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BUSINESS AND MANAGEMENT
MODULE 1
Unit 1.1
INTRODUCTION TO ORGANISATIONS
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ContentWhat is a Business?
Their purpose
The marketplace
Types of products
Adding value
Opportunity cost
Profit
Factors of production
Specialization
Business Functions
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READING FOCUS
Business Studies Unit 1 pg: 1- 7
Key terms Businesses, capital, division of labor, entrepreneurs, factors of production,
functional areas, industrialization, labor, land, opportunity cost, primary sector,
private sector, public sector, secondary sector, structural change, tertiary sector,
value added
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What is a business?
A business is a decision making organization involved in the process ofusing inputs to produce goods and/or provide services.
Inputs
Ex. Raw materials,
components,
machinery,
equipment and labor
Processes
Ex. Turning the inputs into
the providing of services or
Manufacturing of goods.
Outputs
The output or provision
Of final goods and services.
TASK
From your assigned readings, identify thefeatures of inputs, processes, and outputs of
Eurocars.
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Why?
Needs and Wants
Business exist in order to satisfy the needs and wants of
people, organizations, and governments.
As businesses become larger, it becomes important tohave clearly designed functions. i.e. HRM, Production,
Marketing, and Finance.
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Why? Continued
Businesses are also affected by external factors, those which it cannotcontrol. Such as what?
Environment
Government
What else?
It is easy to open a business, but is much harder to keep it open.
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The Marketplace
A place or process where buyers(customers)and sellers (businesses)meet to trade.
Can be physical or non physical.
Customers buy the product
Consumers use the product
They can be the same. i.e. someone whobuys and eats a burger meal. Or different,birthday presents.
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The Marketplace
Types of Products
Consumer goods Products sold to the general
public. Durable vs. Non-
durable.
Capital goods / Producergoods
Products purchased by otherbusinesses.
Services Intangible products provided
by businesses.
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Adding Value
Value added is the difference between the value of the inputs (i.e. the costs ofproduction) and the value of the outputs (i.e. the goods and services sold tocustomers.
Value added allows a business to sell its products for more than its productioncostswhich results in what?
Suppose production costs for a car are $6000. If customers are willing to pay$18000 for the car, then the value added is what?
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Why are consumers willing to pay more?
Because theyre stupid obviously!
Speed and/or quality of service Taste or design Prestige Inability to purchase cheaper
Feel-good
Value for money
Quality
Brand loyalty
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Opportunity Cost
Businesses have to make decisions that affect their daily operations and longterm processes.
Opportunity cost is easily described as this: take the example of a studentdeciding to go university pays two types of costs. Accounting costs wouldbe actual, i.e. tuition fees, dorm fees, etc. Opportunity costs would beincome that could have been earned had the person chosen to work insteadof studying. In this case, the opportunity cost is offset, but HOW?
i.e. mirrors, supermarkets
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Opportunity cost
Why is it useful?
When assessing the true costs and benefits of different choices. i.e.mirrors or no mirrors. Muzak or no muzak.
Question: it wasnt until the mid 1990s that supermarkets wentagainst government advice and began to trade on Sundays.Supermarkets in the UK realized the opportunity cost of beingclosed on Sundays. They were fined for such actions. However the
fines were insignificant compared to the revenues they were earningby opening on Sundaysso they continued. Mcdonalds followedsuit.
Define Opportunity costs
Examine reasons why OC is an important concept in business decision making
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PROFIT!
Profit is the positive difference between a firms totalrevenues and its total costs, over time.
Revenues are inflows, usually from sales.
Costs are outflows, usually from production activities.
Profit acts as an incentive.
Reward for risk takers.
Encourages invention and innovation.
Indicator of growth or decline.
Source of finance for internal growth.
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Factors of Production
Factor inputs: to produce any good, there are four vitalfactors of production that are required always: land,labor, capital, and enterprise (management,organization, planning of the other three factors).
Landall natural resources on the planet
Laborphysical and mental effort
Capitalnon-natural resources (money, buildings, equipment, machinery)
Enterpriseplanning of the whole process (must be creative, innovative,and passionate.
Different products require different amounts of factor inputs.
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TEACHING VS. CAR
MANUFACTURING
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4 factors of financial return
Rent ------- reward for land
Interest ------ reward for capital (bank loans)
Wages and Salaries -------- reward for labor
Profit ------- reward for responsibilities
4 Returns are generally known as INCOME!
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RETURNS
Factors of production
LandLabor
CapitalEnterprise
Rent Wages Interest Profit
INCOME
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Specialization
Specialization means that a businessconcentrates on the production of aparticular good or service or a smallrange of similar products. Can also bespecialization in making one product,with different specialists.
Italian Restaurants are specialized inPasta and Pizza, the specialists arechefs, cleaners, drivers.
i.e. Coca Cola, Samsung,Toyota
Specialization will tend to increaseemployee efficiency because thebecome better and better in their jobs.
A chef does not deliver, but a driverdoes!
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TO BE CONTINUED!
Business
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Business -Inputs
PrimaryoExtracts raw resources from planet EarthoLumberjacksoMining
oFisheriesoFarming
SecondaryoTransfers the primary goods into productsoManufacturingoConstructionoSlaughter house
Tertiary sectorsservice sectoroTruckersoLandscapingoCar salesoMovies, TV, entertainmentoProducers, lighting, writers, caterers
oDigitalcomputercomputer repairoPersonal trainersoTanning salonsoNail salons
Processes
Outputs
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ProductGoodService
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DepartmentsHuman ResourcesProductionMarketing
Finance
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External FactorsSocial ChangesTechnology Developments
Economic ActivityEnvironmental IssuesGovernment LegislationNatural DisastersDisease
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Types of ProductsConsumer Good
Example?Capital Goods
Example?Services
Example?
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