Business - B1.1 Understanding business activity

What is the purpose of business activity?

To provide customers with goods or services that meet their wants and needs.

need

things we cannot live without. They are essential for life.

• For example: food, water and shelter.

want

Things that we do not need in order to survive, but are things we would like to have.

• For example: Expensive cars, jewelry, newest phone.

wants are…

unlimited

wants are constantly…

being introduced and invented. This means we are never really satisfied. However, our earth has limited resources.

Endless wants cause…

economic problems. This is the shortage of goods and services.

Factors of production

There are 4 factors of production:

• Land, Capital, Labour and Enterprise

land

Natural resources that can be obtained from nature. This includes physical land, or resources that can be extracted from nature; such as coal, oil and gas.

capital

The money and investment put into a business. As well as finance, this includes the machinery and equipment needed for the production of a product.

labour

• People who work in the business

• Workers who contribute their skills to the production of a good or service. The reward for labour is a wage/salary

enterprise

the process of bringing together the other 3 factors of production in order to create goods or services for the consumers.

entrepreneurs

the people who manage enterprises and take risks in order to create profit.

scarcity

the gap between limited resources and limitless wants.

scarcity occurs when…

there is not enough goods or services to meet the needs of the population.

scarcity requires people to…

make the decision on how to allocate these resources efficiently.

opportunity cost

the loss of one alternative when another alternative is chosen.

expenditure

Money spent by a business or individual to purchase goods, services, or assets. Expenditure can include items like rent, salaries, utilities, and equipment.

specialisation

When a person/business focuses on an area that they are very good at. This means they are very skilled in or have a very comprehensive understanding of a specific area. (also called an expertise)

• can be a product, service or a skill.

division of labour

different workers performing different tasks in the course of creating a good or service.

• This enables workers to focus and specialise in a specific task.

• workers concentrate on a specific task = increased efficiency.

benefits of division of labor

• Saving time

• Increasing productivity

• Giving employees activities that suit each of their skills

disadvantages of division of labor

• Fall in motivation (it gets too boring)

• If an employee in a specific area is absent, the production may be disrupted.

adding value

when the selling price of an item is higher than the cost of all the resources used

• not the same as profit

why is adding value not profit?

It is not the profit because we still have to pay the staff wages, and pay rent for the building it was manufactured in