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Business = an organized effort of individuals to produce and
sell for profit, goods and
services that satisfy societys needs.
Entrepreneur = a person who risks his/her time, effort and money
to start and operate a
business.
To organize a business, an entrepreneur must combine 4 kinds of
resources : material,
human, financial and informational.
Material resources : raw material used in manufacturing process,
as well as buildings and
machinery. Human resources : the people who furnish their labour
to the business, in return
for wages. Financial resources : the money required to pay the
employees, purchase
materials and generally, keep the business operating.
Informational resources : are the
resources that tell the managers how effectively the other
resources are combined and
utilized.
Businesses are of 2 types, generally:
Manufacturing business = organized to process various materials
into tangible
goods.
Service business = services ranging from haircuts to legal
advice.
A business receives money = sales revenue from its customers, in
exchange for goods and
services. It must also pay money to cover the various expenses
involved in doing business. If
the firms sales revenue is greater than its expenses, it has
earned a profit .
Profit = what remains after all business expenses have been
deducted from the sales
revenue. A negative profit, which results when firm expenses are
greater than its sales = loss .
A profit earned by business becomes the property of its owners.
It also becomes the payment
for assuming the risk of ownership. The employees, suppliers and
lenders must be paid
before the owner.
Economy = the study of how wealth is created and
distributed.
Free market economy = a kind of system that allows the
individuals to enter and leave
markets at will. This system implies competition among sellers
of products and resources.
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There are 4 degrees of competition:
Pure the complete form of competition.
The market situation in which there are many buyers and sellers
of a product and no one is
powerful enough to affect the price of the product. The price of
the products is determined
through the market forces of demand and supply .
Supply = quantity that the producers are willing to sell at each
of various prices => supply
is the relationship between prices and the quantities offered by
the producers.
Demand = quantity that buyers are willing to purchase at each of
various prices =>
demand is the relation between prices and the quantities
purchased by the buyers.
Buyers and sellers interract in a market. Under pure
competition, the market price/going price
is a price at which the quantity demanded = the quantity
supplied. Pure competition is only a
theoretical concept.
Monopolistic a market situation in which there are many buyers,
many sellers, who
differentiate their products from the products of their
competitors.
The individual producer sees what looks like a mob of
competitors, all trying to chip away, by
differentiating their products from all similar products. The
producer obtains some limited
control over the market price of his product.
Oligopoly there are few sellers
Generally these sellers are quite large and sizable; investments
are required to enter this
market. For this reason, these industries tend to remain
oligopolistic; because there are few
sellers, each has considerable control over the products =>
similar prices for the same
products.
Monopoly market situation with only one seller => the control
over the price is
complete. Most of public utilitis operate theoretically under a
close scrutiny and are
legally limited.
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In the colonial period of the American business, barter was used
as a system of exchange in
which goods and services were trading directly for other goods
and services without using
money. As business increased, small enterprises appeared,
usually under the form of sole
proprietorship. The domestic system followed, a method of
manufacturing in which an
entrepreneur distributed raw materials to various homes where
families would process them
into finished goods, to be offered for sale by the merchant
entrepreneur.
The industrial revolution brought about the factory system, in
which all materials,
machinery and workers, required to manufacture a product, were
assembled in one place.
This, in turn, entailed specialization = the separation of the
manufacturing process intodifferent tasks, to different
individuals. This increased the standard of living, GDP (produs
intern brut) and the service industries that surpassed those of
goods. Social responsibility in
business activities has an impact on society and the
consideration of that impact in business
is important in decision making.
Consumerism = the activities that intend to protect the right of
consumers in dealing
with businesses.
Consumers have the right to be safe, informed, to choose and to
be heard.
The right to safety products must be safe for their intended
use, include clear,
thorough and explicit directions for proper use; they have been
tested by the
manufacturer, to insure proper quality and reliability.
The right to be informed consumers must have access to
information before they
buy a product. Manufacturers inform the customers about the
potential danger of
using their product.
The right to choose consumers may choose products offered by
different
manufacturers and sellers to satisfy a particular need;
competition helps cutting
prices.
The right to be heard someone will listen and take appropriate
measures; this
business must be ethical, apply moral standards to economic
decisions and actions.
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Forms of ownership Sole proprietorship no legal documents are
required in a civilized country, to start
with no nominal capital and no legal procedures to close it. All
earnings become the
personal income of the proprietor and are taxed accordingly.
Disadvantages:
o unlimited liability, that holds him responsible for all the
debt of his business with his
personal assets;
o limited liability to borrow from banks;
o limited knowledge.
Partnership association of two or more persons to act as
co-owners of a business
for profit. A general partner = assumes co-ownership of the
business and at the same
time, assuming unlimited liability for its debts. Every partner
has to have at least one
general partner to ensure that the liabilities of the business
are legally assumed by at
least one member.
Advantages:
o low cost of formation;
o availability of capital;
o tax advantages.
Disadvantages:
o unlimited liability;
o lack of continuity;
o management disagreement.
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Corporation artificial being, existing only in the contemplation
of the law. It is a
legal person with rights to operate a business, own or dispose
of property, borrow
money, sue and be sued, enter into binding contracts.
Stock = the shares of ownership.
Stockholders/Shareholders = people who own stock.
Incorporation = the process of forming a corporation.
Corporate charter =a contract between the corporation and the
state, in which the state
recognizes the formation of the corporation. It includes: the
firms name and address, the
incorporators name and address, the purpose, the maximum amount
of the stock and types
of stock to be issued, the rights and privileges of the
shareholders and how long the
corporation is to exist.
The top governing body of the corporation = board of directors ,
elected by the
shareholders from within the corporation or from outside. Their
major responsibility is to set
the companys goal s and develop a strategy for meeting these
goals. The board appoints the
chairman, president, vice-president, secretary, treasurer.
Shares of the stockholders are in control of the corporation
through the directors.
Advantages:
o limited liability;
o ease of transfer of ownership;
o ease of raising capital;
o perpetual life;
o specialized management by experts.
Disadvantages:
o difficulty and expense of formation;
o governmental restrictions;
o double taxation, as corporate and personal income.
Other forms of ownership: joint venture , syndicate .
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A small business is one that is individually owned and is not
dominant in its field.
If an individual business is part of a chain of stores =
franchise ; the franchiser = the one
granting the franchise; fast gains and distribution of his
products, without incurring the high
cost of constructing and operating its own stores.
