SECTION 1: THE NATURE OF BUISNESS

LECTURE 1: EARLY
ECONOMIES
 The Economic Problem
• Our unlimited needs and wants far exceed the limited resources
available to satisfy our needs.
• Scarcity: is the fundamental economic problem of having seemingly
unlimited human wants in a world of limited resources. It states that
society has insufficient productive resources to fulfil all human wants
and needs.
• Scarcity leads to Choice–making a decision between several choices
eg. Having to make choices at the grocery store.
• Economy: This is any place or location where economic activity exists
i.e consumers and producers interact. Economies also interact with
government and the international sector.
 INTRODUTION TO VARIOUS
BUSINESS CONCEPTS AND DEFINITIONS

• Enterprise
This could mean a business. This is
used to describe an undertaking
of an activity with some degree of
difficulty or risk. This undertaking
has specific purpose such as
monetary goals. Enterprise can
also mean initiative which is
daring to do something new or
different, challenging or risky.
• Entrepreneurship
The practice of identifying a new
innovation or opportunity, organising the
financing and other resources and taking
the risk in the hope of creating wealth.
The entrepreneur is the individual who
identifies the opportunity and risks the
time and money to start to organise this
new adventure. The act of combining all
the other factors of production (land,
labour and capital) with the aim of
establishing a profitable venture for the
production of goods and services.
 CONT’D Disadvantages to Bartering:
1. A double coincidence of wants. Can only
exchange if each party desires what the
Barter other party has.
Exchange (goods or 2. Rate of exchange could be difficult to be
services) for other goods decided upon. There must be an
or services without agreement of goods to be exchanged.
using money. 3. Some goods are not divisible.
4. Goods are bulky and difficult to transport.
5. Store of Value – Some goods are
perishable and cannot be stored for a long
time.
 THE DEVELOPMENT OF INSTRUMENTS OF EXCHANGE

To solve many of the Bartering problems, a system of ‘money’ was

developed.
Today, money does not only come in the form of notes and coins. It
also includes:
1. Credit cards- Credit company pays for 4. Electronic transfer- Funds are transferred from one
goods/services while consumer makes payments to bank to another via computer.
credit company.

2. Debit cards- Payment for goods through access of 5. Tele-banking- The use of the telephone to manage
consumer’s bank account bank accounts to make payments.

3. Cheques- Payment represented on paper to be 6. E-commerce- The use of the internet to make
taken from consumer’s bank account. purchases. Payment can then be made via electric
transfer, credit card etc.
 THE DEVELOPMENT OF MONEY

• Money can be defined as anything that is generally acceptable in settling a debt obligation. For example
Coins, bank notes, paper notes.
History of Money
• The drawbacks of barter led to the development of money.
• Traditionally cowrie shells, cattle, salt and sugar were used as money.
• Then precious metals were used such as silver and gold but it became burdensome and heavy.
• The goldsmiths kept the gold while issuing receipts to precious metal owners to represent the value of
gold owned.
• The owner would present the receipt when the gold was required.
• The bearer of the receipt would be paid the gold.
• Gold smiths started to issue smaller denominations such $10 and $5
• Now receipts became a representation of money.
• Goldsmiths became bankers and the amount of money exceeded the amount of gold or silver in reserve
due to loans being given out which led to greater economic activity.
• Central banks took over the issuing of money to stabilize the system.
CHARACTERISTICS OF MONEY

• ACCEPTABILITY
• DIVISIBILITY
• PORTABILITY
• DURABILITY
• NON-COUNTERFEITABILITY
• HOMOGENOUS IN NATURE
 FUNCTIONS OF MONEY

• As a medium of exchange- a commonly accepted form of payment for

goods and services.
• As unit of account - pricing
• As a store of value – stored for future use eg. savings
• Means of deferred payment- makes credit possible.
 PROFITS VS LOSSES

• Profit • Loss
The surplus funds which The situation which
remain after all exist when total sales
expenses have been are not enough to cover
covered. Basically, it is all expenses. Basically, it
the total Revenue is the total Cost of
exceeding total Cost. Production exceeding
total Revenue
 CONT’D

• Trade
This is the process of buying and selling. Business engage in trade to make a
profit.

