Section 1.1Section 1.1The Nature of Business The Nature of Business

ActivityActivity

Unit 1

What is a business?What is a business?

A decision-making organization involved in the A decision-making organization involved in the process of using inputs to produce good and/or process of using inputs to produce good and/or provide services.provide services.

Businesses exist to satisfy the needs and wants Businesses exist to satisfy the needs and wants of people, organizations, and governments.of people, organizations, and governments.

Peter Drucker: the only purpose of a business Peter Drucker: the only purpose of a business is to create customers. is to create customers. Drucker is considered the “father of modern Drucker is considered the “father of modern

management” and wrote nearly 40 business management” and wrote nearly 40 business booksbooks

What do businesses What do businesses do?do?

Businesses process inputs to create goods Businesses process inputs to create goods or servicesor services Goods are physical productsGoods are physical products

Consumer goods – purchased by general public; Consumer goods – purchased by general public; can be durable or non-durablecan be durable or non-durable

Capital goods – purchased by businessesCapital goods – purchased by businesses Services are intangible productsServices are intangible products

Businesses contribute a “value added” that Businesses contribute a “value added” that enhances the value of the inputs and enhances the value of the inputs and produces profit for the businessproduces profit for the business

How do businesses How do businesses produce?produce?

By using the factors of production:By using the factors of production: LandLand Labor / labourLabor / labour CapitalCapital Enterprise / entrepreneurshipEnterprise / entrepreneurship

What motivates What motivates businesses?businesses?

Profit: is the positive difference between a Profit: is the positive difference between a firm’s total revenues and total costsfirm’s total revenues and total costs

Functions of profit:Functions of profit: Incentive to produceIncentive to produce Reward for risk takersReward for risk takers Encourages invention and innovationEncourages invention and innovation Indicator of growthIndicator of growth Source of finance to fund future growthSource of finance to fund future growth

What tough choices do What tough choices do businesses make?businesses make?

Opportunity cost: the best alternative that is Opportunity cost: the best alternative that is forgone when making a businessforgone when making a business

Whether or not to specialize at various levels Whether or not to specialize at various levels because there are advantages and because there are advantages and disadvantages:disadvantages: IndividualIndividual DepartmentalDepartmental CorporateCorporate RegionalRegional NationalNational

What are the functions of What are the functions of business?business?

Production (operations) – responsible for Production (operations) – responsible for converting raw materials into finished goodsconverting raw materials into finished goods

Marketing – identifies and satisfies customer Marketing – identifies and satisfies customer wants and needswants and needs

Finance – manages the organization’s moneyFinance – manages the organization’s money

Human Resources (personnel) – manages the Human Resources (personnel) – manages the personnel of the organizationpersonnel of the organization

How can businesses be How can businesses be classified?classified?

Businesses are classified by the stage of Businesses are classified by the stage of production they in which they are employedproduction they in which they are employed Primary sector – involved with raw materialsPrimary sector – involved with raw materials Secondary sector – involved in manufacturing Secondary sector – involved in manufacturing

or construction using those raw materialsor construction using those raw materials Tertiary sector – provides servicesTertiary sector – provides services

Chain of production

HL: Changes in Economic HL: Changes in Economic StructureStructure

Structural change refers to a shift in the relative Structural change refers to a shift in the relative share of national output and employment that is share of national output and employment that is attributed to each business sectorattributed to each business sector As countries develop and industrialize, the As countries develop and industrialize, the

proportion of business engaged in primary sector proportion of business engaged in primary sector decreases and shifts toward the secondary and decreases and shifts toward the secondary and tertiary sectorstertiary sectors

Causes of the shift toward the tertiary sector Causes of the shift toward the tertiary sector include:include: Increase in household incomeIncrease in household income More leisure timeMore leisure time

Section 1.1 Section 1.1 AssignmentAssignment

DUE BEFORE AT THE END OF CLASSDUE BEFORE AT THE END OF CLASS

Question 1.1.2 on page 7. Question 1.1.2 on page 7. Answer question A and B. Answer question A and B. Please use complete sentences. You should have a Please use complete sentences. You should have a

paragraph for each question.paragraph for each question.

Question 1.1.3 on page 12. Question 1.1.3 on page 12. Answer question A and B. Answer question A and B. Please use complete sentences. You should have a Please use complete sentences. You should have a

paragraph for each question.paragraph for each question.

HL ONLY or SL extra creditHL ONLY or SL extra credit: Question 1.1.4 on page : Question 1.1.4 on page 15.15. Answer question A and B.Answer question A and B. You may use the Internet to research part A.You may use the Internet to research part A. Please use complete sentences. You should have a Please use complete sentences. You should have a

paragraph for each question.paragraph for each question.