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Introduction to Business

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Business Studies

Businesses should aim to improve customers' quality of life. This is done by trading goods and services and improving the production quality of goods and services to satisfy consumers' needs. There is much more to the business process, though. Read along to take a closer look at some of the fundamentals.

What is Business?

Business is economic activity that involves the exchange of products and/or services for profits, or other motives. It is a transactional activity.

Business looks to satisfy customers' needs through the provision and production of necessary services or goods.

Goods are tangible items produced and traded by businesses in order to generate profits. Examples include bags, food, and electronics.

Services are intangible products that cannot be touched, held, or stored. Examples include services from lawyers, doctors, banks, or internet providers.

Business activities are important for improving the standard of life by creating employment opportunities, providing services, and producing goods.

Some businesses are not established for profit generation, though. These businesses, referred to as not-for-profit organisations, are established for purposes other than the generation of profit.

These purposes usually include goals that benefit society as a whole, such as the provision of education or community empowerment. Examples of such organizations include Amnesty International, Boy Scouts, and the Bill and Melinda Gates Foundation.

Introduction to Business: Business Factors of Production

In the provision of goods and services, businesses utilise the four factors of production. They are land, labour, capital, and entrepreneurship (see Figure 1 below).

Introduction to Business, factors of production, StudySmarterFigure 1. Factors of production, StudySmarter

Introduction to Business: Land (natural resources)

Often referred to as just land, natural resources are inputs such as raw materials and land areas essential for business activities. Examples of natural resources include minerals, farmland, water, forests, etc.

Capital refers to the resources and money used by the business to create further wealth. It is used to purchase non-current assets like machinery, equipment, warehouses, etc.

Often referred to as labour, human resources involve human input - skilled or unskilled - into business activities. Examples include business managers, workers, scientists, and all employees who work for a company.

Introduction to Business: Entrepreneurship

These are risk-takers who manage other factors of production to provide the goods and services needed to satisfy consumers' needs, while also making profits for the business. They are referred to as risk-takers because not all business processes return profits.

Business Environment

The business environment takes into consideration all events, factors, or conditions, internal or external, that influence business activities. These factors may either have a direct or an indirect effect on the business and may either provide it with an opportunity or a risk.

The interaction between the environment and business is mutual. Examples of business environments include government regulations, health and safety regulations, the economic climate, the political environment, technology changes, environmental culture, competition, and customer demand.

Types of business environments

The two types of business environments are internal and external.

Introduction to Business, Types of business environment, StudySmarterFigure 2. Types of Business Environment, StudySmarter

The internal environment is related to the internal functions of the business, such as its operations, its employees, its management, ethics, marketing resources, etc.

The external environment is related to influences that come from outside of the business, such as governmental bodies, the economic climate, customer demands, etc.

Introduction to Business: Stakeholders

Stakeholders are either internal or external parties who hold interest in the activities of a business, and can exert or receive influence in regard to that business. Stakeholders include owners, investors, employees, suppliers, customers, communities, trade associations, and government bodies.

A business stakeholder can be of two types - internal or external.

Internal stakeholders have a direct relationship with the business. They could be employees or investors. Thus they have a significant interest in the business.

External stakeholders are those who don’t have a direct relationship with the business but are still affected by or are affecting business activities. Examples include suppliers and local communities.

Check out our explanation on Stakeholders to find out more!

Introduction to Business Management

Business management refers to the organising, maintaining and allocating of business resources in order to achieve business goals and develop the business. Business managers are responsible for overseeing the management processes of the business enterprise.

Introduction to Business: Business enterprise and entrepreneurship

An 'entrepreneur' is someone who uses an available opportunity to set up a new business. This opportunity may arise due to an unsatisfied market need, a drive to make a social difference, or simply to make a profit. Entrepreneurs bear most of the risks that come with setting up a new business. However, they also enjoy the rewards if it is a success.

Want to learn more about entrepreneurship? Take a look at our Business enterprise explanation

Risks and Rewards of starting a business

Starting a new business is risky. The kinds of risks in starting a new business include:

  1. Strategic risks

  2. Operational risks

  3. Financial risks

  4. Compliance risks

  5. Reputation risks.

The rewards of starting a new business include:

  1. Sense of satisfaction

  2. Financial rewards mostly from business profitability

  3. Expanding business reach

  4. Provides the entrepreneur with autonomy

  5. Provides the entrepreneur with a platform for growth and development.

To learn more about this topic, check out our explanation, Risks and rewards of business enterprise.

In conclusion, businesses are essential for improving stakeholders' quality of life. An entrepreneur might have a fantastic idea for a business opportunity that leads to a huge amount of sales and profit. Starting a company is a huge challenge, though, and there are numerous internal and external risks businesses face. It is important to pay attention to these to minimise business failure.

Introduction to Business - Key takeaways

  • Business is any economic activity that involves the exchange of products and/or services for profits, or other motives. It is a transactional activity.

