Business Activity Notes

  • Understand the importance of business activity.

  • Learn the purpose and nature of business activity.

Slide 1: Introduction to Business Activity

  • Businesses are pervasive, providing goods and services we use daily.

  • Businesses transform resources into goods and services to satisfy needs and wants.

Slide 2: Business Activity

  • Definition: The process of producing goods and services to satisfy consumer demand.

Needs vs. Wants

  • Need: A good or service essential for living (e.g., water, food, shelter, clothing).

  • Want: A good or service people desire but is not essential for living (e.g., mobile phones, cars, holidays).

Unlimited Wants

  • Wants are unlimited; even if some are satisfied, others arise.

  • Many people cannot afford basic needs, while others can't afford their wants.

Slide 3: Economic Problem: Scarcity

  • Limited resources and unlimited wants create scarcity.

  • Scarcity: Unlimited wants cannot be met due to limited factors of production.

  • Factors of Production: Resources needed to produce goods and services: land, labor, capital, and enterprise.

Factors of Production Explained

  • Land: Natural resources (minerals, oil, forests).

  • Labor: Number of people available to work.

  • Capital: Machinery, equipment, and finance for production.

  • Enterprise: Entrepreneurs who take risks to set up businesses.

Scarcity Implications

  • Limited factors of production prevent fulfilling all needs and wants.

  • Choices must be made due to scarcity.

Opportunity Cost

  • Choices involve giving up alternatives.

  • Opportunity Cost: The benefit that could have been gained from the next best alternative use of the same resource.

Slide 4: Importance of Specialization

  • Resources must not be wasted on unwanted goods/services.

  • Most goods/services produced by multiple people, often with specialized machinery.

Specialization Benefits

  • Increased efficiency and reduced production costs.

  • Consumers benefit from more goods/services at lower prices.

Specialisation Definition

  • Specialisation: People and businesses concentrate on what they are best at.

Division of Labour

  • Division of Labour: Production divided into separate tasks, each worker specializing in one task.

    • Increases labor productivity.

    • Machinery and technology enhance capital efficiency.

    • Entrepreneurs specialize in specific products.

Global Sports Case Study: Football Production

  • Five workers each complete a separate task using specialized machinery.

  1. Panels are cut from leather.

  2. Design and logo are stamped.

  3. Panels are stitched together.

  4. Bladder is inserted.

  5. Ball is moulded and inflated.

  • Task:

  • Capital Example: specialized machinery

  • Division of labor is the football separated into five stages.

  • Global Sports benefits from specialisation because of efficiency and lower costs

  • Businesses and customers benefit from specialization with efficiency and low prices

Slide 5: Purpose of Business Activity

  • Businesses use scarce resources (factors of production) to produce goods/services demanded by consumers.

  • Without business activity, there would be no products/services.

Types of Goods and Services

  • Consumer goods

  • Consumer services

  • Capital goods

Consumer Goods

*Products sold to the public that they can see (physical goods) and touch (tangible goods).

  • Durable Consumer Goods: Can be used repeatedly (e.g., televisions, cars).

  • Non-Durable Consumer Goods: Can only be used once (e.g., food, drink).

Consumer Services

*Products sold to the public that they cannot be seen or touched (intangible) (e.g., insurance, banking, bus journeys).

Capital Goods

*Products sold to other businesses to help in their production process, such as machines, computers, and delivery vehicles.

KT Products Case Study: Printer Manufacturing

*Each worker assembles all of the different components into making one computer.

  • The Operations Director is considering introducing division of labour into the production of computers

    • Produced 600,000 printer cartridges last year.

    • RTP will be able to produce 30% more cartridges this year.

    • Cartridges this year=600,000×1.30=780,000\text{Cartridges this year} = 600,000 \times 1.30 = 780,000

    • Sells printers to businesses and private individuals.

    • Consumer goods are products sold to the public whereas capital goods are goods used by business (e.g. printers and ink sold to individuals vs. machines).

    • Task:

    • The Operations Director should consider it because the division of labor means each worker becomes far more efficient

Slide 6: Adding Value

  • Businesses aim to add value at each production stage.

  • Transform raw materials into goods/services sold at a higher price than the raw material cost.

  • Added value is a key business objective.

How Value is Added (Cake Example)

*See Figure 1.7*

Profit vs. Added Value

  • Added value is not the same as profit.

  • Profit is calculated by deducting costs (wages, energy) from added value.

  • Profit increases if added value increases without increasing costs.

Slide 7: Ways to Increase Added Value

Branding

  • Companies invest in advertising to build/maintain brand image.

  • Allows charging higher prices even with similar production costs.

Activity 1.4

  • List your top ten brands and analyze their advertisements.

Excellent Service Quality

  • High-quality, personalized service justifies higher prices.

Product Features

  • More features and functions allow for higher prices.

Convenience

  • Consumers pay more for immediate or time-saving goods/services.

Activity 1.5

  • Explain how restaurants,