Foundation of BUSINESS

FOUNDATIONS OF BUSINESS
CHAPTER #1
Skinner & Ivancevich Book
AND ECONOMICS
 Lecture Overview
❑Why we study business?
❑The core of business
❑Business objectives
❑Economics: the foundation of business
❑Economic system

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 Why we study Business?
1. Increasing dependences on Others:
Over the year people have become more
and more dependent on others. We can’t
produce all we need to live in this society.
Once people exchange the surplus goods
that they have after their own consumption.
This is called Barter System.

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 BARTER
It is the direct exchange of one goods for
another without using anything as money or as a
medium of exchange.

⚫ Barter is a type of trade where goods or

services are exchanged for a certain amount
of other goods or services;
no money is involved
in the transaction.

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 BUSINESS
✔ Business is the exchange of goods, services or money
for the mutual benefit or profit.
Who will produce what?
✔ He who has skills and ability or specialization in specific
job will produce or serve or involve in that task.
2. International Opportunities:
✔ As the shortage of resources and as they are not
distributed equally all over the world, people will go
across the border for international business.

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 Why we study Business?
3. Standard of Living :
⚫ A measure of how well a person or family is doing in
terms of satisfying needs and wants with goods and
services.

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 Why we study Business?
Free Enterprise
✔ It means that private businesses are able to conduct
business activities competitively with minimal
government regulation.

Inflation
✔ Rate at which the general level of prices for goods
and services is rising and purchase power
is falling.
(example: inflation rate goes up to 2%)
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Why we study Business?
4.Coping with Change :
Business is dynamic- always changing. Coping with
both predictable and unpredictable events can be
easier, more efficient and less traumatic if we
understand business.

5. Preventing Misconceptions:
Understanding business also prevents our
accepting misconception, misinformation and
inaccurate data as truths.

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 The Core of Business
The human element is the core of business.
Business needs people as owners, managers,
employees, and consumers. People need business
for the production of goods and services and the
creation of jobs. Whether business is transacted in
Bangladesh, USA, Japan or Ghana dose not matter.

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 The Core of Business
Owners
⚫ People, who own a business as well as those who
invest money in one, do so because they expect to
earn profit.
Managers
⚫ The person responsible for operating the business may
be the owner or a professional manager employed by
the owner. An owner-manager is also called an
entrepreneur.

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 The Core of Business
Managers (Contd...)
The owner-manager sets his/ her own objectives,
whereas a professional manager attempts to achieve
objectives set by others.

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 The Core of Business
Employees
✔Employees supply the skills and abilities needed to
provide a product or service and to earn a profit. Most
employees expect to receive an reasonable wage or
salary and to be given regular increases in the amount
they are paid for the use of their skills and abilities.

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 The Core of Business
Consumers
✔ A consumer is a person or business who purchases a
goods or services for personal and organizational
use. A business enterprise attempts to satisfy
consumer needs and desires while earning a profit.

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 Business Objectives

✔ Survival
✔ Growth
✔ Social Responsibilities

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 Business Objectives
✔ Survival
Survival objective is an obvious objective. Other
objectives can be accomplished only if the business
enterprise survives.

✔ Growth
Growth is an objective because business does not
stand still. Market share increase, personal and
individual development and increase productivity are
important growth objectives.
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 Business Objectives
✔ Social Responsibilities
In recent years, meeting social responsibilities has been
recognized as important objectives. Businesses, like each
person in society, must accept their responsibilities in areas
such as pollution control, eliminating discriminatory practices
and energy conservation.

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 Business Objectives
Profit
✔ The profit objective plays the major role in
business.
Business Profit
✔ The difference between business income and
business expenses

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 Business Objectives
Activities Performed to earn Business Profit:
• Risk Taking
• Evaluation of Demand
• Well-organized Management

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 Business Objectives
Activities Performed to earn Business Profit:
• Risk Taking
Toyota invested millions of dollars in promoting and selling
small cars in the US. Today, this Japanese corporation is
the largest small car seller in the US market.

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 Business Objectives
Activities Performed to earn Business Profit:
• Evaluation of Demand

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 Business Objectives
Activities Performed to earn Business Profit:
• Well-organized Management

Management of people, technology, materials and

capital. Efficient planning, organizing, controlling,
directing and staffing can earn satisfactory profit.

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 Business Objectives
Economic Profit
Opportunity Cost: Something you given up in order to get something
else.

Economic Profit: What remains after the expenses and opportunity

costs are subtracted from income.

Selling Price: All costs of making and selling a product, including taxes.

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 Business Objectives
Economic Profit
Opportunity Cost

Mr. Rahman is working in Company X. Earning Tk 40,000/-

per month. His office is near to his house. But he could
earn Tk 60,000/- per month working in Company Y which
is far from his house. His opportunity cost is Tk 20,000/-.

