Chapter One:

Foundation of Business
and Economics

Importance of Studying Business

Shape your answers
Sharpen your skills
Understand the business and economic
links within a country and between
countries

2. WHY WE STUDY BUSINESS?

2. Why We Study Business ?

A. Increasing Dependence on Others
I) Over the years, people have become more and
more dependent on each others
II) Mutual dependence
III) Use business system effectively
IV) Be a part of business
V) Few people today produce everything they need.

Business: The exchange of goods, services or

money for mutual benefit or profit
Barter: The exchange of goods without using
money

2. Why We Study Business ?

B. International Opportunities
I) Being educated in business, people can
avail exciting opportunities in the 21st century
II) Joint ventures between different countries
lll) Investment across geographical boundaries
lV) Working for multinational comp
C. Standard of Living
Is a measurement with respect to both quantity
and quality.

2. Why We Study Business ?

The amount of goods and services that an
average family or individual views as
necessary.
A measure of how well a person or family is
doing in terms of satisfying needs and
wants with goods and services
I)Minimal amount of government
interference &
II) A free market business system

2. Why We Study Business ?

Free Enterprise:
A system in which private businesses are able
to start and do business competitively to earn
profits, with a minimal degree of government
regulation.
D. Coping with the Change
Price change
New Product Development
Need Change
Unexpected events occurs

2. Why We Study Business ?

E. Preventing misconceptions
Understanding business also prevents our
accepting misconceptions, misinformation
and inaccurate data as truth.

3. WHO ARE THE PEOPLE THAT

FORM THE CORE OF BUSINESS?

3. People Form The Core Of Business

A. Owners
B. Managers
C. Employees D. Consumers
A. Owners
People who own a business, as well as those
who invest money in one and have right on the
business property, do so because they expect
to earn profit

3. People Form The Core Of Business

B. Managers
The person responsible for operating the business
may be the owner (an owner-manager also called
an entrepreneur) or a professional manager
employed by the owner
I) The owner-manager sets his or her own
objectives
II) A professional manager attempts to
achieve objectives set by others. They are
accountable to the owners of the business

3. People Form The Core Of Business

C. Employees

Employees supply the skills and abilities

needed to provide a product or service and to
earn a profit
D. Consumers
A person or business who purchases a good or
service for personal or organizational use.

3. People Form The Core Of Business

Stakeholders
Stakeholders are people who affect, and are
affected by, the company. In other words,
stakeholders are people one who have shares or
interests in an enterprise.
Stakeholders in a company may include
shareholders, directors, management, suppliers,
government, employees, and the community.

4. WHAT ARE THE OBJECTIVES

OF A BUSINESS?

4. Business Objectives
Businesses must achieve their objectives to
remain in their operation.
Business objectives can be categorized as -

A. Profit
Business Profit The difference between business
income (revenue) and business expenses (costs)
Business profit is calculated by subtracting all costs,
including taxes, from the revenue received from selling
a product or service in the marketplace.

4. Business Objectives
A. Profit
Business Profit (continued)
By conducting a number of activities, business
enterprise earns profit. These are-

Risk-taking The business may earn a profit when

it takes risk by entering a new market
or by competing head-on with
another business.
Evaluation Business organizations that evaluate
of demand consumer needs and demands can
earn substantial profits.

4. Business Objectives
A. Profit
Business Profit (continued)
Efficient
management

Efficient management, that is,

efficient planning, organizing,
controlling, directing, and staffing
can earn satisfactory profits.
A major cause of business failure
is improper or inadequate
management of people,
technology, materials, and capital.

4. Business Objectives
A. Profit
Economic Profit Economic profit is what

remains after both actual expenses and

opportunity costs are subtracted from income.
Opportunity cost Opportunity cost is the cost of
choosing to use resources for one purpose while
sacrificing the next best alternative use of those
resources.

4. Business Objectives
A. Profit
Opportunity cost Example:
Mr. Anis has a part-time job that pays him Tk. 1000
per week. He would like to spend a week at the beach
during spring break, and his employer has agreed to
give him the time off, but without pay. What is the
opportunity cost here?
Ans: The Tk. 1000 in lost wages would be an
opportunity cost of taking the week off to be at the
beach.

