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1Chapter1:EconomicBasicsWhatIsaBusiness?Businessescomeinmanyshapesandsizes,suchaslocal,regional,national,and/orglobal.Theyareclassifiedbytheirsize,structure,andtheroletheyplayinthecommunity.ProfitorNon-profit?For-ProfitBusinessAfor-profitbusinessproducesorsellgoodsandservicestosatisfytheneeds,wants,anddemandsofconsumersforthepurposeofamakingprofit.Non-profitandNot-for-profitOrganizationsAnon-profitand/ornot-for-profitorganizationoperatesstrictlytohelppeopleinacommunity.2Chapter1:EconomicBasicsWhatIsaBusiness?For-profitBusinessBysupplyinggoodsandservices,abusinesscanmakeaprofit.•Profitistheincomeleftafterallcostsandexpensesarepaid.•Expensesarethepaymentsinvolvedinrunningabusinessandtheassetsthatget“usedup”operatingit.•Costisthemoneyrequiredtoproduceorprovidethegoodsandservices.Revenue–Expenses=Profit(orLoss)Whenabusinessmakesaprofit,itcan•reinvestmoneyforexpansion•provideimprovedgoodsandservices•givetheowner(s)fundstospendonpersonalneedsorwantsThebusinessisconsideredsolventwhendebtsarepaidandfinancialobligationsaremet.3Chapter1:EconomicBasicsWhatIsaBusiness?Non-profitOrganizationsTheprimarymotiveofanon-profitorganizationistoraisefundsforaspecificgoal.Onlycharitiesandcharitableorganizationsarecallednon-profitandareallowedtoraisesuchfunds.Theseorganizationsoperatetoservepeopleandtheircommunities.Not-for-profitOrganizationsAnot-for-profitorganizationusesanysurplusfundstoimprovetheservicesofferedtoitsmembers.However,theydonotdistributeprofitstomembers.Aco-operative,unlikeanot-for-profitorganization,consistsofanindependentassociationofpersonswhojointogethertomeeteconomic,social,andculturalneedsandgoals.4Chapter1:EconomicBasicsWhatIsaBusiness?LargeorSmallAsmallormedium-sizedbusiness(SMB)canbeclassifiedbythefollowingcharacteristics:•employsfewerthan500people•estimatedtobeoveronemillioninCanada•providesjobsformorethan60percentoftheCanadianworkforceFormsofBusinessOwnershipInformaldescriptionsofbusinessownershipinclude:•soleproprietorship•partnership•corporation•co-operative•franchise5Chapter1:EconomicBasicsWhatIsaBusiness?ChannelsofDistributionAbusinesscanbeclassifiedaccordingtohowitdeliversgoodsorservicestothecustomer.Someofthesecategoriesare•retail(“bricksandmortar”)•thetelephone•catalogues•e-commerceRoleintheCommunityAbusinessperformsdifferentfunctionsinitscommunity.JobsAbusinesscanbeclassifiedbythetypesofjobsthatitprovides.6Chapter1:EconomicBasicsTheRoleoftheConsumerProducersarethebusinessesthatmakegoodsorprovideservicesthatconsumersneedorwant.Consumersarethepeoplewhopurchasegoodsandservicesfromproducers.Amarketplaceorlocationiswhereproducersandconsumerscometogethertobuyandselltheirgoodsandservices.Businessesuseconsumerhabitsplustheirownresearchtodecidewhatquantitiesofgoodsandservicestheywillprovidetoconsumers.Somekeyquestionsthatbusinessesmightaskaboutthemselvesare•Whendotheywantthesegoodsandservices?•Wheredotheywantthem?•Howmuchgoodsorservicesdotheywant?•Whatpricewilltheypayforthesegoodsandservices?Consumersgreatlyinfluencebusinessesinregardstowhattheyproduceandhowtheydeliverit.7Chapter1:EconomicBasicsTheRoleoftheConsumerConsumerInfluenceonProductsInthepast,businessescontrolledwhat,when,andtheamountofproductsandservicesavailabletoconsumers.Withincreasedcompetitionandtheappearanceofmoreproducers,consumersultimatelybuyfrombusinessesthatmeettheirpersonalneedsandwants.WhenProductsBecomeObsoleteOvertime,productsorservicescanbecomeobsoletebecausepeoplenolongerwantorneedthem.8Chapter1:EconomicBasicsTheRoleoftheConsumerConsumerInfluenceonPriceBusinessesareincontrolwhentheyhavepricingpower.Theycanincreasepricesinresponsetoincreasedcostsortoincreasetheirprofits.Consumershavecontrolwhentheyhavepower.Theydemonstratethisby“votingwiththeirfeet”tolookelsewhereforproductsandservices.ConsumerInfluenceonServiceConsumerpurchasingpowergivesindividualsthecontroltobuygoodsandservicesatthepricetheywantandthelocationtheylike.Thispowerinfluencestheproducts,prices,andservicelevelsthatbusinessesofferconsumers.9Chapter1:EconomicBasicsStartingaBusinessCharacteristicsofEntrepreneursEntrepreneursareindividualswhoarerisk-takersandproblem-solvers.Theyareacutelyawareofopportunitiesinthemarketplaceandtakeadvantageoftheseintheirbusinesses.Importantentrepreneurialcharacteristicsincludethefollowing:ConsumerNeedsandWantsEntrepreneursoftenstartbusinessestosatisfyconsumerneeds.Basicsurvivalneedsforindividualsarefood,clothing,andshelter.However,entrepreneurscanalsoprovideconsumerswithnewproductsorservicesthatarenotconsideredaneedbutawant—somethingthataddscomfortorpleasuretotheirlives.•self-confidence•aflairforinnovation•theabilitytoworkalone•anaptitudeformanagingothers10Chapter1:EconomicBasicsStartingaBusinessAttractingConsumerInterestEntrepreneursneedtoidentifytheircompetition.Theymustdeterminehowtoattracttheircustomersandkeepthem.Businessesalsoplanwhatgoodsandservicestoofferandhowtodistributeandmarketthembyknowinghowconsumerswillanswerthefollowingquestions:•DoIreallyneedit?•WhereshouldIbuyit?•Howmuchvarietyistheretochoosefrom?•HowmuchcanIaffordtospen