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Chapter Two
The Evolution of Business
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
McGraw-Hill/IrwinIntroduction to Business
2 - 4
The Emergence of the Hierarchy
• Hierarchy of authority - the ranking of people according to their
relative rights and responsibilities to control and utilize resources
2 - 5
Hierarchy and Property Rights
• Property rights - the right of people to own, use, or sell
valuable resources
• Aristocracy - people given the right by a ruler to control a
country’s resources, including its land and labor
2 - 7
Feudalism
• Feudalism - the business or economic system in which
one class of people, aristocrats, controls the property rights to all valuable resources, including people
2 - 9
From Barter to Money
• Double coincidence of wants - each person has to want the product that
the other person has to offer for the exchange to be successful
• When people agree to use money to buy and sell products it increases the profitability of trade
2 - 11
From Money to Capital
• Interest rate - the price at which capital will be loaned
• Risk - the possibility of incurring future financial
losses because of one’s investment decisions
See current interest rates at money-rates.com
2 - 12
Mercantilism: Trade and Enterprise
• Mercantilism - the business system in which a product’s
price differences are exploited by trading the product across markets and countries
2 - 14
The Growth of Enterprise
• Merchant - a trader who uses the discrepancy between
the value and price of a product in one market and another to trade goods for profit
• Bankers - the people who estimate the risks
associated with a new venture and determine the way profits from a venture should be shared
2 - 15
Craft Guilds and Occupational Specialization
• Craftspeople - workers or artisans with the skills to
produce higher-quality goods and services
• Craft guild - a group of skilled artisans organized to
control and govern different aspects of its trade
2 - 16
The Industrial Revolution
• Industrial Revolution - an era in the 18th and 19th centuries that
marked improved production and trade brought about by advances in technology
2 - 17
Capitalism, Unionization, and the Modern Class System
• Capitalism - the economic or business system in which
the private ownership of resources becomes the basis for the production and distribution of goods and services
2 - 19
Capitalism, Unionization, and the Modern Class System
• Capitalists - people who personally own or control the
physical capital of industrial production such as machinery, factories, distribution networks, raw materials, and technology
2 - 20
Capitalism, Unionization, and the Modern Class System
• Proletariat - the class of unskilled workers who have no
capital and only possess the rights to sell their own labor
• Trade union - an organization that lobbies on behalf of its
members (workers) to increase their bargaining power in work-related negotiations
2 - 21
Capitalism, Unionization, and the Modern Class System
• Class system - a social ranking of people based upon the
amount of their capital and wealth, and because of factors such as heredity, kinship, fame, and occupation