4. Business Objectives
A. Profit
Opportunity cost Example:
Ms. Mita Chowdhury is employed with a company that
pays her a salary of Tk. 240,000 per year. She is
thinking about leaving the company and returning to
University for attending MBA classes. Since returning
to university would require that she gives up her
Tk. 240,000 salary, the foregone salary would be an
opportunity cost of seeking further education.

4. Business Objectives
B. Survival
This is an obvious objectives. Other objectives can
be attained only if the business survives.
C. Growth
Growth is an objective because the business does
not stand still. Market share increase and increased
productivity are important growth objectives.
D. Social responsibility
Businesses, like each person in society, must accept
their responsibilities in areas such as pollution
control, eliminating discriminatory practices, and
energy conservation.

5. DEFINE ECONOMICS

5. Economics : The foundation of business

Economics

The study of how a society uses its scarce

resources to produce goods and services and to
distribute them for consumption.
At least three issues are key to understanding
economics :
(1) Resources
(2) Goods & Services
(3) Allocation of both resources and products

5. Economics : The foundation of business

1. Resources
a. Natural Resources
Natural Resources are those resources provided
in limited amounts by nature, such as oil, coal,
water and timber etc.
Natural resources must be processed to become
a product or to be used to produce other goods or
services.
b. Capital Resources
Capital Resources are goods produced for the
purpose of making other types of goods and
services.

5. Economics : The foundation of business

1. Resources (continued)

Some capital resources are current assets having a

short life and are used up in the production process
fuel, raw materials, paper, and money etc.
Some are long-lived capital resources named as
fixed capital, which are used repeatedly in the
production process factory buildings, PCs,
machinery etc.

5. Economics : The foundation of business

1. Resources (continued)

c. Labor resources
Labor resources represent the human talent, skills
and competence, available in a nation doctors,
operators, teachers and so on.
Without human resources, no productive use of
either natural or capital resources is possible.

5. Economics : The foundation of business

B. Goods and Services
A nations resources are used to produce goods
and services that will meet peoples needs and
wants.
Needs Goods and services people must
have simply to exist.
Wants Things people would like to have but
do not absolutely need for survival. A
persons want can be unlimited: as soon as
one want is satisfied, another is created.

5. Economics : The foundation of business

B. Goods and Services

Needs
Food, clothing, shelter,
medical care, etc.

Wants
Fashionable clothes,
luxury vacations,
Camcorder etc.

C. Allocation
The process of choosing how resources will be
used to meet a societys needs and wants.

5. Economics : The foundation of business

C. Allocation
a. Resource allocation
We must make choices about how the scarce resources are
to be used. To make these choices, we have to answer three
fundamental economic questions:

i. What goods and services will be produced, and

in what quantities?
ii. How will goods and services be produced, and by
whom?

iii.Who will use the goods and services?

5. Economics : The foundation of business

C. Allocation
b. Product distribution
Besides scarce resource, the issue of allocation involves the
distribution of goods and services to the consumer.

The business earns a profit and the customer is satisfied

with the goods or services: the exchange provides mutual
benefit.
When goods and services get to the customers who want or
need them and mutual satisfaction occurs, both resources
and products have been well allocated.

6.Economic Systems

6. ECONOMIC SYSTEMS
An economic system is an accepted way of:
organizing production,
establishing the rights and
freedom of ownership,
using productive resources
and governing business transactions in a society.

There are 3 basic types of systems

6. ECONOMIC SYSTEMS
Economic Systems
Capitalism or
Free-Market System
Right to ownership
Entitled to all profits
Right to choose job
Decide what to
produce
How to produce
Whom to sell to

Mixed
Freedom to start a
business
Both state and
private owned
industries
Profits mostly in
private sector

Communism or
Planned Economy

Planned system
State owns
industries
Profits not
recognized
State decides
occupation

6. ECONOMIC SYSTEMS
Economic Systems (continued)
A. Communism/ Planned Economy
An economy in which the government owns the
productive resources, financial enterprises, retail
stores and banks
B. Capitalism/ Free Market Private enterprise
can produce almost everything
C. Mixed Economy both private and government
produce and distribute goods and services

End of Chapter One