Section 1.1 The Nature of Business Activity Unit 1

What is a business? A decision-making organization involved in the process of using inputs to produce good and/or provide services. Businesses exist to satisfy the needs and wants of people, organizations, and governments. Peter Drucker: the only purpose of a business is to create customers. Drucker is considered the “father of modern management” and wrote nearly 40 business books

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

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

Peter Drucker: the only purpose of a business is to create customers.

Drucker is considered the “father of modern management” and wrote nearly 40 business books

What do businesses do? Businesses process inputs to create goods or services Goods are physical products Consumer goods – purchased by general public; can be durable or non-durable Capital goods – purchased by businesses Services are intangible products Businesses contribute a “value added” that enhances the value of the inputs and produces profit for the business

Businesses process inputs to create goods or services

Goods are physical products

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

Capital goods – purchased by businesses

Services are intangible products

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

How do businesses produce? By using the factors of production: Land Labor / labour Capital Enterprise / entrepreneurship

By using the factors of production:

Land

Labor / labour

Capital

Enterprise / entrepreneurship

What motivates businesses? Profit: is the positive difference between a firm’s total revenues and total costs Functions of profit: Incentive to produce Reward for risk takers Encourages invention and innovation Indicator of growth Source of finance to fund future growth

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

Functions of profit:

Incentive to produce

Reward for risk takers

Encourages invention and innovation

Indicator of growth

Source of finance to fund future growth

What tough choices do businesses make? Opportunity cost: the best alternative that is forgone when making a business Whether or not to specialize at various levels because there are advantages and disadvantages: Individual Departmental Corporate Regional National

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

Whether or not to specialize at various levels because there are advantages and disadvantages:

Individual

Departmental

Corporate

Regional

National

What are the functions of business? Production (operations) – responsible for converting raw materials into finished goods Marketing – identifies and satisfies customer wants and needs Finance – manages the organization’s money Human Resources (personnel) – manages the personnel of the organization

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

Marketing – identifies and satisfies customer wants and needs

Finance – manages the organization’s money

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

How can businesses be classified? Businesses are classified by the stage of production they in which they are employed Primary sector – involved with raw materials Secondary sector – involved in manufacturing or construction using those raw materials Tertiary sector – provides services Chain of production

Businesses are classified by the stage of production they in which they are employed

Primary sector – involved with raw materials

Secondary sector – involved in manufacturing or construction using those raw materials

Tertiary sector – provides services

HL: Changes in Economic Structure Structural change refers to a shift in the relative share of national output and employment that is attributed to each business sector As countries develop and industrialize, the proportion of business engaged in primary sector decreases and shifts toward the secondary and tertiary sectors Causes of the shift toward the tertiary sector include: Increase in household income More leisure time

Structural change refers to a shift in the relative share of national output and employment that is attributed to each business sector

As countries develop and industrialize, the proportion of business engaged in primary sector decreases and shifts toward the secondary and tertiary sectors

Causes of the shift toward the tertiary sector include:

Increase in household income

More leisure time

Section 1.1 Assignment DUE BEFORE AT THE END OF CLASS Question 1.1.2 on page 7. Answer question A and B. Please use complete sentences. You should have a paragraph for each question. Question 1.1.3 on page 12. Answer question A and B. Please use complete sentences. You should have a paragraph for each question. HL ONLY or SL extra credit : Question 1.1.4 on page 15. Answer question A and B. You may use the Internet to research part A. Please use complete sentences. You should have a paragraph for each question.

DUE BEFORE AT THE END OF CLASS

Question 1.1.2 on page 7.

Answer question A and B.

Please use complete sentences. You should have a paragraph for each question.

Question 1.1.3 on page 12.

Answer question A and B.

Please use complete sentences. You should have a paragraph for each question.

HL ONLY or SL extra credit : Question 1.1.4 on page 15.

Answer question A and B.

You may use the Internet to research part A.

Please use complete sentences. You should have a paragraph for each question.