This document provides an overview of business and economic systems. It discusses different types of economic systems like capitalism, socialism, and mixed economies. It also describes the primary, secondary and tertiary sectors of the economy and different business ownership models. Additionally, it outlines the internal and external stakeholders of businesses, factors of production, components of a business model, sources of business risk and qualities of a successful entrepreneur.

1. BASICS OF BUSINESS AND BUSINESS
ENVIRONMENT
UNIT- 2
Mrs. ANANTHAVALLI S P
Assistant Professor, BBA
School of Management
KPRCAS
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2. Contents:
Business and Economic System
Capitalism, Socialism, Communalism and Mixed economy
Different sectors of the economy and role of businesses in it.
Different stakeholders of business firms
Factors of production
Business model –Meaning &example
Business risks & their causes
Steps in starting business
Qualities of Entrepreneur
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Unit-2

3. Business and Economic System
Economic System is a particular set of institutional arrangements and
a coordinating mechanism-to respond to the economizing problem. It
is a society decides what goods to produce, how to produce them, and
for whom goods will be produced.
It provides the economic structure of a given economy.
An Economic system of a nation or a country may be defined as a
framework of rules, goals and incentives that controls economic
relations among people in a society
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4. Capitalism
An Economic system in which the means of production of goods or
services are privately owned and operated for a profit.
An Enterprise that is privately owned, privately controlled
Individual right to property, not community/society rights prevail in
capitalist system
The Goal is to provide a product or service that people want to
purchase, make money(the profit motive)
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5. Socialism
It is defined as an economic system in which the means of production are
owned not by private individuals but by the community in order that all may
share more fairly in the wealth produced.
Government ownership and administration of the means of production and
distribution of goods.
A system of society or group living in which there is not private property.
A system or condition of society in which the means of production are
owned and controlled by the state.
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6. Difference between Capitalism and Socialism
Capitalism Socialism
Ownership Assets owned by private firms Assets owned by government/Co-
operatives
Equality Income determined by market
forces
Redistribution of income
Prices Prices determined by supply and
demand
Price controls
Efficiency Market Incentives encourage firms
to cut costs
Government owned firms have
fewer incentives to be efficient
Taxes Limited taxes/limited government
spending
High progressive taxes/Higher
Spending on Public services
Healthcare Health care left to free-market Healthcare provided by
government free at point of use
Problems Inequality, market failure,
monopoly
Inefficiency of state industry, less
incentives,
Advantages Dynamic economy, incentives for
innovation and economic growth
Promotion of equality. Attempt to
overcome market failure
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7. Communalism
• The word communalism is derived from the word community. It
implies extreme sense of pride into identification with one’s own
community.
• Effects of Communalism
Material and human loss due to conflicts
Weakens democracy
Communalism Hiders social and economic progress
Communalism gives rise to regionalism.
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8. Mixed Economy
Mixed Economy is an economic system in which both the state and
private sector direct the economy, reflecting characteristics of both
market economies and planned economies.
Most mixed economies can be described as market economies with
strong regulatory oversight.
Mixed economy implies demarcation and harmonization of the public
and private sectors.
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9. Cont.. Mixed Economy..
Market mechanism is not permitted and the government intervenes or
regulates the private sector in such a way that the two sectors become
mutually re-inforcing.
A mixed economy represents an achievable balance between
individual initiative and social goals.
There is a commitment on the part of both the sectors to national
objectives and priorities.
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11. Primary Sector
The primary sector of the economy is the sector of an economy
making direct use of natural resources
Eg: Agriculture, Mining, Fishing, Forestry, Dairy etc.,
People engaged in primary activities are called red-collar workers due
to the outdoor nature of their work.
It seen in less developed countries, and typically less important
industrial countries.
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12. Secondary Sector
Where finished products are made from natural materials produced in the
primary sector.
Industrial production, cotton fabric, sugar cane production etc. activities
comes under this sector.
Its the part of a country's economy that manufactures goods, rather than
producing raw materials
This sector is associated with different kinds of industries, it is also
called industrial sector.
People engaged in secondary activities are called blue collar workers.
Examples:Mills producing textiles, Factories producing steel, chemicals,
plastic, car.
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13. Tertiary Sector/Service Sector
In tertiary sector do not produce a goods but they are an aid or a
support for the production.
Goods transported by trucks or trains, banking, insurance, finance etc.
come under the sector.
It provides the value addition to a product same as secondary sector.
This sector jobs are called white collar jobs.
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15. Classification on the basis of ownership
Private Sector-Owned by individuals or firms
Public Sector-Industries owned by the state and its agencies.
Joint Sector-Industries owned by private firms and the state or its
agencies.
C-Operative sector-Industries owned and run co-operatively by a
group of people who generally are the producers of raw materials.
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16. Different stakeholders of business firms
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Internal Stakeholders
Shareholders
Owners
Employees
External Stakeholders
Customers
Suppliers
Investors
Creditors
Media
Communities
Trade Unions
Government Agencies

17. Factors of production
• Land: All natural resources that are used to produce goods and services.
• Labor: Any effort a person devotes to a task for which that person is paid.
• Capital: Any human-made resource that is used to create other goods and
services.
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18. Business model –Meaning &example
A set of planned activities designed to result in a profit in a market place.
A business model is the method of doing business by which a company can
sustain itself that is, generate revenue.
The business model spells out how a company makes money by specifying
its position in the value chain.
A business model is a reflection of the firm realised strategy.
A business model describes the rationale of how an organisation creates,
delivers and captures value.
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19. Business Model Example
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20. Types of Risk
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Systematic Risk Unsystematic Risk
Market Risk
Interest Risk
Purchasing Power
Risk
Business Risk-Internal Risk, External
Risk
Financial Risk-Credit Risk,
Currency Risk, Country Risk, Liquidity
Risk

21. Business Risk
Business risk is an uncertain or unexpected events that hampers a
company from achieving its objectives.
The term risk refers to the responsibility of inadequate profits or
even losses due to uncertainties or unexpected events.
•Characteristics:
•i)Business risks arise due to uncertainties
•ii)Risk is an essential part of every of business.
•iii)Degree of risk depends upon the nature & size of business.
•iv)Business risks depends on terms of sale.
•V)Business risks arise due uncertainties.
•Vi)Profit is reward for risk taking.
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22. Causes of Business Risks
i) Natural Causes
ii) Human Causes
iii) Economic Causes
iv) Political Causes
V) Managerial Causes
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23. Steps to Start a Business
•1.Discover a Business Opportunity
•2.Decide the size of Business
•3.Decide form of Business Ownership
•4.Select Location of Business
•5.Fix Capital Needs of Business
•6.Organise physical facilities
•7.Plan a Good Layout
•8.Proper Organisational Structure
•9.Manpower Requirements
•10.Registration of Business
•11.Strating the Business
•12.Tax Planning
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24. Qualities of Entrepreneur
 Moderate risk taking
 Hard work
 Accountability
 Educated in real sense
 Analytical mind
 Dynamic leadership
 Presence of mind
 Accommodative
 Courageous and tactful
 Maker of right decision
 Foresighted
 Right Perception of things
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