BBA - BASICS OF BUSINESS ECONOMICS - BBA I SEM - UNIT -III STUDY NOTES

BBA - BASICS OF BUSINESS ECONOMICS - UNIT -1 STUDY NOTES (OSMANIA UNIVERSITY)

 

                                        UNIT I

 

1. Concept of Business, Profession, and Employment

 

Business

Business is any activity where people produce, buy, or sell goods and services to earn money. The word "business" comes from “busy,” which means being active. Everyone does some work to earn a living, and when that work involves making or selling goods or services for profit, it is called business.

 

Examples of business activities:

Industrial activities: buying raw materials, producing goods, assembling products.

Trade activities: wholesalers buying from producers, retailers selling to customers.

Aids to trade: services that support trade like transport, banking, warehousing, insurance, advertising, etc.

So, a shopkeeper selling clothes, a banker lending money, or a transporter carrying goods are all doing business. The main purpose is to earn profit by providing goods or services.

 

Profession

A profession is a type of work where a person uses their specialized knowledge and training to provide services in return for a fee. A profession needs education, qualifications, and membership in a professional body. Professionals must also follow rules and a code of conduct set by their governing bodies.

 

Examples:

A doctor with an MBBS degree registered with the Medical Council of India.

A lawyer with an LLB degree registered with the Bar Council of India.

A Chartered Accountant (CA) who is a member of the Institute of Chartered Accountants of India.

 

Main features of a profession:

 

Needs special education and training.

Membership in a professional body is compulsory.

Professionals must follow ethical rules (code of conduct).

They charge a fee for their services.

Self-promotion or advertising is often restricted.

 

Employment (or Service)

Employment means working for someone else under an agreement, usually in return for a salary or wages. The work may be in government or in private organizations.

 

Features of employment:

 

A person works in an organization by joining as an employee.

There is an employer–employee relationship. The employer assigns duties, and the employee performs them.

Employees do not need to invest money in the job.

They earn salary or wages regularly.

Employees must follow the organization’s rules.

Qualifications depend on the type of job.

 

Examples: A teacher in a school, a clerk in a bank, or an engineer in a company.

 

 2. Forms of Business Organization

 

A) Sole Proprietorship

A sole proprietorship is a business owned and managed by one person. The owner and the business are the same – there is no separate legal identity. It is the simplest form of business and is common for small shops, local businesses, or self-employed people.

Features:

1.     Easy to start and close – No special registration is required (except a basic license).

2.     Unlimited liability – If the business cannot pay its debts, the owner must pay from personal assets.

3.     Risk and profit – The owner takes all the risk but also keeps all the profits.

4.     No separate identity – Legally, the owner and business are one.

5.     Dependent on owner – If the owner dies, retires, or becomes incapable, the business usually ends.

Advantages:

• Full control and quick decision-making.
• Owner keeps all profits.
• Privacy – financial details don’t have to be shared.
• Sense of achievement – being your own boss.

Disadvantages:

• Unlimited liability – personal property can be lost if debts remain unpaid.
• Limited capital – funds depend on owner’s savings or borrowings.
• Limited skills – one person may not handle all areas of business.
• Uncertain life – business may close if something happens to the owner.

  

B) Partnership

A partnership is a business owned by two or more people who agree to share profits and responsibilities. In India, it is governed by the Indian Partnership Act, 1932.

Features:

1.     Agreement/Contract – Partners sign an agreement (written or oral) about profit-sharing and responsibilities.

2.     Unlimited liability – Partners’ personal assets can be used to pay business debts.

3.     Not permanent – Partnership ends if a partner dies, retires, or becomes insolvent (unless others form a new contract).

4.     Number of members – Minimum 2; maximum 10 for banking, 20 for other businesses.

5.     Mutual agency – Each partner can act on behalf of others in business matters.

Types of Partners:

• Active Partner – Invests money, works actively, takes risk.
• Dormant Partner – Only invests money; does not manage business.
• Secret Partner – Is a partner but not known publicly.
• Nominal Partner – Lends his name and reputation but does not invest or share profits.
• Partner by Estoppel – Acts like a partner in front of others but is not officially one; still liable.

