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Introduction to Business

Lecturer:
Asep Hendrasyah, M.Pd,

Faculty of Business and Management


Department of Management

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What Is Business?
An organization that provides goods and
services to earn profits
(Ebert & Griffin, 2005)
A business is an enterprise that provides
products or services desired by customers.
(Jeff Madura, 2004)

Profits:
The positive difference
between revenues and
expenses 2
Economic Systems Around
the World

Economic System
A nation’s system for
allocating its resources
among its citizens

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Factors of Production
Labor Capital

Information
Resources

Physical
Entrepreneurs Resources

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Factors of Production
Natural Resources
Materials supplied by nature (such as land, water,
mineral deposits, and trees)

Labor (or Human Resources)


Physical and mental capabilities of people as they
contribute to economic production

Capital
Funds needed to create and operate a business
enterprise
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Factors of Production
Entrepreneur
Person who starts a new business or makes the
decisions that expand a small business

Physical Resources
Tangible things organizations use in the conduct of
their business

Information Resources
Data and other information used by a business

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How Are Factors of Production
Allocated?

Planned Economy:
„ An economic system in which the government
owns and operates all sources of production
Market Economy:
„ An economic system in which buyers and sellers
interact based on freedom of choice

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Circular Flow
in a Market
Economy

Figure 1–1

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Capitalism:
A Fundamentally Market-Based Economy

Individuals Choose: Producers Choose:


Where to work Who to hire
What to buy What to produce
How much to pay How much to charge

Government
Governmentsupports
supportsprivate
privateownership
ownership
and
andencourages
encouragesentrepreneurship
entrepreneurship

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Mixed Economies: Planned and
Market
The economies of most countries include
both planned and market elements.
Worldwide trend is toward more market
elements.

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Socialism: Mixed Economy
Socialism
„ A planned economic system in which the
government owns and operates selected sources
of production
Privatization:
„ The process of converting government
enterprises into privately owned companies

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Private Enterprise System
Individuals are
Four Key Elements: free to pursue
Private Property their own interests
Rights without
government
Freedom of Choice
restriction.
Profits
Competition

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Competition
Competition motivates businesses to produce
their products better or cheaper

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Degrees of Competition
Pure Competition
Market or industry characterized by numerous small firms
producing an identical product
Monopolistic Competition
Market or industry characterized by numerous buyers and
relatively numerous sellers trying to differentiate their
products from those of competitors
Oligopoly
Market or industry characterized by a handful of (generally
large) sellers with the power to influence the prices of their
products

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Degrees of Competition
Monopoly
Market or industry in which there is only one producer, which
can therefore set the prices of its products

Natural
Natural Monopoly
Monopoly
Industry
Industry in
in which
which one
one company
company can
can most
most
efficiently
efficiently supply
supply all
all needed
needed goods
goods or
or services
services

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Degrees of Competition

Table 1–1

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Understanding Economic
Performance
KEY CONCEPTS
Business Cycle
Aggregate Output
Standard of Living
Gross Domestic Product (GDP)
Gross National Product (GNP)

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Evaluating Economic
Systems

Nearly every economic system has three broad


goals:

„ Stability

„ Full Employment

„ Growth

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Economic Goals
Stability
Condition in which the balance between the money available
in an economy and the goods produced in it are growing at
about the same rate

Inflation
Phenomenon of widespread price increases throughout an
economic system
Recession
Period characterized by decreases in employment, income,
and production
Depression
Particularly severe and long-lasting recession
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Economic Goals
Full Employment
Everyone who wants to work has an opportunity to do so

Unemployment
Level of joblessness among people actively seeking work
Knowledge Workers
Skilled employees in high-tech industries
Growth
Increase in the amount of goods and services produced by a
nation’s resources

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Assessing Economic Performance
Gross National Product (GNP)
The value of all goods and services produced by an economic
system in a year regardless of where the factors of production
are located
Real Gross National Product (real GNP)
Gross national product adjusted for inflation and changes in
the value of a country’s currency
Gross Domestic Product (GDP)
The value of all goods and services produced in a year by a
nation’s economy through domestic factors of production

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Assessing Economic Performance
Productivity
Measure of economic growth that compares how much a
system produces with the resources needed to produce it

Balance of Trade
The difference between a country’s exports to and imports
from other counties

Budget Deficit
Situation in which a government body spends more money
than it takes in

National Debt
Total amount that a nation owes its creditors
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Three Major Forces of Business

1. The information revolution will continue to enhance


productivity across all sectors of the economy, but most
notably in such information-dependent industries as
finance, media, and wholesale and retail trade.
2. New technological breakthroughs in such areas as
biotechnology will create entirely new industries.
3. Increasing globalization will create much larger markets
while also fostering tougher competition among global
businesses; as a result, companies will need to focus
even more on innovation and cost cutting.

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Projected Trends & Patterns
1. The economy will maintain strong and consistent growth
rates, perhaps exceeding 3 percent per year. New
technological breakthroughs in such areas as
biotechnology will create entirely new industries.
2. Inflationary surges and large budget deficits will become
less likely.
3. Countries that encourage free trade, innovation, and
open financial systems will prosper.
4. The most successful businesses will be those that are
able most effectively to master new technologies and
keep abreast of their competitors.

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Lessons to Remember
Successful businesses do not require a great
invention.
„ Many focus on making life more convenient for
customers.
Some business ideas will fail—but
entrepreneurs can learn from failures and
make revisions.

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Impact of Technology
Technology defined
„ Knowledge or tools used to produce products and
services
Information technology
„ Represents over 1/3 of the growth in U.S. output
„ Reduces cost of producing products
„ Workers in technology industries earn more than
workers in other industries.

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Impact of Technology
E-business or e-commerce
„ Use electronic communications to produce or sell
products and services
Š Sales to individual customers
Š B2B e-business: transactions between a business and its
suppliers
Š Generates $301 billion in revenue and creates 1.2 million
jobs each year

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Successful E-Businesses
Started out small
Created to sell a product or service that was not
offered by competitors
Transformed how traditional firms conducted
business
„ Improved communication with customers
„ Improved information flow
„ Improved efficiency
„ Complemented traditional business operations

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E-Business Examples
Amazon
„ Online seller of books, music and other products
„ Low overhead costs allow price discounting
Yahoo!
„ Internet search engine and the most visited site on the
Web
„ Offers variety of services - free email, web page hosting,
custom-designed start-up pages
„ Generates revenue by selling advertising
eBay
„ Online auction service

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Key Functions of Business
Human Resources Management
„ Means by which employees and other resources are used
by the firm
Marketing
„ Means by which products and services are developed,
priced, distributed, and promoted to customers
Finance
„ Means by which firms obtain and use funds for their
business operations

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Key Functions of Business
Accounting
„ Summary and analysis of the firm’s financial
condition
„ Used to make various business decisions
Information systems
„ Information technology, people, and procedures
that provide appropriate information to make
effective decisions

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How Business Decisions
Affect a Firm’s Earnings

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Reference:
Ebert & Griffin, 2005, Business Essential, 5th
ed., Prentice Hall Inc.
Jeff Madura, 2004, Introduction to Business,
3rd ed., South-Western.

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