The Economic The Economic Framework of BusinessFramework of Business

Factors of ProductionFactors of Production

PRODUCTPRODUCT

Capital, available for invest- ment in new machines,etc.

Capital, available for invest- ment in new machines,etc.

Land, used for agriculture, housing development and for providing natural resources.

Land, used for agriculture, housing development and for providing natural resources.

Enterprise, referring to the people who are willing to take the risk of setting up in business.

Enterprise, referring to the people who are willing to take the risk of setting up in business.

Labour, the number of persons available and willing to work.

Labour, the number of persons available and willing to work.

Scarcity and ChoiceScarcity and Choice

unlimitedunlimited limitedlimited

WantsWants ResourcesResources

ChoicesChoices

ConflictConflict

Key Questions for SocietyKey Questions for Society

What to produce ?What to produce ?

• price mechanism

• government

• price mechanism

• government

Key Questions for SocietyKey Questions for Society

What to produce ?What to produce ?

How to produce ?How to produce ?

• buy machinesor

• hire employees

• buy machinesor

• hire employees

Key Questions for SocietyKey Questions for Society

What to produce ?What to produce ?

How to produce ?How to produce ?

Where to produce ?Where to produce ?

• availability of inexpensive building land

• suitably skilled workforce

• government‘s regional policy

• availability of inexpensive building land

• suitably skilled workforce

• government‘s regional policy

Specialisation and ExchangeSpecialisation and Exchange

Lack of coincidence of wantsLack of coincidence of wants

IndivisibilityIndivisibility

ValuationValuation

ProblemsProblems

Functions of MoneyFunctions of Money

Medium of exchangeMedium of exchange

Measure of valueMeasure of value

Store of valueStore of value

$500.-

SpecialisationSpecialisation

Former timesFormer times one single personone single person

SpecialisationSpecialisation

TodayToday many personsmany persons

SpecialisationSpecialisation

Reduced unit costsUse of specialist equipmentEmployees become specialised

Lower job satisfactionSensitive against industrial actionProblems with unemployed workers

AdvantagesAdvantages DisadvantagesDisadvantages

Interdependence through Interdependence through SpecialisationSpecialisation

FirmsFirms

CountriesCountries

PeoplePeople

EconomicEconomic Systems Systems

Free Market Free Market SystemSystem

MixedMixed EconomyEconomy

Planned Planned SystemSystem

Free Market SystemFree Market System

X

XX

X

Supply curve

0

1

2

3

4

5

0 5 10 15 20 25 30

Quantity (tsd)P

rice

(5 price, 30000 quantity)

(1 price, 5000 quantity)

Demand curve

0

1

2

3

4

5

0 5 10 15 20 25 30

Quantity (tsd)

Pri

ce

(5 price, 5000 quantity)

(1 price, 30000 quantity)

DemandDemand SupplySupply

Price mechanismPrice mechanism

Resources are owned by individualsResources are owned by individuals

AdvantagesAdvantages

Free MarketFree MarketSystemSystem

IncentiveIncentive

ChoiceChoice CompetitionCompetition

DisadvantagesDisadvantages

Unequal distributionUnequal distributionof wealthof wealth

PublicPublic servicesservices

ProfitProfit motivemotive

HardshipHardship WastedWasted or reduced or reduced competitioncompetition

EconomicEconomic Systems Systems

Free Market Free Market SystemSystem

MixedMixed EconomyEconomy

Planned Planned SystemSystem

AdvantagesAdvantages

Use of resourcesUse of resources

Large-scale productionLarge-scale production

Public servicesPublic services

Basic servicesBasic services

DisadvantagesDisadvantages

Lack of choiceLack of choice

Little incentiveLittle incentive

Centralised controlCentralised control

EconomicEconomic Systems Systems

Free Market Free Market SystemSystem

MixedMixed EconomyEconomy

Planned Planned SystemSystem

Mixed EconomyMixed Economy

AdvantagesAdvantages DisadvantagesDisadvantages

NecessaryNecessaryservicesservices

IncentiveIncentive

CompetitionCompetition

LargeLargemonopoliesmonopolies

BureaucracyBureaucracy

Types of ProductionTypes of Production

M iningand

quarrying

F ishing Farm ing Fores try

PRIMARY

Manufac tur ing Construc tion

SECONDARY

Commerc ia lservices

D irec tservices

TERTIARY

PRODUCERPRODUCER

InsuranceInsurance

BankingBanking

TransportTransportAdvertisingAdvertising

WarehousingWarehousing

ExportExportservicesservices

CommunicationCommunicationservicesservices

Types of MarketsTypes of Markets

Consumer Consumer marketsmarkets

single-useconsumer goods

services

consumerdurables

Industrial marketsIndustrial markets

industrialservices

capitalgoods

Test QuestionsTest QuestionsThe 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 ina) 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 weldere) forester f) seaman g) banker h) minerA ‘market’ is a place where … and … are in contact with each other to determine a price.

All information taken from: Letts Study Guide GCSE, Floyd,David;Business Studies;Letts Educational;

London 1997 ISBN: 1 85758 576 3

Don‘t do that !Don‘t do that !

Always have a look at the bright side of life !