دكتور / أحمد ابراهيم حامد Chapter 1 Business and Environment.

حامد / ابراهيم أحمد حامد / دكتور ابراهيم أحمد دكتور

Chapter 1Chapter 1

Business and EnvironmentBusiness and Environment


Scarcity and choiceScarcity and choice • Individuals as consumers within an economy Individuals as consumers within an economy

require a large number of goods and services. require a large number of goods and services. However, most individuals' incomes restrict However, most individuals' incomes restrict them in what they can buy, while others who them in what they can buy, while others who are more rich can spend part of their income are more rich can spend part of their income to buy even luxury goods. to buy even luxury goods.

• The purpose of the economic activity is :

• to narrow down the gap between poor and rich people ,and

• to cover the unlimited human needs with the limited resources.


• Scarcity means that resources are not enough to meet the unlimited human needs and wants.

• A choice must be done as some needs can be satisfied while others cannot.

• All the choices made by people, whether All the choices made by people, whether they are individuals, businesses or they are individuals, businesses or governments, involve opportunity cost. In governments, involve opportunity cost. In making a choice a person will have a scale making a choice a person will have a scale of preferences. of preferences.

• Opportunity cost,, is the next best alternative forgone (have had to do without).


Satisfying needs and Satisfying needs and wantswants : :

• Our needs and wants depend on what we Our needs and wants depend on what we already have and what we would like in the already have and what we would like in the future.future.

• Some people may see their needs as being Some people may see their needs as being food, water, clothing, shelter and safety, food, water, clothing, shelter and safety, while others who have their basic needs while others who have their basic needs met, may want more luxury items such as met, may want more luxury items such as cars, holidays and meals out. This may show cars, holidays and meals out. This may show the difference between a need and a want. the difference between a need and a want.

• A need is an essential item for survival, one cannot do w/o.


• A want is non-essential item, however, brings happiness when you get it.

• Business exists to meet these needs and wants by producing goods and services.


Classification of goods and services

Hybrid goods

A service

A non-physical item that can be purchased

A good A physical item that can be

purchased

Producer goods Consumer goods

Durable a chair

Single use a chocolate

bar

Durable Piece of

machinery

Single use raw

martial


• Satisfying needs and wants of human being can be done through: Production

Specialization

Inter dependence

Production is the manufacturing of goods and the provision of services to satisfy people's needs and wants


Stages of production Stages of production (Types of Business activities)(Types of Business activities)

• Primary production:

• Is the first stage of production, where raw materials and natural resources are extracted from both land and sea (includes mining, fishing, farming. )


• Secondary production:

• Is the second stage of the production process

• whereas the raw materials of the primary stage are processed and turned into manufactured goods.

• This stage includes manufacturing or construction processes.


• Tertiary production:

• It involves the productions of services rather than goods.

• Tertiary production helps with the distribution and exchange of both primary and secondary production.

• It is divided into commerce and direct services


Commerce Trade home

(refers to the exchange of goods services in the society)

Wholesale

Foreign Import

Aids to trade Transport / warehousing /

Finance /information / insurance /

telecommunication /advertising Banking

Direct services personal : hairdressing

Public: education / health

Retail

ExporExportt


The factors of production: • In order for businesses to produce In order for businesses to produce

goods and services, they need the basic goods and services, they need the basic tools for production which are known tools for production which are known as factors of production they are: land - as factors of production they are: land - labour - capital - enterprise.labour - capital - enterprise.

• LandLand:: is defined as all the natural resources and therefore it includes soil, forests, rivers, temperature, rainfall, seas, oceans, minerals (coal, iron ore, tin and oil) .


• LabourLabour:: Is the physical or manual efforts also Is the physical or manual efforts also includes the mental and intellectual skills which includes the mental and intellectual skills which individuals use in productionindividuals use in production

• labour can be classified into skilled labour, semi-skilled labour and non-skilled labour.

• Skilled labourSkilled labour are those whose jobs need a lot of education and training like doctors and engineers.

• Semi-skilled labourSemi-skilled labour are those whose jobs need some education and training like carpenters.

• Non-skilledNon-skilled labour labour are those whose jobs do not need any education or training like housekeepers.


• CapitalCapital:: Refers to things that the business owns and uses to create goods and to provide services. There are three forms of capital.

• Fixed capital:Fixed capital: is long - lasting capital that will not be changed frequently (premises and equipment).

• Current capitalCurrent capital:: refers to the items that can be changed into cash (stock and debtors).

• Liquid capitalLiquid capital:: is cash in till or cash to bank (the payment to capital is interest).


• EnterpriseEnterprise:: is similar to labour but it is separated because enterprise: is the unique ability that certain people have, to organize the factors of production, to produce goods and services and to make profit or loss.

• On other words, enterprise brings the On other words, enterprise brings the factors of production together and make factors of production together and make best allocation of resources possible.best allocation of resources possible.

