Pelarios, Ivy P.

MODULE
ENTREPRENEURSHIP

FUNDAMENTALS OF BUSINESS AND ECONOMICS

What this module is about

Hello! We see each other again, my dear student! I hope you will
find this module interesting. This module will gain your knowledge about
ENTREPRENEURSHIP it is a career in business that offers wide range of
opportunities. Develop your personality and traits for entrepreneurship
and you are ready to face the road of success.

What you are expected to learn

In this module you are expected to

1. Know the meaning of business.

2. Identify the profit organization and non-profit organization.
3. Identify the goods-producing business and service business.
4. Know the meaning of economics.
5. Identify the microeconomics and macroeconomics.
6. Discuss the types of economic system.
 How to learn from this module

I’d like you to picture out in your mind that you have a company. Do you have a
strong desire to build up your own company?
In this module you will know the fundamentals of business and economics for
you to know what is the basic in taking up into business world. These will help you to
gain more knowledge.
Answer the activities and self-check exercises honestly. Do not look at the key to
correction. Always remember that “Honesty is the best policy”. Let us work and help
each other!

Pretest

Direction: Read each item carefully and select the best answer by writing its letter
in your paper.

________1. It is exist to fulfill a need, and provide investors’ a return from company
income after expenses and taxes are paid.

a. profit
b. business
c. economics
d. microeconomics
________2. In every business must have one or more owners whose primary role is to
invest money in the business.

a. participants
b. management
c. operations
d. marketing

________3. _________ involves planning for, obtaining, and managing a company’s

funds.

a. finance

b. accounting

c. marketing

d. operations

________4. It is an organization that does not distribute its surplus funds to owners or
shareholders, but instead uses them to help pursue its goals.

a. profit organization

b. macroeconomics

c. business

d. non-profit organization

_______5. It is a business’s create, build, or produce objects of all sizes and forms.
a. service producing

b. retailer

c. ecommerce

d. goods-producing
 LESSON 1

FUNDAMENTTALS OF BUSINESS AND ECONOMICS

Businesses exist to fulfill a need, and provide investors’ a return from company income
after expenses and taxes are paid. This remaining money is profit.

A business is any activity that provides goods or services to consumers for the purpose of
making a profit. When Steve Jobs and Steve Wozniak created Apple Computer in Jobs’s family
garage, they started a business. The product was the Apple I, and the company’s founders hoped
to sell their computers to customers for more than it cost to make and market them. If they were
successful, they’d make a profit.

Before we go on, let’s make a couple of important distinctions concerning the terms in our
definitions. First, whereas Apple produces and sells goods (iPhone, iPod, Mac), many businesses
provide services. Your bank is a service company, as is your Internet provider. Airlines, law
firms, movie theaters, and hospitals are also service companies. Many companies provide both
goods and services. For example, your local car dealership sells goods (cars) and also provides
services (automobile repairs).

Second, some organizations are not set up to make profits. Many are established to provide
social or educational services. Such not-for-profit (or nonprofit) organizations include the
United Way of America, Habitat for Humanity, the Boys and Girls Clubs, the Sierra Club, the
American Red Cross, and many colleges and universities. Most of these organizations, however,
function in much the same way as a business. They establish goals and work to meet them in an
effective, efficient manner. Thus, most of the business principles introduced in this text also
apply to nonprofits.

Business Participants and Activities

Participants

Every business must have one or more owners whose primary role is to invest money in the
business. When a business is being started, it’s generally the owners who polish the
business idea and bring together the resources (money and people) needed to turn the
idea into a business. The owners also hire employees to work for the company and
help it reach its goals. Owners and employees depend on a third group of participants
—customers. Ultimately, the goal of any business is to satisfy the needs of its
customers.

Functional Areas of Business

Hospitals specialize in an intangible product—health care.

The activities needed to operate a business can be divided into a number of functional areas:
management, operations, marketing, accounting, and finance. Let’s briefly explore each of these
areas.

