BUSINESS 7-8-2020 CLASS NOTES

Business includes Productions and Consumption.

1) Production:- In simple words creating goods and services which have the ability
to satisfy needs and wants

2) Consumption:- using these goods and services to satisfy needs and wants

Needs are basically the essentials for life without which survival is difficult. These
are also the necessaties e.g food, shelter, clothing etc. Needs are limited in
nature.

Wants are the desires/luxuries of life which make living more comfortable for e.g
luxury car, iphone 11, beach villa. Wants are unlimited in nature.

Resources are elements used in the production of goods and service.

Also known as factors of production:

1) Land

2) Labour

3) Capital

4) Enterprise/ Entrepreneur

Resources are limited in nature.

Scarcity:- Limited resources to satisfy unlimited wants, also known as the basic
economic problem.

These wants will be ever rising. Due to unlimited nature of wants we have to see
scarcity.
Hence we are forced to make choices:

1) selecting b/w alternative

2) limited resources cannot help in achieving all desires; hence choice needs to be
made.

The thing you have missed on is called opportunity cost.

Opportunity Cost is the next best alternative forgone. In other words the cost of
making a decision or a choice. E.g to come to this class you've given up on the
time you'll spent on phone.

Consumption:-

1) Durable:- have the ability to satisfy needs/wants over a longer time period e.g
electronics

2) Non-Durable: satisy needs/wants over a shorter period of time eg.

food/chocolates

Factors of Production:- are the elements used in the production process.

1) Land:- All natural resources used in the production of goods. e.g seas, mines,
forest, plain lands. Everything which is occuring naturally will classify as land. The
Economic Reward is rent.

2) Labour:- all mental and physical human efforts used in the production of goods
and services.

It includes all skilled and unskilled labour. E.g doctors, engineers, lawyers, manual
labour. All are included. People providing their skills.

The Economic Reward for labour will be wages and salaries. Wages are paid on
daily/weekly bases. Salaries are fixed annual amount paid on monthly basis.

3) Capital:- All man made resources in the production process.

i) Fixed Capital:- Which can be used repeatedly over a longer time period
it helps in converting raw materials into finished goods

ii) Working capital: in continous rotation, used in a shorter span of time, used to
finance day to day activites

Working capital cycle

The Economic Reward for capital is Interest/rate of return.

4) Enterprise

The risk taking ability.

Entrepreneur is the person who combines all F.O.P in the most efficient manner to
carry out a business activity.

Roles of an entrepreneur;

1) generate unique ideas

2) allocate resources

3) assume a risk of loss in case of failiure to sell products

The Economic Reward for enterprise is profit.