UNIT 1: BUSINESS ACTIVITY
NEED:
A need is a good or service that is extremely necessary and important for our life
Example:
_ FOOD
_ CLOTHES
_ HOUSE
WANT:
A want is a good or service which would you like to have (unlimited).
=> That will be up to you and your interests and tastes, but you could probably have written a very
long list indeed.
Example:
_ LUXURY HOUSE
_ DESIGNER JEANS
_ CAR
ECONOMIC PROBLEM:
The economic problem - there exist unlimited wants but limited resources to produce the good and
services to satisfy.
=> The economic problem arises mainly due to two facts: human wants are unlimited, but the means
to satisfy human wants are scarce.
Economics revolves around methods and possibilities of solving this fundamental economic
problem.
ADDED VALUE:
Added value is the difference between the selling price of a product and the cost of bought in
materials and components.
If value is not added to the materials and components that a business buys in then:
+ other costs cannot be paid for
+ no profit will be made
Important: because sales revenue is greater than the cost of materials bought in by the business. This
means the
+ can pay other costs such as labour costs, management expenses and costs such as advertising and
power.
+ many be able to make a profit if these other costs total less than the added value.
BUSINESSES:
Businesses combine factors of production to make products (goods and services) which satisfy
people's wants.
We have identified the following issues
+ People have unlimited wants.
+ The four factors of production - the resources needed to make goods - are in limited supply.
+ Scarcity results from limited resources and unlimited wants.
+ Choice is necessary when resources are scare. This leads to opportunity cost.
+ Specialization improves the efficient use of resources
=> These are the purpose of business activity
Business activity therefore:
+ combines scarce factors of production to produce goods and services
+ produces goods and services which are needed to satisfy the needs and wants of the population
+ employs people as workers and pays them wages to allow them to consume products made by other
people
DIVISION OF LABOUR:
Division of labour is when the production process is split up into different tasks and each worker
performs one of these tasks. It is a form of specialization.
ADVANTAGES:
+ Workers are trained in one task and specialize in this - this increases efficiency and output
+Less time is wasted moving from one workbench to another
DISADVANTAGES:
+ Workers can become bored doing just one job - efficiency might fall
+ If one worker is absent and no one else can do the job, production might be stopped
SPECIALISATION:
Specialization occurs when people and businesses concentrate on what they are best at.
Specialization is now very common because:
+ specialized machinery and technology are now widely available
+ increasing competition means that businesses have to keep costs low
+ most people recognize that higher living standards can result from being specialized
OPPORTUNITY COST:
Opportunity cost is the next best alternative given up by choosing another item.
Example: I could have got a big house but I choose small house so my opportunity cost was not being
able to have a big house.
SCARCITY:
Scarcity is the lack of sufficient products to fulfil the total wants of the population.
* Note:
unlimited wants + limited resources = scarcity
=> unlimited wants such as car, luxury house, designer jeans...
FACTORS OF PRODUCTION:
Factors of production are those resources needed to produce goods or services.
There are four factors of production:
+ Land: natural resources such as gas, oil, metal ... for production
+ Labour: staff/worker to perform task/job
+ Capital: money/ machines finance pay
+ Enterprise: connect/take risk three above
