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Business and Economics Notes
Economics System
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Economic Systems - The method used by a society to produce and distribute goods and
services
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All the resources are owned privately
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There is no government control on factors of production
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Business man produce goods to make profit
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They make more of profitable goods and fewer of the less profitable goods
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Prices of goods are influenced by demand for and supply of those goods
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Government plans and controls the resources
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Government decide what is to be produced and in what quantities
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Consumers have very little choice
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Workers could be told where to work and what work to be performed
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Private property is not allowed
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Mixed economy has both private and public sector
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Private sector is made of business not owned by the government
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3
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Here the business decision are taken by the government
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g
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Competition keeps prices low
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The government might produce things people don't want to buy

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Low incentive for firms leads to low efficiency

Disadvantages of Free Market Economy
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There are no government provided goods or services such as health, education, etc
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No government intervention means uncontrollable economic booms or recessions
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He may or may not employ other
people
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Examples – Hairdresser, Florist, Coffee Shop and Market Stall
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Their liability is not limited to the investment made in the business
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This means that the sole trader may have to sell his/her personal possessions in order to pay off
the business debts
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Small business
2
...
Less capital
4
...
Decisions are taken by the owner
6
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Speedy decisions

8
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Personal attention
10
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Freedom to choose the working hours
12
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Enjoys complete secrecy in business matters
Disadvantages of Sole Trader –

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No one to discuss
Unlimited liability
Lack of capital
Owner bears all losses
No continuity of business if owner dies
Heavy workload
Limited chances for expansion


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Sole trader’s often find it difficult to raise finance to start or develop their business
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Suitable for very large businesses
They are not owned by government but by private individuals
Selling of Shares to the general public
Incorporated business

1
...

3
...

5
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Advantages of Public Limited Company Limited Liability
Separate Legal entity
Continuity of existence
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2
...

4
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Legal Formalities are complicated and time consuming
More regulations & control (to protect the interest of the shareholders)
Difficult to Control & Manage
Selling Shares to the Public is expensive (commission to bank, printing of prospectus)
Original Owners may Loss of Control

Private Limited Company
Features –

• Separate Legal Identity
 Denoted by
 “Limited”, “Ltd”, or “Pvt Ltd”
• Shares usually owned by
• Original promoter
• Family, Relatives, Friends, Employees
• Most Important
• Directors, Majority Shareholders
• Legal Agreements
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•
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Advantages of Private Limited Company –
Shareholders have limited liability
Extra capital is available to fund expansion of the business
Continuity of existence

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•
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Disadvantages of Private Limited Company –
Costly to set up
A lot of legal requirements when forming a company
Shares cannot be transferred to the general public
Formation of a Private Limited Company –

Partnerships
Definition - A partnership is a form of business in which two or more people agree to jointly own
a business
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It is not
essential for partners to have such an agreement but it is always recommended
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Example – Sony Ericsson

Advantages and Disadvantages of Joint Venture
 Advantages :
1

Sharing of cost

2

Local knowledge helps expand the business

3

Sharing of risk
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 Disadvantages :
1

Profit to be shared

2

Disagreement may occur

3

Different ways of running business
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Franchisee uses the idea or product and sells it to consumers

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Example : McDonald’s , the Body shop
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The franchisee buys a license from the franchisor to use brand name
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The management of the outlets is the responsibility of the franchisee
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All products sold must be obtained from the franchisor
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Expansion of business is much faster
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Poor management of one franchised outlet could lead to a bad reputation
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The franchisee keeps profits from the outlets
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The chances of business failure are much reduced as a well-known product is being sold
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The franchisor pays for advertising
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Training for staff is provided by the franchisor
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There are few decisions to make – prices, store layout and range of products will be decided by
the franchisor
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Banks are often willing to lend to franchisees due to relatively low risk
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Less independence than with operating a non – franchised business
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May be unable to make decisions that would suit the local area
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License fees must be paid to the franchisor and possibly a percentage of the annual turnover
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The four factors of production are LAND , LABOUR, CAPITAL and ENTERPRISE
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Labour - The number of people available to make products
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They are called as entrepreneurs
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What is Economics?

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Def
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It’s the study of wealth on one side and study of man on other side
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Scarcity - Def
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Scarcity forces us to make choices
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Opportunity Cost - It is that which we give up or forgo, when we make a decision or a choice
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Number of employees
2
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Value of sales
4
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Value of output If the value of the output or the production is more the business can be considered large
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Value of capital employed Business compared on the basis of the total value of the capital invested into the business
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Primary
2
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Tertiary

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PRIMARY SECTOR : Industries which extracts and uses the natural resources to produce raw
material used by other businesses
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SECONDARY – industries which manufactures goods using the raw material provided by the
primary sector
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TERTIARY – industries which provides services to consumer and other sectors of industries

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Example  Kroger sells the bottled water

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