What is Business?
Business
A business is an organization that produces or sells goods or services to satisfy the needs, wants, and demands of
consumers for the purpose of making a profit. Some businesses consist of only one person, who carries out all of the
required functions. Other businesses employ thousands of people in providing goods and services to customers all over the
world. Each business can be defined, or described, by its type of ownership (sole proprietor, partnership, or corporation),
the goods produced or services offered, the types of jobs provided, or by the different functions that it performs in your
community.
What has business done for you today? The house or apartment building you live in was constructed through the cooperation of hundreds of businesses. Some provided raw materials such as lumber, nails, and shingles; others provided
skilled services to construct and equip the dwelling. Each of these businesses was started by an entrepreneur who saw a
need, recognized it as an opportunity for a business venture, and went into business to meet that need. Television repair,
plumbing, painting, and home-repair service businesses are common in Canada. Goods are delivered by transportation
companies and sold to your family by stores - another type of business.
Business revolves around people who start businesses, manage them, and work in them. Without people to buy their
products or services, businesses would have no need to produce anything. Each new business creates jobs.
Entrepreneurship is good for business and for the people whose needs and wants are met.
Consumers and business depend on each other. Business keep the economy going by creating jobs, and harvesting and
purchasing raw materials, equipment, machinery, and land from other people and businesses. As consumers, we depend
on business for many of the essential goods and essential services we need to survive. These include food, housing,
clothing, water, and heat. Business also provides luxury goods and luxury services such as sports cars, yachts, banana
splits, holidays, and rock concerts. We also depend on business to provide us with jobs. The money we receive from these
jobs is used to buy essential and luxury goods and services.
Needs and Wants
One important economic concept is that of needs and wants.
Needs are defined as goods or services that are required. This includes the needs for food, clothing, shelter, and health
care.
Wants are goods or services that are not necessary for survival yet we desire or wish to own or take advantage of them.
For example, people need clothes, but they do not need designer jeans. People do not need toys, entertainment, games, or
cars, but they do desire to own them. People need food, but do not have to eat steak or dessert.
Many times advertisers try to appeal to consumers in such a way that the consumers feel they needs certain goods or
services when in fact they only want them. They try to generate excitement about products and services to create an
increase in consumer demand that hopefully will result in increased sales at higher prices.
An important part of the economics is the distribution of resources or goods so that people's consumer needs and wants are
satisfied. Occasionally, there are not enough products or services to meet consumer demand. This is known as scarcity.
As demand for certain goods and services increases and supply lowers, prices will rise as a result.
Goods and Services
Most goods have a monetary value (dollars and cents). The monetary value of a good may change over time, such as an
old pair of sneakers. An old pair may not be worth as much as a new pair, but still might be of some use and thus have
value. All goods are tangible, meaning these goods are produce and can be seen and touched.
Services also have a monetary value because people are willing to pay for them. Services, such as a visit to the dentist to
have your teeth cleaned or playing a round of golf, are intangible because they do not result in a product you can touch.
Some services are unpaid such as those provided by volunteers doing community service work. These services are usually
provided by not-for profit organizations; those that do not seek to make a profit and all earned revenues are put back into
the operation of the organization.
Essential goods (food, clothing, and shelter) and essential services (heat, water, and electricity) are things that we need
for survival. Luxury goods (swimming pools and home entertainment centres) and luxury services (trip to the spa and a
limo service) are not necessary for survival.
Maslow’s Hierarchy of Needs
Each of us is motivated by needs. Abraham Maslow's Hierarchy of Needs helps to explain how these needs motivate us all.
The basis of Maslow's theory is that human beings are motivated by unsatisfied needs, and that certain lower needs need to
be satisfied before higher needs can be satisfied. In other words, Maslow‟s theory states that we must satisfy each need in
turn, starting with the first, which deals with the most obvious needs for survival itself. Only when the lower order needs of
physical and emotional well-being are satisfied are we concerned with the higher order needs of influence and personal
development. Conversely, if the things that satisfy our lower order needs are swept away, we are no longer concerned about
the maintenance of our higher order needs.
Physiological Needs
Physiological needs are the very basic needs required to sustain life, such as air, water, food, and sleep. When these
are not satisfied we may feel sickness, irritation, pain, or discomfort.
According to Maslow‟s theory, if such needs are not satisfied then one‟s motivation will arise from the quest to satisfy
them. Higher needs such as social needs and esteem are not felt until one has met the needs to one‟s bodily
functioning. Once they are alleviated, we may think about other things.
Safety Needs
Once one‟s physiological needs are met, one‟s attention turns to safety and security in order to be free from the threat
of physical and emotional harm. Safety needs have to do with establishing stability and consistency in a chaotic world.
