: Anna Riana Putriya

The Concept Of Business and The Concept Of Profit
• Business is an organization

that provides goods or services to earn profits
• Profits represent the difference

business’ between a business’s revenues and its expenses

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What Are Factors of Production?
Resources used in the production of goods and services— services—labor, capital, entrepreneurs, physical resources and information resources

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Factors of Production
1. Labor/Human resources / Labor/ Intelectual Capital are the physical and mental capabilities of people as they contribute to economic production 2. Capital are the funds needed to create and operate a business enterprise

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3. Entrepreneur is an individual who accepts the risks and opportunities involved in creating and operating a new business venture

4. Physical resources are tangible things organizations use in the conduct of their business

5. Information resources are data and other information used by business

Can you name any others ?
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Economic Systems Around the World
nation’ An economic system is a nation’s system for allocating its resources among its citizens.

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Types of Economic Systems
Planned Economies
Socialism
(Mixed Market)

Communism

Capitalism vs. Market

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1. Planned Economy
Relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions. The Kremlin is shown above.

What Is Communism?
Planned economy in which the government owns and operates all factors of production

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2. Market Economy

Relies on individuals to control production and allocation decisions through supply and demand
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What is Market? Mechanism for exchange between the buyers and sellers of a particular good or service

What Is Capitalism? Market economy that provides for private ownership of production and encourages entrepreneurship by offering profits as an incentive

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Circular Flow in a Market Economy

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3. Mixed Market Economy
Features characteristics of both planned and market economies
• Privatization is the process of converting government enterprises into privately owned companies • Socialism is a partially planned system in which the government owns and operates selected major industries

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Demand and Supply in a Market Economy
• Demand is the willingness and ability of buyers to purchase a good or service • Supply is the willingness and ability of producers to offer a good or service for sale

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

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What Is the Market Price (or Equilibrium Price)?
ProfitProfit-maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal
High

2500 2000 Pizza Price 1500 1000 500 0
Low

D

Surplus

S

Market Equilibrium

Shortage
2 4 6 8 10 12 14 16 18 Quantity 20 High

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Private Enterprise and Competition in a Market Economy
Private enterprise is an economic system that allows individuals to pursue their own interests without undue governmental restriction. Four elements: – – – –

Private Property Rights Freedom of Choice Profits Competition

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Degrees of Competition

Oligopoly

Monopolistic Competition

One
Monopoly

Many
Perfect Competition

Sellers
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Degrees of Competition

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Evolution in Business
Production Era Marketing Era

Entrepreneurship Era

Laissez-Faire & Laissez-

Global Era

Industrial Revolution

Information & Internet Era
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