Introduction to BusinessLesson II

Ass. Prof. Özgür Kökalan İstanbul Sabahattin Zaim University

Lesson Objectives1. Define the concept of Business

2. Difference between business and not-for-profit organizations and identify the factors of production.

3. Describe the economic systems and explain how competition and entrepreneurship contribute to the system.

What is business?

Business: profit seeking activity that provides goods and services to satisfy consumers’ needs.

Business: consists of all activities to serve goods and services to the community with the purpose of profit for surviving.

Profits: financial rewards received by a businessperson for taking the risks involved in creating and marketing want-satisfying goods and services.

Business is so crucial (important) for economies.

Why?

Business is so crucial (important) for economies. Why?

Business ( firm), Offers necessities

Provides jobs

Pays taxes

Reinvests profits

Creates higher standard of living

Organizations: deliberately established groups working together in a systematic way for common purpose

There are two kinds of organization :

Profit Seeking Organizations: the main aim to take profit from their operations

Not For Profit Organizations: Businesslike establishments that have primary objectives

other than returning profits to their owners

The Corporate Angel Network: A Not-for-Profit Organization

Labor Intensive versus Capital Intensive Businesses

rely on human resources to prosper

require large amounts of money or equipment to start and to operate

Labor Intensive Capital Intensive

Factors of ProductionResources societies use to produce and distribute goods and services. Businesses rely on five factors of production to optimize profits.

What do we need to produce something?

Natural Resources

Human Resources

Capital

Entrepreneurs

Knowledge

Factors of ProductionNatural resources: assets useful in their natural state (land, minerals, water, and forests).

Human resources: anyone involved in the production of goods and services

Capital: resources such as money, equipment, and buildings necessary for production of goods and services.

Entrepreneurs: innovative risk-takers who create and operate new businesses

Knowledge: the collective intelligence of an organization

Which factor is the most important?

Economic SystemEconomic System: Basic set of rules for

allocating a society’s resourcesAnswers three questions:

What to produce How much to produce Who gets what

There are mainly four kinds of economic system in the world. These are:

Free market economy ( Capitalism) Communism Socialism Mixed Economy

CommunismThere are some characteristics of

communism listed below: Governments control all or part of resources

Governments limit individuals’ freedom of choice

Government sets goals

Examples: North Korea, Cuba

SocialismThere are some characteristics of listed

below: Governments control major industiries in the

country

It provides more individuals’ freedom of choice than communism

Majority of people work for government owned industires. But small business owned by private person is encouraged.

Examples: Sweden, India, Syria, Israel

Mixed EconomyThere are some characteristics of listed

below: major industiries in the country are owned by both

government and individuals

It provides individuals’ freedom of choice in many areas

people work for both government owned industires and private enterprises.

Examples: Turkey, Romania, Italy, France

Free Market Economy ( Capitalism)In free market economics,

Marketplace determines what goods and services get produced.

Basic Rights in the Private Enterprise System

Free Market EconomyFree market economy have three important

rules. These are:

Theory of Supply and Demand

Competition

Some Government Intervention

Theory of Supply and DemandAccording to free market economy, all things

in market are determined by supply and demand, not by government. It is called as invisible hand.

Supply; The number of products that businesses are willing to sell at different prices at a specific timeBusinesses are willing to supply more of a good or service at

higher prices because the potential for profits is higher.Demand; The number of goods and services that

consumers are willing to buy at different prices at a specific time.Consumers are usually willing to buy more of an item as its

price falls because they want to save money.

Supply Curve for Gasoline

Demand Curve for Gasoline

Equilibrium Point for Gasoline

CompetitionMarket in which two or more suppliers of a

product serve the same customers.There are some kinds of competition in the

market. These are:Pure competitionMonopolistic competitionOligopolyMonopoly

Pure CompetitionIn pure competition,• Multiple buyers and sellers exist• Nearly identical products/services• Low barriers to entry (sellers can easily

enter and exit the market place)• No single firm or group of firms can

influence priceExample; Agriculture product

Monopolistic Competition In monopolistic competition;

Varying degrees of competitive power

Most advanced free-market economies features monopolistically competitive firms

Large number of sellers

Differentiated products—very similar—single distinguishing feature

Example; Retailing

OligopolyIn oligopoly, Industry dominated by only a few sellers Similar product are offered to consumer Differentiatial is so importat.

Example: GSM operators in Turkey, Airline companies in domestic lines.

MonopolyIn monopoly; Single seller controls the supply of a good

and service Ability to determine the price There is no competition in the market

Example; TCDD