1.1 The Nature of Business

What a Business Does

A business is an organization that produces or sells goods (tangible products) or services (intangible actions performed for others) to satisfy consumer wants and needs, with the goal of earning a profit — the money left after subtracting costs from revenue. Businesses combine resources to create value for customers.

Factors of Production

Every business uses four factors of production: land (natural resources), labor (human effort), capital (tools, equipment, and money invested), and entrepreneurship (the risk-taking and innovation that combines the other three). Scarcity of these resources forces businesses to make choices about how to use them efficiently.

Why Businesses Exist

Businesses exist to fill unmet needs and wants in the marketplace while generating income for owners. They also create jobs, pay taxes that fund public services, and contribute to a country's overall standard of living. Successful businesses add value by turning inputs into outputs consumers are willing to pay for.

Key terms

Business

An organization that produces or sells goods/services to satisfy wants and needs, typically aiming for profit.

Goods vs. Services

Goods are tangible products (e.g., a car); services are intangible actions performed for others (e.g., a haircut).

Factors of Production

Land, labor, capital, and entrepreneurship — the resources combined to produce goods and services.

Profit

The money remaining after a business subtracts its costs from its revenue.

Why businesses matter to society

They meet consumer needs, create jobs, pay taxes, and raise the standard of living.

Try an AP-style question

What is the main purpose of most businesses?

1. Maximizing the number of employees
2. Earning profit by meeting customer needs
3. Avoiding all competition forever
4. Spending as much money as possible