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The Economic The Economic Framework of BusinessFramework of Business
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Factors of ProductionFactors of Production
PRODUCTPRODUCT
Capital, available for invest- ment in new machines,etc.
Capital, available for invest- ment in new machines,etc.
Land, used for agriculture, housing development and for providing natural resources.
Land, used for agriculture, housing development and for providing natural resources.
Enterprise, referring to the people who are willing to take the risk of setting up in business.
Enterprise, referring to the people who are willing to take the risk of setting up in business.
Labour, the number of persons available and willing to work.
Labour, the number of persons available and willing to work.
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Scarcity and ChoiceScarcity and Choice
unlimitedunlimited limitedlimited
WantsWants ResourcesResources
ChoicesChoices
ConflictConflict
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Key Questions for SocietyKey Questions for Society
What to produce ?What to produce ?
• price mechanism
• government
• price mechanism
• government
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Key Questions for SocietyKey Questions for Society
What to produce ?What to produce ?
How to produce ?How to produce ?
• buy machinesor
• hire employees
• buy machinesor
• hire employees
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Key Questions for SocietyKey Questions for Society
What to produce ?What to produce ?
How to produce ?How to produce ?
Where to produce ?Where to produce ?
• availability of inexpensive building land
• suitably skilled workforce
• government‘s regional policy
• availability of inexpensive building land
• suitably skilled workforce
• government‘s regional policy
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Specialisation and ExchangeSpecialisation and Exchange
Lack of coincidence of wantsLack of coincidence of wants
IndivisibilityIndivisibility
ValuationValuation
ProblemsProblems
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Functions of MoneyFunctions of Money
Medium of exchangeMedium of exchange
Measure of valueMeasure of value
Store of valueStore of value
$500.-
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SpecialisationSpecialisation
Former timesFormer times one single personone single person
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SpecialisationSpecialisation
TodayToday many personsmany persons
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SpecialisationSpecialisation
Reduced unit costsUse of specialist equipmentEmployees become specialised
Lower job satisfactionSensitive against industrial actionProblems with unemployed workers
AdvantagesAdvantages DisadvantagesDisadvantages
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Interdependence through Interdependence through SpecialisationSpecialisation
FirmsFirms
CountriesCountries
PeoplePeople
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EconomicEconomic Systems Systems
Free Market Free Market SystemSystem
MixedMixed EconomyEconomy
Planned Planned SystemSystem
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Free Market SystemFree Market System
X
XX
X
Supply curve
0
1
2
3
4
5
0 5 10 15 20 25 30
Quantity (tsd)P
rice
(5 price, 30000 quantity)
(1 price, 5000 quantity)
Demand curve
0
1
2
3
4
5
0 5 10 15 20 25 30
Quantity (tsd)
Pri
ce
(5 price, 5000 quantity)
(1 price, 30000 quantity)
DemandDemand SupplySupply
Price mechanismPrice mechanism
Resources are owned by individualsResources are owned by individuals
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AdvantagesAdvantages
Free MarketFree MarketSystemSystem
IncentiveIncentive
ChoiceChoice CompetitionCompetition
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DisadvantagesDisadvantages
Unequal distributionUnequal distributionof wealthof wealth
PublicPublic servicesservices
ProfitProfit motivemotive
HardshipHardship WastedWasted or reduced or reduced competitioncompetition
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EconomicEconomic Systems Systems
Free Market Free Market SystemSystem
MixedMixed EconomyEconomy
Planned Planned SystemSystem
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AdvantagesAdvantages
Use of resourcesUse of resources
Large-scale productionLarge-scale production
Public servicesPublic services
Basic servicesBasic services
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DisadvantagesDisadvantages
Lack of choiceLack of choice
Little incentiveLittle incentive
Centralised controlCentralised control
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EconomicEconomic Systems Systems
Free Market Free Market SystemSystem
MixedMixed EconomyEconomy
Planned Planned SystemSystem
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Mixed EconomyMixed Economy
AdvantagesAdvantages DisadvantagesDisadvantages
NecessaryNecessaryservicesservices
IncentiveIncentive
CompetitionCompetition
LargeLargemonopoliesmonopolies
BureaucracyBureaucracy
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Types of ProductionTypes of Production
M iningand
quarrying
F ishing Farm ing Fores try
PRIMARY
Manufac tur ing Construc tion
SECONDARY
Commerc ia lservices
D irec tservices
TERTIARY
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PRODUCERPRODUCER
InsuranceInsurance
BankingBanking
TransportTransportAdvertisingAdvertising
WarehousingWarehousing
ExportExportservicesservices
CommunicationCommunicationservicesservices
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Types of MarketsTypes of Markets
Consumer Consumer marketsmarkets
single-useconsumer goods
services
consumerdurables
Industrial marketsIndustrial markets
industrialservices
capitalgoods
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Test QuestionsTest QuestionsThe four factors of production are ...Explain ‘opportunity cost’ and give one example of its relevance to business.Distinguish between Direct and Indirect production.All firms specialise to some extent. What benefits do they gain from this ?What is the main difference between a free market economic system and a planned system ?Give three advantages found ina) the free market system;b) the planned system.Distinguish between primary, secondary and tertiary forms of production.Classify the following occupations as primary, secondary or tertiary:a) shopkeeper b) delivery van driver c) bricklayer d) car body weldere) forester f) seaman g) banker h) minerA ‘market’ is a place where … and … are in contact with each other to determine a price.
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All information taken from: Letts Study Guide GCSE, Floyd,David;Business Studies;Letts Educational;
London 1997 ISBN: 1 85758 576 3
Don‘t do that !Don‘t do that !
Always have a look at the bright side of life !