Introduction to Business Lesson II Ass. Prof. Özgür Kökalan İstanbul Sabahattin Zaim University

Lesson Objectives Define the concept of Business Difference between business and not-for-profit organizations and identify the factors of production. Describe the economic systems and explain how competition and entrepreneurship contribute to the system.

What is business?

Business: profit seeking activity that provides goods and services to satisfy consumers’ needs. Business: consists of all activities to serve goods and services to the community with the purpose of profit for surviving. Profits: financial rewards received by a businessperson for taking the risks involved in creating and marketing want-satisfying goods and services.

Business is so crucial (important) for economies. Why?

Business is so crucial (important) for economies. Why? Business ( firm), Offers necessities Provides jobs Pays taxes Reinvests profits Creates higher standard of living

There are two kinds of organization : Organizations: deliberately established groups working together in a systematic way for common purpose There are two kinds of organization : Profit Seeking Organizations: the main aim to take profit from their operations Not For Profit Organizations: Businesslike establishments that have primary objectives other than returning profits to their owners

The Corporate Angel Network: A Not-for-Profit Organization

Labor Intensive versus Capital Intensive Businesses rely on human resources to prosper require large amounts of money or equipment to start and to operate

What do we need to produce something? Factors of Production Resources societies use to produce and distribute goods and services. Businesses rely on five factors of production to optimize profits. What do we need to produce something?

Human Resources Capital Knowledge Entrepreneurs Natural Resources

Factors of Production Natural resources: assets useful in their natural state (land, minerals, water, and forests). Human resources: anyone involved in the production of goods and services Capital: resources such as money, equipment, and buildings necessary for production of goods and services. Entrepreneurs: innovative risk-takers who create and operate new businesses Knowledge: the collective intelligence of an organization

Which factor is the most important?

Economic System Economic System: Basic set of rules for allocating a society’s resources Answers three questions: What to produce How much to produce Who gets what There are mainly four kinds of economic system in the world. These are: Free market economy ( Capitalism) Communism Socialism Mixed Economy

Communism There are some characteristics of communism listed below: Governments control all or part of resources Governments limit individuals’ freedom of choice Government sets goals Examples: North Korea, Cuba

Socialism There are some characteristics of listed below: Governments control major industiries in the country It provides more individuals’ freedom of choice than communism Majority of people work for government owned industires. But small business owned by private person is encouraged. Examples: Sweden, India, Syria, Israel

Mixed Economy There are some characteristics of listed below: major industiries in the country are owned by both government and individuals It provides individuals’ freedom of choice in many areas people work for both government owned industires and private enterprises. Examples: Turkey, Romania, Italy, France

Free Market Economy ( Capitalism) In free market economics, Marketplace determines what goods and services get produced.

Basic Rights in the Private Enterprise System

Theory of Supply and Demand Some Government Intervention Free Market Economy Free market economy have three important rules. These are: Theory of Supply and Demand Competition Some Government Intervention

Theory of Supply and Demand According to free market economy, all things in market are determined by supply and demand, not by government. It is called as invisible hand. Supply; The number of products that businesses are willing to sell at different prices at a specific time Businesses are willing to supply more of a good or service at higher prices because the potential for profits is higher. Demand; The number of goods and services that consumers are willing to buy at different prices at a specific time. Consumers are usually willing to buy more of an item as its price falls because they want to save money.

Supply Curve for Gasoline

Demand Curve for Gasoline

Equilibrium Point for Gasoline

Competition Market in which two or more suppliers of a product serve the same customers. There are some kinds of competition in the market. These are: Pure competition Monopolistic competition Oligopoly Monopoly

Pure Competition In pure competition, Multiple buyers and sellers exist Nearly identical products/services Low barriers to entry (sellers can easily enter and exit the market place) No single firm or group of firms can influence price Example; Agriculture product

Monopolistic Competition In monopolistic competition; Varying degrees of competitive power Most advanced free-market economies features monopolistically competitive firms Large number of sellers Differentiated products—very similar—single distinguishing feature Example; Retailing

Oligopoly In oligopoly, Industry dominated by only a few sellers Similar product are offered to consumer Differentiatial is so importat. Example: GSM operators in Turkey, Airline companies in domestic lines.

Monopoly In monopoly; Single seller controls the supply of a good and service Ability to determine the price There is no competition in the market Example; TCDD