Management

Managers are responsible for the work performance of other people. Management involves
planning for, organizing, staffing, directing, and controlling a company’s resources so that it can
achieve its goals. Managers plan by setting goals and developing strategies for achieving them.
They organize activities and resources to ensure that company goals are met. They staff the
organization with qualified employees and direct them to accomplish organizational goals.
Finally, managers design controls for assessing the success of plans and decisions and take
corrective action when needed.

Operations

All companies must convert resources (labor, materials, money, information, and so forth) into
goods or services. Some companies, such as Apple, convert resources into tangible products—
iPhones, iPods, Macs. Others, such as hospitals, convert resources into intangible products—
health care. The person who designs and oversees the transformation of resources into goods or
services is called an operations manager. This individual is also responsible for ensuring that
products are of high quality.

Marketing
Marketing consists of everything that a company does to identify customers’ needs and design
products to meet those needs. Marketers develop the benefits and features of products, including
price and quality. They also decide on the best method of delivering products and the best means
of promoting them to attract and keep customers. They manage relationships with customers and
make them aware of the organization’s desire and ability to satisfy their needs.

Accounting

Managers need accurate, relevant, timely financial information, and accountants provide it.
Accountants measure, summarize, and communicate financial and managerial information and
advise other managers on financial matters. There are two fields of accounting. Financial
accountants prepare financial statements to help users, both inside and outside the organization,
assess the financial strength of the company. Managerial accountants prepare information, such
as reports on the cost of materials used in the production process, for internal use only.

Finance

Finance involves planning for, obtaining, and managing a company’s funds. Finance managers
address such questions as the following: How much money does the company need? How and
where will it get the necessary money? How and when will it pay the money back? What should
it do with its funds? What investments should be made in plant and equipment? How much
should be spent on research and development? How should excess funds be invested? Good
financial management is particularly important when a company is first formed, because new
business owners usually need to borrow money to get started.

Business and Its Environment

External Forces That Influence Business Activities

Apple and other businesses don’t operate in a vacuum: they’re influenced by a number of
external factors. These include the economy, government, consumer trends, and public pressure
to act as good corporate citizens. Figure “Business and Its Environment” sums up the
relationship among the participants in a business, its functional areas, and the external forces that
influence its activities. One industry that’s clearly affected by all these factors is the fast food
industry. A strong economy means people have more money to eat out at places where food
standards are monitored by a government agency, the Food and Drug Administration.
Preferences for certain types of foods are influenced by consumer trends (eating fried foods
might be okay one year and out the next). Finally, a number of decisions made by the industry
result from its desire to be a good corporate citizen. For example, several fast-food chains have
responded to environmental concerns by eliminating Styrofoam containers.
Profit organization

A business or other organization whose primary goal is making money (a profit), as opposed to
a non profit organization which focuses a goal such as helping the community and is concerned
with money only as much as necessary to keep the organization operating.
Most companies considered to be businesses are for profit organizations; this includes anything
from retail stores to restaurants to insurance companies to real estate companies.
The goal of earning a profit is a profit motive. Without a chance to earn a profit businesses have
no incentive for innovation and improvement.
A non-profit organization (abbreviated as NPO, also known as a not-for-profit organization)
is an organization that does not distribute its surplus funds to owners or shareholders, but instead
uses them to help pursue its goals. Examples of NPOs include charities (i.e. charitable
organizations), trade unions and public arts organizations. Most governments and government
agencies meet this definition, but in most countries they are considered a separate type of
organization and not counted as NPOs. They are in most countries exempt from
income and property taxation. Nonprofit organizations include schools, libraries, government
agencies, and museums. They do not have a profit motive, but they bring in revenue just like the
for-profit businesses. Fund raising, donations, and grants are some of ways nonprofit
organizations receive revenue. Both nonprofit and profit-seeking companies must have resources
to produce goods and services. There are five economic resource types, also called factors of
production, used to produce goods and services: natural resources, human resources capital,
entrepreneurs, and knowledge.

