Business and Economics Introduction

Introduction to the Booklet

• This booklet is designed for students interested in the English WU bachelor program in Business and Economics, particularly for entry exam preparation.
• It covers basic concepts, considering business and economics as comprehensive, multifaceted, and interdisciplinary fields.

Foreword and Acknowledgements

• The material is adapted from the book "Introduction to Business and Economics" by Bettina Fuhrmann, Verlag Jugend & Volk, Wien.
• It aims to provide a foundational understanding for those with limited prior knowledge in business and economics.
• Thanks are extended to colleagues for their contributions and to the author's family for their support during the book's development.
• There is an importance of economic knowledge for everyone, and emphasizes the universality of economic participation.

Introduction to Business Matters

• A business is defined as an entity offering goods and/or services to customers, not for its own or its associates' exclusive use
• It charges price for goods and services for something in return
• Exchanging goods and services against money is the main chracteristic of an economy
• Tina and Steve consider buying used computers and fixing them, and reselling them to customers at an affordable price
• Tina and Steve considered multiple services such as online help for problems that might occur
• Tina and Steve want to become self-employed
• Steve and Tina previously worked for AT&S

Important Questions to Consider Before Setting Up a Business

• Key considerations include identifying stakeholders, understanding the business's influence on the environment and economy, determining the type of business, choosing a legal form, securing financing, and ensuring financial responsibility.

Basic Economic Concepts

• The importance of understanding the business environment and basic economic concepts that influence economic decisions.
• Key questions include understanding customer needs, competition, pricing, and effective communication strategies.

Being Part of the Economy

• Businesses provide goods and services to satisfy needs for individuals or businesses
• Economy is where people and Businesses exchange goods and services to fulfil their needs and wants
• Resources are scarce and need to be managed, requiring everyone to economize and make economic decisions.

Scarcity of Resources and Opportunity Cost

• Businesses and households face limited resources, necessitating decisions on resource allocation
• Opportunity cost is defined as the financial benefit of the alternative is lost when a choice is made
• Tina and Steve face an opportunity cost equal to the amount they could have earned, if they establish a business instead

Economics as the Study of Economic Decisions

• Economics: the study of decisions made by an individual, household or business to best use limited resources
• Microeconomics: focuses on the behaviours and decisions.of individual households and businesses and how they interact
• Example: demand change if electric car buyers receive a bonus
• Macroeconomics: looks at the bigger picture (overall economy)
• Example: growth, unemployment rate, interest rates, inflation

Exchanging Creates a Circular Flow and Division of Labour

• Households mainly offer labour and receive wages. businesses offer goods and services and get money in return
• Money works as a medium of exchange, unit of account and store of value
• Money enables flexibility of exchange
• Money can be used to express the value of things
• Money fulfills best if value maintains stable over time
• Price indexes allow measurements of the general increase in prices, also called inflation

Division of Labour and Specialisation

• Labour division and specialisation is allowed if goods and services are exchanged.
• Labour division explains the variety of jobs and businesses
• Within households individuals concentrate on what they can best do
• Within businesses workers concentrate on production, sales, procurement etc
• Specialisation can be found on an international level

Different Economic Systems

• In market economies individuals and businesses can make most of their own economic decisions
• In planned economic systems governments are dominant
• Governments decide which goods/services are produced
• Market economies are present in most countries of the world
• "free market economies" are when governments play a minor role
• "social market economies" or "eco-social market economies" are when the government play an important role by influencing the economy

Supply and Demand

• Markets communicate the conditions of trading goods and services
• Many different markets exist based on what is being offered

The Law of Supply

• Supply: the quantity of a good or service available for purchase
• Supply quantity is dependent on the businesses' production capacities and the price that can be charged
• The higher the price, the higher the supply will be
• Marginal cost explains the supply curve. Marginal cost is producing one more unit
• As output increases marginal costs will rise

The Law of Demand

• Demand is the quantity of a good or service that customers are willing to buy
• Usually the higher the price is, the lowest demand will be
• People's willingness to pay a certain price is related to utility
• The demand quantity decreases as price rises

The Market Equilibrium

• the price of 150 euros, where the quantity of hours is demanded in the market equals the quantity of hours that is supplied
• Market price or equilibrium is supplied equals demand
• Demand and supply balance each other out at a price of 150 euros per hour
• Neither surplus nor shortage exist
• Demand also affected by changes in consumer preferences (like faster computers)
• Supply are affected by Technological changes.