  • Goods are tangible items produced and traded by businesses in order to generate profits. Examples include bags, food, and electronics.

  • Services are intangible products that cannot be touched, held, or stored. Examples include services from lawyers, doctors, banks, or internet providers.

  • When providing goods and services, businesses utilise the four factors of production. They are land, labour, capital, and entrepreneurship

  • The business environment takes into consideration all events, factors, or conditions - internal or external - that influence business activities.

  • Stakeholders are either internal or external parties who hold an interest in the activities of a business.

  • An'entrepreneur' is someone who uses an available opportunity to set up a new business.

  • There are various risks and rewards associated with starting a business.

Frequently Asked Questions about Introduction to Business

An introduction to business courses provides you with the relevant knowledge, skills, and understanding of business fundamentals needed in running a productive business, and improving standards of living. 

An introduction to business is important as it helps you understand the fundamentals of business. There is a lot more than just the trading of goods and services that goes into business activities.

Business administration is the management of all business activities and processes to effectively achieve all business goals and objectives. 

Business can be defined as an economic activity that involves the exchange of products and/or services for profits, or other motives. It is a transactional activity.

We study introduction to business to understand the processes and activities of businesses. Business activities are important for improving the standard of life by creating employment opportunities, providing services and producing goods.

Final Introduction to Business Quiz

Question

Choose what best describes an aim

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Answer

A long-term goal, a short statement written in a broad term. 

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Question

Which of the following means long-term target?

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Answer

Aim

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Which of the following is a financial aim?


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Answer

Increase revenue by 40% in the next 5 years

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What can objectives be classified into?


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Objectives can be classified into financial and non-financial aims.

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Question

List at least 4 advantages of setting aims and objectives.


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Answer

  1. Providing direction
  2. Employee motivation
  3. Business planning
  4. Less stress
  5. Less wastage of time

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Question

Name the factors based on which businesses change objectives.


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Answer

Objectives may change due to various reasons. It depends on factors such as: 

  1. Not producing expected result

  2. Unexpected changes in the internal or external environment

  3. Size of the company

  4. Availability of resources

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Question

Define a business aim.

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Answer

Business aims are the long-term goals a company sets for itself.

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Define business objectives.

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Business objectives are steps taken by a company to achieve its business aims

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____________ help to move closer to the company aim.

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Objectives

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Name a few common aims in businesses.

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  1. Surviving
  2. Establishing a customer base
  3. Expanding
  4. Increasing profit
  5. Improving customer service
  6. Becoming more socially responsible

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Question

How does setting objectives help to reduce stress?

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Answer

Having set objectives help to track performance. This helps to avoid unnecessary stress that employees face when they are unaware of their overall performance rate.

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What are SMART objectives?

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SMART stands for Specific, Measurable, Achievable, Relevant, Time-oriented.

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What is the meaning of Measurable in SMART objectives?

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Answer

•Outcome of an objectuive needs to be measurable.
•Helps track the objective's progress.
•Outcomes can be measurable in numbers, percentages, rates, and so on.

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What is the achievability of an objective based upon?

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It is based on the company's capacity or available resources.

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What does the S stand for in SMART objectives, and what does it mean?

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S stands for Specific. It means the following:

•Aim-specific objective.
•Outlines what is to be done, and how it should be done.

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Question

Define diseconomies of scale.

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Diseconomies of scale are defined as the increase in average cost per unit in a firm when the company output grows above a certain point.

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 What are the different internal diseconomies of scale?


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Technical, organisational, purchasing, competitive/monopoly, and financial diseconomies are the types of internal diseconomies of scale.   


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What are the results of technical diseconomies of scale?


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Overcrowding, or an increase in production beyond reasonable capacities. This could be having too many factory workers or employees in a store. Many employees end up duplicating each other’s work and increasing the company’s overall cost.


Scalability: When a firm is functioning very efficiently in some locations and decides to expand but the new outlets turn out to be inefficient. This also increases the overall cost of production drastically.

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 Briefly describe the results of organisational diseconomies of scale.


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 Inefficient communication, demotivation, and employee health.

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Which of the following are the results of purchasing diseconomies?

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Answer

Higher costs, greater waste, and deadlock.

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Question

 ___________ and ___________ are the results of a competitive/monopoly diseconomy of scale.


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Answer

Higher cost and more competition.

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Question

Why is high levels of interest a result of financial diseconomy of scale?


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Answer

 If the funding to purchase the asset were not organically funded by the company and the firm borrows from external sources, it will then have to pay high levels of interest to the banks and lenders, as the company is at a higher financial risk.

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Question

What are the different types of external diseconomies of scale?


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Answer

There are mainly three types of external diseconomies of scale - diseconomies of pollution, limited natural resources, and infrastructure diseconomies.  

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What is the diseconomy of pollution?


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Answer

When firms grow and set up factories, they impose costs on the local population in the form of pollution in the local surroundings, as this can lead to several health issues. Poor health is one of the main results of this type of diseconomy. Pollution caused by factories has long-lasting damaging effects on different human organs, causing innumerable health issues.