Non- profit distinction

Ownership is the quantitative difference between for- and not-for-profit organizations. For-profit
organizations can be privately owned and may re-distribute taxable wealth to employees
and shareholders. By contrast, not-for-profit organizations do not have private owners. They
have controlling members or boards, but these people cannot sell their shares to others or
personally benefit in any taxable way.

While they are able to earn a profit, more accurately called a surplus, such earnings must be
retained by the organization for its self-preservation, expansion and future plans. Earnings may
not benefit individuals or stake-holders. While some nonprofit organizations put substantial
funds into hiring and rewarding their internal corporate leadership, middle-management
personnel and workers, others employ unpaid volunteers and even executives may work for no
compensation. However, since the late 1980s there has been a growing consensus that nonprofits
can achieve their corporate targets more effectively by using some of the same methods
developed in for-profit enterprises. These include effective internal management, ensuring
accountability for results, and monitoring the performance of different divisions or projects in
order to better benefit from their capital and workers. Those require satisfied management and
that, in turn, begins with the organization's mission.

Nature and goals

NPOs are often charities or service organizations; they may be organized as a not-for-profit
corporation or as a trust, a cooperative, or they may be purely informal. Sometimes they are also
called foundations, or endowments that have large stock funds. A very similar organization
called the supporting organization operates like a foundation, but they are more complicated to
administer, they are more tax favored, and the public charities that receive grants from them
must have a specially determined relationship. Foundations give out grants to other NPOs, or
fellowships and direct grants to participants. However, the name foundations may be used by
any not-for-profit corporation — even volunteer organizations or grass roots groups. Applying
Germanic or Nordic law (e.g., Germany, Sweden, Finland), NPOs typically are voluntary
associations, although some have a corporate structure (e.g. housing cooperatives). Usually a
voluntary association is founded upon the principle of one-person-one-vote.

Legal aspects

There is a wide diversity of structures and purposes in the NPO landscape. For legal
classification and eventual scrutiny, there are, nevertheless, some structural elements of prime
legal importance:

 Economic activity
 Supervision and management provisions
 Representation
 Accountability and Auditing provisions
 Provisions for the amendment of the statutes or articles of incorporation
 Provisions for the dissolution of the entity
 Tax status of corporate and private donors
  Tax status of the foundation

Some of the above must be, in most jurisdictions, expressed in the document of establishment.
Others may be provided by the supervising authority at each particular jurisdiction.

While affiliations will not affect a legal status, they may be taken into consideration in legal
proceedings as an indication of purpose.

Most countries have laws which regulate the establishment and management of NPOs, and which
require compliance with corporate governance regimes. Most larger organizations are required to
publish their financial reports detailing their income and expenditure for the public. In many
aspects they are similar to business entities though there are often significant differences. Both
non-profit and for-profit entities must have board members, steering committee members, or
trustees who owe the organization a fiduciary duty of loyalty and trust. A notable exception to
this involves churches, which are often not required to disclose finances to anyone, including
church members.

Tax exemption

In many countries, nonprofits may apply for tax exempt status, so that the organization itself may
be exempt from income tax and other taxes. In the United States, to be exempt from federal
income taxes the organization must meet the requirements set forth by the Internal Revenue
Service.

Goods-producing businesses create, build, or produce objects of all sizes and forms. Examples
of goods-producing businesses are Dell, Sara Lee, and Pulte Homes. Goods-producing
businesses often require a large initial investment in materials, equipment, and facilities;
therefore, they are called capital-intensive businesses. Capital is the input needed to create a
product or service. It can take the form of money, computers, machines, tools, or buildings.
 • The goods-producing sector includes all businesses that produce tangible goods.
Generally speaking, companies in this sector are involved in manufacturing, construction,
and agriculture.

