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Lecture 2
Business
Dr. Hatem Elaydi
ECOM 5368 Engineering Management
(Entrepreneurship & ework)
Islamic University of Gaza
Aug. 29, 2016
Meaning of business
Business: organization that provides goods or services
to earn profits.
Profits: difference between a business revenues and its
expenses.
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Consumer choice and consumer’s demands.
Opportunity and enterprise
Quality of life
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Economic Systems
Marketing concept: idea that a business must focus on identifying and
satisfying consumer wants in order to be profitable.
Economic system: Nation’s system for allocating its resources among its
citizens.
Factors of production: Resources used in the production of goods and
services -- labor, capital, entrepreneurs, physical resources, and information
resources.
Labor (human resources): Physical and mental capabilities of people as they
contribute to economic production.
Capital: Funds needed to create a business enterprise.
Entrepreneur: individual who accepts the risks and opportunities involved in
creating and operating a new business venture.
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Physical resources: Tangible items organizations use in the conduct of their
businesses.
Information resources: Data and other information used by businesses.
Type of economic systems:
Planned economy: Economy that relies on centralized government to control
all or most factors of production and to make all or most production and
allocation decisions.
Market economy: Economy in which individuals control production and
allocation decisions through supply and demand.
Market: Mechanism for exchange between buyers and sellers of a particular
good or service.
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Input market: Market in which firms buy resources from suppliers
households.
Output market: Market in which firms supply goods and services in response
to demand on the part of households.
Capitalism: System that sanctions the private ownership of the factors of
production and encourages entrepreneurship by offering profits as an incentive.
Mixed market economy: Economic system featuring characteristics of both
planned and market economies.
Privatization: Process of converting government enterprises into privetly
owned companies.
Socialism: Planned economic system in which the government owns and
operates only selected major sources of production.
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Output Markets
Goods
Services
Households
Firms
• Demand products in output markets
• Supply resources in input markets
• Supply products in output markets
• Demand resources in input markets
Input Markets
Labor
Capital
Entrepreneurs
Physical resources
Information resources
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Circular flow in a market economy
Economy of a Market System
Demand: The willingness and ability of buyers to purchase a good or service.
Supply: The willingness and ability of producers to offer a good or a services
for sale.
Law of demands: principle that producers will offer (supply) more of a
product for sale as its prices rises and less as its prices drops.
Demand and supply schedule: Assessment of the relationships among
different level of demand and supply at different price levels.
Demand Curve: Graph showing how many units of a product will be
demanded (bought) at different prices.
Supply Curve: Graph showing how many units of a product will be supplies
(offered for sale) at different prices.
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Market price (equilibrium price): Profit-maximizing price at which the quantity
of goods demanded and the quantity of goods supplied are equal.
Surplus: Situation in which quantity supplied exceeds quantity demanded.
Shortage: Situation in which quantity demanded exceeds quantity supplied.
Private enterprise: Economic system that allows individuals to pursue their
own interest without undue governmental restriction.
Competition: Vying anomy businesses for the same resources or customers.
Perfect competition: Market or industry characterized by numerous small
firms producing an identical product.
Monopolistic competition: Market or industry characterized by numerous
buyers and relatively numerous sellers trying to differentiate their products
from those of competitors.
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Oligopoly: Market or industry characterized by a handful of (generally large)
sellers with the power to influence the prices of their products.
Monopoly: Market or industry in which there is one producer, which can
therefore set the prices of its products.
Natural monopoly: Industry in which one company can most efficiently supply
all needed goods or services.
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