Such needs are mostly psychological in nature and might be filled by living in a safe area, medical insurance, job
security, and financial reserves.
According to Maslow‟s theory, if a person feels that he or she is in harm‟s way, higher need will not receive much
attention. For example, we need the security of a home and family. However, if a family is dysfunctional, family
members cannot move to the next level because they have safety concerns. Love and belongingness have to wait
until they are no longer in fear. As another case in point, many in our society cry out for law and order because they do
not feel safe enough to go for a walk in their neighbourhood. Unfortunately many people, particularly those in the inner
cities, are stuck at this level.
Social Needs
Once a person has met the lower level physiological and safety needs, higher level needs become important, the first
of which are social needs. The need for friends, the need to give and receive love, and the need for a sense of
belonging all occur at this level of Maslow‟s hierarchy. Humans have a desire to belong to groups including clubs,
work groups, religious groups, family, and gangs. We need to feel loved (non-sexual) by others, and to be accepted by
others. For example, performers appreciate applause. We need to be needed. We see numerous examples in
advertising where our need for group belonging is tied to consumption of a particular product.
Esteem Needs
Once a person feels a sense of belonging, the need to feel important arises. Esteem needs may be classified as
internal or external. Internal esteem needs are those related to self-esteem such as self-respect and achievement,
which results from competence or mastery of a task. External esteem needs are those such as social status and
recognition which results from the attention and recognition that comes from others. Some esteem needs are selfrespect, achievement, attention, recognition, and reputation.
This is similar to the sense of belonging level; however, wanting admiration has to do with the need for power. People,
who have all of their lower needs satisfied, often drive very expensive cars because doing so raises their level of
esteem.
Self-Actualization
Self-actualization is the summit of Maslow‟s Hierarchy of Needs. The need for self-actualizations is “the desire to
become more and more what one is, to become everything that one is capable of becoming.” It is the quest of
reaching one‟s full potential as a person. People who have everything can maximize their potential. They can seek
knowledge, peace, aesthetic experiences, and self-fulfilment. Unlike lower level needs, this need is never fully
satisfied; as one grows psychologically there are always new opportunities to continue to grow. Self-actualized people
tend to have needs such as truth, justice, wisdom, and meaning.
Self-actualized persons have frequent occurrences of peak experiences, which are energizing moments of profound
happiness and harmony. According to Maslow, only a small percentage of the population reaches the level of selfactualization.
Limitations of Maslow’s Hierarchy
While Maslow‟s hierarchy makes sense from an intuitive standpoint, there is little evidence to support its hierarchical
aspect. In fact, there is evidence that contradicts the order of needs specified by the model. For example, some
cultures appear to place social needs before others. Maslow‟s hierarchy also have difficulty explaining cases such as
the „starving artist‟ in which a person neglects lower level needs in pursuit of higher ones. Finally, there is little
evidence to suggest that people are motivated to satisfy only one need level at a time, except in situations where there
is a conflict between needs.
Economic Resources
Goods and services don‟t just suddenly appear. Goods must be created from basic components; services require the
skills and effort of people. Economic resources, also known as the factors of production, are the means through
which goods and services are made available to consumers.
There are three kinds of economic resources:
1. Natural resources are those raw materials that come from the earth, water, and air such as oil, fish, and
agricultural products. Some of these are renewable resources that can be replaced through proper
management (trees, wildlife) and others are non-renewable resources and cannot be replaced (oil, gold).
Alternate sources of energy (nuclear power) and materials need to be found.
2. Human resources (also referred to as labour) are the people who work to create goods and services
(farmers, factory workers, teachers, web designers). The human component is so important that organizations
have created human resource management departments to manage their employees.
3. Capital resources include buildings, equipment, tools, trucks, and factories and usually last for a long period
of time and often require a substantial investment on the part of the business. Money is another capital
resource that is used to by other capital resources, purchase natural resources to make products, or hire
employees
In most cases it takes a combination of all three economic resources to create the goods and services that businesses
provide. But what is there is a shortage of one of these economic resources? Oil for example is a natural resource
whose supply seems to fluctuate. As a result, the price of oil goes up and down. If not enough workers, such as
carpenters, the cost of labour will increase just as it would decrease if there are more workers than available jobs.
Producers and Consumers
Most businesses provide either goods or services designed to satisfy consumer needs and wants. Producers are
those that manufacture the product (computer manufacturer), while those that repair computers provide a service
(computer repair shop).
Consumers are the people who buy products and services. Companies that can attract more consumers to their
place of business will have more opportunities to generate sales and make a greater profit.
A person can be both a producer and a consumer of the same product. When a computer store owner buys
components to combine to component parts to manufacturer computer systems, he is a producer. When the same
owner uses a personal computer for accounting, inventory, and pricing, she is a consumer.