Goods-Producing Sector

The largest areas of the goods-producing sector are construction and manufacturing.
Construction businesses are often started by skilled workers, such as electricians, painters,
plumbers, and home builders. They tend to be small and generally work on local projects.
Though manufacturing is primarily the domain of large businesses, there are exceptions.
BTIO/Realityworks, for example, is a manufacturing enterprise (components come from Ohio
and China, and assembly is done in Wisconsin).

Another small manufacturer is Reveal Entertainment, which was founded in 1996 to make and
distribute board games. Founder Jeffrey Berndt started with a single award-winning game—a
three-dimensional finance and real estate game called “Tripoly”—and now boasts a product line
of dozens of board games. There are strategy games, like “Squad Seven,” which uses a CD
soundtrack to guide players through a jungle in search of treasure; children’s games, like
“Portfolio Junior,” which teaches kids the rudiments of personal finances; and party games, like
“So Sue Me,” in which players get to experience the fun side of suing their neighbors and taking
their possessions.

Service-producing businesses market knowledge and/or labor that enhance, explain, or deliver
goods. Wells Fargo, KPMG, and FedEx are examples. For approximately sixty years, service
businesses have comprised more than 50% of the U.S. businesses; now they comprise 74%.
There are five key factors that have contributed to this growth: consumers have more disposable
income, services target changing demographics and lifestyles, services need to support complex
goods and new technology like e-commerce, companies are increasingly seeking professional
advice, and the barriers to entry are relatively low. There are four key service sectors: finance,
insurance, and real estate; wholesale and retail trade; transportation and utilities; and other
services, the largest sector with 25% of U.S. economic output. Goods producing companies are
often capital-intensive, so they require large amounts of money or equipment to begin and
maintain a business. Service companies are often labor-intensive. In labor-intensive businesses,
human resource costs are the highest.

• The service-producing sector includes all businesses that provide services but don’t
make tangible goods. They may be involved in retail and wholesale trade, transportation,
communications, finance, insurance, real estate, and such professional activities as health
care, advertising, accounting, and personal services.

Service-Producing Sector

Many small businesses in this sector are retailers—they buy goods from other firms and sell
them to consumers, in stores, by phone, through direct mailings, or over the Internet. In fact,
entrepreneurs are turning increasingly to the Internet as a venue for start-up ventures. Take Tony
Roeder, for example, who had a fascination with the red Radio Flyer wagons that many of
today’s adults had owned as children. In 1998, he started an online store through Yahoo! to sell
red wagons from his home. In three years, he turned his online store into a million-dollar
business. Internet entrepreneurship was also attractive to Sean Lundgren and Todd Livdahl—two
computer engineers who gave up successful careers at Disney to turn their fascination with video
games and DVDs into an online business. To their delight, their small start-up venture, a CD and
DVD retailer that they call Sneetch.com, generated sales of $1.2 million during its first year of
operation.

Other small business owners in this sector are wholesalers—they sell products to businesses that
buy them for resale or for company use. A local bakery, for example, is acting as a wholesaler
when it sells desserts to a restaurant, which then resells them to its customers. A small business
that buys flowers from a local grower (the manufacturer) and resells them to a retail store is
another example of a wholesaler.
Economics is the study of how scarce resources are used to produce outputs—goods and
services—to be distributed among people.
Resources are the inputs used to produce outputs. Resources may include any or all of the
following:

• Land and other natural resources

• Labor (physical and mental)
• Capital, including buildings, equipment, and money
• Entrepreneurship
Resources are combined to produce goods and services. Land and natural resources provide the
needed raw materials. Labor transforms raw materials into goods and services. Capital
(equipment, buildings, vehicles, cash, and so forth) are needed for the production process.
Entrepreneurship provides the skill and creativity needed to bring the other resources together to
capitalize on an idea.

