Business Basic Concepts
*Definitions.
Economy: is a system for the management and development of resources.
Economics: is the science of production, distribution, and consumption of goods and services.
Business: is the production, distribution, and sale of goods and services for a profit.
A business is an organization engaged in producing, distributing and selling, at a profit, goods and services that
consumers want.
Production: is the changing of raw materials into goods, or the creation of services.
Goods: are products that people (consumers) either need or want. Items that have a physical presence.
Services: are activities that a person or a company performs for another person or organization. Activities that
benefit consumers or other businesses.
Distribution: is the transportation and allocation (logistics) of products from the factory to the marketplace.
Sale: is the exchange of a product or a service for money. It is supply and demand through currency.
Profit: is the amount of money remaining from a company’s sales revenue, after all the expenses are paid.
Expenses: are the production costs, operating costs, and taxes.
*Business main areas or fields.
The main areas or major fields of business are:
1. Management
2. Marketing
3. Accounting
4. Finance
5. Business Computer Systems
*Business Functions and Activities.
Although businesses are divided into two types, goods-producing and services-producing firms, they all require
the same functions or activities of operation.
The following are the main functions in a business:
• Hire, train, and evaluate employees
• Create a product or a service
• Market the product or service to the customer
• Account for the financial transactions
• Acquiring financing
• Process information
*Factors of Production.
All businesses use the same input or resources to produce the final goods and services.
These inputs or factors of production are land, labor, capital, and entrepreneurship.
Land: is referred to “the natural resources” that can be used to produce goods and services.
Labor: is referred to “the total human resources” required to turn raw materials into goods and services.
Capital: is the total of tools, equipment, machinery and buildings used to produce goods and services. It is also
referred to the money needed to start and continue operating a business, the total funds invested in a firm, the
net-worth (Assets – Liabilities).
Entrepreneurship: is referred to the skills and risk-taking needed to combine the other three factors of
production (land, labor, and capital) to produce goods and services. It is also referred as the business catalyst.
Entrepreneur: is the individual who is willing to take risks in return for a profit.
*Organization / Company
An organization is a group of two or more persons that exists and operates to achieve clearly stated, commonly
held objectives or goals. These objectives have to do with providing goods and services to the organization’s
members or to others outside the organization. Organizations vary in size, structure, resources, personnel, and
purposes, but they have some characteristics in common.
Elaborated by:
