Essential Business Concepts and Economic Definitions

Core Business Fundamentals and Economic Concepts

Defining Business and Its Resources

Business

Business is the organized effort of individuals to produce and sell, for a profit, the goods and services that satisfy society’s needs. The term refers to all such efforts within a society. A business is a particular organization that must perform three core activities:

• Be organized.
• Satisfy needs.
• Earn a profit.

Material Resources

These include raw materials used in the manufacturing process, as well as buildings and machinery.

Sales Revenue

The money a business receives from its customers in exchange for goods or services.

Profit

What remains after all business expenses have been deducted from sales revenue.

Economic Principles

Economy

The way in which people deal with the creation and distribution of wealth.

Microeconomics

The study of the decisions made by individuals and businesses.

Macroeconomics

The study of the national economy and the global economy.

Factors of Production

Resources used to produce goods and services.

Market Structures and Competition

Market structures describe the competitive environment in which firms operate:

• Perfect (Pure) Competition: The market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product.
• Monopolistic Competition: A market situation in which there are many buyers along with a relatively large number of sellers who differentiate their products from the products of competitors.
• Oligopoly: A market or industry in which there are a few sellers.
• Monopoly: A market or industry with only one seller, and there are barriers to keep other firms from entering the industry.

The Business Environment and Social Responsibility

Current Business Environment Factors

The modern business environment is characterized by several key factors:

• Competitive
• Global
• Technological
• Economic

Ethical Practices and Consumer Rights

Whistleblowing

Informing the press or government officials about unethical practices within one’s organization.

Consumerism

Consists of all activities undertaken to protect the rights of consumers.

Fundamental Consumer Rights

These rights ensure fair treatment and protection for consumers:

1. Right to safety
2. Right to be informed
3. Right to choose
4. Right to be heard
5. Right to consumer education
6. Right to convenience, courtesy, and responsiveness from manufacturers and sellers of consumer products.

Workplace Equity and Social Programs

Affirmative Action

A plan designed to increase the number of minority employees at all levels within an organization.

Equal Employment Opportunity Commission (EEOC)

A government agency with the power to investigate complaints of employment discrimination and the power to sue firms that practice it.

Developing a Program of Social Responsibility

Key steps involved in establishing corporate social responsibility:

• Commitment of top executives
• Planning
• Appointment of a director
• The social audit

International Business and Trade Restrictions

Global Trade Terminology

Currency Devaluation

The reduction of the value of a nation's currency relative to the currencies of other countries.

Tariff (Import Duty)

The most commonly applied trade restriction is the customs or import duty. An import duty (also known as a tariff) is a tax levied on a particular foreign product entering a country.

Nontariff Measures

A nontax measure imposed by a government to favor domestic over foreign suppliers.

Methods of International Business

• Licensing: A contractual agreement in which one firm permits another to produce and market its product and use its brand name in return for a royalty or other compensation.
• Exporting: Selling and shipping raw materials or products to other nations.
• Joint Venture: An agreement between two or more groups to form a business entity in order to achieve a specific goal or to operate for a specific period of time.
• Countertrade: An international barter transaction.
• Strategic Alliance: A partnership formed to create competitive advantage on a worldwide basis.

Forms of Business Ownership

Key Structures for Business Entities

Sole Proprietorship

A business owned by one person.

Partnership

A voluntary association of two or more persons to act as co-owners of a business for profit.

Corporation

An artificial person created by law with most of the legal rights of a real person, including the rights to start and operate a business, to buy or sell property, to borrow money, to sue or be sued, and to enter into binding contracts.

Limited Liability Company (LLC)

A form of business ownership that combines the benefits of a corporation and a partnership while avoiding some of the restrictions and disadvantages of those forms of ownership.