 

C) Company

A company is a legal entity created by law. It has its own identity, separate from its owners (shareholders). People invest money by buying shares, and the company is managed by directors.

Features:

1.     Separate Legal Entity – A company is separate from its owners. It can own property, sue, or be sued in its own name.

2.     Limited Liability – Shareholders are only liable up to the value of their shares; their personal assets are safe.

3.     Transferability of Shares – Shares can be bought and sold easily (in public companies).

4.     Large Capital – Companies can raise big amounts by selling shares.

5.     Artificial Person – Created by law, works through human representatives (directors).

6.     Continuous Existence – The company continues even if owners or directors change.

 

D) Cooperative Society

A cooperative society is a voluntary group of people who come together to promote their common interests, usually to help weaker sections of society. It is registered under the Cooperative Societies Act, 1912.

Features:

1.     Voluntary membership – Anyone can join or leave freely.

2.     Open membership – No restriction of caste, religion, or gender.

3.     Registered entity – It becomes a legal organization after registration.

4.     Limited liability – Members’ liability is limited to their capital contribution.

5.     Democratic control – Managed by an elected committee; one member = one vote.

6.     Service motive – Formed mainly to provide service, not maximize profit.

7.     State control – Accounts are audited and regulated by the government.

Types of Cooperative Societies:

• Consumer Cooperative – Provides goods to members at reasonable prices.
• Producer Cooperative – Supports small producers with resources and fair pricing.
• Credit Cooperative – Provides loans to members at low interest.
• Housing Cooperative – Helps members get affordable housing.
• Marketing Cooperative – Helps producers sell goods directly, avoiding middlemen.

 

Advantages:

• Goods sold at cheaper rates.
• Loans available easily.
• Removes middlemen.
• Benefits weaker sections of society.

Disadvantages:

• Limited capital (members usually have low income).
• Often weak management.
• Less efficiency compared to private businesses.

                                             IMPORTANT QUESTIONS- UNIT -III  DEMAND CONCEPTS

 

 

PRODUCTION FUNCTION-EXPLAINED

Production Function:: 

Production involves a series of activities that convert the inputs into outputs that people can use for the fulfillment of their needs. Production is the transformation of inputs into output. Input is anything that is utilized in the creation of a commodity and Output is something that gets produced at the end of the production process. The relationship between inputs and outputs is defined using Production Function.

What is Production Function?

Production Function is the relationship between physical inputs (land, labour, capital, etc.) and physical outputs (quantity produced). It is a technical relationship (not an economic relationship) that studies material inputs on one hand and material outputs on the other hand. Material inputs include variable and fixed factors of production.

Algebric or Mathematical Function:

 In a standard equation, the Production function is represented by Q, Labour (Variable element) is represented by L, and Capital (Fixed element) is represented by K.

 Q = f(L,K)

 Assumptions of Production Function:

  1)Both inputs and outputs are divisible.

 2)There are only two factors of production, i.e., land (Variable element) and capital (Fixed  element).

 3)Factors of production are imperfect substitutes.

 4)Technology is constant.

DEMAND FORECASTING METHODS:: BUSINESS ECONOMICS:BBA:MBA

 Demand Forecasting Methods/Techniques (BUSINESS ECONOMICS)

There are two methods in which demand forecasting can be done i.e (A) Survey Methods and (B) Statistical Methods.

Survey Methods::

1. Market Research

In this research technique, consumer-specific survey forms are sent in tabular format to get insights that an organization can’t get in general from internal sales. It gives better information about the type of customers and demographic data which will help to target future markets. Market Research helps companies to know their customer base better, intentions to buy products or services, thereby help to estimate the future demand.

