Dynamics of Business and EconomicsLecture Notes 01 Dr. Fahmy Radhi, MBA

The Concept of BusinessThe exchange of goods/services with money for mutual benefit/profitAn organization that provides goods and/or services to earn profitsAll profit-seeking activities that are organized and directed to convert factors of production into goods and services or combination between goods and services for customers in the markets to achieve the business objectives

1-*Business vs. Nonprofit OrganizationNonprofit OrganizationProvides products, especially services, for some purpose other than profits, ex. The Salvation Army, 4300 American colleges & universities.

BusinessAn individual or organization that tries to earn a profit by providing products that satisfy peoples needs, ex. IBM, Coca-Cola.

Factors of ProductionNatural resourcesland, timber, oil, metals, water, etc.

Laborthe human resource factorCapitalmoney, buildings, equipment, tools, etc.Entrepreneurshipthe art of starting and running a business

Differences between goods and services

GoodsServicesTangible and durable outputsIntangible outputs Output can be inventoriedOutput can not be inventoriedLow customer contactHigh customer contactLong response timeShort response timeRegional, National or International marketsLocal marketsLarge facilitiesSmall facilitiesCapital intensiveLabor intensive Quality easily measuredQuality not easily measured

The Profit MotiveThe profit motive stimulates a personto do something when the benefitderived from doing it is greater thanthe sacrifice required to do it.

Business ObjectivesBusiness Profit = TR -TCEconomic Profit business profit that considered opportunity cost as a part of expensesSurvivalGrowthSocial Responsibility

Types of Business ActivitiesManufacturingMerchandisingServiceHybrid

Market Market a mechanism for exchange between buyers (demand) and sellers (supply) of particular goods and services

Market Classifications:Input Market is market in which firms buy resources from supplier householdOutput market is market in which firms supply goods and services in response to demand on the part of household

Circular Flow in A Market Economy

Market Price or Equilibrium

Market Competition structurePerfect competition market characterized by numerous firms producing an identical product in the marketMonopolistic market characterized by numerous buyers and one or just few sellers in the marketMonopoly numerous buyers with only one seller that can set the price in marketOligopoly numerous buyer with few seller that can influence the price in the market

Four Competitive EnvironmentsPure CompetitionMany small businesses sell one standardized product.Monopolistic CompetitionThere are fewer businesses than in a pure competition system, and the differences between the goods they sell are small.OligopolyVery few businesses sell a product; each business supplies a large portion of the products sold in the marketplace.MonopolyThere is only one producer of a product in a given market.

Economic Systems Planned Economy an economy system in which the government owns, controls and allocates the productive resources. The two most its basic forms are communism and socialismMarket Economy an economy system in which individuals own, control and allocate the resources through supply and demand in the markets. Its form is capitalism. Mixed Market Economy featuring characteristics of both planned and market economies

Economic SystemsPlanned economyCommunismMarket economyCapitalism

Comparison of Communism, Socialism, and Capitalism

The business contribution to economic performance Economic growth by increasing two indicators:Aggregate output total quantity of goods and services produced by an economic system in given period indicated by GDP and GNPStandard of Living total quantity and quality of goods and services that people can purchase with the currency used by their economic systemEconomic Stability condition in which the balance between the money available in an economy and the goods produced in the same rate. Its indicated by:Inflation rate the rise in the average level of price for all goods and services in a particular timeUnemployment rate the level of joblessness among people actively seeking work

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