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What is a business?
• Business is any organisation that makes goods or provides
services.
• YOUR NEEDS –>goods or services essential for living.
(things you think are necessary for living).
• YOUR WANTS -> goods or services that people would like
to have, but are not essential for living. (things you would
like to be able to buy and own).
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What is a business? (Continue)
• Goods and services are tangible and intangible goods
that are produced and purchased in order to fulfill the
needs and desires of consumers.
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GOODS
• Goods are simply any physical or tangible products that
can be seen and touched. Some goods are quickly
consumed and must be replaced by like or similar
products on a regular basis.
• Food is one example of goods that are quickly
consumed and must be acquired repeatedly. Other
forms of goods are more long-term in nature, and may
last for years or even decades.
Furniture, cutlery, and houses are examples of durable
goods that are intended to satisfy consumers for
extended periods of time.
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SERVICES
• Services are intangible support that is provided to the
consumer in some manner.
• Example:
A physician provides healthcare support or services. Telephone
companies provide communications services such as local
calling ability, long distance calling, and other features that
enhance the electronic communication process. Banks provide
a range of financial services to customers, ranging from basic
and checking accounts to investment opportunities.
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Profit
• When a business is owned by private individuals, rather than
the government, it is usually the case that the business is
run to make profits. The owners will each take a share of
these profits.
• Suppose a firm put up its prices to raise profits. It could find
that consumers stop buying their goods.
• Other people will be encouraged to set up in competition,
which will reduce profits in the long term for the original
business.
• It is often said that the owners of a business will aim for a
satisfactory level of profits which will avoid them having to
work too many hours or paying too much in tax to the
government.
• Profits are needed to pay a return to the owners of the
business.
• Without any profit at all, the owners are likely to close the
business
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Factors of production
• Factors of production are those resources needed to
produce goods or services.
• These factors are limited in supply
Factors of production
• Land
• Labour
• Capital
• Enterprise
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Factors of Production (Continue)
• Land -> covers all the natural resources provided by
nature and includes fields and forests, oil, gas, metals
and other mineral resources.
• Labour -> efforts of people needed to make products.
• Capital -> the finance, the machinery and equipment
needed for the manufacture of goods.
• Enterprise -> the skill and risk taking ability of the
person who brings the other resources together to
produce a good or service. Eg. The owner of a business
is called entrepreneurs.
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Factors of Production (Continue)
• Businesses combine factors of production to make
products which satisfy people’s wants.
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Market and Demand
Definition
• Demand for a good or service is the
quantity that purchasers are willing
and able to buy at a given price in a
given period of time.
• Effective demand:
• Only if demand for a product is
backed up by a willingness and
ability to pay the market price
does demand becomes effective or
realized or actual.
• The basic law of demand is that
demand varies inversely with price
– lower prices make products more
affordable for consumers.
Effective demand is backed up
with an ability to pay
Potential (latent) demand is not
yet expressed in the market
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Income and Substitution Effects of a Price Change
Income Effect
• A fall in price increases
the real purchasing power
of consumers
• This allows people to buy
more with a given budget
• For normal goods,
demand rises with an
increase in real income
Substitution Effect
• A fall in the price of good
X makes it relatively
cheaper compared to
substitutes
• Some consumers will
switch to good X leading
to higher demand
• Much depends on
whether products are
close substitutes
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Roles of Business
• Creating the development economy
• Creating employment and wealthy
• Increase standard of living
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Tutorial
• What is a business? Definition
• Needs or Wants ?
____-> goods or services that people would like to have
_____-> goods or services essential for
• Services and Goods. List some characteristics and provide
examples
• How factor of production effect the people wants?
• What is market demand? Briefly explain with the diagram
and example
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Tutorial
• Briefly explain
How the business can create the development country,
creating the employment and wealth and increase standard
of living?