2. Sale Force Opinion

This method collects data from sales groups to forecast demand. Salespeople of an organization are close to their customer bases, can generate valuable information on customer needs, behaviour, sales and feedback and can also give information about the competition in markets.

3. Delphi Technique

In Delphi Method, an organization hires a group of external experts, and generates a forecast based on their market knowledge. After this process forecasts are shared among the experts anonymously, hence experts get influenced by each other’s forecasts. Now the experts are asked again to generate a forecast and this process is repeated until all experts reach a near consensus scenario. The process is intended to permit the experts to expand on one another’s information and assessments.

Statistical Methods:

1. Trend Projection

It is the most common demand forecasting technique used by organizations. Trend Projection uses past sales data to project future sales. This technique can be used by organizations with a sufficient amount of past sales data (typically more than 18 to 24 months). The data is arranged in chronological order to form a time series, time series depicts the past trends based on which future market trends can be predicted.

2. Barometric Forecasting Technique

In Barometric Technique, demand is forecasted based on the basis of past events or the events occurring in the present. It is done by analyzing economic indicators such as saving, investment, and income. This method can be implemented even in the absence of past data. For example, if the government plans for a large housing project, this indicates that there would be high demand for construction materials in the future.

3.  Econometric Forecasting Technique

This technique combines past sales data with the factors that influence the demand to create a mathematical formula to predict future demand. It finds the relation between the dependent variable and the independent variables. If only one factor affects the demand it is known as a single variable demand function or simple regression. Whereas if there are multiple factors affecting the demand, it is known as multiple variable demand function or multiple regression.

Regression Equation : Y = a + bX , Y is the forecasted demand.

Conclusion

Demand forecasting helps organizations to make better business decisions. Based on the business requirements, sales data, market research, and economic factors different demand forecasting techniques can be used. It is often detailed, and expertise-driven.

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ELASTICITY OF DEMAND & ITS TYPES-BUSINESS ECONOMICS/BBA/MBA

ELASTICITY OF DEMAND:: BUSINESS ECONOMICS 

Elasticity of demand is the responsiveness of the quantity demanded of a commodity to changes in one of the variables on which demand depends. In other words, it is the percentage change in quantity demanded divided by the percentage in one of the variables on which demand depends.”

The variables on which demand can depend on are:

    Price of the commodity

    Prices of related commodities

    Consumer’s income, etc.

Let’s look at some examples:

 The price of an apple falls from Rs. 50 to Rs. 20 per unit. As a result, the demand increases from 10 to 15 units.

Types of Elasticity of Demand

Based on the variable that affects the demand, the elasticity of demand is of the following types.

Price Elasticity:

The price elasticity of demand is the degree of responsiveness  of the quantity demanded to change in the price of a commodity. It is assumed that the consumer’s income, tastes, and prices of all other goods are steady or constant. It is measured as a percentage change in the quantity demanded divided by the percentage change in price.

Ep=      Percentage Change in Quantity demanded

Percentage change in price

Income Elasticity:

 The income elasticity of demand is the degree of responsiveness of the quantity demanded to a change in the consumer’s income.

 EI=                                         Percentage Change in Quantity demanded

Percentage change in Income

Cross Elasticity:

 The cross elasticity of demand of a commodity X for another commodity Y, is the change in demand of commodity X due to a change in the price of commodity Y.

 EC=      Percentage Change in Quantity demanded (X)

            Percentage change in Price (Y)

TYPES /DEGREES OF ELASTICITY OF DEMAND

Perfectly Elastic Demand (E=∞):

A very small change in price would result in huge or infinite change in the quantity demanded of the product. Hence the sellers would not change in price and this case rarely found in practice.

Perfectly Inelastic Demand (E=0):

Despite an increase or decrease in its prices of a commodity, there won’t be any change in the quantity demanded. If a price of product increases by 50%, even then, if there is no change in the quantity demanded, it is said to be perfectly inelastlic demand.

Unitary Elastic Demand (E=1):

Price elasticity of demand is in unity when the change in demand is proportionate to the change in the price. 

