Some concepts

• A firm is an organization that transforms

resources (inputs) into products (outputs). Firms are the primary producing units in a market economy.

• An entrepreneur is a person who organizes, manages, and assumes the risks of a firm, taking a new idea or a new product and turning it into a successful business.

• Households are the consuming units in an economy.

Business organisations

A business (also called a company,

enterprise or firm) is a legally recognized

organization designed to provide goods

and/or services to consumers.

Businesses are predominant in capitalist

economies, most being privately owned

and formed to earn profit that will increase

the wealth of its owners and grow the

business itself.

Business organisations

The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk.

Notable exceptions include cooperative enterprises and state-owned enterprises.

Businesses can also be formed not-for-profit or be state-owned.

The Circular Flow of Economic

Activity

• The circular flow of

economic activity

shows the

connections between

firms and households

in input and output

markets.

• Output, or product,

markets are the

markets in which goods

and services are

exchanged.

• Input markets are the

markets in which

resources—labor,

capital, and land—used

to produce products,

are exchanged.

• Payments flow in the

opposite direction as

the physical flow of

resources, goods,

and services

(counterclockwise).

Input Markets

Input markets include:

• The labor market, in which households supply work for

wages to firms that demand labor.

• The capital market, in which households supply their

savings, for interest or for claims to future profits, to firms

that demand funds to buy capital goods.

• The land market, in which households supply land or

other real property in exchange for rent.

ORGANISATION • or·gan·i·za·tion

• [awr-guh-nuh-zey-shuhn]

• 1.the act or process of organizing.

• 2.the state or manner of being organized.

• 3.something that is organized.

• 4.organic structure; composition: The organiz

ation of this painting isquite remarkable.

• 5.a group of persons organized for some end

or work; association:a nonprofit organization.

Basic forms of ownership

Two Sectors

The economy can be divided into two

sectors:

•The Private Sector

•The Public Sector

The Private Sector

• Private individuals and firms that are

owned by private individuals

• Forms of business ownership vary by

jurisdiction, there are several common

forms:

• Sole proprietorship

• Partnership

• Corporation

• Cooperative

Sole proprietorship

A sole proprietorship also known as a sole trader, or simply proprietorship is a type of business entity which is owned and run by one individual and where there is no legal distinction between the owner and the business.

All profits and all losses accrue to the owner (subject to taxation).

All assets of the business are owned by the proprietor and all debts of the business are their debts and they must pay them from their personal resources.

This means that the owner has unlimited liability. It is a "sole" proprietorship in the sense that the owner has no partners (partnership).

A sole proprietor may do business with a trade name other than his or her legal name.

This also allows the proprietor to open a business account with banking institutions.

Partnership

A partnership is a type of business entity in

which partners (owners) share with each

other the profits or losses of the business.

Partnerships are often favoured over

corporations for taxation purposes, as the

partnership structure does not generally

incur a tax on profits before it is distributed

to the partners (i.e. there is no dividend tax

levied).

• However, depending on the partnership

structure and the jurisdiction in which it

operates, owners of a partnership may be

exposed to greater personal liability than

they would as a shareholder of a

corporation.

Corporation

A corporation is a legal entity separate from the shareholders and employees.

In British tradition it is the term designating a body corporate, where it can be either a corporation sole (an office held by an individual natural person, which is a legal entity separate from that person) or a corporation aggregate (involving more persons).

• In American and, increasingly,

international usage, the term denotes a

body corporate formed to conduct

business.

Corporations exist as a product of corporate law, and their rules balance the interests of the management who operate the corporation; creditors who loan it goods, services or money;

• shareholders, typically in the secondary market, who hold shares related to the original investment of capital; the employees who contribute their labour; and the clients they serve.

• People work together in corporations to produce value and generate income.

• In modern times, corporations have become an

increasingly dominant part of economic life.

• People rely on corporations for employment, for their

goods and services, for the value of the pensions, for

economic growth and cultural development.

Cooperative

• A cooperative often referred to as a co-

op or coop) is defined by the

International Co-operative Alliance’s

Statement on the Co-operative Identity

as an autonomous association of persons

united voluntarily to meet their common

economic, social, and cultural needs and

aspirations through a jointly-owned and

democratically-controlled enterprise

It is a business organization owned and

operated by a group of individuals for their

mutual benefit.

