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  • Economics tries to explain how we can best use the various resources which are at our disposal. Many decisions have to be made about business resources; managers must decide, e.g. whether to employ more or fewer people, or whether to invest in a new machine. Decisions are usually made on the basis of some information about the business, such as that gathered by an accountant. There are many influences on business. Some of these may be local or national, whereas others may come from international dealings. Business organisations cannot afford to isolate themselves from the rest of the business world: they will need to communicate with other organisations, as well as needing their own efficient communication systems. Businesses vary in many ways: In their organisation; In the goods or services they produce; In their size and complexity; In the nature of their markets, which could be local (hairdresser), national (ARD) or international (VW). The economies in which these various firms operate will also vary, from the planned economies of China and the former Eastern Bloc countries to the market-oriented economies of the West.

The+Economic+Framework+Of+Business The+Economic+Framework+Of+Business Presentation Transcript

  • The Economic Framework of Business
  • Factors of Production PRODUCT C A P I T A L E N T E R P R I S E L A N D L A B O U R Capital , available for invest- ment in new machines,etc. 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. Labour , the number of persons available and willing to work.
  • Scarcity and Choice unlimited limited Wants Resources Choices Conflict
  • Key Questions for Society What to produce ?
    • price mechanism
    • government
  • Key Questions for Society What to produce ? How to produce ?
    • buy machines or
    • hire employees
  • Key Questions for Society What to produce ? How to produce ? Where to produce ?
    • availability of inexpensive building land
    • suitably skilled workforce
    • government‘s regional policy
  • Specialisation and Exchange Lack of coincidence of wants Indivisibility Valuation Problems
  • Functions of Money
      • Medium of exchange
      • Measure of value
      • Store of value
  • Specialisation Former times one single person
  • Specialisation Today many persons
  • Specialisation
    • Reduced unit costs
    • Use of specialist equipment
    • Employees become specialised
    • Lower job satisfaction
    • Sensitive against industrial action
    • Problems with unemployed workers
    Advantages Disadvantages
  • Interdependence through Specialisation Firms Countries People
  • Economic Systems Free Market System Mixed Economy Planned System
  • Free Market System X X X X Price mechanism Resources are owned by individuals ( 5 price, 30000 quantity ) ( 1 price, 5000 quantity ) ( 5 price, 5000 quantity ) ( 1 price, 30000 quantity ) Demand Supply
  • Advantages Free Market System Incentive Choice Competition
  • Disadvantages Unequal distribution of wealth Public services Profit motive Hardship Wasted or reduced competition
  • Economic Systems Free Market System Mixed Economy Planned System
  • Advantages Use of resources Large-scale production Public services Basic services
  • Disadvantages Lack of choice Little incentive Centralised control
  • Economic Systems Free Market System Mixed Economy Planned System
  • Mixed Economy Advantages Disadvantages Necessary services Incentive Competition Large monopolies Bureaucracy
  • Types of Production
  • PRODUCER Insurance Banking Transport Advertising Warehousing Export services Communication services
  • Types of Markets Consumer markets Industrial markets capital goods single-use consumer goods services consumer durables industrial services
  • Test Questions
    • The 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 in a) 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 welder e) forester f) seaman g) banker h) miner
    • A ‘market’ is a place where … and … are in contact with each other to determine a price.
  • 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 ! Always have a look at the bright side of life !