Chapter One Understanding Business
What is Business <ul><li>A business is an organization that produces or sells goods or services to satisfy the needs, want...
Goods and Services <ul><li>Essential goods and services:  A need is an item that is necessary for survival.  </li></ul><ul...
Producers and Consumers <ul><li>A producer is an individual or business that makes a product. </li></ul><ul><li>A consumer...
Economic Resources <ul><li>Goods must be created from basic components called factors of production. </li></ul><ul><li>Nat...
Demand <ul><li>Demand is the quantity of a good or service that consumers are  willing  and  able  to buy at a particular ...
Conditions That Create Demand <ul><li>Consumer must be aware or interested in the good and service </li></ul><ul><li>There...
Factors That Affect Demand <ul><li>Changes in consumer income </li></ul><ul><li>Changes in consumer taste </li></ul><ul><l...
Supply <ul><li>Supply is the quantity of a good or service that businesses are willing and able to provide within a range ...
Factors That Affect Supply <ul><li>Change in the number of producers </li></ul><ul><li>Change in the price of related good...
Price <ul><li>Affected by both supply and demand </li></ul><ul><li>If demand is high and supply is low, the price will be ...
Competition <ul><li>Free enterprise: economic system in which economic resources are privately owned and decisions about w...
Business Survival <ul><li>To survive a business must produce items the public wants and needs </li></ul><ul><li>In order t...
Interdependence <ul><li>People rely on goods and services from thousands of different businesses to satisfy our needs and ...
Profit <ul><li>Profit is the income that is left after all expenses are paid. </li></ul><ul><li>Revenue is all the income ...
Profit Example <ul><li>A-1 Lawn Service, April </li></ul><ul><li>Mowed 83 lawns at $20 per lawn </li></ul><ul><li>Rototill...
Answer <ul><li>Revenue </li></ul><ul><ul><li>83 x 20 + 36 x 25 = $2560 </li></ul></ul><ul><li>Expenses </li></ul><ul><ul><...
Types of Costs <ul><li>Fixed costs: An expense that does not change depending on the quantity produced </li></ul><ul><li>V...
Example <ul><li>You decide to sell candy at school since the vending machines do not offer chocolate bars. </li></ul><ul><...
Example Solution <ul><li>Revenue: 40 x 1 = $40 </li></ul><ul><li>Variable Cost: 40 x 0.50 = $20 </li></ul><ul><li>Fixed Co...
Types of Businesses <ul><li>A  manufacturing  business produces the product from raw materials  Eg.  GM </li></ul><ul><li>...
Small Businesses <ul><li>Small businesses, employing 0 to 19 people, were 92% of the businesses in Canada in 2003 </li></ul>
Starting a Business <ul><li>http://careerccc.org/products/cp_99_e/section4/quiz.html </li></ul>
Starting a Business <ul><li>Why start your own business? </li></ul><ul><ul><li>Be your own boss </li></ul></ul><ul><ul><li...
Before starting your own business, you must consider: <ul><li>What are your skills best suited for? </li></ul><ul><li>Wher...
Types of Business Ownership <ul><li>Sole Proprietorship </li></ul><ul><ul><li>A business owned and operated by one person ...
Types of Business Ownership <ul><li>Corporation </li></ul><ul><ul><li>A legal entity that exists independently from its ow...
Types of Business Ownership <ul><li>Co-operatives </li></ul><ul><ul><li>Businesses owned and operated by a group of people...
Franchise <ul><li>A business given the right to operate using its parent company’s name and logo </li></ul><ul><li>Advanta...
Sole Proprietorship <ul><li>Advantages: </li></ul><ul><ul><li>You keep all the profits (you get all the money you make) </...
Partnership <ul><li>Advantages: </li></ul><ul><ul><li>Responsibilities are shared </li></ul></ul><ul><ul><li>More resource...
Corporation <ul><li>A legal entity that exists independently from its owners </li></ul><ul><li>The owners of a corporation...
Corporation Continued <ul><li>Advantages </li></ul><ul><ul><li>Limited liability for its owners </li></ul></ul><ul><ul><li...
Co-operatives <ul><li>Businesses owned and operated by a group of people with a strong common interest </li></ul><ul><li>A...
