Economic Activity, Business Functions, and Entrepreneurship

Posted on Dec 3, 2024 in Economy

Economic and Business Activity

An overview of the economy:

  1. To produce goods
  2. As a result
  3. For those who produce

Factors of production:

  • Work: physical and intellectual contributions of human beings
  • The Earth: natural resources needed for production
  • Capital: productive assets or capital to produce goods

Operators:

  • Families: the basic units of consumption, contributing their work to companies
  • Enterprises: Basic production units
  • The public sector: establishes the legal framework for economic activity, provides public goods and services, and decides the country’s economic policy

Markets:

  • Goods and services market: households acquire goods and services offered by companies
  • Factors market: agents buy or sell land, labor, or capital
  • Labor market: brings together businesses that require work and families offering it
  • Financial market: brings together those who offer and those who need funding

Business Functions in the Economy

The company is the basic unit of production whose function is to create or increase the value of property.

  • Enterprises coordinate production factors: division of labor and specialization. Specialization gives people in different trades. Coordination of different tasks and contributions of various specialists. FUNCTION: direct and coordinate the production factors.

Value

Companies create or increase the value of goods: to create utility, companies add value to property. And as goods become more useful for people, their value increases, and therefore the price people are willing to pay for them increases.

If we add the value added of all firms in a country during a period, we get the national product of that country.

  • Businesses take risks: By giving back to the factors of production, the company pays rent in advance. And all this is paid before producing and selling products. That is, they assume the risk of paying in advance for the resources needed to conduct their business.
  • Businesses create wealth and generate employment: An important social function to contribute to the economic development of society is to create employment and generate income.

The process of creating value: the value chain: produce, transform raw materials into a finished product with the help of capital and labor. Marketing: bringing a well-produced product to where it is needed. Provide a service: meet any need by providing, in general, knowledge, aid, or comfort to someone who needs it.

Theories on the Employer

The entrepreneur in economic classic thought:

Classical economists considered the employer the owner of the business, who was addressed personally. For Marshall, the benefit was the remuneration obtained by the coordination function.

Knight – Risk Employer:

The risk is what defines the true entrepreneur.

The innovator of Schumpeter:

Proposes the original conception of the entrepreneur as innovative in inventing new ways to produce and gain a personal monopoly. Innovation is part of the essence of the business function and entrepreneur.

Galbraith’s employer as technostructure:

For large firms, they are so complex that they can no longer be directed by one person and require direction that integrates expertise in different areas.

The entrepreneur as a discoverer of opportunities:

Kirzner emphasizes the entrepreneur’s alertness to discover market opportunities.

The entrepreneur in today’s reality:

Current trends favor a professional manager since the employer must plan and organize, direct business, and the property is divided into shares and controlled by a board of administration.

Company’s Functional Areas

Production, Sales and Marketing, Finance, Human Resources

The Components of the Company

  • The human group: all of the company’s members
  • The whole estate or business assets: fixed assets and temporary assets
  • Organization: tasks, coordination, division of work and responsibilities
  • Environment: legal, economic, and cultural circumstances

Company Goals

  • Maximum profitability: Profit / Capital * 100
  • Growth and value creation
  • Social responsibility

Theories About the Company

  1. Neoclassical: the invisible hand sets the prices, so the company is limited to combining factors to get maximum benefit.
  2. Office: the company must justify its existence in society.
  3. Transaction costs: explains the possibilities for companies to be more efficient in every decision.
  4. As a system: an open system environment, a self-regulating system.

Market Operation

  • The market for goods: buyers and sellers exchange goods and services for money
  • Demand for goods: quantity of commodity consumers buy. Demand quantity and price are inversely related; if one is high, the other is low.
  • Supply of goods: Price fixed by the interplay of supply and demand forces. Balance agreement.