2. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
Chapter One
What is Business?
© The McGraw-Hill Companies, Inc., All Rights Reserved.
McGraw-Hill/Irwin
Introduction to Business

3. Chapter 1 What is Business?
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.

4. Chapter 1 What is Business?
Definitions of Business
Business has three dimensions of a meaning
A commerce
An occupation
An organization

5. Chapter 1 What is Business?
Definitions of Business
Business as a commerce is the process that people produce, exchange and trade goods and services

6. Chapter 1 What is Business?
Definitions of Business
Business as an occupation is the acquired set of specialized skills and abilities that allows people to create valuable goods and services

7. Chapter 1 What is Business?
Definitions of Business
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

8. 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

9. Chapter 1 What is Business?
Factors of Production
Regardless of meaning there are four crucial ingredients or productive factors or resources of land, labor, capital and enterprise that are needed to profit from business

10. Chapter 1 What is Business?
Factors of Production
These four productive factors or resources of land, labor, capital and enterprise that are needed to profit from business and are limited in supply (scarcity)
A company must use them efficiently and effectively to produce goods and services

11. Chapter 1 What is Business?
Together, the cost of acquiring and using these four resources to make and sell goods and services determines a company’s operating costs

12. Chapter 1 What is Business?
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

13. Chapter 1 What is Business?
These resources allow for the creation of a product and/or service that customers value a price

14. Chapter 1 What is Business?
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
By reinvesting the profits the business increases its capital and contributes to the wealth of the owners

15. Chapter 1 What is Business?
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

16. 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

17. Chapter 1 What is Business?
Law of Demand
Reflects the usefulness or utility from that product
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

18. Chapter 1 What is Business?
Law of Supply
Sellers are more willing to supply a product as the price increases and less willing to supply as the price decreases

19. Chapter 1 What is Business?
There is no rule of business that says all people need profit from business commerce, nor they will profit equally from the business system

20. Chapter 1 What is Business?
Some people or companies will always ruthlessly pursue their self-interest and try to cheat and defraud others

21. Chapter 1 What is Business?
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

22. Chapter 1 What is Business?
Increasing specialization, through the invisible hand of the market, leads to increasing profitability and the generating of more capital and wealth

23. Chapter 1 What is Business?
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

24. 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

25. Chapter 1 What is Business?
Business organizations develop an organizational structure, a set of task and authority relationships, to reduce transaction costs and increase profitability

26. Chapter 1 What is Business?
No rules exist that specify how the profit created from business commerce or occupations will be distributed or even who will receive it

27. Chapter 1 What is Business?
Your chance of pursuing a profitable occupation that allows you to accumulate capital depends on your ability to take part in the “great game of business”