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Chapter One

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Chapter One

  1. 1. Chapter One Understanding Business
  2. 2. What is Business <ul><li>A business is an organization that produces or sells goods or services to satisfy the needs, wants and demands of consumers for the purpose of making a profit </li></ul><ul><li>Businesses can differ based on: </li></ul><ul><ul><li>Type of ownership </li></ul></ul><ul><ul><li>Goods it produces or services it offers </li></ul></ul><ul><ul><li>Different functions it performs for the community </li></ul></ul><ul><ul><li>Types of jobs it provides </li></ul></ul>
  3. 3. Goods and Services <ul><li>Essential goods and services: A need is an item that is necessary for survival. </li></ul><ul><li>Luxury goods and services: A want is an item that is not necessary for survival but adds pleasure and comfort to life. </li></ul><ul><li>Tangible: A good is an item that can be seen or touched. </li></ul><ul><li>Intangible: A service is assistance provided; a product that cannot be touched. </li></ul>
  4. 4. Producers and Consumers <ul><li>A producer is an individual or business that makes a product. </li></ul><ul><li>A consumer is a person or business who buys goods and services. </li></ul>
  5. 5. Economic Resources <ul><li>Goods must be created from basic components called factors of production. </li></ul><ul><li>Natural resources are raw materials that come from the earth, water and air. </li></ul><ul><li>Human resources (labour) are the people who work to create the goods and services. </li></ul><ul><li>Capital resources including buildings, equipment, tools, trucks and factories. </li></ul>
  6. 6. Demand <ul><li>Demand is the quantity of a good or service that consumers are willing and able to buy at a particular price. </li></ul><ul><li>Law of Demand: as the price of an item decreases, the demand for it increases; as the price of an item increases, the demand for it decreases </li></ul>
  7. 7. Conditions That Create Demand <ul><li>Consumer must be aware or interested in the good and service </li></ul><ul><li>There is a supply of the good or service available for the consumer </li></ul><ul><li>Prices are reasonable and competitive </li></ul><ul><li>The good or service must be conveniently located for the consumer to purchase </li></ul>
  8. 8. Factors That Affect Demand <ul><li>Changes in consumer income </li></ul><ul><li>Changes in consumer taste </li></ul><ul><li>Changes in expectations of future conditions </li></ul><ul><li>Changes in other prices </li></ul><ul><li>Changes in population </li></ul>
  9. 9. Supply <ul><li>Supply is the quantity of a good or service that businesses are willing and able to provide within a range of prices that people would be willing to pay. </li></ul><ul><li>Law of Supply: as the price of an item increases, the supply of it increases; as the price of an item decreases, the supply of it decreases </li></ul>
  10. 10. Factors That Affect Supply <ul><li>Change in the number of producers </li></ul><ul><li>Change in the price of related goods </li></ul><ul><li>Change in technology </li></ul><ul><li>Change in expectations </li></ul><ul><li>Changes in the environment </li></ul>
  11. 11. Price <ul><li>Affected by both supply and demand </li></ul><ul><li>If demand is high and supply is low, the price will be high. </li></ul><ul><li>If demand is low and supply is high, the price will be low </li></ul>
  12. 12. Competition <ul><li>Free enterprise: economic system in which economic resources are privately owned and decisions about what to produce are made freely by individual owners </li></ul><ul><li>Level and amount of competition influences price </li></ul><ul><li>Competition benefits consumers through: </li></ul><ul><ul><li>Lower prices </li></ul></ul><ul><ul><li>Higher quality goods and services </li></ul></ul><ul><ul><li>Product development </li></ul></ul>
  13. 13. Business Survival <ul><li>To survive a business must produce items the public wants and needs </li></ul><ul><li>In order to prevent obsolesce (product no longer in use) a business must: </li></ul><ul><ul><li>Take risks </li></ul></ul><ul><ul><li>Innovate </li></ul></ul><ul><ul><li>Adapt </li></ul></ul>
