Compiled by: Shubhanshi Gaudani
1. Understanding Business Activity
1.1 Business Activity
Business Studies 0450
1.1.1 The purpose and Nature of Business Activity
• The purpose of business activity is to provide consumers with their needs and
• Business Activity: the process of producing goods and services to satisfy the
needs and wants of consumers.
• Needs: A good or service which is essential for living.
• Wants: A good or service which people would like, but is not essential for living.
• There are just not enough goods with the sellers, and money with the consumers to
satisfy their unlimited demand of wants. This is known as the economic problem.
• Economic Problem: Unlimited wants cannot be met because there are limited
factors of production. This creates scarcity.
• Factors of Production: The resources needed to produce goods and services land, labour, capital and Enterprise.
• Land: all the natural resources such as minerals, ores, fields, oil and forest.
• Labour: Is the number of people available to work.
• Capital: Is the machinery, equipment, and finance needed for the production
of goods and services.
• Enterprise: Is the people prepared to take the risk of setting up the business they are known as entrepreneurs.
• However there are not enough of these factors of production to make all the goods
and services needed or wanted by the world’s population. This is the problem of
• Scarcity: There are not enough goods and services to meet the wants of the
Compiled by: Shubhanshi Gaudani
• Scarcity, forces us to make choices. When making a choice, you need to make
sure the product or service you choose is worth more than the one you give up.
The next best choice is the opportunity cost.
• Opportunity Cost: The benefit that could have been gained from an alternative
use of the same resource.
• Specialisation: People and businesses concentrate on what they are best at.
• To make sure, that there is minimal wastage of the factors of production,
specialisations is introduced.
• Benefits of Specialisation (to business): Makes the business more efficient and
reduces costs.
• Benefits of Specialisation (to consumers): Goods and services have a higher
quality, larger supply is available, and goods are available at a lower price.
Pros of Specialisation
Cons of Specialisation
Specialised workers are good at one task, and
increase efficiency and productivity of labour
Boredom from doing the same task may result into
lower efficiency
Less time is wasted for switching jobs by
There is no flexibility as workers can do only one
task, and not other well, if needed.
Machinery also helps all jobs and can operate 24/7
If one worker is absent no one can replace him, so
production process stops.
Products have a better quality
High number of employees are to be hired who are
skilled, this increases costs.
• Division of Labour: Production is divided into separate tasks and each worker
does just one of those tasks.
• Without the business activity, there would be no products and services. Businesses
produce different types of goods and services these are:
• Consumer Goods: Products which are sold to the final consumer. They can
be seen (physical goods) and touched (tangible goods). They are divided into
durable (goods which can be used over and over again. ex. Computers) and
Non durable (Can be used only once. ex. Food and drink. )
Compiled by: Shubhanshi Gaudani
• Consumer Services: Non-tangible products such as insurance services,
• Capital Goods: Physical goods such as machinery ad delivery vehicles, used
by another businesses to help produce other goods and services.
• Added Value: It is the difference between the selling price and the cost of buying
the raw materials and components
• Businesses try to add value at every stage of the production process. This is done
by taking raw materials and turning them into a good or service and selling them to
a customer at a price greater than the cost of raw materials in the production
• Other costs such as worker’s wages, and energy costs must be deducted from the
added value to calculate profit.
• It is one of the most important objectives of a business.
• How business increase added value:
• Branding: Branding increases added value because people want or fell they
should buy an item, from a particular company.
• Excellent Service Quality: Industries providing high quality, personalised
service can charge higher prices. The cost of materials used will be very
similar, but personalised services increases profits.
• Product Features: Products that have more features and functions than
similar products in the markets, will allow the producer to charge a higher price.
• Convenience: Consumers are often ready to pay a higher price, for a product
they can have immediately or which can save them time, ex. ready meals,
home delivery.
• Reducing the cost of materials but keeping the price of the product same. OR
increasing selling price, but using the same raw materials with the old price.
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