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1.1 Nature Of Business Activity

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1.1 Nature Of Business Activity

  1. 1. Section 1.1 The Nature of Business Activity Unit 1
  2. 2. What is a business? <ul><li>A decision-making organization involved in the process of using inputs to produce good and/or provide services. </li></ul><ul><li>Businesses exist to satisfy the needs and wants of people, organizations, and governments. </li></ul><ul><li>Peter Drucker: the only purpose of a business is to create customers. </li></ul><ul><ul><li>Drucker is considered the “father of modern management” and wrote nearly 40 business books </li></ul></ul>
  3. 3. What do businesses do? <ul><li>Businesses process inputs to create goods or services </li></ul><ul><ul><li>Goods are physical products </li></ul></ul><ul><ul><ul><li>Consumer goods – purchased by general public; can be durable or non-durable </li></ul></ul></ul><ul><ul><ul><li>Capital goods – purchased by businesses </li></ul></ul></ul><ul><ul><li>Services are intangible products </li></ul></ul><ul><li>Businesses contribute a “value added” that enhances the value of the inputs and produces profit for the business </li></ul>
  4. 4. How do businesses produce? <ul><li>By using the factors of production: </li></ul><ul><ul><li>Land </li></ul></ul><ul><ul><li>Labor / labour </li></ul></ul><ul><ul><li>Capital </li></ul></ul><ul><ul><li>Enterprise / entrepreneurship </li></ul></ul>
  5. 5. What motivates businesses? <ul><li>Profit: is the positive difference between a firm’s total revenues and total costs </li></ul><ul><li>Functions of profit: </li></ul><ul><ul><li>Incentive to produce </li></ul></ul><ul><ul><li>Reward for risk takers </li></ul></ul><ul><ul><li>Encourages invention and innovation </li></ul></ul><ul><ul><li>Indicator of growth </li></ul></ul><ul><ul><li>Source of finance to fund future growth </li></ul></ul>
  6. 6. What tough choices do businesses make? <ul><li>Opportunity cost: the best alternative that is forgone when making a business </li></ul><ul><li>Whether or not to specialize at various levels because there are advantages and disadvantages: </li></ul><ul><ul><li>Individual </li></ul></ul><ul><ul><li>Departmental </li></ul></ul><ul><ul><li>Corporate </li></ul></ul><ul><ul><li>Regional </li></ul></ul><ul><ul><li>National </li></ul></ul>
  7. 7. What are the functions of business? <ul><li>Production (operations) – responsible for converting raw materials into finished goods </li></ul><ul><li>Marketing – identifies and satisfies customer wants and needs </li></ul><ul><li>Finance – manages the organization’s money </li></ul><ul><li>Human Resources (personnel) – manages the personnel of the organization </li></ul>
  8. 8. How can businesses be classified? <ul><li>Businesses are classified by the stage of production they in which they are employed </li></ul><ul><ul><li>Primary sector – involved with raw materials </li></ul></ul><ul><ul><li>Secondary sector – involved in manufacturing or construction using those raw materials </li></ul></ul><ul><ul><li>Tertiary sector – provides services </li></ul></ul>Chain of production
  9. 9. HL: Changes in Economic Structure <ul><li>Structural change refers to a shift in the relative share of national output and employment that is attributed to each business sector </li></ul><ul><ul><li>As countries develop and industrialize, the proportion of business engaged in primary sector decreases and shifts toward the secondary and tertiary sectors </li></ul></ul><ul><li>Causes of the shift toward the tertiary sector include: </li></ul><ul><ul><li>Increase in household income </li></ul></ul><ul><ul><li>More leisure time </li></ul></ul>
  10. 10. Section 1.1 Assignment <ul><li>DUE BEFORE AT THE END OF CLASS </li></ul><ul><li>Question 1.1.2 on page 7. </li></ul><ul><ul><li>Answer question A and B. </li></ul></ul><ul><ul><li>Please use complete sentences. You should have a paragraph for each question. </li></ul></ul><ul><li>Question 1.1.3 on page 12. </li></ul><ul><ul><li>Answer question A and B. </li></ul></ul><ul><ul><li>Please use complete sentences. You should have a paragraph for each question. </li></ul></ul><ul><li>HL ONLY or SL extra credit : Question 1.1.4 on page 15. </li></ul><ul><ul><li>Answer question A and B. </li></ul></ul><ul><ul><li>You may use the Internet to research part A. </li></ul></ul><ul><ul><li>Please use complete sentences. You should have a paragraph for each question. </li></ul></ul>

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