Core Concept of Business

• Businesses produce most of the goods and services that we consume.
• They employ most of the working people in the world.
• Profit from business is paid to owners and stockholder. Taxes on business help support govt. at all levels.
• Business is an economic activity.
• All business activities are economic activities but all economic activities are not business activities.

• Business is an organization that produces goods and services to earn profits.
• It is the production and distribution of goods and services to make a profit.
• Every business transaction is effected with an intention to make profit.
• Business is a human activity directed towards producing or acquiring wealth through buying and selling of goods (L.H. Haney).
• Business is an organization which makes, distributes or provides any article or service which other members of the community need and are able and willing to pay for it (Urwick).
• Goods are tangible. Pen and marker and white board
• But services intangible but needed to produce goods. Examples are banking and insurance services.
• Business means creation of utility for the satisfaction of human wants through recurring exchange.
• Business creates different types of futilities such as form, place, and time.

news of profit

Business profit: Business profit is the differences between business revenues and its expenses. Business profit may be gross or net. Excess of total income over total expenditure is called business profit. Any surplus income that remains after paying remuneration to the suppliers of factors of production like land, labour, and capital is termed profit. Owners of land interest for supply of capital in the business. Business profit is determined by deducting cost from the selling price.

      Selling price – cost = profit.

Economic profit: Economic profit is what remains after both actual expenses and opportunity cost are subtracted from revenue earned. Opportunity cost is the cost of choosing to use resources for one purpose while sacrificing the next best alternative for the use of those resources. The opportunity cost is a measure of everything a person sacrifices to attain an objective. The value of using a resource, measured in terms of the value of the best alternatives for using that resource is called opportunity cost.

• Opportunity cost is the cost of an action in terms of the alternatives foregone.  

-         Providing the finance for explanation.

-         Providing a measuring rod of performance. It is measure of the success of the business.

• Business is an activity that is directed to create values for removing wants of man in society through recurring exchange.
• Profit comes from the efficient production of goods and services demanded by people.

Economic profit = Selling price – Business cost – Opportunity cost.

Meaning of profit

• Profit means different things to different people because of their values, attitudes and perceptions.
• There are two views about profit.
• Business profit is the differences between business revenues and its expenses.  Business profit may be gross or net.
• Excess of total income over total expenditure is called business profit.
• Any surplus income that remains after paying remunerations to the suppliers of factors of production like land, labor, and capital is termed profit. An owner of land receives rent, laborers are paid wages and capitalists get interest for supply of capital in the business.
• Economic profit is what remains after both actual expenses and opportunity costs are subtracted from revenue earned. Opportunity cost is the cost of choosing to use resources for one purpose while sacrificing the next best alternative for the use of those resources. The opportunity cost is a measure of everything a person sacrifices to attain an objective.
• The value of using a resource, measured in terms of the value of the best alternative for using that resource is called opportunity cost.
• Opportunity cost is the cost of an action in terms of the alternatives foregone.

profit the main goal of business?

Profit making is the primary motive of the business. Profit plays a key role in the private enterprise system in terms of:
- Motivating the owners.
- Profit is the remuneration of the businessman.
- Profit is the livelihood of the businessman.
- Encouraging innovation.
- Encouraging efficiency.
- Increasing profit increases the goodwill of the business.
- Signaling areas for expansion. Profit is necessary for the expansion and development of the business.

- Providing the finance for expansion.
- Providing a measuring rod of performance. It is measure of the success of the business.
• Business is an activity that is directed to create values for removing wants of man in society through recurring exchange.
• Profits come from the efficient production of goods and services demanded by people.



Profit as a goal

• Profit is the reward for taking risks involved in investing money and time. It is the reward for innovation.
• Adam Smith in his book “The Wealth of Nation” (1776) argued, “People do their best when they reap the rewards of hard work and intelligence and suffer the penalties for laziness”.
• He favored the use of profits as a means of encouraging individual incentive and initiative.

There are three elements of business
• Business reveals  that it has several  important elements, namely:
• Recurring exchanges. Recurring sale constitute business. If goods is purchased or produced fro sale, it is a business activity.
• Creation of values or utility.  Form place, time and ownership utilities.
• Satisfaction of wants. People have many physiological and mental needs.
• If you buy a flat for your own living is not a business activity.

Objective of Business

• Survival: Survival is an obvious objective. Other objectives can be accomplished if the business enterprise survives.

• Growth: Growth is an objective because business does not stand still. Market share increase, personal and individual development and increased productivity are important growth objectives.

• Profit motive: The profit objective plays a big role in business. Profit rewards a business enterprise for effectively conducting a number of activities. Profit is necessary for the expansion and development of the business. It is the measure of the success of the business. Business can increase its properties and assets if more and more profit is made.