• Organisation
The provision and coordination of the firms inputs to achieve the goals and
objective of the firm.

• Economy
The system within a country which determines the production, exchange and
consumption of goods and services.
 CONT’D

EXCHANGE - The voluntary trade of goods and

services. SERVICES
GOODS
Tangible products which have been produced. e.g. car, rice, Intangible products which have been produced. These are
clothing etc. There different types of goods : activities that are provided to satisfy human wants. e.g. banking,
transportation, cleaning, insurance etc. There are different types
• Free good – A good that is not scare and available without of services:
limits eg. Air, Desert sand, water in the oceans.
• Direct Services – a service that is incurred for their own
• Private good- is defined in economics as "an item that yields sake eg. Haircut, repairs.
positive benefits to people that is excludable, i.e. its owners
can exercise private property rights, preventing those who have • Indirect Services – service that is received along with
not paid for it from using the good or consuming its benefits eg benefiting from a direct service or good eg. Delivery of
Bread Pizza
• Public Goods- These goods are non-exclusive i.e no one
individual can exclude another individual from receiving its
benefits eg. Roads, Bridges
• Merit Goods – These are goods that when used contributes a
benefit to the wider society eg. Education
• Demerit Goods – These goods when used or consumed have a
negative impact on the wider society eg. Cigarettes
 CONSUMER VS PRODUCER

• Consumer • Producer

A person who purchases goods A person that satisfies human

and services for personal use and wants by the organisation of
plays a vital role in the economy. resources to produce goods and
services.
 ADDITIONAL TERMS AND CONCEPTS
• Capital/ Producer goods- Tangible assets or goods that are used to • Opportunity Cost – is the value of the loss incurred as the result of the
produce other goods eg. Buildings, Vehicles, Stock, Raw materials sacrifice of the second best option.
• Consumer goods- are goods that are ultimately consumed rather than • Trade or Exchange – the exchange of goods and services for money eg
used in the production of another good. (Final Product) international trade. Distinguishable from barter which is exchange of
goods for goods.
• Primary goods- are those goods that are utilised in the production of
consumer goods eg. Raw materials, agriculture, fishing, farming. • Commodity – This is a good that is traded, usually raw materials or
primary agricultural products such as copper or coffee.
• Labour – The human mental and physical effort in the production process.
• Market – A mechanism which allows buyers and sellers to interact in their
interest eg. Online buying, financial market, commodity market. It is any
place where buyers and sellers meet to engage in trade. It is also referred
to as the demand for a product.
• Capital- Money which is used in the organisation to acquire assets. It also
refers to items (factories, equipment, machinery etc.) used to create final
products.
• Labour- This is the physical and mental contribution of individuals to the
creation of goods and services.
• Specialisation- This is the division of labour into specific tasks. A whole
process is divided into several tasks. This helps to speed up the process
and may result in an increase in productivity and a decrease in unit cost.
 REASONS FOR ESTABLISHING A
BUSINESS
Starting a business is a lot of hard work.
Therefore persons who decide to start a business
must be ready to dedicate a lot of time and
energy to its start-up. It is also very costly and
therefore capital will have to be identified to
inject into a new business.
 THE REASONS FOR STARTING UP A
BUSINESS
• Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a business would give
them the opportunity to be a successful business person and achieve financial independence.

• Being your own boss

You are able to make decisions about the direction and operation of the business.

• To use your skills and knowledge for yourself

The skills, knowledge and experience that you have acquired can be put to work for you.

• Self-actualization/fulfilment
Owning and operating a successful business will give a feeling of accomplishment.

• To create employment for relatives, friends and community members

Business can assist in providing jobs for persons in communities with high levels of unemployment.
WHAT ARE SOME CHALLENGES
FOR ESTABLISHING YOUR OWN
BUSINESS?