The Nature of Business

Basic Factors of Business

Business is the human activity related to material things. It is necessary for civilization. It is found in all societies, even the simplest ones. Business may include the production of goods: making airplanes, build­ing buildings, and constructing paper boxes are examples of production. It can also provide the financing for these activities. Lending money, trading stocks and bonds, and selling insurance policies relate to the securing of capital (getting money) for business activities. Other forms of business in­clude merchandising, which is the selling of products, and providing various services, such as accounting, distributing, and repair. Business, then, is the activity of producing and distributing goods and services.

In our study of business, it is necessary to understand the four basic factors of production. These four factors are land, labor, capital, and entrepreneurship. What is meant by these four terms?

In order to produce things, it is necessary to use land. Here, the term land is used in the most general way. It refers not only to a piece of real estate where we might build a factory, but it also means all the raw materials used for production. Some of these raw materials are found on the earth's surface, such as trees, which yield (give) wood for lumber. Other raw materials are found under the earth's surface in mines and oil wells and still other raw materials may be extracted (taken) from the air. All the raw materials for production come from the land, the air, and the oceans.

Labor refers to the use of mental or physical work to produce goods. Most labor changes raw materials into finished products and then distributes these to buyers. In industrialized countries, labor is generally more mental than physical. For example, in both manufacturing and agriculture, machines accomplish the very tiring physical work that unskilled laborers used to do. In other industries computer programmed robots and other forms of data processing equipment perform many of the jobs which used to require a lot of mental labor. Therefore, to a certain extent the next factor, capital, can be used to replace labor or reduce the amount of physical and mental labor that humans have to use in order to conduct (do) business.

In everyday language, capital means several things. The most general meaning is wealth or money. But it also refers to the equipment that money purchases. As one of the basic factors of production, capital is all of the things that workers use in production and distribution. It includes their tools, machines, and buildings such as factories and ware houses where goods are produced and stored. Capital, therefore, refers to anything which helps to produce and distribute goods.

Putting together land, labor, and capital to make something of value, is called entrepreneurship. The entrepreneur is the person responsible for controlling and directing the other three factors. The entrepreneur does not make things with his own hands unless he is also a worker. In a business the workers take orders from the entrepreneur. He is the leader, and the employees follow his direction.

Entrepreneurship includes some other important activities. The entre­preneur is responsible for initiating (beginning) business activity. He must begin his business by bringing together the land, labor, and capital. Next, he must manage the business by deciding the general policies for business opera­tion. In order to be successful, an entrepreneur must also be innovative (have new ideas). He must look for new products or new ways of making things, and new methods of distribution, or he must offer new services. He must be able to decide on the value of things which other people invent, whether it is a new toy, a new method of filing, or a new way of advertising. Finally, he bears all the risks (takes all the chances) of the business.

Everyone connected with a business shares in the risks of the business. When a company goes bankrupt, that is, becomes unable to pay its debts, it causes problems for many people. It is hard for the employees who may have to seek work elsewhere; the customers must look for another place to buy their products; creditors (people the business owes money to) usually lose some of the money that they have lent to the company. But the entrepreneur takes the biggest risk. If the business succeeds or fails, he must pay them up to the limit of his ability to pay. If he is skillful—and lucky—the money he receives from his business venture (activity) will pay for the land, labor, and capital, and there will still be some extra money remaining for him. This extra money is the profit. If the money he receives from the business venture is not enough to pay for all of the costs, the difference is a loss.

A: Study the sentences below in which the underlined words are explained by the context.

1. Business is the activity of making and distributing goods and services.

2. Land refers to the sources of raw materials needed for production.

3. Labor is the use of mental or physical work to produce goods.

4. Capital means not only wealth, but all the things that workers use in production and distribution which are purchased with money.

5. Entrepreneurship is the activity of controlling and directing the other three factors.

6. The money that he makes is the profit.

7. If the money he receives is not enough to pay for all the costs, the difference is a loss.

8. When a company goes bankrupt, it is unable to pay its debts.

9. An innovative company is one which continues to provide new goods and services.

10. The entrepreneur initiates business activity by bringing together land, labor, and capital to begin a new business venture.

B: Matching

Match the words below with the definition indicated by the sentences above. Write the number of the word on the line before the definition.

1. initiate ____ a. something which must be paid

2. profit ____ b. having new products and ideas

3. labor ____ с. begin new business activity

4. business ____ d. person who directs the business

5. innovative ____ e. land

6. entrepreneur ____ f. what workers provide

7. raw materials ____ g a business activity

8. venture ____ h money the entrepreneur receives

9. loss ____ i money which buys machines and tools

10. capital ____ j products

11. goods ____ k things which business provides in addition to goods

12. services ____ l describes a company with not enough money and too many debts

13. bankrupt ____ m the result of expenses being more than sales

14. company ____ n the activity of producing goods

15. debt ____ o a business

C: Completion

This exercise is designed to increase vocabulary and reading compre­hension. Select the answer which best completes the meaning of the sentence.

1. Advertising is a kind of public announcement which describes the benefits of using a product or service. We can use advertising to increase the sales of our product or service. We expect to find advertising

a. at school. b. in the factory. c. on the land. d. on TV and radio.

2. There is an expression, "It takes money to make money." We know that capital can be used to make something of value. Therefore, capital can refer to

a. a basic factor. b. money. c. raw materials. d. bankruptcy.

3. A creditor is a person to whom the business owes money. Which of the following is most likely to be a creditor?

a. an entrepreneur b. an employee. c. a banker. d. a factor.

4. Labor changes raw materials into finished goods. Paper is an exam­ple of a finished good. The raw material would be

a. physical work. b. wood. с finished products. d. land.

5. Distribution means getting the products from the factory to the store where customers buy them. Which of the following companies would probably be involved in distribution?

a. a bank. b. a transportation c. a supermarket. d. a factory, company.

6. An employee is a person who works for a company and receives payment for his work. Which factor does the employee supply?

a. land. b. labor. с capital. d. innovation.

7. Large companies require more capital than a single entrepreneur could supply. The ownership of the company is therefore divided into shares of stock. In order to raise capital, a company might

a. risk its future. b. bring together с sell stock. d. produce goods, land and labor.

8. Value is the quality that makes a thing wanted or worth having. Value is probably

a. skill. b. capital. с price. d. profit.

9. Businesses provide both goods and services. Examples of goods are physical products which customers purchase to take home. An example of a service business would be

a. an oil company b. a store. с a bank. d. a factory.

10. The owner of a business takes a risk. He hopes that his business will be successful and that he will make a profit, but there is a chance that he may

a. manage and direct activities b. offer new services and products с make a profit d. suffer a loss

Дата добавления: 2015-10-31