Business & its Environment
What is Business?
Business is a way of dealing with the problem of scarcity
Business involves the transformation of inputs into outputs to meet particular needs or wants of consumers
Business is not just The Private Sector it is also The Public Sector and Societies have to choose the balance between the public and private sectors The Private Sector
Consists of all business in some form of private ownership
COMPETITON & PROFIT MAKING This is what drives businesses in the private sector. The Public and Voluntary Sector
Working in the public sector means working for the government A wide range of careers are available in the public sector, such as nursing, teaching, the armed forces and the emergency services. Public Sector deals with scarcity differently than The Private Sector. There are significant advantages to society from providing some goods and services on a ‘not-for-profit basis’ For example the NHS, as a society we may decide that access to health care should be on the basis for equal treatment for equal need rather than whether a person can afford to pay for treatment
The Environment of Business
The purpose of business decisions is to make sure that a business is running successfully and making a profit Environmental analysis helps to fill the knowledge gap and guide business decisions: Analytical techniques:
* PESTLE (political, economic, social, technological, legal, environmental) * SWOT (strength, weaknesses, opportunities, threats)
* Alternative scenarios
* Trend extrapolation
* Expert opinion
* Stakeholder analysis
For an organisation to produce outputs it needs a set of inputs The economic problems arise due to scarcity
Needs:Things we must have to survive Food, Water, Shelter and Clothing. Wants: Are all of the things we would like to have to improve our standard of living, Holidays, Cars, Entertainment, Inputs = Factors of Production
* The factors of production are:
1. LandNatural Resources
3. CapitalMachinery/Factory (not just money)
4. EntrepreneurRichard Branson
The Economic Problem
These 3 Questions emerge because of the Scarcity of Resources (Land, labour, capital and entrepreneur)
What to produce?
How to produce?
Whom to produce for?
Different economic systems attempt to provide solutions to the economic problem in different ways Free Market & Planned Economy
The type of economy that give the government total control over allocation of resources, It also allows them to determine everything from distribution to pricing. Market Economy
Most resources are allocated according to the pricing mechanism Prices send signals both to consumers and businesses
Can the business produce the product/service for a profit?
Is the consumer willing to buy the product/service at the current price? Prices
Prices are determined by the law of supply and demand
Excess Demand Price Increase
Excess Supply Price Fall
Supply and Demand
Alfred Marshall 1842 – 1924
Marshall showed how supply and demand interacts to determine price
Price of the product is P
Quantity produced and demanded is Q
(See pp. 45-53 in Wetherly and Otter 2011)
Merit & Demerit Goods
Businesses may decide that producing a product or service is not worthwhile since it will be very difficult to make a profit because the product/service has the characteristic of a public good. A public good has the following two characteristics:
Statues, lighthouses and street lighting are all examples of public goods and the government believe that we need these things for the good of society. Without government intervention, the market will fail since there will be under production of merit goods. Businesses may decide to...