Organisational principles
Yvonne Harvey, Contributor

Marcia Streete-Hendricks, coordinator of the Schools' Wellness Clubs, with Mona Halliman, student of St. Hugh's High School. Mona walked away with the winning trophy at the Environmental Health Foundation high schools' wellness and lifestyle poster competition awards ceremony at Eden Gardens, St. Andrew, on March 27. - Rudolph Brown/Chief Photographer

Hi everyone. Are you all ready to begin the principles of business course? Good. You will remember that, last week, I introduced you to the essential features of this subject, at the general and basic proficiencies. Today, we will look at the first section of the syllabus, that is Profile 1 - organisational principles.

The lesson will start with

Unit 1 - The Nature of Business and the Business Environment. The first topic is Man as an Economic Animal. The learning or specific objective is that the candidate should be able to describe the development of an economic activity.

Man as an Economic Animal

From early times up to now, man has conducted or carried out a number of activities, all with the aim of satisfying his needs and wants. Some of these activities include producing, consuming and exchanging. A need is defined as something that is necessary for survival, while a want is something that is desirable, but not necessary for survival; that is, a want is something you can live without. The performance of activities in order to satisfy needs and wants has caused man to be labeled as an economic animal.

Early man's way of living was very simple. He had three basic needs - food, clothing and shelter. He provided these needs for himself, without the help of others. Thus, he would plant, hunt and fish for his own food, make his own clothes and build his own shelter. This came to be known as direct production.

Direct production resulted in direct satisfaction of needs. Early man also lived in a subsistence economy.

In this type of economy, man produces just enough for survival. There is usually no surplus for exchanging and improving man's economic well-being. If by chance there was a small amount of surplus, it was always exchanged locally.

As time went on, man was able to improve his way of life with the creation of tools and the involvement of simple specialisation. He was able to produce a surplus that could be exchanged on quite a large scale. Man thus began to satisfy his needs and wants indirectly through the process of exchange.

With indirect satisfaction, the producers of goods and services are not the same as the consumers of goods and services, because of the process of exchange. For example, I may produce bananas, but through the exchange process I may be able to consume or utilise bread in addition to the bananas.

There are two methods of exchange of goods and services - direct and indirect. Direct exchange involves the exchange of goods for goods, service for service, or goods for service without the use of money. This direct exchange came to be known as barter. A barter exchange could be, for example, the direct exchange of bread for fish. Services such as entertainment and teaching can also be exchanged directly.

The barter system, however, was beset with many problems and disadvantages. Included among the disadvantages were the following:

1. A double coincidence of wants.

2. The need to agree on the exchange rate.

3. The indivisibility of some goods.

4. Some goods could not be stored for a future date.

The barter system, though, is not all bad. The advantages of this system include:

1. Exchange of goods and services can take place without money.

2. It provides a means of disposal of the surpluses that were created.

3. Persons are able to get what they do not have or do not produce.

4. If countries have foreign exchange problems, they can trade with other countries through barter.

5. The barter system sets the stage for the complete system of modern day trade.

It would be wise for you to do some reading on these advantages and disadvantages, so that you are able to explain them accurately.

Despite the advantages of the barter system, man has sought to make trading easier. Thus, indirect exchange evolved. This is the exchange of goods and services, using money as the medium of exchange. The development of money solved many of the problems of the barter exchange. We will look at money in detail when we get to Profile 3, Unit 1X, under the heading, Money, Capital and the Financial Sector.

As needs and wants increased, faster and more efficient methods of production had to be found.

Chief among these was the division of labour, which led to specialisation. We will discuss this in next week's lesson.

Now for your homework. Answer the following question

a) Explain why it is that man is termed 'an economic animal'. (2 marks).

b) Distinguish between direct and indirect satisfaction of wants. (4 marks).

c) Using an example, show the difference between direct and indirect exchange. (4 marks).

Total marks: 10

See you next week.