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BUSINESS & MANAGEMENT. Unit 1.1 Nature of Business Activity. A business is an organization that uses inputs to produce a product (good or service) . INPUTS. PROCESS. OUTPUTS. A business exists in order to fulfill: Needs: Basic things we need to live (food, water, shelter, …)

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business management

Unit 1.1 Nature of Business Activity


A business is an organization that uses inputs to produce a product (good or service)




  • A business exists in order to fulfill:
    • Needs: Basic things we need to live (food, water, shelter, …)
    • Wants: Things we desire to have (new car, best gym shoes, expensive hair cut)
  • Think of two business you used in the last month to fill a need and a want_______________________.

How we go about making our product or service (how we get it to the customer)

What we are selling to the customer

What we put into our business, raw material, labor and equipment


A marketis a place that buying and selling take place. Can be a physical market(a store) or non physical e-commerce web mall.

  • Customersare people, businesses or governments that buy a product where as Consumersactually use a product.
  • Keep in mind these can be the same thing or different people or businesses.
  • Think of one example where a Customer may not be the consumers. Hint: Huijia

Answer: __________________________________


Types of products:

    • Consumer goods: Things that are sold to regular people (durable goods – last a long time) (perishable goods – will not last a long time (go bad))
    • Capital/Producer goods: Things that are bought and used almost exclusively for other businesses
    • Services: Things that are not tangible but offer something to consumer
  • Examples of each:
    • Consumer durable: _______________
    • Consumer Perishable: ____________
    • Producer good: ________________
    • Services: ________________

Value Addedis what a business puts into a product (good or service).

  • This is how they make a profit:

Businesses will strive to have the greatest value added possible for their products and services

In general this is the difference between output price and input costs (thing about value added in simple terms)

  • When we pay for things in the service sector this is a genuine example of value added.

Where value added comes from and companies that do it

    • Speed and/or quality of a service (a ride in a limo as opposed to a taxi)
    • Prestige that goes along with purchase – a Prada bag
    • Feel good factor – buying a tee shirt from a charity
    • Perceived value for money – when you buy a bargain brand (high quality but low price) or a sale price.
    • Brand image – some people will only buy Nike shoes
    • Taste and/or design – some people will pay more for a certain food (foreign restaurants in Beijing) or more for better products IPHONE.
    • Inability to find it cheaper else where – curry paste in Beijing
  • Exercise: Find a partner and think of some things you buy for the value added reasons above.

When study business decisions we have to understand that people should act rationally

  • Opportunity cost and business activity
  • Opportunity costis the best alternative that is forgone when making a decision on what to do with a businesses limited resources.
  • Accounting cost is the actual cost of doing something while opportunity cost is what else could have been done.
  • What is the accounting and opportunity cost of going to college?

The role of profit in business activity

  • Profit is the difference between total revenue and total cost (in a non-profit it is referred to as surplus)
  • If costs exceed revenue then it is said a business is operating at a loss

Profit in the business world:

  • Gives a business a reason to produce
  • Reward for risk takers
  • Encourages innovation
  • Helps owners and investors know if growth is happening and makes it measurable
  • Help fund growth

Factors of production are the things that go into making a good or service.

  • Land – Resources that are extracted from the earth as well as space.
  • Labor – workers of an organization who do physical and mental production.
  • Capital, Money buildings, equipment, tools, machinery. (anything that is worth money)
  • Enterprise (Entrepreneurship) is the managing of the above resources so that a business can function. I tend to call this the idea as well.
  • Some businesses are capital intensive such as automobile production while others are labor intensive such as schools.
  • Homework: Think of a business idea and write out how each will be used for that business.

Financial returns from factors of production

  • Land – Rent for use of land
  • Capital – Interest through a bank or giving a loan
  • Labor – Wages/Salary
  • Enterprise – Profit for taking a risk

These together make income for a business or person.


Specializationis the ability of having a business master one particular thing. Within a business a business can further specialize their workers. This allows for better overall production because people only concentrate on one thing.

  • Division of labor is having people work in an assembly style process rather than having people work from start to finish on one product.

Specialization happens at different levels

  • National- Some countries are known for being good at doing certain things efficiently. (France is known for wine, Switzerland for watches)
  • Regional – Some places within a country are known for being good at something. (Lower Manhattan is known for __________ which is famous as a financial center).
  • Corporate – Some businesses are known for specializing in a product or range of products. (Mars)
  • Departmental– Inside of a business many different groups will specialize into different sections. (Finance, Production, Marketing and Human resources)
  • Individual – Workers inside a department will have a job to do that will be different than others within the department allowing further specialization. (A programmer that specializes in Java programming)

Advantages of specialization

  • Increased productivity – Because staff knows how to do a job very well.
  • Increased efficiency – Material is better used because the employees are more skilled.
  • Standardization – Specialization allows for businesses to make sure that all products are very similar to each other. This allows customers to expect a level of consistency.
  • Higher profit margins – Some businesses will have very specialized products that customers will be willing to pay more for it. (Someone who designs computer programs for law firms).

Disadvantages of specialization

  • Boredom – Workers can get exhausted from doing the same thing over and over again.
  • Inflexibility – If a business or workers is overspecialized then it can be hard to do new things.
  • A lack of autonomy – Specialization can make every worker dependent on each other; one person misses and everyone gets slowed down or stops.
  • Capital costs – buying equipment can be expensive.

Departments inside a business

  • Production (operations) – Turns raw goods into output. Determine best way production should be done (JIT or JIC). Stock management. Deliveries.
  • Marketing – Finding out what customers want and telling them what we offer.
  • Finance– Money in and Money out.
  • Human resources (personnel) – Hiring, motivating and retaining employees.

Business sectors

  • Primary sector – Basically taking things from the earth. (usually less developed countries are dependent on this).
  • Secondary sector – Businesses that turn raw material into finished products.
  • Tertiary sector – Is the service sector. (Developed countries are most dependent on this sector)
  • Quaternary sector– Businesses that provide information services through ICT. However, all three sectors above have provided information services in all there business processes.
  • At each level of the chain down the sectors value is added to the product so each sector can make money.
  • Name 2 industries in each sector
    • Primary _________________
    • Secondary _______________
    • Tertiary __________________
  • How well do you know your business sectors?

unit 1 1 key terms
Unit 1.1 Key Terms
  • Businesses
  • Capital
  • Division of labor
  • Entrepreneurs
  • Factors of production
  • Functional areas
  • Industrialization
  • Labor
  • Land
  • Opportunity cost
  • Primary sector
  • Private sector
  • Public sector
  • Secondary sector
  • Structural change
  • Tertiary sector
  • Value added