1.1.1
The nature of business
activity
Sit Dolor Amet
Economic
Problem
UNLIMITED NEEDS
AND WANTS
LIMITED
RESOURCES
OPPORTUNITY
COST
Because of Unlimited needs and wants and limited resources
we have make a choice.
This next best alternative foregone while making a choice is
known as Opportunity Cost.
Limited Resources
Land: All natural resources provided by nature such as fields,
forests, oil, gas, metals and other mineral resources
Labour: The people who are used produce goods and services.
Capital: Finance, machinery and equipments needed to produce
goods and services.
Enterprise: The skill and risk taking ability to bring together
all the other factors of production to produce goods and
services. Usually the owner or founder of a business.
What does
business do?
 Business activity combines the factors of production to
produce goods and services to satisfy our needs and wants.
 Added value is the difference between the cost of acquiring
the raw materials and finished goods.
 Value added = Sales Revenue - cost of Raw materials
 For example, if I am selling wooden chair.
Cost of wood for one chair=$100
Selling Price of one chair=$250

Value Added
Added Value= Selling price-Cost of raw material
i.e. ($250-$100)
=$150
Value added is NOT the same as Profit.
For profit we subtract the cost of raw material + labour cost +
other expenses from sales revenue
whereas in Valued added we subtract the raw material cost
only.
For example, ‘value added for airlines company’
Business which
adds more value
to their products
and services can
charge more to
their customers
and
eventually
lead to higher
revenue.
by providing better, more comfortable seats, more leg room,
better trained in-flight attendants etc.
 Ways of adding value
 Creating a brand: Brands represent quality and sometimes
status (Nike; Puma)
 Advertising:business can create a strong brand loyalty among
its customers
 Providing customised services: business providing better
quality personalised services to their consumers add more
value. Consumers are willing to pay a little extra for
customised services (restaurant)
 Providing additional features: additional features or
functionality can make the consumers pay extra.(eg car;
mobile phone)
 By offering convenience: consumers love convenience. For
example, free home delivery of your weekly grocery.
i
Benefits to a
business of
adding value
 t can charge more to its customers. This leads to more
profitability for the business I
 A business can differentiate itself from its competitors.
 adding value helps cost cutting in the long run no need for
advertising and other promotional activities once it has created a
perception of high quality and brand loyalty among its customers.

the dynamic
business
environment
why
businesses
succeed or fail
differences
between local,
national,
international
and
multinational
businesses