Transcript The economic framework of business

The Economic
Framework of Business
Factors of Production
Enterprise, referring to the
people who are willing to
take the risk of setting up in
business.
Capital, available for investment in new machines,etc.
PRODUCT
Land, used for agriculture,
housing development and for
providing natural resources.
Labour, the number of
persons available and willing
to work.
Scarcity and Choice
Wants
unlimited
Resources
Conflict
Choices
limited
Key Questions for Society
What to produce ?
• price mechanism
• government
Key Questions for Society
What to produce ?
How to produce ?
• buy machines
or
• hire employees
Key Questions for Society
What to produce ?
How to produce ?
Where to produce ?
• availability of inexpensive building land
• suitably skilled workforce
• government‘s regional policy
Specialisation and Exchange
Problems
Lack of coincidence of wants
Indivisibility
Valuation
Functions of Money
Medium of exchange
$500.-
Measure of value
Store of value
Specialisation
Former times
one single person
Specialisation
Today
many persons
Specialisation
Advantages
Reduced unit costs
Use of specialist
equipment
Employees become
specialised
Disadvantages
Lower job satisfaction
Sensitive against
industrial action
Problems with
unemployed workers
Interdependence through
Specialisation
People
Firms
Countries
Economic Systems
Free Market
System
Planned
System
Mixed
Economy
Free Market System
Demand curve
5
5
(5 price, 5000 quantity)
4
(5 price, 30000 quantity)
4
X
3
Price
Price
Supply curve
Demand
2
1
X
3
Supply
2
1
(1 price, 30000 quantity)
0
X
0
5
10
15
20
25
30
Quantity (tsd)
Price mechanism
Resources are owned by individuals
(1 price, 5000 quantity)
0
X
0
5
10
15
Quantity (tsd)
20
25
30
Advantages
Incentive
Free Market
System
Choice
Competition
Disadvantages
Public services
Unequal distribution
of wealth
Hardship
Profit motive
Wasted or reduced
competition
Economic Systems
Free Market
System
Planned
System
Mixed
Economy
Advantages
Use of resources
Large-scale production
Public services
Basic services
Disadvantages
Lack of choice
Little incentive
Centralised control
Economic Systems
Free Market
System
Planned
System
Mixed
Economy
Mixed Economy
Necessary
services
Large
monopolies
Incentive
Bureaucracy
Competition
Advantages
Disadvantages
Types of Production
PRIMARY
Mining
and
quarrying
Fishing
Farming
Forestry
SECONDARY
Manufacturing
Construction
TERTIARY
Commercial
services
Direct
services
Communication
services
Export
services
Insurance
Banking
PRODUCER
Transport
Warehousing
Advertising
Types of Markets
consumer
durables
Consumer
markets
capital
goods
single-use
consumer goods
services
Industrial markets
industrial
services
Test Questions
The four factors of production are ...
Explain ‘opportunity cost’ and give one example of its relevance to business.
Distinguish between Direct and Indirect production.
All firms specialise to some extent. What benefits do they gain from this ?
What is the main difference between a free market economic system and a
planned system ?
Give three advantages found in
a) the free market system;
b) the planned system.
Distinguish between primary, secondary and tertiary forms of production.
Classify the following occupations as primary, secondary or tertiary:
a) shopkeeper b) delivery van driver c) bricklayer
d) car body welder
e) forester
f) seaman
g) banker
h) miner
A ‘market’ is a place where … and … are in contact with each other to determine a
price.
Don‘t do that !
Always have a look at
the bright side of life !
All information taken from: Letts Study Guide GCSE, Floyd,David;Business Studies;Letts Educational;
London 1997 ISBN: 1 85758 576 3