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  1. 1. The Economic Framework of Business
  2. 2. Factors of Production PRODUCT C A P I T A L E N T E R P R I S E L A N D L A B O U R Capital , available for invest- ment in new machines,etc. Land , used for agriculture, housing development and for providing natural resources. Enterprise , referring to the people who are willing to take the risk of setting up in business. Labour , the number of persons available and willing to work.
  3. 3. Scarcity and Choice unlimited limited Wants Resources Choices Conflict
  4. 4. Key Questions for Society What to produce ? <ul><li>price mechanism </li></ul><ul><li>government </li></ul>
  5. 5. Key Questions for Society What to produce ? How to produce ? <ul><li>buy machines or </li></ul><ul><li>hire employees </li></ul>
  6. 6. Key Questions for Society What to produce ? How to produce ? Where to produce ? <ul><li>availability of inexpensive building land </li></ul><ul><li>suitably skilled workforce </li></ul><ul><li>government‘s regional policy </li></ul>
  7. 7. Specialisation and Exchange Lack of coincidence of wants Indivisibility Valuation Problems
  8. 8. Functions of Money <ul><ul><li>Medium of exchange </li></ul></ul><ul><ul><li>Measure of value </li></ul></ul><ul><ul><li>Store of value </li></ul></ul>$500.-
  9. 9. Specialisation Former times one single person
  10. 10. Specialisation Today many persons
  11. 11. Specialisation <ul><li>Reduced unit costs </li></ul><ul><li>Use of specialist equipment </li></ul><ul><li>Employees become specialised </li></ul><ul><li>Lower job satisfaction </li></ul><ul><li>Sensitive against industrial action </li></ul><ul><li>Problems with unemployed workers </li></ul>Advantages Disadvantages
  12. 12. Interdependence through Specialisation Firms Countries People
  13. 13. Economic Systems Free Market System Mixed Economy Planned System
  14. 14. Free Market System X X X X Price mechanism Resources are owned by individuals ( 5 price, 30000 quantity ) ( 1 price, 5000 quantity ) ( 5 price, 5000 quantity ) ( 1 price, 30000 quantity ) Demand Supply
  15. 15. Advantages Free Market System Incentive Choice Competition
  16. 16. Disadvantages Unequal distribution of wealth Public services Profit motive Hardship Wasted or reduced competition
  17. 17. Economic Systems Free Market System Mixed Economy Planned System
  18. 18. Advantages Use of resources Large-scale production Public services Basic services
  19. 19. Disadvantages Lack of choice Little incentive Centralised control
  20. 20. Economic Systems Free Market System Mixed Economy Planned System
  21. 21. Mixed Economy Advantages Disadvantages Necessary services Incentive Competition Large monopolies Bureaucracy
  22. 22. Types of Production
  23. 23. PRODUCER Insurance Banking Transport Advertising Warehousing Export services Communication services
  24. 24. Types of Markets Consumer markets Industrial markets capital goods single-use consumer goods services consumer durables industrial services
  25. 25. Test Questions <ul><li>The four factors of production are ... </li></ul><ul><li>Explain ‘opportunity cost’ and give one example of its relevance to business. </li></ul><ul><li>Distinguish between Direct and Indirect production. </li></ul><ul><li>All firms specialise to some extent. What benefits do they gain from this ? </li></ul><ul><li>What is the main difference between a free market economic system and a planned system ? </li></ul><ul><li>Give three advantages found in a) the free market system; b) the planned system. </li></ul><ul><li>Distinguish between primary, secondary and tertiary forms of production. </li></ul><ul><li>Classify the following occupations as primary, secondary or tertiary: a) shopkeeper b) delivery van driver c) bricklayer d) car body welder e) forester f) seaman g) banker h) miner </li></ul><ul><li>A ‘market’ is a place where … and … are in contact with each other to determine a price. </li></ul>
  26. 26. All information taken from : Letts Study Guide GCSE, Floyd,David;Business Studies;Letts Educational; London 1997 ISBN: 1 85758 576 3 Don‘t do that ! Always have a look at the bright side of life !