Elastic Demand (E>1):

If the percentage in change in quantity demanded is greater than the percentage change in price, it said to be Elastic demand.

Inelastic Demand(E<1):

If the percentage in change in quantity demanded is less than the percentage change in price, it said to be inelastic demand.

 

Determinants of Demand- BUSINESS ECONOMICS(BBA/MBA)

 

Determinants of Demand

There are many determinants of demand, but the top five determinants of demand are as follows:

1) Product cost: Demand of the product changes as per the change in the price of the commodity. People deciding to buy a product remain constant only if all the factors related to it remain unchanged.

2) Taste and preferences of consumers: The demand for a commodity/product depends on taste and preferences of consumers. If consumer develops taste or preference over a commodity, they will buy the product irrespective of its high price.

3) The income of the consumers: When the income increases, the number of goods demanded also increases. Likewise, if the income decreases, the demand also decreases.

4) Costs of related goods and services: For a complimentary product, an increase in the cost of one commodity will decrease the demand for a complimentary product. Example: An increase in the rate of bread will decrease the demand for butter.  Similarly, an increase in the rate of one commodity will generate the demand for a substitute product to increase.

 4) Consumer expectation: High expectation of income or expectation in the increase/decrease  in price of a good also leads to an increase/decrease in demand.

5) Growth of population: Another important factor that affects the market demand. Increase in the population, naturally demands more goods.

6)  Tax rate: This also affects the demand, like high tax rate means low demand for goods and vice versa

7) Weather conditions: The demand for certain products purely depends on climatic and weather conditions. Eg: High demand for Soft drinks in summer, high demand for jackets, & woolen clothes in winter.

8) Availability of Credit: Availability cheap credit would increase the demand for durable goods , etc

9) Circulation of Money: Expansion and contraction of quantity of money will affect the demand

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BCG MATRIX-EXPLAINED-BUSINESS STUDIES-BBA-MBA

Boston consultancy group growth share Matrix commonly known as BCG Matrix is a famous portfolio analysis technique developed by Boston consultancy group and it was developed for managing portfolio of different business units. The BCG Matrix shows a relationship between products that are generating cash and products that are eating cash.

The BCG Matrix shows various business units on a graph of market growth v/s market share relative to competitors. Resources are allocated to business units according to where they are situated on the graph.

BCG Matrix

(A) Cash cows – It is a business unit with large market share in a mature and slow growing industry.

Cash cow require little investment and generate cash that can be used to invest in other business

units. These a generally large and mature business units reaping the benefits of experience and

customer loyalty.

(B) Star – Stars are business unit that has a large market share in a fast growing industry. It may generate

cash but due to rapid growing market it requires investment to maintain its needs. It is a high growth –

high market share business unit. These business units are generally in the growth stage of its product

life cycle and not self sufficient in terms of its financial needs.

 

C) Question mark? – These are also called the problem child. It is a business unit which has a small market share in a high growth market. Such a business unit requires huge investment to grow market share but whether it will be a star or not is unknown.

(D) Dogs – These are business units with a small market share in a mature industry .A dog may not

require substantial cash but it ties up capital that could be invested elsewhere. Such a business unit

must be liquidated unless it has some special strategic purpose or prospects to gain market share in

the future.

The BCG matrix provides a framework for allocating resources among different business units and

allow one to compare many business units at a glance.

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Criticism of the BCG Matirx

♦ It is criticised that it does not reflect the true nature of the business. The BCG Matrix considers only

two dimensions High and Low for measurement and while a business may enjoy a high, medium or

low market share/growth rate.

♦ It assumes that high market share always leads to high profits which is not be true. High Costs are

involved in business units with large market share which may lead to normal profits.

♦ There are many parameters to measure profitability other than growth rate and market share. The

BCG Matrix ignores all other indicators of profitability.

♦ The model does not clearly define the markets.

♦ Long term profitability of a business depends upon a variety of factors which may not be related to market share or growth.