Professional Documents
Culture Documents
Business
Management
The Economic Problem:
Needs & Wants
A need is something we have to have
to live e.g. food, water, clothing
A want is something we desire but
don’t necessarily have to have e.g.
jewelry, holidays abroad.
Activity: Make a list of your personal
needs and wants. Limit your wants to
10 items.
The Economic Problem
Wants are unlimited, however,
resources are limited. This creates
scarcity.
Because of scarcity, we have to make
choices.
When making a choice, the next best
alternative we had to give up is called
the opportunity cost.
Opportunity Cost Activity
What could be the opportunity cost of
using some land to build a restaurant?
What could be the opportunity cost of
spending $ 200 on a pair of Nike sports
shoes?
What is opportunity cost?
It is defined as the best alternative that
is foregone when making a decision
PROCESSES
Turning inputs into the provision of services
or the manufacturing of goods
OUTPUTS
The output or provision of final goods
and services
Factors of Production
In the production of any good or service, the
following resources are needed:
Land = all natural resources provided by
nature e.g. forests, fisheries
Labor = the efforts and skills of people
Capital = the finance, machinery and
equipment
Enterprise = the skill and risk-taking ability
of the person who brings together the
resources to produce a good / service.
Factors of Production
Land
- natural resources available for production
- renewable resources: those that replenish
- non-renewable resources: cannot be replaced
Labor
- physical and mental effort of people used in
production
Capital
- all non-natural (manufactured) resources that are
used in the creation and production of other
products
Enterprise (Entrepreneurship)
- refers to the management, organization and
planning of the other three factors of production
Entrepreneurship vs.
Intrapreneurship
Entrepreneurs are owners or operators of an
organization who mange, organize and plan the
other 3 factors of production. They are risk takers
who exploit business opportunities in return for
profits.
Intrapreneurship is the act of behaving as an
entrepreneur but as an employee within a large
business organization. Intrapreneurs work in an
entrepreneurial capacity, with authority to create
innovative products or new processes for the
organization.
Examples of Intrapreneur
https://www.vocoli.com/blog/may-2014/10
-inspiring-examples-of-successful-intrapre
neurship/
https://www.youtube.com/watch?v=lfmBo
Xp6Mhw
Entrepreneurs Intrapreneurs
INCOME
1.0 Introduction to Economics Resources
Firms pay households RENT. Landowners have the option to use their land for
their own use or to rent it to firms for their use. If the landowner uses his land
For Land: Rent for his own use, the opportunity cost of doing so is the rent she could have
earned by providing it to a firm.
For Labor: Firms pay households WAGES. To employ workers, firms must pay workers
money wages. If a worker is self employed, the opportunity cost of self-
Wages employment is the wages he could have earned working for another firm.
Firms pay households INTEREST. Most firms will take out loans to acquire
capital equipment. The money they borrow comes mostly from households'
For Capital: savings. Households put their money in banks because they earn interest on it.
Interest Banks pay interest on loans, which becomes the payment to households. If a
household chooses to spend its extra income rather than save it, the
opportunity cost of doing so is the interest it could earn in a bank.
Entrepreneurs Households earn PROFIT for their entrepreneurial skills. An entrepreneur who
takes a risk by putting his creative skills to the test in the market expects to earn
hip: Profits a normal profit for his efforts.
What businesses need
The Marketplace
What’s a MARKET?
A place or process whereby buyers
(customers) and sellers (businesses) meet
to trade.
Important to NOTE:
CUSTOMERS are the people or organizations
that buy a product
CONSUMERS are the ones that actually use
the product
e.g. Student’s education
Common Mistake
The terms customer and consumer are
often used interchangeably by
candidates, although they have different
meanings. Make sure you can
distinguish between the two concepts
and use them in the right context –
customers are the people or
organizations that buy a product
whereas consumers are the ones who
actually use the product. These may be
the same entity (e.g. someone who
buys and eats a meal), but not
necessarily such as parents
(customers) paying for their children’s
(consumer) birthday presents.
The Circular Flow
1.0 Introduction to Economics of Resources
Outflows of
If business costs are greater money, to finance
than revenue? production
activities
Functions of profit:
Acts as an incentive to produce
Acts as a reward for risk takers
It encourages invention and
innovation
Acts as an indicator of growth (or
decline)
A source of finance
Making the best use of limited
resources: specialization
It is important to use the resources we have
in the most efficient ways.
Specialization is when each worker
specializes in some part of the production
process.
This dividing up of the production process
into different tasks is called division of
labor.
Specialization and the division of labor
increase efficiency and output.
TASK: List advantages and Disadvantages of
Specialization
Specialization
Advantages Disadvantages
Boredom
Increased
productivity
Inflexibility
Increased
Lack of autonomy
efficiency
Capital costs – extremely expensive
Standardization
Higher profit
margin
Four functional areas of a
business organization
Production
Marketing
Finance
Human Resources (Personnel)
Business Functions
1. Production (operations) – responsible
for converting raw materials into
finished goods.
Tasks include:
Deciding how the good will be
manufactured
Stock control
Quality control
Research and development
Business Functions
2. Marketing – responsible for identifying
and satisfying consumer wants and
needs.
Responsible for:
Product
Price
Place
Promotion
Business Functions
3. Finance – in charge of managing the
money of the organization.
Responsible for:
Recording financial transactions
Cash flow
Budgeting
Business Functions
4. Human Resources – manager, the
personnel of the organization.
Responsible for:
Recruitment
Training
Pay and benefits
Health and safety
Decision by Peugeot Citroen in 2010 to
launch the world’s first hybrid diesel car
required interaction between:
Marketing – will consumers be prepared to buy
this car and at what price?
Finance – do we have the capital needed to
develop and produce it?