• Social responsibilities: Meeting social responsibilities has been recognized as important objectives. Business has to discharge social responsibilities by means of satisfying the needs and aspirations, tastes and fashions of the customers. Social objectives are achieved in the following ways:
• By supplying better quality goods and services,
• By creating employment opportunities,
• By paying adequate and fair wages to the workers and employees,
• By utilizing limited resources of the country judiciously and economically,
• By paying reasonable price to the suppliers,
• By conserving assets and increasing fair return on capital and thereby providing for capital formation.
• By investing social capital.
• By flourishing international trade and commerce.
• By removing the pollution.
The objective of Business can be divided of three types:

Economic System:

• Business operates in different economic systems.
• An economic system is a nation’s system of allocating its resources among its citizens- individuals and organizations.
• An economic system uses a basic set of rules to allocate its resources in order to satisfy its citizen’s needs.
• Resources are called factors of production.
• Factors of production are resources used in the production of goods and services. Factor are-
• natural resources ( land, forest, minerals, water) ,
• Labor consists of human resources used to produce goods and services.
• Capital (machine, tools, equipments and money). Capital may be financial and real capital.
• Entrepreneurs are people who establish a business enterprise to produce goods and services for other people.  They accept the risk of failure to organize the other three factors of production in order to produce goods and services most efficiently.  They combine productive resources together to produce an output. They are the active factor in the production process.
• Ownership and control of factors of production are different in different economic systems.


Socialism


• Socialism is a planned economic system in which the government owns and operates only selected major sources of production.
• Smaller business such as clothing stores and restaurants are privately owned.
• Government involvement in a socialistic economy system is limited to industries considered vital to the common welfare.

Human objective:

• Workers and employees are human factor. Human objectives mean the judicious use of human factor. This can be done by --
• Developing the human relations,
• Maximum utilization of the efficiency and working capacity of the workers,
• Providing maximum satisfaction to the workers,
• Paying fair and adequate wages to the workers,
• Motivating the workers,
• Creating congenial working conditions within and outside the factory.

Economic Systems

• Different types of economic systems manage the factors of production in different ways.
• Economic systems may be planned or market.
• In a planned economy, the government owns factors of production.
• Social equality is a major goal and private enterprise is generally regarded as wasteful and exploitative in a planned economy.
• Two basic forms of planned economies are communism and socialism.
• Communist economies are characterized by state ownership of the factors of production and by planned resource allocation.

• Communism is a system in which the government owns ands operates all sources of production.
• The economic systems of Cuba and China are examples of communism.
• Production, distribution and consumption of goods are all controlled by state.
• reduces the disparity in the distribution of income and wealth and
• Prevents concentration of wealth in the hands of a few industrialists and traders.
• Because of the commitment to social welfare, there is less of a gap between rich and poor in a communist economy.
• The type of economic system that allows individuals the least economic freedom is communism.

Market economy

• In market economy, individuals own factors of production. Market economy is an economy in which individuals control production and allocation decisions through supply and demand.
• Demand is the willingness and ability of buyers to buy a good or service.
• Supply is the willingness and ability of producers to offer a good or service for sale.
• Market is a mechanism for exchange between buyers and sellers of a given good or service. Here both buyers and sellers a) enjoy freedom of choice; they have private property rights, c) Right to compete and d) right to make profit.
• In market economy, individuals own factors of production.
• Market economies may take two forms- capitalism and mixed economy.
• Capitalism is a market economy which provides for private ownership of production and which encourages entrepreneurship by offering profit as incentive.
• Private initiative and enterprise are given greater importance in the capitalist economic system. Trade, industry and commerce are developed by the initiative of the individuals.
• In a pure capitalistic economy, all production and allocation decisions are made by private holders of property and money.
• In market economy, individuals own factors of production.
• Market economies may take two forms- capitalism and mixed economy.
• Capitalism is a market economy which provides for private ownership of production and which encourages entrepreneurship by offering profit as incentive.
• Private initiative and enterprise are given greater importance in the capitalist economic system. Trade, industry and commerce are developed by the initiative of the individuals.
• In a pure capitalistic economy, all production and allocation decisions are made by private holders of property and money.

Mixed Economy

• In reality, most countries rely on some form of mixed economy- a system features characteristics of both planned and market economies.
• It takes the merits of both capitalism and socialism.
• Both public and private ownership exists side by side in this system and both the public and private sectors participate in the economic development of the country. Mixed capitalism occurs when the government uses its power to affect prices and wages or to change the way resources allocated.
• Mixed capitalism is an economic system in which operation of the free market is influenced to some degree by government involvement.
• When trade and commerce are developed through private and public initiative and enterprise, it is known as mixed economic system

Measuring of Economic Performance

• GNP.  It is a useful indicator of economic growth.
• Total value of all the goods and services produced by an economic system in a one-year period. USA has the highest real GNP of any industrial nation in the world.
• Real GNP. It is the gross national product adjusted fro inflations and changes in the value of a country’s currency.
• GNP per capita. The calculation of a nation’s per capita GNP takes into consideration that nation’s population.
• A rise in the gross national product of an economy from one year to the next year would indicate economic growth of that economy.
• Productivity. The ratio of output and input. It compares what a system produces with the resources needed to produce it.
• Improved productivity means the economy can grow more rapidly without triggering inflation.
• Balance of trade. Difference between a country’s exports to and import from other countries.
• Balance may be positive and negative.
• National debt. Total amount that a nation owes its creditors.
• Budget deficit. It is a situation in which government body spends more money in one year that it takes in. Budget deficit has created national debt.
• Popular ways to reduce budget deficit are:
• Raises taxes
• Reduce public spending.