The nature of business - definitions and concepts
Yvonne Harvey, Contributor

Mrs. Daffodil Bruce-Miller, JPS community relations officer, marvels at Winston Jones High School's award-winning display, 'Riding on a Spring', at the first JPS Science Fair which took place on February 15 in Mandeville. - contributed

Hi. This week as promised, I will begin to look at section one of the syllabus: The Nature of Business.

You may check your syllabus to see the specific or learning objectives for this section. These objectives indicate what you should be able to do at the end of the lesson.

The first part of this section requires definitions and explanations of certain terms and concepts. You must be careful not to go into too much detail here as these terms and concepts come up later on in the syllabus where a much more in depth study will be necessary.

The first concept is enterprise. According to the Finance and Investment Handbook, fifth edition, an enterprise refers to a, business firm. It goes on to say, "the term is often applied to a newly formed venture". Another view of the term is that it is an undertaking, especially a bold or difficult one.

The second term is entrepreneurship. You must be careful here not to define the entrepreneur.

Entrepreneurship is the process or act of organising resources and acceptance of risk and uncertainty with the ultimate aim of profit. The entrepreneur is the person who organises production and bears the risks.

Concept number three is barter. This refers to the direct exchange of goods and services. Thus, goods can be exchanged for goods and/or services and vice versa, without the use of money.

Next, we look at profit. This is the excess of returns over expenses. It may also be defined as the positive that results from selling goods and services for more than it costs to produce them. For example, if it costs $8 to produce a pencil, and the pencil is sold for $12, the profit, which is found by taking the cost price away from the selling price, is $4. Profit is sometimes termed net profit. Profit is the reward to the entrepreneur for organising and bearing risks in a successful business.

The opposite of profit is LOSS

This term indicates that the cost of production is greater than the selling price. Hence, if a pencil costs $8 to produce and then it can only be sold for $6, there is a loss of $2.

When the entrepreneur is not successful, then rather than reaping profits as his reward, he will reap losses.

Let us now consider the term trade. Trade refers to the exchange of goods and services directly (barter) or indirectly (using money) whether internally (within the country) or internationally (among countries).

The sixth concept is organisation. This is often used synonymously with enterprise.

However, more specifically, it refers to the administrative personnel or apparatus of a business.

Thus, it looks at the order or arrangement of the business.

An economy or economic system refers to the way the scarce economic resources of a country are managed.

Therefore, the economy of Jamaica is the way Jamaica manages its resources. There are three broad categories of economy:

1. The free market economy

2. The command economy (planned economy) and

3. The mixed economy

Now, we look at producer.

A producer is one who makes goods and creates services using different quantities and types of factors of production.

The other side of the coin is the consumer.

A consumer may be defined as an individual or a group of individuals who utilises goods and services for their own satisfaction.

Exchange means to give one thing and receive another in its place, or to trade and thereby change the ownership of goods and services. Exchange may be direct or indirect.

Goods is the next term. This refers to tangible items that one can see and touch. There are two main types of goods, goods for consumers and goods for producers.

On the other hand, services refers to intangible items.

A service is experienced. There are two types, direct or personal services, e.g. teaching, and impersonal services, e.g. insurance.

The next term is market. While many persons define market as a place where goods and services are bought and sold, we should bear in mind that not all markets operate in specific places. Therefore, it is more accurate to define a market as a situation in which buyers and sellers communicate for the purpose of buying goods and services. There are four elements of a market: buyer, seller, goods/services and price.

A commodity is a product, especially a good rather than a service.

The fourteenth term is capital. Capital is a factor of production, that is, goods created for the use in production, for example, machinery and equipment. Capital may also be money used in the business.

Labour is also a factor of production. It is human physical and mental effort used in production, usually to earn a salary or wage. There are different ways of classifying labour. Skilled, semi-skilled and unskilled are three ways to do so.

Finally, specialisation. This refers to the concentration of efforts in production on one or few processes rather than completing the entire process.

The main advantage of specialisation is increased output.

All the above terms and concepts are related to business. You should study them so you are able to define and explain them.

Next week, we will trace the development of trading instruments. Bye for now.

Yvonne Harvey teaches at Glenmuir High School.