Introduction to Business Economics

Understanding the Role of Business

• Business is defined as all profit-seeking activities and enterprises that provide goods and services necessary to an economic system.
• Profit is the positive difference after deducting costs and expenses from total sales. It represents the rewards earned by businesspeople who take risks in blending people, technology, and information to create and market want-satisfying goods and services.

External Environment Factors

• External factors are everything outside an organization's boundaries that potentially affect the business.
• These factors include: political, economic, sociocultural, technological, environmental and sustainability, and legislation factors.

Economic Systems

• An economic system is a nation's system for allocating resources among its citizens (individuals and organizations).
• The key difference between economic systems is the way they manage factors of production.

Factors of Production

• Resources used in the production of goods and services to make a profit.
• Key factors include land, labor, capital, and entrepreneurship.

The Factors of Production

• Land includes natural resources.
• Capital includes tools, equipment, and factories used in production.
• Labor includes people and their abilities and efforts.
• Entrepreneurs are individuals who start new businesses or bring products to market.

Types of Economic Systems

• Planned Economy: An economic system where the government owns and operates all sources of production.
• Market Economy: An economic system where buyers and sellers interact based on freedom of choice.

Planned Economy

• An economy that relies on a centralized government to control most factors of production and allocation decisions.
• Two major forms include communism and socialism.

Communism

• A political system where the government owns and operates all factors of production.
• The central government determines what goods and services are produced, how they are produced, and how they are distributed.
• Examples include Cuba, North Korea, and Vietnam.

Socialism

• A planned economic system where the government owns and operates only selected major sources of production.
• The government may control major industries like banking, communication, transportation, and industries producing basic goods like oil and steel.
• Citizens have access to certain basic products and services.
• Examples include many Western European countries like Sweden and France.

Market Economy

• Individual producers and consumers control production and allocation by creating combinations of supply and demand.
• A market is a mechanism for exchange between buyers and sellers of a particular good or service.
• There are three main forms of market economies: Capitalism, mixed market economy, and privatization.

Capitalism

• An economic system where individuals own and operate the majority of businesses that provide goods and services.
• Competition, supply, and demand determine which goods and services are produced, how they are produced, and how they are distributed.
• Businesses can choose what goods and services to provide and the prices they charge.
• Customers can choose where and how to spend their money.
• Example: United States of America

Mixed Market Economy

• Many countries have economies that combine elements of planned and market systems.
• Worldwide, there's a trend toward more market elements within these economies.

Mixed Capitalization

• An economic system combining planned and market characteristics, like Malaysia's.
• Limited government intervention is permitted.
• Taxes on the population fund essential public services (like schools).

Privatization

• The process of converting government enterprises into privately owned companies.

Circular Flow in a Market Economy

• Firms supply goods and services using resources in output markets while also demanding resources in input markets.
• Households demand goods and services and supply products in input markets.
• Input markets involve factors of resources, like labor (people), capital (machinery), entrepreneurship, raw materials, and information.

Supply and Demand

• Supply: The willingness and ability of producers to offer goods and services for sale.
• Law of Supply: More of a product is offered for sale as the price rises, and less as the price drops.
• Demand: The willingness and ability of buyers to purchase goods or services.
• Law of Demand: More of a product is demanded as the price drops, and less as the price increases.

Demand and Supply Schedules

• Tables displaying the quantity of a particular good (such as pizza) that is demanded and supplied at different prices.

Demand and Supply Curves

• Graphs illustrating the relationship between price and quantity of a specific good.

Equilibrium Price

• The price at which supply equals demand. This point on the graph results in no surplus or shortage.

Markets, Demand, and Supply

• Surplus: A situation where the quantity supplied exceeds the quantity demanded.
• Shortage: A situation where the quantity demanded exceeds the quantity supplied.

Digital Economy

• An economy based on digital computing technologies.
• Also known as the internet economy, new economy, or web economy.
• It's more than simply moving transactions online; it transforms business interactions and enables economic innovation.

Components of Digital Economy

• E-business Infrastructure: Hardware, software, telecommunications, networks, and human capital.
• E-business: Any process an organization conducts through a computer network.
• E-commerce: The transfer of goods (like online book sales).

12 Themes of the New Economy

• Broad topics covering various aspects of the modern economy (knowledge, digitization, etc).

Characteristics of Digital Economy

• Knowledge: The driver of tangible and intangible value; traditional resources are secondary to it.
• Digitization: Knowledge is stored digitally, transmitted quickly, and accessible globally.
• Virtualization: Transforming physical items and business into virtual forms.
• Molecularization: Expanding the interactions among participants in the economy.
• Integration/Internetworking: Interconnecting economic actors.
• Disintermediation: Eliminating intermediaries between consumers and producers, often through digital networks.
• Convergence: Combining converging industries of computing, communication, and content to create new economic sectors.
• Innovation: The core of the digital economy, with human imagination as the key driver.
• Prosumption: Consumers become producers on digital platforms.
• Immediacy: Shrinking the time between ordering and receiving products.
• Globalization: Access to global markets and services.
• Discordance: The challenge of managing highly paid digital economy jobs while providing mobility and opportunities for all.

Competition

• Competition motivates businesses to produce better or cheaper products.

Degrees of Competition

• Perfect Competition: Many small firms with similar products; easy entry.
• Monopolistic Competition: Fewer sellers compared with pure competition, but still easy entry, offering differentiation in goods or services.
• Oligopoly: A handful of large firms with difficulty entering; large capital investment is needed; actions of one firm significantly affect others.
• Monopoly: One firm controls the entire industry; barriers to entry are high.

Pure Competition

• All firms are small; the number of firms is large.
• Products are similar in consumer perception.
• Prices are set by supply and demand.
• Easy for firms to enter and exit the market.
• Example: Wheat

Monopolistic Competition

• Fewer sellers than in pure competition.
• Sellers try to differentiate their products.
• Businesses are either big or small and still have ease of entrance and exit to the market.
• Example: clothing or fast food

Oligopoly

• Industries with only a handful of large sellers.
• Significant capital investment is needed to enter the market.
• Individual firms have more control over strategies.
• Actions of one firm significantly impact others.
• Examples: automobiles, airlines, steel.

###Monopoly

• A single firm controls an entire industry.
• There are barriers to entry for other businesses.
• The firm has substantial control over pricing.
• Examples: Local electric companies.

Looking to the Future

• Information revolution will continue, boosting productivity.
• Technological breakthroughs will lead to new industries.
• Increased globalization will result in bigger markets and tougher competition.

This quiz explores fundamental concepts in business economics, including definitions of profit, factors of production, and different economic systems. Test your knowledge on market economies, capitalism, and the role of government in economic planning.