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McGraw-Hill/Irwin Introduction to Business. © 2007 The McGraw-Hill Companies, Inc., All Rights Reserved. Chapter Two. The Evolution of Business. Division of Labor in a Tribe. Figure 2.1. The Emergence of the Hierarchy. Hierarchy of authority

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Chapter Two

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McGraw-Hill/Irwin

Introduction to Business

© 2007 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter Two

The Evolution of Business


Division of Labor in a Tribe

Figure 2.1


The Emergence of the Hierarchy

  • Hierarchy of authority

    • the ranking of people according to their relative rights and responsibilities to control and utilize resources


Hierarchy and Property Rights

  • Property rights

    • the right of people to own, use, or sell valuable resources

  • Aristocracy

    • people given the right by a ruler to control a country’s resources, including its land and labor


The Hierarchy of English Aristocrats

Figure 2.3


Feudalism

  • Feudalism

    • the business or economic system in which one class of people, aristocrats, controls the property rights to all valuable resources, including people


Feudalism, Mercantilism, and Capitalism

Figure 2.4


From Barter to Money

  • Double coincidence of wants

    • each person has to want the product that the other person has to offer for the exchange to be successful

  • When people agree to use money to buy and sell products it increases the profitability of trade


Money as a Standard of Value

Figure 2.5


From Money to Capital

  • Interest rate

    • the price at which capital will be loaned

  • Risk

    • the possibility of incurring future financial losses because of one’s investment decisions

      See current interest rates at money-rates.com


Mercantilism: Trade and Enterprise

  • Mercantilism

    • the business system in which a product’s price differences are exploited by trading the product across markets and countries


Feudalism, Mercantilism, and Capitalism

Figure 2.4


The Growth of Enterprise

  • Merchant

    • a trader who uses the discrepancy between the value and price of a product in one market and another to trade goods for profit

  • Bankers

    • the people who estimate the risks associated with a new venture and determine the way profits from a venture should be shared


Craft Guilds and Occupational Specialization

  • Craftspeople

    • workers or artisans with the skills to produce higher-quality goods and services

  • Craft guild

    • a group of skilled artisans organized to control and govern different aspects of its trade


The Industrial Revolution

  • Industrial Revolution

    • an era in the 18th and 19th centuries that marked improved production and trade brought about by advances in technology


Capitalism, Unionization, and the Modern Class System

  • Capitalism

    • the economic or business system in which the private ownership of resources becomes the basis for the production and distribution of goods and services


Feudalism, Mercantilism, and Capitalism

Figure 2.4


Capitalism, Unionization, and the Modern Class System

  • Capitalists

    • people who personally own or control the physical capital of industrial production such as machinery, factories, distribution networks, raw materials, and technology


Capitalism, Unionization, and the Modern Class System

  • Proletariat

    • the class of unskilled workers who have no capital and only possess the rights to sell their own labor

  • Trade union

    • an organization that lobbies on behalf of its members (workers) to increase their bargaining power in work-related negotiations


Capitalism, Unionization, and the Modern Class System

  • Class system

    • a social ranking of people based upon the amount of their capital and wealth, and because of factors such as heredity, kinship, fame, and occupation


The Class System in Capitalism

Figure 2.6


Changing Forms of Business Organization

Figure 2.7


The Partnership and Sole Proprietorship

  • Partnership

    • two or more skilled professionals who agree to pool their talents and capital to establish a company in which they are the stockholders and owners

  • Sole proprietorship

    • a non-incorporated business entirely owned by one person


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