A cooperative may also be defined as a

business owned and controlled equally by

the people who use its services or who

work at it.

Cooperative enterprises are the focus of

study in the field of cooperative

economics.

Also…

• Economic democracy

• Franchising

• Joint venture

• Holding companies

Holding company

holding company is a company or firm that

owns other companies' outstanding stock.

It usually refers to a company which does

not produce goods or services itself, rather

its only purpose is owning shares of other

companies.

Holding companies allow the reduction of

risk for the owners and can allow the

ownership and control of a number of

different companies.

Economic democracy

Economic democracy is a socioeconomic

philosophy that suggests transfer of

decision-making authority from a small

minority of corporate shareholders to the

larger majority of public stakeholders.

While there is no single definition or

approach, all theories and real-world

examples of economic democracy are

based on a core set of fundamental

assumptions.

Proponents generally agree that modern

economic conditions tend to hinder or

prevent society from earning enough

income to purchase its output production.

Centralized corporate monopoly of common

resources typically forces conditions of

artificial scarcity upon the greater majority,

resulting in socio-economic imbalances

that restrict workers from access to

economic opportunity and diminish

consumer purchasing power.

Franchising

Franchising is the practice of using another

person's business model.

The franchisor grants the independent

operator the right to distribute its products,

techniques, and trademarks for a

percentage of gross monthly sales and a

royalty fee.

Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor.

Agreements typically last from five to thirty years, with premature cancellations or terminations of most contracts bearing serious consequences for franchisees.

Franchising has been around for many centuries but did not come to prominence until the 1930s in the United States, when the establishment of electricity, vehicles, and, in the 1950s, the Interstate Highway system helped propel modern franchising, most notably franchise-based food service establishments.

According to the International Franchise Association approximately 4% of all businesses in the United States are franchises.

Joint venture

A joint venture (often abbreviated JV) is an

entity formed between two or more parties

to undertake economic activity together.

The parties agree to create a new entity by

both contributing equity, and they then

share in the revenues, expenses, and

control of the enterprise.

The venture can be for one specific project

only, or a continuing business relationship

such as the Fuji Xerox joint venture.

This is in contrast to a strategic alliance, which involves no equity stake by the participants, and is a much less rigid arrangement.

The phrase generally refers to the purpose of the entity and not to a type of entity.

Therefore, a joint venture may be a corporation, limited liability company, partnership or other legal structure, depending on a number of considerations such as tax and civil liabilities.

The Public Sector

• Made up of central government,

local government, and businesses

that are owned by government

• In the last twenty years the number

of government-owned firms in the UK has

shrunk massively

• Now, very few examples remain:

for instance, the Royal Mail

Private Sector Firms

One of the key differences is between:

• Sole traders and partnerships

whose liability is unlimited

And

• Private Limited and Public Limited

Companies, who have ‘limited liability’

Other Business Types

• Co-operatives are owned by their staff,

who are ‘members’ of the firm

• Profits are shared

amongst the members

• Losses too must be shared

Franchises

• Many businesses today are franchises

• A business idea is licensed to a franchisee

• The owners of the brand receive a license fee

• The franchisee gains the right to use the business brand

Not For Profit Businesses

• Many charity-based business organisations are run as ‘not for profit’ operations

• They typically receive donations or funds from groups or government

• Any financial surplus is ploughed back into the business

• The organisation does not aim to generate profits

Inflation

• According to Parkin and Bade Inflation is

an upward movement in the average level

of prices. Its opposite is deflation, a

downward movement in the average level

of prices. The boundary between inflation

and deflation is price stability.

• Wage inflation is also called as demand

pull or excess demand inflation. This type

of inflation occurs when total demand for

goods and services in an economy

exceeds the supply of the same.

• Pricing Power Inflation is more often called

as administered price inflation. This type of

inflation occurs when the business houses

and industries decide to increase the price

of their respective goods and services to

increase their profit margins.

What is CPI?

• CPI measures changes in the price level

of market basket of consumer goods and

services purchased by households

• The consumer Price Index market basket

is developed from detailed monthly

records kept by govt. officials who are

hired to track and record prices of

preselected items in stores. The important

role of CPI market basket is specifically to

measure inflation as experienced by

consumers in their day-to day living

expenses.