Chapter 1 for the creation of a human resource

Business Management Review: management plan.

Appreciating the Groundwork in Strategic
Business Analysis  Meanwhile, knowledge of production and
operations management will clarify the
processes involved in answering the
Chapter Learning Objectives: questions of what, how and for whom to
produce. The production and operations
At the end of the chapter, students are management areas of planning and
expected to: control, materials management, inventory
management and project and supply
 Describe major theories, background chain management are important to
work, and concepts in the economic appreciate to ably apply them when one
discipline and in the four basic business conducts strategic business analysis.
management areas; Economic activities are further fueled by
 Demonstrate effective application of marketing initiatives.
economic concepts, tools, and
techniques to practical day-to-day  Marketing management allows for the
situations; movement of goods from production to
 Demonstrate foundational knowledge in consumption side and creates other
human resource management, economic activities in between. Finally,
production and operations management, financial management puts the valuation
marketing management and financial of economic activities in place. This is the
management; area where costs are accounted for and
 Demonstrate effective applications of where receipts are reconciled with
concepts, tools and techniques in human expenses to determine the financial
resource management, production and viability and sustainability of a business
operations management, marketing enterprise.
management and financial management
in managing a business organization; This chapter explains the important ideas,
and theories and concepts in business
 Demonstrate an ability to integrate the management to aid any business manager to
core concepts of business management craft a strategic business plan.
to develop a sound analysis and strategic
plan for a business organization. Lesson 1
ECONOMIC PRINCIPLES

INTRODUCTION Lesson Outcomes

 Identify various concepts in economics
 Strategic business analysis involves the as they are used in business planning.
thorough evaluation of all facets of
enterprise operations that starts with a  Describe how economic trade-offs and
good foothold in the knowledge and social values impact business policies.
applicable of basic principles of
economics, human resource  Discuss economic concepts, in an
management, production and operations articulate manner, inside the classroom.
management, marketing management,
as well as financial management to aid in
decision making.

 Economic analysis allows business

managers to compare those resources in
the larger view of local and global
economic activities. Human resource
management underscores the process of INTRODUCTION
developing a job analysis as a requisite
Economics is the study of how to manage Economic issues permeate society in various
money and the financial status of an ways. Economic principles and concepts can
individual, an enterprise, an organization, or a be found in everyday dynamics, from large
country. Managing a household or an scale activities such as movements in the
organization requires different skills that will stock market, government directives on
come handy in regular day-to-day poverty and health care, multi-million
transactions one may have. involvement in trade, to as simple as
fluctuations in the market price of basic
All the core of economics studies are commodities.
concepts such as scarcity, unlimited needs
and wants, alternatives, choice, and foregone Critical and complex economic issues the
benefits. In a more business-like scenario, is lives of ordinary people in the same way that
the economic aspect of budgeting and they affect business. To better understand the
financial management. Learning how to interplay of economic of economic factors in
invest, how to spend, and how to save money both household and business situations, it is
are other critical aspects of economic best to first appreciate some basic economic
understanding. dates.
Economic seeks to answer the question of
Classified into two branches, microeconomics what, how and for whom a good or service is
and macroeconomics, the principles and produced. Economic realities and situations
concepts apply similarly but different in scope. are in fact closer to us than we imagine them
The former only deals with individuals, to be.
households, and specific companies. The
latter deals with the society as whole and its Economic activities begin with an individual,
dynamic relationship with the rest of the world. progressing to the small unit of society, which
is the household, on the larger entities such
The lesson will provide the perspective of as the companies and the international
integrating economic knowhow in business communities. At the core of any economic
analysis approach and in the strategy concern is an individual’s wants and needs.
development of a business organization.
 Understanding economics is a futile
Lesson Objectives exercise if scarcity is not discussed and if
people need not choose among existing
After this lesson, students are expected to: alternatives and practice trade-offs. If
 Differentiate between needs and wants in existing resources can address every
an economic process; individual’s needs and wants, there is no
 Express the intricacies of economic need to study economics.
activities and how they relate to individual
and business wants;  However, just as these needs and wants
 Determine the resources that become are infinite, most resources are finite and
part of either consumption, production or scarce.
distribution process;
 Evaluate the various types of resources,  Scarcity of resources leads one to
land, labor, capital and entrepreneurship explore the economics of things. Scarcity
and how those resources eventually should not be confused with shortage. It
classify as to scarce from abundant, refers to the existence of limited
renewable from nonrenewable, natural resources that are not enough to address
from man-made and free from economic; unlimited human needs and demands.
and
 Assess how everyday human activities
are intertwined with economic concepts
and principles.  On the other hand, shortage refers to a
market occurrence whereby the demand
is more than the supply available at a
Lesson Presentation given time.
 Therefore, property allocating these commonly encountered that may have a
resources according to a larger vision different meaning from its usual purpose. For
and direction of individuals, households, instance, free resources are not actually
companies and international communities resources that can be obtained and used
becomes more critical. without costs.