Supply And Demand For Money

• Laws of supply and demand help understand one causes of inflation
• When the quantity of money within a country increase, people and businesses have the ability to buy more and invest and so demand for goods and services usually rises
• By increasing the price of money inflation can be fought

Competition in the Market

• Monopoly: A market with just one supplier
• Usually rare in a market economy
• Oligopoly: a market which has a few suppliers
• Every supplier has a relatively large share of market
• Perfect competition: found in markets with so many buyers and suppliers
• There must be access to all information at all times

Focus on Different Types of Businesses

• Businesses differ in production factors, sector(s) and the size
• Businesses also need to consider their environment and Stakeholders

Businesses Combine Different Factors of Production

• Businesses combines factors of production to offers goods and services
• The most important factors are labour, land, capital, entrepreneurship and knowledge/technology
• Factors are dominant for the production process. Tina and Steve mainly combine labour, skill, technology, knowlegde, entrepreneurship and capital
• AT&S combines all factors of production

Businesses Operate in the Primary, Secondary, And/or Tertiary Sector

• Primary sector: extraction of raw materials from earth
• Comprises of farming, forresting, mining and fishing
• Secondary sector: transforms raw materials into goods through manufacturing
• Comprises of cars, machinery, ships, circuit boards, etc
• Tertiary sector: comprises the service industry
• Comprises distribution, insurances, banking, retail, etc
• This leads to Gross Domestic Product

GDP - Gross Domestic Product

• GDP: monetary value of FINAL goods and services that are produced within a country's borders over a time period
• Used to measure the overall economic activity of country
• GDP used as indicator for economic growth: if GDP rises the economy is growing
• Critiscm: not all the sources of income are taken into account
• Critiscm: does not tell sustainability of growth, it is not a perfect indicator

Profit-oriented or not-for-profit

• Businesses aim to operate for a longer time period AND to make profit (revenues > expenses/costs)
• Profit important for business: it can be reinvested which enhances the durability/sustainability
• Profit important to owners and investors: they are rewarded for risk they have taken
• Non-profit organizations (NPOs): organizations are not-for-profit + aim to cover costs
• Need revenues + donations to offer goods + services

Businesses come "in all sizes", large and small

• Micro, small and medium enterprises are also called MSME or even SMEs. ~ 99% are SMEs in the EU
• EU - European Commision distinguishes different types of businesses: micro, small, medium sized.
• Defintion of SME is important for finance + EU support programmes; targeted specifically at enterprises.
• Size of business relevant to legal requirements for accountings : Small businesses can use ACCOUNTING

Sole traders

• Individual businesses close to the business
• Do not serve a national or international market, for example: "Tina's and Steve's Business"
• Challenge: get enough customers and financial funds

National Businesses

• Serve a HOME market without international market
• National Businesses like local : need to choose location
• Home businesses need also to provide goods + services other places the country
• Has a longer supply chain

International (multinational) businesses

• Makes its goods or sells it`s services in MORE then one country
• Serve a broader market, because home market may be "small"
• They face more CHALLENGES like: longer supply chain, cultural and language differences, different currencies, different + economic systems ,...

Businesses Operate in an Environment – Stakeholders are Important

• Integrated into an environment
• Deal with other people + NEED TO consider their interests.
• "Stakeholder": everything/everyone potentially affected/has interests about a business
• Globalisation: world become smaller + stakeholders grew CONSIDERABLY

Stakeholders

• Owners: stakehholder of business, their money IN IT: they wanted to get (investment) paid off!
• Stakeholders also contribute to solution like CUSTOMERS - computer issues.
• Help preserve + help the environment (repairing it, SET used components)
• Employee / managers
• working in the business is the source of INCOME; Job SECURITY very IMPORTANT!
• Suppliers are important to a business, for production
• " communities" + governments: depend also on business

Overview of Forms of Business Ownership

• There are 2 types of busienss Ownership: Unincorporated and Incorporated
• Unincorporated businesses consist of Sole Traders and Partnerships
• Sole Traders : one person + manager are the SAME person
• Partnerships: more than one person owner + manager are the SAME person
• Incorporated busienss consist of Corporations + Liability
• Owner + manager NEED to be same persons
• Shareholders supply directors - run

Forms of Business Ownership and Sources of Finance

• This chapter discusses setting up a business and exchanging goods and services. It involves the business itself and/or the people who manage the business.
• Important legal concerns that the business addresses are:
  • who owns the business (single person or more),
  • owner(s) of the business also run the business or are there person(s) who manange the business and
  • who is liable for debts and obligations

Importance of Finance

• Finance is important becuase businesses need money for activities
• The Legal Struture affects financial options
• Therefore the legal strucutre is changed in order to gain additional sources of finance

Sole Proprietorship / Sole Traders

• Business is owned and managed by one person
• This business is easy to establish
• The business is not a legal entity; profits are reported on the owner's personal income tax statement
• The management of the business largely depends on the Sole Proprietor

What Funds Are Available for Sole Proprietors

• Financial depend on financial of capabilities of sole proprietor
• Most sole proprietors invest their savings and get external funding from investors or banks
• Banks provide short/long term credit and short forms
• Most common form of short-term credit are banks, overdraft or credit
• Sources of finance include : retain, reinvested proft or selling assets not there anymore
• Sole proprietorship was not appropriate for TINA + steven , becuase their business is best realized as partnership