• Entrepreneur is defined as Entrepreneur is defined as the "one who sees opportunity, undertakes risk to exploit the opportunity and organizes the necessary resources".


Specialization (division of Specialization (division of labour)labour)

• In early societies, individuals themselves In early societies, individuals themselves used to produce all the products they used to produce all the products they needed. Whenever, they produced a needed. Whenever, they produced a surplus they used to exchange some of it surplus they used to exchange some of it for the other products they didn't for the other products they didn't produce. This is known as produce. This is known as barter systembarter system. .


• The introduction of money solved one of the The introduction of money solved one of the problems of barter system in that it allowed problems of barter system in that it allowed individuals to specialize. individuals to specialize.

• In In SpecializationSpecialization , the work should be broken into , the work should be broken into smaller tasks and each worker is assigned to one or smaller tasks and each worker is assigned to one or more of these tasks.more of these tasks.

• On other words, individual specializes in doing one On other words, individual specializes in doing one particular job particular job


Benefits of division of Benefits of division of labourlabour• Repetition increases efficiency .. the quality of Repetition increases efficiency .. the quality of

work improves as the workers specialize in one work improves as the workers specialize in one task. task.

• Creativity increases as the specialized staff often Creativity increases as the specialized staff often invent new methods of performing their jobs. invent new methods of performing their jobs.

• Higher output .. specialization allows employees Higher output .. specialization allows employees to perform their duties in a high speed. to perform their duties in a high speed.

• Economies of scale - by increasing workers' Economies of scale - by increasing workers' productivity, division of labour reduces the costs productivity, division of labour reduces the costs of production whereas the fixed costs will be of production whereas the fixed costs will be divided onto a large number of produced units. divided onto a large number of produced units.


Disadvantages of division Disadvantages of division of labourof labour• Boredom: monotonous and repetitive work Boredom: monotonous and repetitive work

will lead to boredom among workers. will lead to boredom among workers.

• Delay: the absence of one worker will Delay: the absence of one worker will hinder the business process since no body hinder the business process since no body can replace him. can replace him.

• Decline in crafts: automation involved in Decline in crafts: automation involved in modern industries lead to decline of modern industries lead to decline of personal skills and crafts. personal skills and crafts.

• Unemployment: heavy industries Unemployment: heavy industries producing in large scale (called capital producing in large scale (called capital intensive industries) resulted in regional intensive industries) resulted in regional unemployment. unemployment.


Interdependence of Interdependence of businessbusiness::

• Interdependence of between different Interdependence of between different stages of productionstages of production

• Ex.: a chocolate manufacturer relies on Ex.: a chocolate manufacturer relies on primary producers to supply its raw primary producers to supply its raw materials, namely Cocoa beans. Importing materials, namely Cocoa beans. Importing the beans means that a chocolate the beans means that a chocolate manufacturer must also depend on the manufacturer must also depend on the tertiary sector to do so (Transportation, tertiary sector to do so (Transportation, insurance, banking, telecommunication, insurance, banking, telecommunication, advertising, distribution). advertising, distribution).


• i.e.: beans would be imported by i.e.: beans would be imported by transport services (road or sea), transport services (road or sea), telecommunication, insurance and telecommunication, insurance and banking processes would be needed. banking processes would be needed. The manufacturer may also requires The manufacturer may also requires the services of an advertising agency to the services of an advertising agency to bring the product to the notice of the bring the product to the notice of the consumer. Wholesalers may purchase consumer. Wholesalers may purchase the product in bulk from the the product in bulk from the manufacturer. Retail outlets would manufacturer. Retail outlets would then purchase the product to sell it to then purchase the product to sell it to consumersconsumers


• Interdependence between business and Interdependence between business and governmentgovernment

• The government will require the The government will require the chocolate manufacturer to pay taxes on chocolate manufacturer to pay taxes on the profits made from his production. the profits made from his production. In return, the government benefits the In return, the government benefits the manufacturing as a whole in the sense manufacturing as a whole in the sense of providing the infrastructure, of providing the infrastructure, (namely roads, energy water supplies, (namely roads, energy water supplies, communication, safety … etc). communication, safety … etc).


The role of the state in the The role of the state in the economyeconomy

• It is essential to any economy to answer It is essential to any economy to answer the 4 Ws & H questions as follows: the 4 Ws & H questions as follows: −What to produce. What to produce. −When to produce. When to produce. −Who will produce. Who will produce. −Who will benefit from what produced. Who will benefit from what produced. −How to produce. How to produce.

• The decisions about production depend The decisions about production depend mainly on the government orientation mainly on the government orientation (economic and political) whereas (economic and political) whereas production is normally controlled by: production is normally controlled by:


Private sector Private sector individuals & firmsindividuals & firms

Government Government Government and Government and private sector private sector

Market Market economyeconomy

Mixed Mixed economyeconomy

Planned Planned economy economy

SocialistSocialist Capitalist Capitalist


Comparison between Comparison between market, mixed and market, mixed and planned economiesplanned economies : :

ItemItem Market economyMarket economy Mixed economyMixed economy Planned economyPlanned economy

Production Production decisions decisions

Are taken buy private sector Are taken buy private sector Are taken by both Are taken by both government and government and private sector. private sector.

