Business SUBUNIT 1.1

What is the definition of 'land' as a factor of production?

All natural resources provided by nature that are used in the production process. Reward = rent.

What is the definition of 'labour' as a factor of production?

The physical and mental effort of people used in the production of goods and services. Reward = wages/salary.

What is the definition of 'capital' as a factor of production?

Man-made resources used in the production of other goods and services. Does NOT mean money. Reward = interest.

What is the definition of 'enterprise' as a factor of production?

The skill, initiative, and willingness to take risks by individuals who combine the other three factors of production to create goods or services. Reward = profit.

What are the four factors of production?

Land, Labour, Capital, Enterprise.

What is the reward for land?

Rent.

What is the reward for labour?

Wages or salary.

What is the reward for capital?

Interest.

What is the reward for enterprise?

Profit.

Name 5 examples of land.

Agricultural land, forests for timber, oil and gas reserves, water (rivers/lakes/oceans), minerals (coal/iron ore/gold), physical site for a factory/shop.

Name 5 examples of labour.

Factory workers assembling products, teachers delivering lessons, doctors diagnosing patients, managers making decisions, cleaners maintaining premises.

Name 5 examples of capital.

Machinery and equipment, tools and vehicles, computers and software, factories and office buildings, delivery vans and lorries.

Name 3 examples of enterprise/entrepreneurs.

Someone who starts a new restaurant investing their own money, a business owner who decides to expand into a new market, someone who invents a new product and sets up a company to sell it.

What is the difference between skilled and unskilled labour?

Skilled labour: workers with specialist training, qualifications, or experience (e.g., engineers, accountants). Unskilled labour: workers who do not require specialist training (e.g., shelf stackers, general cleaners).

What are the four things entrepreneurs do?

Take calculated risks, innovate and develop new ideas, organise and combine land/labour/capital, make important business decisions, bear financial risk if business fails, reap profits if business succeeds.

What is the difference between capital goods and consumer goods?

Capital goods are used to produce other goods (e.g., bread oven, delivery truck, factory machinery). Consumer goods are used directly by consumers (e.g., loaf of bread, holiday, television).

Why is money NOT considered capital in business studies?

Money is a medium of exchange/finance, not a physical man-made resource used in production. Capital means physical man-made items used to produce goods/services.

What common mistake do students make about the factor 'land'?

Thinking "land" only means the physical ground/soil. In business studies, it means ALL natural resources.

What common mistake do students make about the factor 'labour'?

Forgetting that labour includes mental effort, not just physical effort. Also forgetting that the reward is wages/salary.

What common mistake do students make about the factor 'capital'?

Saying money is capital. Money is NOT a factor of production. Capital means physical, man-made items used for production.

What common mistake do students make about the factor 'enterprise'?

Thinking the reward for enterprise is salary or wages. The reward is PROFIT. Also confusing enterprise with risk-taking only.

What is the definition of 'adding value'?

The process of increasing the worth of a product by transforming raw materials or components into a more desirable finished product that customers are willing to pay more for than the cost of the inputs.

What is the formula for added value?

Added Value = Selling Price - Cost of Raw Materials/Components.

What is the difference between added value and profit?

Added value = selling price - cost of raw materials/components ONLY. Profit = total revenue - total costs (ALL costs including wages, rent, marketing, utilities).

Give an example of adding value.

Buy wood for £5, make chair, sell for £50 → added value = £45.

Give an example of a product with NO added value.

Buy wood for £5, sell for £6 → very low added value.

Why is adding value important for a business?

Higher profit margins, competitive advantage, ability to charge higher prices, survival and growth, brand building.

Name 3 ways a business can increase added value by increasing selling price.

Branding, quality, design, USP, convenience, customer service, packaging.

Name 3 ways a business can increase added value by reducing costs of raw materials.

Bulk buying, cheaper suppliers, negotiation, reducing waste, alternative materials, vertical integration.

Explain how branding increases added value.

Strong brand image allows higher prices because customers trust the product more.

Explain how quality increases added value.

Higher quality materials or craftsmanship justify a higher selling price.

Explain how a USP increases added value.

Unique features make product more desirable, allowing higher price.

Explain how reducing waste increases added value.

Less material used reduces costs, increasing value added.

Explain how vertical integration increases added value.

Buying suppliers reduces input costs, increasing added value.

Give an example of reducing raw material costs increasing added value.

Flour cost drops from £2 to £1.50, bread price stays £3 → added value increases from £1 to £1.50.

Give an example of a business that combines high prices AND low input costs.

Starbucks: low raw material cost + strong branding + experience = high added value.

What common mistake do students make about added value and profit?

Confusing added value with profit; profit includes all costs, added value only includes raw materials.

What is opportunity cost?

The next best alternative foregone when making a decision.

Is opportunity cost the total value of all alternatives?

No, it is ONLY the next best alternative.

Give an example of opportunity cost for a business investment decision.

Choosing machinery over marketing → lost potential marketing benefits.

Give an example of opportunity cost for land use.

Building factory instead of selling land → lost investment returns.

Give an example of opportunity cost for labour.

Using worker in production instead of customer service → lost service quality.

Give an example of opportunity cost for time.

Studying instead of working or socialising.

Give an example of opportunity cost for money.

Spending £10 on cinema → next best alternative foregone.

Give an example of opportunity cost for government.

Building hospital instead of school → lost education benefits.

How does opportunity cost relate to scarcity?

Scarcity forces choices, and every choice has an opportunity cost.

What are the 4 steps to identify opportunity cost?

Identify decision, identify choice, identify next best alternative, state lost benefit.

Why does opportunity cost matter in business?

Helps decision-making, efficiency, investment, and resource allocation.

What common mistake do students make about opportunity cost and money?

Thinking it is money spent instead of value of next best alternative.

What common mistake do students make about opportunity cost and alternatives?

Listing all alternatives instead of just the next best one.

What common mistake do students make about sunk costs?

Confusing sunk costs with opportunity cost.

What is nucleon number?

Total number of protons + neutrons.

What is proton number?

Number of protons.

What is adding value? (key definition)

Increasing worth of a product by transforming inputs.

What is opportunity cost? (key definition)

Next best alternative foregone.

What are the four factors of production?

Land, Labour, Capital, Enterprise.

What is added value formula?

Added Value = Selling Price - Cost of Raw Materials.

What causes opportunity cost?

Scarcity.