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Question

Explain the results of the diseconomy of scale caused by the limited natural resources.


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Answer

High prices:  Prices of the end product increase as the resources to produce the product becomes higher due to its scarcity. 


Higher salaries: Labourers that possess a talent or skill not known to a lot of others can negotiate for a higher salary.

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Briefly explain infrastructure diseconomies.

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Answer

Infrastructure diseconomy is when a company grows to the point that it puts a strain on the local infrastructure. For example, if all the companies were to increase the number of trucks to decrease the delivery, this would lead to traffic blocks on roads, putting a strain on the local infrastructure. Moreover, this increases the delivery time due to traffic, leading to more costs, as costs increase as the delivery time increases.

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Briefly explain poor communication as a result of diseconomies of scale.


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Answer

As the company grows and employs more people, communication among the staff can become very difficult and inefficient. You might not know who the right contact person is in an international organisation. Sending emails rather than direct communication becomes a usual practice, which can sometimes cause important details to be overlooked.

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Question

Explain the higher cost of materials as an example of diseconomies of scale. 


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Answer

As companies grow, their demand for resources increases. Firms in the same industry have similar resource requirements and the resources become scarce as their demand increases. This, in turn, increases the cost of materials.

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Question

Explain inefficient management as an example of diseconomies of scale.


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Answer

Inefficient management is a result of rapid growth in an organisation. The management fails to understand that the rapid growth in a company can lead to a decrease in employee morale due to the increase in employees and workload. The lack of training does not allow managers to properly look after their employees. This results in low productivity.

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Question

Provide a definition of stakeholders.

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Answer

Stakeholders are parties that have an interest in a business. They can either be affected by or affect the business.

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Question

Who can be stakeholders? Give an example.

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Answer

Any of: 

  • owners, 
  • shareholders, 
  • employees, 
  • government, 
  • customers, 
  • local community,
  • suppliers. 


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What do we call a financial reward received by the shareholders of a business every year?

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Answer

Dividend

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What are the objectives of shareholders in relation to a business?


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Answer

Shareholders are interested in businesses that have the potential to grow and bring more value in the future. Similarly to owners, they want to be paid high dividends and earn money.

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What are the government’s objectives in relation to a business?

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Answer

The main interest of the government is to collect taxes and benefit from the increased GDP. They also want the business to operate according to the law in a particular region.

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What is GDP?

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GDP stands for gross domestic product. It is a monetary measure of the market value of all the final goods and services produced in an economy in a specific period.

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What are the main objectives of the local community with regard to a business?


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Workplace creation and impact on the environment

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How can a business influence its employees?

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A business can influence employees by the conditions of work and the rate of pay.

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How can employees affect a business?


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Employees can affect a business through their cooperation and quality of work. If they do not fulfill their tasks properly, customers will not be satisfied, stop buying the products and consequently, the company will be deprived of profits. Employees can also affect the firm by negotiating for better pay. In the worst case, they can also go on strike or refuse to work that can destabilise the whole business.

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How can customers affect a business?


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Customers have a direct impact on a business. If they are satisfied with the products, they can influence it positively by for example leaving positive reviews and continuing to buy its products. However, if they are not satisfied, they can also leave negative reviews that can damage a company's reputation and stop buying from the business.


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How can suppliers affect a business?

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Suppliers can positively influence a firm if they supply resources of good quality at an affordable price. However, if the suppliers produce and deliver resources of bad quality and at a high price, it can have a negative impact on a business. Suppliers can also negotiate for better terms and conditions.

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How can the government affect a business?

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The government can affect a business by implementing new regulations and imposing taxes on products or services that the firm produces. This can result in changes in the business and higher costs of operating. 

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Question

How can a business affect the local community?


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Answer

Local communities can be influenced by a business by the creation of workplaces and environmental pollution. If a company creates jobs and has little impact on the environment, it will have a positive impact on the local communities. However, if it does not create jobs but pollutes the environment, the communities will only suffer a loss.

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Question

How can suppliers be affected by a business?


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Answer

A company can influence its suppliers in a way it cooperates. If it is reliable and pays on time, suppliers will gain constant profits from the cooperation. However, on the opposite occasion, suppliers will struggle to benefit from it.


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Question

Who typically has the most decision power in a business?


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Answer

Owners

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Question

Define economies of scale.

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Answer

Economies of scale are the decrease in average production cost per unit in a firm as the output quantity increases.

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Question

What companies do economies of scale occur at?


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Answer

Large companies

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Question

What are the two elements of the economics of scale graph?


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Answer

Cost per unit and quantity

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Question

Which of the following applies to the economics of scale?


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Answer

When output increases, production cost per unit decreases

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Question

What are the two types of economies of scale?

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Answer

Internal and external

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Question

What are the internal economies of scale?


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Answer

Internal economies of scale refer to the increased output of the business itself.

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