Are taken by the Are taken by the government government

Selling prices Selling prices Supply and demand mechanism. Supply and demand mechanism. Private sector influences Private sector influences prices directly, while prices directly, while the gov't influences the gov't influences

price indirectly. price indirectly.

Government influences Government influences prices directly prices directly

Controlling Controlling factors of factors of

production production

Private sector controls the Private sector controls the factors of production factors of production

The private sector controls The private sector controls most of the factors of most of the factors of production, however, production, however, the gor't has a large the gor't has a large

base. base.

Government controls the Government controls the factors of production. factors of production.

Government Government interventiointervention and role n and role

Is minimum Is minimum Is substantial Is substantial The gov'r dominates every The gov'r dominates every aspect of the economy aspect of the economy

and society. and society.

Objectives Objectives Profit making Profit making Profit making and regulating Profit making and regulating the economy the economy

Social equalitySocial equality

Examples Examples U.S.A.U.S.A. England, Egypt. England, Egypt. Cuba, China. Cuba, China.


Advantages Advantages EfficiencyEfficiency: sever : sever competition stimulates competition stimulates

innovation in production innovation in production and selling techniques and selling techniques and lowering prices and lowering prices

IncentivesIncentives of the of the possibility of being possibility of being

wealthy if the working wealthy if the working hard. hard.

-This system obtains This system obtains the best of both the best of both capitalist and capitalist and

collectivist systems. collectivist systems. -Producers have the Producers have the

incentives to work and incentives to work and save.save.

-Consumers receive Consumers receive basic services, a large basic services, a large measure of economic measure of economic freedom and plenty of freedom and plenty of

choice. choice.

-Economics of scale. Economics of scale. -Basic needs can be Basic needs can be

met. met. -Full utilization of Full utilization of

resources. resources. -Full employment Full employment can be maintained can be maintained

and economic growth and economic growth can be planned. can be planned. -Less inequality in Less inequality in

incomes and wealth. incomes and wealth.

DisadvantageDisadvantages s

Excessive luxuries at the Excessive luxuries at the expense of basic services. expense of basic services. Externalities: pollution Externalities: pollution

Maldistribution of wealthMaldistribution of wealthPublic goods & services Public goods & services

may not provided: may not provided: Certain public services Certain public services such as health schemes such as health schemes and education are only and education are only

effectively provided on a effectively provided on a national basis. national basis.

The removal of the The removal of the profit motive from profit motive from

nationalized nationalized industries.industries.

e.g. iron and steel, e.g. iron and steel, coal, railways might coal, railways might

mean lower efficiency mean lower efficiency and less innovation. and less innovation.

Subsidizing loss maker Subsidizing loss maker industries represents a industries represents a drain on tax - payers. drain on tax - payers.

-Lack of personal Lack of personal freedom. freedom. -A large A large

bureaucracy. bureaucracy. -Few incentives. Few incentives.


Interest groups and Interest groups and businessbusiness

GroupGroup DifinitionDifinition RoleRole ResponsibilityResponsibility ConflictConflict

Owners & Owners & shareholdeshareholders rs managers managers

OwnerOwner: is someone who : is someone who has contributed has contributed his / her own his / her own money to money to developing a developing a business and thus business and thus has a right to has a right to participate in participate in decision - making. decision - making.

ShareholdersShareholders: are the : are the owners in public & owners in public & private limited private limited companies companies employee. employee.

ManagerManager: is someone : is someone who makes who makes decisions about the decisions about the way in which a way in which a business operates. business operates.

Owners / shareholders:Owners / shareholders:- Provide capital for Provide capital for

the business in the business in return of a profit / return of a profit / part of the profit part of the profit (dividend). (dividend).

- In soletrader, In soletrader, partnership - partnership - owners role owners role includes includes operational & operational & strategic mgnt. strategic mgnt.

- In limited In limited companies companies shareholders shareholders maintain close maintain close control of business control of business and the right to and the right to attend annual attend annual general meeting general meeting (AGM). (AGM).

Owners / shareholders: Owners / shareholders: - have a duty have a duty

towards their towards their employees in terms employees in terms of fair rate pay, of fair rate pay, good working good working conditions, legal conditions, legal safe and unrisky safe and unrisky jobs. jobs.

- Make good profit Make good profit and good and good proportion of that proportion of that profit to profit to shareholders shareholders (divided). (divided).

- Toward Toward community they community they must ensure the must ensure the business is legal business is legal and doesn't change and doesn't change environment. environment.

دكتور / أحمد ابراهيم حامد Chapter 1 Business and Environment.

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Transcript of دكتور / أحمد ابراهيم حامد Chapter 1 Business and Environment.