 Satisfying the needs and wants of On the other hand, cost in economics can be
various entities are the driving force of all either intrinsic or extrinsic, that is, a cost with
economic activities and eventually no actual cash outlay or a cost to simplify the
defines the prospective prosperity of complexity of economic issues.
individuals, companies and communities.
However, details and big pictures will continue
If the cause of understanding economics is to re-emerge all throughout one’s study of
the persistence of resource scarcity, the economic issues and activities and it is
lessons of economics allow one to optimize important to critically appreciate them as they
the utilization of these scarce resource and affect models and assumptions differently.
limited resource. Rationalization allows one to
evaluate the value of the goods being
obtained based on the cost that must be Human needs and wants, when not satisfied,
expended for its exchange. results to a feeling of inadequacy or distress.
Generally, human needs and wants involve
When an individual finally makes a purchase, other non economic factors such as political,
it comes because of carefully evaluating the emotional, social, technological, emotional
intrinsic and extrinsic value of the good in and even legal.
question, and only pays for it if it is worth its
price. Scarcity of resources evolves into the Consider how each person needs both food
identification of alternatives and a decision to and shelter, although both are essential, the
trade-off. first one is a requirement to survive while the
other is something necessary for protection
The rational mind allows one to end up with a against unpredictable natural elements. Using
right decision after a review of all available the example, it is also safe to say that human
possibilities. When money is spent on a beings have needs and wants that are either
particular product over the other possible and primary or secondary.
equally valuable alternatives, a choice is
made. Primary needs are those that are essential for
one’s survival, these are resources that an
The loss from setting aside the value of individual cannot live without.
pursuing other alternatives with the same Meanwhile, secondary needs are those that
amount is referred to as the opportunity cost. are directly associated with one’s happiness
It is normal for individuals to compare varying or a person’s elevated status in society.
alternatives, looking at their quantifiable and
nonquantifiable values, assessing possible Economic activities refer to production,
losses and gains, and evaluating available distribution and consumption of goods and
options before a choice is made. services. The goods that go around these
economic activities are classified as to either
tangible or intangible. The former are goods
with physical identity, while the latter refers to
services.
Using this definition, economic activity would
As there are no perfect choices, just as the refer to the movement of both goods and
information is not one hundred percent services in a production, consumption and
obtained, every choice has positive and distribution process to satisfy human needs
negative consequences. and wants. The magnitude, type and extent of
resource involvement differ in every economic
As one studies economics, it is important to activity.
point out that there are terminologies that are
All the economic activities are motivated by
either directly or indirectly satisfying human Meanwhile, a consumption of these resources
needs and motivations. This is the reason why grows exponentially leading to a more
human needs and wants are identified as the insufficiency of its quantity to satisfy the long-
fundamental cause of any economic activity. term requirements of the society.

However, the way an economic activity is Resources can also be classified according to
chosen to satisfy the same type of need or their physical form and are either natural,
want differs from one individual to another. man-made capital or human.
Varying individual resources, priorities,
situations, motivations, preferences and level What exists in nature such as land and bodies
of satisfaction dictate the multiple ways by of water are natural resources. Man-made or
which needs and wants are met. capital resources are those goods that were
produced by men from combining natural
Various types of goods become the object of resources and were created for an identified
multiple economic activities that aim to satisfy purpose.
different needs and wants. The question is
whether these goods satisfy needs and wants Human resources come in the form of labor
in a direct or indirect manner. Goods that services such as doctor, a writer or a
directly satisfy human needs and wants are fisherman.
called consumption goods. Example would be
a cup of rice in a restaurant menu. From the simplest way of performing
households budgeting to altering a nation’s
Meanwhile, capital goods are those goods trade direction, knowledge of economics
that indirectly satisfy human needs and wants. provides a huge leverage for an individual, or
Example would be gasoline, which is needed for a company that he wishes to manage.
to fuel a car to be able to provide a means of
transport. Depending on how it was used, the After becoming familiar with the concepts of
same resource can be classified both as scarcity, choices among alternatives and of
consumption and capital goods. trade-offs, distinguishing between the
classifications of economic resources, and
The distinction lies on how the good was used contrasting the various types of goods,
and not on its inherent character. A cup of rice connecting these concepts to day-to-day
can be categorized as consumption goods activities will become easier to appreciate. In
when it is purchased and consumed as it is. It particular, one’s daily activities involve the use
becomes a capital good when it is used as an if the major economic concepts and theories
ingredient to create another food product or and become valuable in making certain
obtained for a different purpose such as decisions in life.
producing a rice wine.
As one moves up to decision-making levels,
Based on nature or level of scarcity, economic such as when making investments, returns
resources are either scarce or free. Further and profitability are major considerations.
note that scarcity is relative to areas or Knowledge of economics allows one to
situations such that a resource is only evaluate available options and the risks that
considered scarce if the need for it exceeds are associated with every possible alternative.
the availability quantity. Huge losses can be minimized and the
possibility of gains informed can be
Whereas, free resources are either renewable maximized.
or nonrenewable. Renewable resource such
as watersheds and forests are regenerative This knowledge to evaluate alternatives in
and sustainable although this can usually order to arrive at an informed choice is a
happen only over a long period of time. result of a good knowledge of economics.

On the other hand, nonrenewable economic One must be able to determine the different
resource such as coal, mineral and gas are choices whether one wants to invest in a fixed
exhaustive and only exist in limited quantities. deposit, lend someone at an interest or
purchase properties while simultaneously
being aware of the risk involved in such
alternatives and choices.

And while it is true that the exact future cannot

be predicted, anticipating and preparing for
possibilities are possible through the
knowledge of economics.

For instance, economists can predict inflation

rates based on historical figures or determine
budgetary shortfall according to current
economic figures.

Finally, a valuable concept that economics

allows on to know is the socio-economic
issues that can happen on a regular basis.

Economics explains the causes and effects of

poverty, unemployment, income inequality,
gross domestic production and gross national
product, inflation and deflation, peso
exchange rates, low economic growth or trade
deficits and the ways by which they can be
addressed.

From the individual perspectives of satisfying

needs and wants, to company-affecting
decisions that are being made and to national
and international society-altering directions,
economics presents alternatives and choices
for better decisions.