  14. 14. Interdependence <ul><li>People rely on goods and services from thousands of different businesses to satisfy our needs and wants </li></ul><ul><li>Businesses rely on other businesses to provide them the resources they need to satisfy wants and needs </li></ul>
  15. 15. Profit <ul><li>Profit is the income that is left after all expenses are paid. </li></ul><ul><li>Revenue is all the income from the sale of goods and services </li></ul><ul><li>Expenses are all costs associated with running the business and producing the good or services </li></ul><ul><li>Profit = Revenue – Expenses </li></ul>
  16. 16. Profit Example <ul><li>A-1 Lawn Service, April </li></ul><ul><li>Mowed 83 lawns at $20 per lawn </li></ul><ul><li>Rototilled 36 garden plots for $25 each </li></ul><ul><li>Spent $248 on gasoline and oil </li></ul><ul><li>$702 for equipment rental </li></ul><ul><li>Paid customer $40 for broken flower planter </li></ul><ul><li>Calculate the profit </li></ul>
  17. 17. Answer <ul><li>Revenue </li></ul><ul><ul><li>83 x 20 + 36 x 25 = $2560 </li></ul></ul><ul><li>Expenses </li></ul><ul><ul><li>248 + 702 + 40 = $990 </li></ul></ul><ul><li>Profit </li></ul><ul><ul><li>2560 – 990 = $1570 </li></ul></ul>
  18. 18. Types of Costs <ul><li>Fixed costs: An expense that does not change depending on the quantity produced </li></ul><ul><li>Variable costs: An expense that changes based on the quantity produced </li></ul><ul><li>Profit = Revenue – Variable Costs – Fixed Costs </li></ul>
  19. 19. Example <ul><li>You decide to sell candy at school since the vending machines do not offer chocolate bars. </li></ul><ul><li>You buy chocolate bars for $0.50 from a wholesaler. </li></ul><ul><li>You sell the bars for $1.00 </li></ul><ul><li>You photocopy 100 flyers for a total cost of $10. </li></ul><ul><li>How much money do you make if you sell 40 chocolate bars? </li></ul>
  20. 20. Example Solution <ul><li>Revenue: 40 x 1 = $40 </li></ul><ul><li>Variable Cost: 40 x 0.50 = $20 </li></ul><ul><li>Fixed Cost: $10 </li></ul><ul><li>Profit = 40 – 20 – 10 = $10. </li></ul><ul><li>How many chocolate bars do you need to sell to cover your costs (break-even point)? </li></ul><ul><li>For each chocolate bar you sell, you make (1 – 0.5=.5) $0.50 </li></ul><ul><li>To cover your fixed costs, you need to sell (10/0.50 = 20) 20 chocolate bars </li></ul>
  21. 21. Types of Businesses <ul><li>A manufacturing business produces the product from raw materials Eg. GM </li></ul><ul><li>A retail business takes a finished product and sells it to the consumer Eg. The GAP </li></ul><ul><li>A service business provides a particular service for the consumer Eg. Cadet Cleaners </li></ul><ul><li>A franchise business is given the right to operate using its parent company’s name and logo Eg. McDonald’s </li></ul>
  22. 22. Small Businesses <ul><li>Small businesses, employing 0 to 19 people, were 92% of the businesses in Canada in 2003 </li></ul>
  23. 23. Starting a Business <ul><li>http://careerccc.org/products/cp_99_e/section4/quiz.html </li></ul>
  24. 24. Starting a Business <ul><li>Why start your own business? </li></ul><ul><ul><li>Be your own boss </li></ul></ul><ul><ul><li>Financial independence </li></ul></ul><ul><ul><li>Opportunity to use your skills, knowledge, creativity </li></ul></ul>
  25. 25. Before starting your own business, you must consider: <ul><li>What are your skills best suited for? </li></ul><ul><li>Where can you find information regarding the type of business you plan to open? </li></ul><ul><li>What are the startup costs? </li></ul><ul><li>Should I use debt or equity financing? </li></ul><ul><li>Where can I find financing (capital /money)? </li></ul><ul><li>What level of risk can I expect? </li></ul><ul><li>What are the steps involved in running this business? </li></ul><ul><li>What resources would I need? </li></ul><ul><li>Should my business be home-based? </li></ul><ul><li>What type of business would you like to operate? </li></ul>
  26. 26. Types of Business Ownership <ul><li>Sole Proprietorship </li></ul><ul><ul><li>A business owned and operated by one person </li></ul></ul><ul><ul><li>Owner is responsible for all the operations of the business and assumes all the risks Partnership </li></ul></ul><ul><li>Partnership </li></ul><ul><ul><li>A business owned and operated by two or more people </li></ul></ul><ul><ul><li>A partnership agreements is required before the business opens </li></ul></ul>