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 Economics:
The Foundation of Business
Economics: The study of how a society (people) chooses to
use limited resources to produce goods and services and to
distribute them to the people for consumption.
▪This definition raises certain issues that are key to
understanding economics:
There are three factors:
✔ Resources
✔ Goods and Services
✔ Allocation of Resources and Products

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 Economics:
The Foundation of Business
❖ Resources
A nation’s resources consist of three broad areas:
1. Natural Resources 2. Capital Resources 3.
Labor (Human Resources)

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 Economics:
The Foundation of Business
Resources
1. Natural Resources
Resources provided in limited amounts by nature such as
oil, natural gas, minerals, timber and water.
Natural resources must be processed to become a product
or to be used to produce other goods and services.
Example....Trees must be processed into lumber before
they can be used to build homes, offices, schools, etc.

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 Economics:
The Foundation of Business
❖ Resources
2. Capital Resources
Goods produced for the purpose of making other types
of goods and services. Some capital resources, called
current assets have a short life and are used up in the
production process.
Such as fuel, raw materials, paper, money.
Long-lived capital resources which can be used
repeatedly in the production process are called fixed
capital.
Such as factory building, machineries, etc.
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 Economics:
The Foundation of Business
❖ Resources
3. Labor Resources
Represent the human talent, skills and competence available
to a nation.
To have value in the labor force, individuals must be trained
to perform either skilled or semiskilled work.
This collection of human talent is the most valuable national
resource. Without human resources, no productive use of
either natural or capital resources is possible.

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 Economics:
The Foundation of Business
❖ Goods and Services
A nation’s resources are used to produce goods and services
that will meet people’s needs and wants.

Needs: goods and services people must have in order to

survive. Example: food, clothing, shelter, medical needs,
etc.
Wants: are things they would like to have but do not
absolutely require for survival. Example: luxury holidays,
fast foods (Burgers, Fries), etc.

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 Economics:
The Foundation of Business
❖ Allocation of Resources and Products
The process of choosing how resources will be used to meet
a society’s needs and wants and it also includes the
distribution of products to customers.

Resources are Limited but Wants are Unlimited such as the

Supply of Oil, Gas and other Petroleum Products.

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 Economic System
The accepted process by which labor, capital and natural
resources are organized to produce and distribute goods and
services in a society.

❑ There are three basic types of Economies:

1. Planned Economies
2. Free Market Economies
3. Mixed Economies
 Economic System
1. Planned Economics
Economic system in which the government largely decides
what goods and services will be produced, who will get then
and how that economy will grow.
The government owns the productive resources, financial
enterprises, retail stores and banks.
Example: Soviet Union, Cuba, North Korea
 Economic System
1. Planned Economics
Socialism: An economic system based on the premise that businesses
should be owned by the state so that profits can be evenly distributed
among the people. The founder of this system is Karl Marx.
Example: Soviet Union, China
Perestroika: It means Economic restructuring). This program instituted
in the Soviet Union by Mikhail Gorbachev in the mid-1980s to
restructure Soviet economic and political policy.
Seeking to bring the Soviet Union up to economic par with capitalist
countries such as Germany, Japan, and the United States
Gorbachev decentralized economic controls and encouraged enterprises
to become self-financing.
 Economic System
2. Free Market Economics
Economic system in which decision about what to produce
and in what quantities are decided by the market. That is by
buyers and sellers negotiating prices for goods and services.
Example: USA
 Economic System
2. Free Market Economics

Capitalism: An economic system in which all or most of the

sources of production and distribution are privately owned
and operated for profit. The founder of this system is Adam
Smith.
Example: USA, Japan, European Union, Canada
 Economic System
3. Mixed Economics
Economic system in which some allocation of resources are
made by the market and some are made by the government.
This contains elements of both market and planned economic
system. There are private enterprises and also is the
government intervention. Both the government and the
business enterprises produce and distribute goods and services.
Example: Bangladesh, UK, India, etc.
 Some Advantages and
Disadvantages
Type of Economy Advantages Disadvantages

The Planned Economy 1. Necessities are produces 1. Large Bureaucracy

2. Essential goods/ services 2. Mistakes in amounts of
eg. Education will be provided goods/ services produced.
for all the community 3. Little consumer choice
3. More equal distribution of 4. No profit motive
income and wealth 5. Little variety of
goods/services
6. Loss of individual
freedom
 Some Advantages and
Disadvantages
Type of Economy Advantages Disadvantages

The Free Economy 1. Consumer choice exists 1. Too many luxuries produced
2. No bureaucracy for the rich/ wealthy.
3. Profit motive exists 2. Essential goods/ services,
4. Many small firms producing eg. education may not be
a variety of goods produced
5. Less government 3. Ignores social costs
interference 4. Monopolies may exist
5. Unemployment in declining
industries

The Mixed Economy Combines the advantages of Combines the disadvantages of

other systems other systems
Thank you…