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stated goal. This definition includes all individuals who (1) direct the efforts
of others, including those who delegate tasks within an organization such as
a firm, a family, or a club; (2) purchase inputs to be used in the production
of goods and services such as the output of a firm, food for the needy, or
shelter for the homeless; or (3) are in charge of making other decisions, such
as product price or quality. Amanager generally has responsibility for his or
her own actions as well as for the actions of individuals, machines, and other
inputs under the managers control. This control may involve responsibilities
for the resources of a multinational corporation or for those of a single
household. In each instance, however, a manager must direct resources and
the behavior of individuals for the purpose of accomplishing some task.
While much of this book assumes the managers task is to maximize the
profits of the firm that employs the manager, the underlying principles are
valid for virtually any decision process.
Economics is the study of how society manages its scarce resources. In most
societies, resources are allocated not by a single central planner but through
the combined actions of millions of households and firms. Economists
therefore study how people make decisions: how much they work, what they
buy, how much they save and how they invest their savings. Economists also
study how people and people in businesses interact with one another. For
instance, they examine how the multitude of buyers and sellers of a good
together determine the price at which the good is sold and the quantity that is
sold. Economists analyse forces and trends that affect the economy as a
whole, including the growth in average income, the fraction of the
population that cannot find work and the rate at which prices are rising.
Many of the concepts that economists use are also directly applicable and of
relevance to businesses. In a sense, economics can be described as the
science of decision making and since businesses all around the world have to
make millions of decisions every day then having some understanding of the
process of decision making and the consequences that might arise from such
decision making is important. Although the study of economics has many
facets, the field is unified by several central ideas, all of which are of direct
relevance to business.
We use the term the economy on a regular basis but have you ever stopped
to think about what the term really means? Whether we are talking about the
economy of a group of countries such as the European Union or the Middle
East, or the economy of stakeholder any group or individual with an interest
in a business such as workers, managers, suppliers, the local community,
customers and owners scarcity the limited nature of societys resources
economics the study of how society manages its scarce resources 4 Part 1
The Economic and Business Environment Setting the Scene one particular
country, such as South Africa or the United Kingdom, or of the whole world,
an economy is just a group of people interacting with one another as they go
about their lives. This interaction is invariably through a process of
exchange. Whether it be an individual buying a morning newspaper, a
business buying several hundred tonnes of steel for a construction project or
a government funding a higher education institution, the interaction consists
of millions of individuals all making decisions and together we describe
these interactions as the economy. Because the behaviour of an economy
reflects the behaviour of the individuals, both acting on their own and as part
of businesses who make up the economy, we start our study of economics
with four principles of individual decision making.
Ten Principles of Economics.
Efficiency: efficiency the property of society getting the most it can from its
scarce resources.
Equity means that the benefits of those resources are distributed fairly
among societys members. In other words, efficiency as an overall concept
refers to the size of the economic cake, and equity refers to how the cake is
divided. Often, when government policies are being designed, these two
goals conflict; in addition, when businesses make decisions conflicts arise
between equity and efficiency.