  27. 27. Types of Business Ownership <ul><li>Corporation </li></ul><ul><ul><li>A legal entity that exists independently from its owners </li></ul></ul><ul><ul><li>The owners of a corporation are called shareholders (they own stock in the business) </li></ul></ul><ul><li>Corporations can either be: </li></ul><ul><ul><li>Private  only 50 shareholders (normally within a family) </li></ul></ul><ul><ul><li>Public  anyone can buy shares in the company. These shares are traded on stock exchanges </li></ul></ul><ul><ul><li>Crown  owned by the government (Canada Post, LCBO) </li></ul></ul><ul><ul><li>Non-profit  Corporations like the United Way who’s goal is to not make a profit, but to fight for a cause </li></ul></ul>
  28. 28. Types of Business Ownership <ul><li>Co-operatives </li></ul><ul><ul><li>Businesses owned and operated by a group of people with a strong common interest </li></ul></ul><ul><li>Franchise </li></ul><ul><ul><li>A business given the right to operate using its parent company’s name and logo </li></ul></ul>
  29. 29. Franchise <ul><li>A business given the right to operate using its parent company’s name and logo </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>You have a recognizable name </li></ul></ul><ul><ul><li>Franchisor supplies training and other expertise </li></ul></ul><ul><ul><li>Franchisor provides advertising, equipment, and packaging </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Expensive </li></ul></ul><ul><ul><li>A lot of rules to follow </li></ul></ul>
  30. 30. Sole Proprietorship <ul><li>Advantages: </li></ul><ul><ul><li>You keep all the profits (you get all the money you make) </li></ul></ul><ul><ul><li>Easier to make decisions </li></ul></ul><ul><ul><li>Financial information can be kept secret </li></ul></ul><ul><ul><li>Easy to start up and close down </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Unlimited Liability </li></ul></ul><ul><ul><li>Cost and time commitment can be high </li></ul></ul><ul><ul><li>Funding can be difficult to obtain </li></ul></ul>
  31. 31. Partnership <ul><li>Advantages: </li></ul><ul><ul><li>Responsibilities are shared </li></ul></ul><ul><ul><li>More resources </li></ul></ul><ul><ul><li>Less risk and lower time commitment </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Partners have unlimited liability </li></ul></ul><ul><ul><li>Conflict </li></ul></ul><ul><ul><li>Shared profits </li></ul></ul><ul><ul><li>Difficult to end partnership </li></ul></ul>
  32. 32. Corporation <ul><li>A legal entity that exists independently from its owners </li></ul><ul><li>The owners of a corporation are called shareholders (they own stock in the business) </li></ul><ul><li>To INCORPORATE your business, you (along with a lawyer and accountant) must submit ARTICLE OF INCORPORATION to the government specifying what type of corporation you will be (how many shares will be issued etc.) </li></ul><ul><li>Shareholders elect a BOARD OF DIRECTORS who guide the corporation </li></ul>
  33. 33. Corporation Continued <ul><li>Advantages </li></ul><ul><ul><li>Limited liability for its owners </li></ul></ul><ul><ul><li>Easy to raise money </li></ul></ul><ul><ul><li>Lower tax rates </li></ul></ul><ul><ul><li>Can continue even if owners pass away </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Difficult to set up </li></ul></ul><ul><ul><li>Complicated management structures </li></ul></ul><ul><ul><li>Employees may not be as committed </li></ul></ul><ul><ul><li>Value changes daily on the stock market </li></ul></ul>
  34. 34. Co-operatives <ul><li>Businesses owned and operated by a group of people with a strong common interest </li></ul><ul><li>Advantages: </li></ul><ul><ul><li>The responsibilities and costs are shared among the members of the co-op </li></ul></ul><ul><ul><li>Members pay less for Goods and Services and will share in any profit </li></ul></ul><ul><li>Disadvantages: </li></ul><ul><ul><li>Decision making may be difficult </li></ul></ul><ul><ul><li>Do not exist to make large profits </li></ul></ul>

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