What is a Business

If you walk down any street, you will notice that many of
the shops display their names for all to see. It may be
Murphy’s the fish seller; Brown, Macy and Brown lawyers;
as well as known chain stores such as Shopper’s Drug Mart
or the GAP. All are businesses, but each with a different
status in terms of how is operated, who the owner is and
how any profit is shared.
The IKEA Group
Facts & Figures
The IKEA story began in 1943 in the small village of
Agunnaryd in Sweden, when founder Ingvar Kamprad
was just 17. Since then, the IKEA Group has grown into
a major retail experience with 123,000 co-workers in 25
countries/territories generating annual sales of more
than 21.5 billion euros.
Top five sales countries
Germany 16%, USA 11%, France 10%, UK 7% and
Italy 7%.
The IKEA Group (continued)
IKEA manufactured and supplies
a wide range of furniture and
household goods. Based in
Sweden, it sells many of its
products in boxes, which are then
assembled by the consumer.
Purchasing per Region
Australia & Asia
North America
Suggest examples of the factors
of production that IKEA may be
Using IKEA’s products as an
example, distinguish between
consumer goods and capital
Sales per Region
Australia & Asia
North America
What is a Business?
A decision-making enterprise that uses
inputs to produce an output – a good or
 Inputs are often referred to as Factors of
 Outputs can be tangible (physical
substance) or intangible (a service or
degree of satisfaction)
Business Resources
Factor’s of production
– Land
 Where
business premises may be located; natural
resources used by business; rental units etc
– Labour
 Workforce
of business; including salaries and hourly
paid workers
– Capital
 Money,
equipment and machinery used by the
– Enterprise
 The
business sense (idea) of the entrepreneur
(owner); organization, hiring, investment etc
Financial Returns
 For
their part in the production
process, the factors or production
have some financial returns
 Hence, the more factors there are,
the more returns there are likely to
– Land can result in a return called rent
– Capital often generates interest
– Labour results in wages for employees
– Entrepreneurs receive a profit for their
risk-taking in the production process
The Purpose of a Business
Businesses exist to satisfy the needs and wants of
people, organizations, and governments
Muffin Tops
Needs are the basic necessities that a person must
Wants are the desires that people have
The Marketplace
 The
market is simply a place or
process whereby buyers (customers
or consumers) and sellers
(businesses) meet to trade
– Physical shop, restaurant etc
market can exist in a non-physical
form, such as the Internet or
Types of Products
Consumer Goods
– Sold to the general public, rather that to other
– Can be further classified as durable goods (last
a long time and are used repeatedly) or nondurable goods (expire in a short time)
Capital Goods
– Purchased by other businesses and are used to
produce other goods
– Intangible products
Adding Value
 All
businesses must add value in the
production process
 Valued added is the difference
between the value of inputs and the
value of outputs
– Inputs
 Costs
of production
– Outputs
 The
goods and services sold to customers
Profit Determination
By adding value, businesses are able to
sell products for more than its production
– Thereby earning a profit
Customers are willing to pay prices in
excess of the costs of production for
several reasons:
Speed or quality of service/craftsmanship
Prestige of ownership
Feel good factor
Perceived value for money
Brand image/loyalty
Lack of competition
The Role of Profit
 Provides
incentive to produce
 A reward for risk-takers
 Encourages innovation and invention
 Acts as a indicator of growth
 Used as a source of finance
 All
businesses must make a profit to
survive in the long run
Opportunity Cost
Businesses have to make decisions that
affect their daily operations an long term
 Opportunity cost is defined as the best
alternative that is foregone when making
a business decision
– Chinese Restaurant
Businesses are confronted by decisionmaking opportunities all the time
 Assumption must be made that all
decisions will result in the most benefit
Opportunity Cost Discussion
Sunday shopping in Ontario has been around
since the early 1990’s. Stores in Ontario were
fined if they opened on Sundays, but the fines
were so insignificant, that stores continued to
stay open. McDonalds is one of the few
restaurant chains in the world that remain open
24 hours a day, seven days a week. Several
banks in Kingston are now open on Sundays.
Define opportunity cost and examine the reasons
why opportunity cost is an important concept in
business decision-making.