Terms And Concepts Related To Business

An economy is defined as a place or a country where resources are

managed by a government to bring about maximum benefits for the
entire society.

Caribbean countries are characterized as developing economies.

Developing economies are described as those with their average
income earned, rate of literacy and health services lower than
industrialized/developed nations. They are so characterized because
they have a high potential for growth and achieving the status of
developed countries.

Early Caribbean economies dated from the Taino and Kalinago

Indians who lived in simple villages. These villages were ruled by a
leader who organized all economic activities. They hunted, fished and
grew crops to provide the means of survival for their village. Present
Caribbean economies are much more sophisticated. For most
Caribbean countries, it is consumer demand that drives the
production and distribution of goods and services.

Government manages the economy. They set the laws that govern
households and businesses. They provide the necessary services
(road, water, transportation, communication etc,) so that businesses
may operate efficiently. Households and businesses must in turn pay
their taxes.

Households consume the goods and services provided by firms.

Households are known as consumers.

Firms produce commodities/goods and services that satisfy needs

and wants for its market. They are the producers in an economy.
They obtain and maintain markets through consistent advertising and
sales promotion.
Business enterprises are legal entities operating in an economy to
provide goods and services at a profit. Profits are the excess of
earnings/revenue over its costs. Profits are an incentive for
businesses to continue operating. Businesses will close down if they
are making losses. This is an excess of cost over revenue. If costs are
greater than expenses then a business entity is making a loss.

Whether man lives in a simple economy or in a more sophisticated

one he must survive. He is seen as an economic animal as in order for
survival he must be involved in economic activities such as
production, consumption and exchange. He either produces the good
he consumes or he is involved with exchange through barter or
money purchases. If he produces his own goods and provides his own
services, he is involved with direct production. However, if he obtains
goods by bartering or by purchasing them he is involved in indirect
production

Barter is the exchange of goods or services for other good or

services. This system is rarely practiced in modern economies, but
still occurs. For example, a Caribbean Government agreeing to
exchange its countrys bauxite for cars manufactured by an
industrialized country. In early economies individuals had to barter
goods and services to obtain those commodities that they did not
produce for themselves. Money did not exist and so barter was the
only means of exchange.

There were several problems with the barter system:

1. A common measure of value did not exist. Therefore some persons
felt cheated, as what is being exchanged is more valuable than what is
received.

2. A double coincidence of wants may not exist. The wants of both

persons wishing to trade must coincide with what is being offered by
each other. That is, an individual may wish to exchange what he
produces (e.g. animal skins for another commodity such as clay pots).
However, if the individual who makes the clay pots does not want
skins then no trade will occur. This individual will need to find
someone with clay pots who wishes to obtain skins.
Specialization is defined as the division of labour. This is used in
production processes in both early and modern economies to
complete tasks more efficiently. In the Taino Indian village, the men
would hunt and the women would tend crops. This is an example of
simple specialization. Complex specialization involves the breaking
down of tasks into minute tasks, and assigning each task to an
individual or a unit group. For example, in a garment factory, a single
dress will be sewn by several persons, one person will sew the sleeves,
and another will sew the collar. Simple specialization in early
economies resulted in the barter system, as man needed to trade to
obtain those goods and that he did not produce for himself.

The advantages of specialization include improved quality of output,

and shorter production time, because of the repletion of a single task.
This results in increased efficiency, and reduced costs. However,
repletion of a small task may become boring and de-motivate
employees to work efficiently. Therefore quality may decline as well
as output.