Because a business uses resources to produce things, we also call these resources factors of
production. The factors of production used to produce a shirt would include the following:

• The land that the shirt factory sits on, the electricity used to run the plant, and the raw
cotton from which the shirts are made
• The laborers who make the shirts
• The factory and equipment used in the manufacturing process, as well as the money
needed to operate the factory
• The entrepreneurship skill used to coordinate the other resources to initiate the production
process

Input and Output Market

Many of the factors of production (or resources) are provided to businesses by households.
For example, households provide businesses with labor (as workers), land and buildings (as
landlords), and capital (as investors). In turn, businesses pay households for these resources by
providing them with income, such as wages, rent, and interest. The resources obtained from
households are then used by businesses to produce goods and services, which are sold to the
same households that provide businesses with revenue. The revenue obtained by businesses is
then used to buy additional resources, and the cycle continues. This circular flow is described in
figure “The Circular Flow of Inputs and Outputs”, which illustrates the dual roles of households
and businesses
 • Households not only provide factors of production (or resources) but also consume goods
and services.
• Businesses not only buy resources but also produce and sell both goods and services

The Circular Flow of Inputs and Outputs

Microeconomics and Macroeconomics

Microeconomics studies behavior among consumers, businesses, and industries that

collectively determine the quality of goods and services demanded.
Microeconomics the forces of supply and demand.
Macroeconomics studies the role that individuals and government play in allocated a society’s
resources. Macroeconomics studies the role that individuals and government play in allocated a
society’s resources.

Macroeconomics issues for the entire economy.

Economic Systems

Economic system—the means by which a society (households, businesses, and

government) makes decisions about allocating resources to produce products and about
distributing those products. The degree to which individuals and business owners, as opposed to
the government, enjoy freedom in making these decisions varies according to the type of
economic system. Generally speaking, economic systems can be divided into two
systems: planned systems and free market systems.
Planned Systems

In a planned system, the government exerts control over the allocation and distribution
of all or some goods and services. The system with the highest level of government control
is communism. In theory, a communist economy is one in which the government owns all or
most enterprises. Central planning by the government dictates which goods or services are
produced, how they are produced, and who will receive them. In practice, pure communism is
practically nonexistent today, and only a few countries (notably North Korea and Cuba) operate
under rigid, centrally planned economic systems.

Under socialism, industries that provide essential services, such as utilities, banking, and health
care, may be government owned. Other businesses are owned privately. Central planning
allocates the goods and services produced by government-run industries and tries to ensure that
the resulting wealth is distributed equally. In contrast, privately owned companies are operated
for the purpose of making a profit for their owners. In general, workers in socialist economies
work fewer hours, have longer vacations, and receive more health, education, and child-care
benefits than do workers in capitalist economies. To offset the high cost of public services, taxes
are generally steep. Examples of socialist countries include Sweden and France.

Free Market System

The economic system in which most businesses are owned and operated by individuals is
the free market system, also known as capitalism. As we will see next, in a free
market, competition dictates how goods and services will be allocated. Business is conducted
with only limited government involvement. The economies of the United States and other
countries, such as Japan, are based on capitalism.
How Economic Systems Compare

In comparing economic systems, it’s helpful to think of a continuum with communism at one end
and pure capitalism at the other, as in Figure “The Spectrum of Economic Systems”. As you
move from left to right, the amount of government control over business diminishes. So, too,
does the level of social services, such as health care, child-care services, social security, and
unemployment benefits.

The Spectrum of Economic Systems

Mixed Market Economy

Though it’s possible to have a pure communist system, or a pure capitalist (free market) system,
in reality many economic systems are mixed. A mixed market economy relies on both markets
and the government to allocate resources. We’ve already seen that this is what happens in
socialist economies in which the government controls selected major industries, such as
transportation and health care, while allowing individual ownership of other industries. Even
previously communist economies, such as those of Eastern Europe and China, are becoming
more mixed as they adopt capitalistic characteristics and convert businesses previously owned by
the government to private ownership through a process called privatization.
 Now that you the fundamentals of business and economics. Let’s go do some activity.