HR Management – do we need to recruit
additional engineers before this project can be
turned into a market-ready car?
Operations Management – can we produce this
product at a cost which allows the marketing
department to set a profitable price level?
Reasons
for
setting up
a
business
Reasons for setting up a business
(GET CASH)
Growth
Earnings
Transference and inheritance
Challenge
Autonomy
Security
Hobbies
Reasons for setting up a business
(GET CASH)
Growth
Assets such as property and land
tend to increase in value over time.
This is called capital growth
It is quite common for the capital
growth of a business to be worth
more than the value of the owner’s
salaries
Reasons for setting up a business
(GET CASH)
Earnings
Chinese saying “You can never
get rich earning money from
working for someone else”
Potential returns from setting up
your own business can easily
outweigh the costs, even though
the risks are high
Reasons for setting up a business
(GET CASH)
Transference and inheritance
Many self-employed people view
their business as something that
they can pass on (transference) to
their children (inheritance). This
helps to give them a sense of
security that might not be possible
if they chose to work for someone
else.
Reasons for setting up a business
(GET CASH)
Challenge
Some people might view setting up
and running a business as a
challenge. It is this challenge that
drives them to perform and gives
them personal satisfaction.
Being successful in business
boosts self-esteem.
Reasons for setting up a business
(GET CASH)
Autonomy
Being self-employed means that
there is autonomy (independence,
freedom of choice and flexibility)
in how things are done within the
organization.
Reasons for setting up a business
(GET CASH)
Security
There is usually more job security
for someone who is their own boss
Although the risks are great, being
self-employed makes it potentially
easier to accumulate personal
wealth (financial security) to
provide higher funds for (early)
retirement
Reasons for setting up a business
(GET CASH)
Hobbies
Successful entrepreneurs have a
passion for what they do and this
is made easier if the nature of the
work is directly related to their
interests
Steps in the process of starting a business
Write a business plan
Obtain start-up capital
Obtain business registration
Open a business bank account
Marketing
Business Plan
This document include the goals and
objectives for the new business with an
outline plan of how these targets are to be
accomplished.
Start-up capital
Money that is needed to start a business.
Small business owners will use their own
savings and/or obtain loans to finance their
start-up.
The loan process can take several months
to complete, with the lender usually
requesting a completed business plan
before any funds are approved.
Business Registration
Before a business can trade or hire
workers, it must satisfy registration and
licensing requirements.
The owner(s) must also register the legal
status of the business (ie. partnership or
limited liability – Unit 1.2)
Business Bank Account
Setting up business bank account allows
the business to pay for its costs of
operation and to receive payments from
customers.
Marketing
Potential customers need to know about
the business and its products.
Marketing includes advertising and other
promotional materials.
NOTE:
Finance
Needed to fund business activities
Is usually the key barrier to setting up a
new business as most entrepreneurs need
to borrow some money
Need record keeping of financial accounts
– need to hire accountants
Starting a Business
Factors to consider:
Human resource
Needed at all stages of business activity,
from the design and development of a
product to delivering it to the consumer
Entrepreneurs will have to consider the
need for hiring, training, retaining and
motivating their staff
Starting a Business
Factors to consider:
Entrepreneurial skills
Industrial and interpersonal skills
http://www.skillsyouneed.com/interpersonal-skills.html
Effective leadership and negotiation skills
are required to deal with different
stakeholder groups such as employees,
suppliers and the government
Must have self confidence and a passion
for what they do
Starting a Business
Factors to consider:
Fixed assets
Such as premises and capital equipment
Location decision is crucial but problematic
Popular location improves the chances of
attracting customers, but the cost of land and
property is much greater
Starting a Business
Factors to consider:
Suppliers
Needed to provide the business with its
raw materials, finished stock of products
and support services
Negotiations over issues such as price and
delivery times also need to be undertaken
Starting a Business
Factors to consider:
Customers
Business will fail without them
Need market research to produce products
that are desirable, available at the right
prices and sold in the right places
The size of the market also determines the
amount of sales
Example: Publishers are generally not
interested in authors whose work only
caters for a very small number of
customers
Starting a Business
Factors to consider:
Marketing
Is ESSENTIAL, irrespective of how good a
business idea might be
It is needed to convince lenders and
buyers that the product is a WINNER
Starting a Business
Factors to consider:
Legalities
Legal issues must be considered
Example: consumer protection rights,
copyright and patent legislation,
employment laws
Infringement of legal issues can present
huge problems for a business
Example if a restaurant breaks food hygiene
laws, it might be required to cease all
operations
Possible problems faced by
start-ups
• Lack of finance capital
• Cash flow problems
• Marketing problems
• Unestablished customer base
• People management problems
• Legalities
• Production problems
• High costs of production
• Poor location
• External influences
Possible problems faced by
start-ups
• Lack of finance capital
Possible problems faced by
start-ups
• Lack of finance capital
Owners of new or small businesses might not
have the credentials or experience to secure
funding
Funds borrowed might require high interest
repayments which could affect the cash flow
position of the firm
Some business owners might have to
remortgage their own homes to raise the funds
needed
Possible problems faced by
start-ups
• Cash flow problems
Possible problems faced by
start-ups
• Cash flow problems
Problem with working capital (money available for
the daily running of a business)
• Lot of stock that cannot be easily turned into cash
• Customers might demand a lengthy credit period (buy
now pay later schemes ranging from 30-60 days)
• Ongoing costs – wages, rent, utility bills, taxes and
interest payments on bank loans
Businesses produce cash flow forecast in their
business plan to identify likely periods of poor cash
flow so that provisions can be taken to cover any
shortfalls.
Possible problems faced by
start-ups
• Marketing problems
Possible problems faced by
start-ups
• Marketing problems