Chapter One
What is Business?
McGraw-Hill/Irwin
Introduction to Business
© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Chapter 1
What is Business?
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Differentiate the three meanings of business as commerce,
occupation and organization and identify the four main kinds
of productive resources.
Understand the forces of supply and demand determine fair
or market price.
Appreciate how a company’s business model is the source of
its competitive advantage and the difference between profit
and profitability
Recognize the way specialization and the division of labor
through the “invisible had of the market” lead to increasing
profit and wealth.
List the reasons why business organizations are created to
structure business exchanges and facilitate business
commerce.
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Chapter 1
What is Business?
Definitions of Business
• Business has three dimensions of a meaning
- A commerce
- An occupation
- An organization
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Chapter 1
What is Business?
Definitions of Business
• Business as a commerce is the process that people
produce, exchange and trade goods and services
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Chapter 1
What is Business?
Definitions of Business
• Business as an occupation is the acquired set of
specialized skills and abilities that allows people to
create valuable goods and services
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Chapter 1
What is Business?
Definitions of Business
• Business as an organization is the system of task and
authority relationship that coordinates and controls the
interactions between people so that they work toward
a common goal
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Chapter 1
What is Business?
Definitions of Business
• Business as a system is a combination of business
commerce, occupations, and organizations that
produces and distributes the goods and services that
create value for people in a society
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Chapter 1
What is Business?
Factors of Production
• Regardless of meaning there are four crucial
ingredients or productive factors or resources of land,
labor, capital and enterprise that are needed to profit
from business
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Chapter 1
What is Business?
Factors of Production
• These four productive factors or resources of land,
labor, capital and enterprise that are needed to profit
from business and are limited in supply (scarcity)
• A company must use them efficiently and effectively
to produce goods and services
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Chapter 1
What is Business?
• Together, the cost of acquiring and using these four
resources to make and sell goods and services
determines a company’s operating costs
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Chapter 1
What is Business?
• Owners/managers are the enterprise of the business,
while the people are the labor and the capital buys
materials, machinery
• The land may provide a specific location or a URL in
cyberspace. The land may provide a specific location
or a URL in cyberspace
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Chapter 1
What is Business?
• These resources allow for the creation of a product
and/or service that customers value a price
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Chapter 1
What is Business?
• The company’s business model not only outlines the
plan for these resources but creates a competitive
advantage in the value of its product and generates
profitable sales revenue
• By reinvesting the profits the business increases its
capital and contributes to the wealth of the owners
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Chapter 1
What is Business?
• All business activity is self-interested and competitive,
and this competition may benefit people and society
when it leads resources to be employed in their most
profitable use
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Chapter 1
What is Business?
Supply and Demand
• The forces of supply and demand determine a
product’s market price
• In turn, supply and demand are the result of peoples’
subjective judgment of the value or utility they will
receive from supplying or consuming a particular
product
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Chapter 1
What is Business?
Law of Demand
• Reflects the usefulness or utility from that product
• Given the price of a product or service, we generally
demand less quantity of it as the price increases and
demand more of it as the prices decreases
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Chapter 1
What is Business?
Law of Supply
• Sellers are more willing to supply a product as the
price increases and less willing to supply as the price
decreases
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Chapter 1
What is Business?
• There is no rule of business that says all people need
profit from business commerce, nor they will profit
equally from the business system
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Chapter 1
What is Business?
• Some people or companies will always ruthlessly
pursue their self-interest and try to cheat and defraud
others
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Chapter 1
What is Business?
• Through the process of specialization and the division
of labor, business occupations develop and increase
the amount of goods and services people can produce
and trade
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Chapter 1
What is Business?
• Increasing specialization, through the invisible hand of
the market, leads to increasing profitability and the
generating of more capital and wealth
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Chapter 1
What is Business?
• Through this “invisible hand” of the market, the
interaction of business commerce and occupation
determines the standard of living, wealth, and
prosperity of people, groups, and society
• It also determines how profit will be shared between
people and groups in a society
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Chapter 1
What is Business?
• Business organizations are created to reduce
transaction costs, the costs that arise from business
commerce and from the process of specialization and
the division of labor
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Chapter 1
What is Business?
• Business organizations develop an organizational
structure, a set of task and authority relationships, to
reduce transaction costs and increase profitability
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Chapter 1
What is Business?
• No rules exist that specify how the profit created from
business commerce or occupations will be distributed
or even who will receive it
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What is Business?
• Your chance of pursuing a profitable occupation that
allows you to accumulate capital depends on your
ability to take part in the “great game of business”