Activity 1

The activity called “pick pack boom”

The class will be divided into four (4) groups and choose four representative to play the “pick
pack boom”.

Mechanics: The group has their own assign names which are for group 1 business, group 2
economics, group 3 microeconomics or micro and group 4 macroeconomics or macro. When the
discussant Say: pick pack boom” business the assign group will say the word pick pack boom,
the person that is assign in the word pack will be the one to stand and say the word pack and so
on and the 4th person assign is to say the other group name. The winning group will have a prize
for the activity.

Example: discussant: pick pack boom macro

Group 4: pick pack boom economics

and so on….
 How do you find the activity? Was it fun to do and all of you are active participating.
Was it interesting? Know that you know about business just enhance your knowledge regarding
in business who knows in the future you will be a businessman and have your own company.

Let’s see whether you have learned something from the discussion. Answer the self-
check exercise that follows.

Self-check

Direction: Read each item carefully and select the best answer by writing its letter
in your paper.
________1. It is the government exerts control over the allocation and distribution of all
or some goods and services.

a. planned system

b. mixed market economy

c. free market system

d. none of the above

________2. It is the studies the role that individuals and government play in allocated a
society’s resources.

a. microeconomics

b. macroeconomics

c. business

d. economics

________3. It is the studies behavior among consumers, businesses, and industries that
collectively determine the quality of goods and services demanded.

a. economics
b. business
c. microeconomics
d. macroeconomics
________4. It is the study of how scarce resources are used to produce outputs goods and
services to be distributed among people.

a. business

b. planned system

c. microeconomics

d. economics

_______5. It is the inputs used to produce outputs.

a. resources

b. capital

c. equipment

d. money
Post test

Direction: Read each item carefully and select the best answer by writing
its letter in your paper.
________1. It is exist to fulfill a need, and provide investors’ a return from company
income after expenses and taxes are paid.

a. profit

b. business
c. economics
d. microeconomics

________2. In every business must have one or more owners whose primary role is to
invest money in the business.

a. participants
b. management
c. operations
d. marketing

________3. _________ involves planning for, obtaining, and managing a company’s

funds.

a. finance

b. accounting

c. marketing

d. operations

________4. It is an organization that does not distribute its surplus funds to owners or
shareholders, but instead uses them to help pursue its goals.

a. profit organization
 b. macroeconomics

c. business

d. non-profit organization

_______5. It is a business’s create, build, or produce objects of all sizes and forms.

a. service producing

b. retailer

c. ecommerce

d. goods-producing

________6. It is the government exerts control over the allocation and distribution of all
or some goods and services.

a. planned system

b. mixed market economy

c. free market system

d. none of the above

________7. It is the studies the role that individuals and government play in allocated a
society’s resources.
 a. microeconomics

b. macroeconomics

c. business

d. economics

________8. It is the studies behavior among consumers, businesses, and industries that
collectively determine the quality of goods and services demanded.

a. economics
b. business
c. microeconomics
d. macroeconomics

________9. It is the study of how scarce resources are used to produce outputs goods and
services to be distributed among people.

a. business

b. planned system

c. microeconomics

d. economics
_______10. It is the inputs used to produce outputs.

a. resources

b. capital

c. equipment

d. money
References:

Internet

http://www.businessdictionary.com/definition/for-profit-organization.html#ixzz130fiE0yF

http://en.wikipedia.org/wiki/Non-profit_organization

http://wps.prenhall.com/bp_bovee_eib_rev/0,8591,1072010-,00.html

www.lourdes.edu/Portals/0/Files/Syllabi/Bus/Spring/.../Chapter1.pdf

http://www.web-books.com/eLibrary/NC/B0/B66/040MB66.html
Key to correction Post test

Pretest 1. b

1. b 2. a

2. a 3. a

3. a 4. d

4. d 5. d

5. d 6. a

7. b

Self-check 8. c

1. a 9. d

2. b 10. a

3. c

4. d

5. a