Year 1 1.2 Nature and purpose of economic activity

Purpose of Economic Activity

• The central purpose of economic activity is the production of goods/services to satisfy needs and wants

• Needs are essential for survival e.g. food and shelter

• wants are desires for goods/services that are not essential e.g. electronics

Purpose Diagram

To produce goods or services

Primary purpose of business activity is to produce goods or services to satisfy needs or wants

• Goods and physical products 

• services are non-physical items 

Meeting customer needs 

• By meeting the needs and preferences of customers, businesses can build customers loyalty and generate revenue 

To add value 

value and features can differentiate products from competitors to create a unique selling point and increase customer satisfaction 

Three fundamental economic questions 

What to produce?

• As recourses are finite, decisions carry an opportunity cost

How to produce it?

• Labour intensive production or the use of machinery?

Who to produce it for?

• Those who can afford them or freely available to all?

How these questions are answered determines the economic system

Free market systems

What? Demand and supply(the price mechanism)

How? Most efficient, profitable way possible 

Whom? Those who can afford it 

Mixed system

what? Demand, supply and the government

How? Some efficiency but also a focus on welfare/well-being 

whom? Those who can afford it, plus some provision to those who cannot afford it 

Planned systems

what? The government

how? Ensure everyone has a job

Whom? Everyone