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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. Consumer choice and consumer’s demands. Opportunity and enterprise Quality of life Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 2 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. Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 3 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. Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 4 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. Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 5 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 6 Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 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. Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 7 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. Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 8 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. Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 9 10 Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 11 Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 12 Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 13 Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 14 Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship 15 Dr. Hatem Elaydi, IUG, Fall 2016, Entrepreneurship