What is Business? Chapter One

1 - 3 What is Business? John Calvin Coolidge, The 30th U.S. President Born: 4 July 1872 Died: 5 January 1933 Birthplace: Plymouth, Vermont Best Known As: President of the United States, "The business of America is business."

1 - 4 Chapter 1 What is Business?  The objective of a business is to make profit  All business activity is self-interested and competitive, and this competition may benefit people and society when it leads resources to be employed in their most profitable use Profit = Total revenue – Total cost

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6 Summary Slide Chapter 1 What is Business?

1 - 7 Chapter 1 What is Business?  Some people or companies will always ruthlessly pursue their self-interest and try to cheat and defraud others. There is “externality”

1 - 8 Chapter 1 What is Business? Business has three dimensions of meaning  A commerce  An occupation  An organization

1 - 9 Chapter 1 What is Business? Definitions of Business Business Commerce OccupationOrganization

What is Business? Business as a commerce Business as a commerce is the process that people produce, exchange and trade goods and services Suppose you start a new business, such as build a firm to produce BMW car, what do you need for the business? How to start the new business? Suppose you want to build a new university, such as UIC, what would you do?

Chapter 1 What is Business? Business as a Commerce Four Productive Resources

Chapter 1 What is Business? Business as a Commerce Factors of Production There are four crucial ingredients or productive factors or resources of land, labor, capital and enterprise that are needed to profit from business They are limited in supply (scarcity) Evaluate illustration of circular flow and relate to all factors of production.circular flow

Chapter 1 What is Business? Business as a Commerce Factors of Production Owners/managers are the enterprise of the business, while the people are the labor and the capital buys materials, machinery The land may provide a specific location or a URL in cyberspace. The land may provide a specific location or a URL in cyberspace These resources allow for the creation of a product and/or service that customers value a price

Chapter 1 What is Business? Business as a Commerce Factors of Production A company must use them efficiently and effectively to produce goods and services Together, the cost of acquiring and using these four resources to make and sell goods and services determines a company’s operating costs

Chapter 1 What is Business ? Business as a Commerce Business Model The company’s business model not only outlines the plan for these resources but creates a competitive advantage in the value of its product and generates profitable sales revenue Business model is about profit pattern and is related to profitability By reinvesting the profits the business increases its capital and contributes to the wealth of the owners There is no rule of business that says all people need profit from business commerce, nor they will profit equally from the business system

Chapter 1 What is Business? Business as a commerce Law of Demand Given the price of a product or service, we generally demand less quantity of it as the price increases and demand more of it as the prices decreases Law of Supply Sellers are more willing to supply a product as the price increases and less willing to supply as the price decreases

Chapter 1 What is Business ? Supply and Demand The forces of supply and demand determine a product’s market price In turn, supply and demand are the result of peoples’ subjective judgment of the value or utility they will receive from supplying or consuming a particular product

Chapter 1 What is Business? Business as a Commerce Through this “invisible hand” of the market, the interaction of business commerce and occupation determines the standard of living, wealth, and prosperity of people, groups, and society It also determines how profit will be shared between people and groups in a society There is another “hand”: visible hand

Market Efficiency - Market Failures Adam Smith’s “invisible hand” of the marketplace leads self-interested buyers and sellers in a market to maximize the total benefit that society can derive from a market. But market failures can still happen.

Chapter 1 What is Business? Business as an occupation Business as an occupation is the acquired set of specialized skills and abilities that allows people to create valuable goods and services Through the process of specialization and the division of labor, business occupations develop and increase the amount of goods and services people can produce and trade Increasing specialization, through the invisible hand of the market, leads to increasing profitability and the generating of more capital and wealth

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Chapter 1 What is Business? Business as an organization Business as an organization is the system of task and authority relationship that coordinates and controls the interactions between people so that they work toward a common goal Evaluate “Destination CEO” Video and relate to Business as commerce“Destination CEO

Chapter 1 What is Business? Business organizations are created to reduce transaction costs, the costs that arise from business commerce and from the process of specialization and the division of labor Business organizations develop an organizational structure, a set of task and authority relationships, to reduce transaction costs and increase profitability

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Chapter 1 What is Business? Definitions of Business Business as a system is a combination of business commerce, occupations, and organizations that produces and distributes the goods and services that create value for people in a society

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Chapter 1 What is Business? Learning Objectives After study this chapter, you should Differentiate the three meanings of business as commerce, occupation and organization and identify the four main kinds of productive resources. Understand the forces of supply and demand determine fair or market price. Appreciate how a company’s business model is the source of its competitive advantage and the difference between profit and profitability Recognize the way specialization and the division of labor through the “invisible had of the market” lead to increasing profit and wealth. List the reasons why business organizations are created to structure business exchanges and facilitate business commerce.