The Purpose of Business Activity Chapter 1 This chapter will explain The concept of needs, wants, scarcity and opportunity cost The importance of specialisation The purpose business activity The concept of adding value and how added value can be increased The economic problem: needs, wants, scarcity and opportunity cost Classify these. Needs Wants Needs and Wants Needs Essential goods or services necessary for living. Satisfy the basic things for life. Wants › Non-essential goods and services that people would like to have. › Interests & Tastes Why? Why? Why? Is this the answer? The Economic Problem The shortage of goods & services TOO FEW FACTORS OF PRODUCTION! Land Labour Factors of Production Capital Enterprise Land All of the natural resources provided by nature Labour All people’s efforts to make products Capital All finance, machinery & equipment in manufacturing products Enterprise Mark Zuckerberg Jack Dorsey Bill Gates Howard D. Schultz Colonel Sanders All people that have skills & have risk-taking ability factors of production produce good or service Economic Problem Labour Land Factors of Production Capital Enterprise Limited in Supply Real Economic Problem Unlimited Wants + Limited Resources = Scarcity Limited Resources: Choice Summary – Economic Problem Land Limited Resources Labour Economic Problem Capital Unlimited wants Scarcity Enterprise Choice is necessary Leads to opportunity cost Limited Resources Production 200 years ago 1 2 3 Joe cuts the wood He assembles the table Joe polishes the table 4 Joe delivers the table on a horse and cart Limited Resources Modern Day Production 1 2 The wood for 20 tables is cut with a specialist machine Carpenters assemble the tables 3 4 The tables are finished in the polishing department A transport company collects the tables to deliver them to furniture retailers Making the best use of limited resources Specialization / Division of Labour Production Process Different tasks split up Workers performs a task Specialization/Division of Labour Advantages Specialised task training Increases efficiency Increases output Save time Disadvantages Bored workers Possible drops in efficiency Production stopped due to absence Why business activity is needed? Unlimited wants 4 factors of production Resources in limited supply to make goods and services Scarcity Limited resources – unlimited wants Choice Opportunity Cost Specialisation Improves efficient use of resources Aim of Businesses Combine factors of production Produce products satisfy peoples wants Classification of Products Goods Physical items Tangible Touch and see Services Intangible Business Activity Combines scarce factors of production in order to produce good and services Produces those goods and services which are needed to satisfy the needs and wants of the population Employs people as worker and pays them wages to allow them to consume products made by other people Business Objectives Aim / Target to work towards Make a Profit To increase added value To expand the business To achieve business survival To provide a service Profit Value Added Selling Price - Cost of materials/ Components = Value Added Exam-style questions: Short answer and data response Gowri plans to start up her own business using her savings. She wants to produce fashion clothes for women. She is a very good clothes designer but she does not like stitching clothes together. Two friends have offered to help Gowri. Abha is an experienced material or fabric cutter – she can cut lengths of material or fabric for clothes with very little wastage. Aditi is quick at sewing fabric together. a) Define ‘business’. [2] Any organisation that brings resources together to produce a good or service to satisfy wants. b) Identify two factors of production that Gowri will need for her new business. [2] i. Sewing machine ii. Aditi’s labour (sewing skills) Other relevant answers possible. Exam-style questions: Short answer and data response (contd) c) Outline two possible opportunity costs that Gowri may have from her decision to start her own business. [4] i. Buying a sewing machine means that Gowri has less money to spend on other items, for example, on a computer to keep a record of the accounts of her business; the next most desired one would be the opportunity cost. ii. Time that Gowri spends on setting up her business means that she cannot earn money designing clothes for another business. Exam-style questions: Short answer and data response (contd) d) Explain one advantage and one disadvantage to Gowri’s business of using division of labour in making clothes. [6] Advantage: Aditi will become even more skilled at sewing and Abha at cutting. This will make Gowri’s business more efficient. Disadvantage: Gowri will not learn these other skills as she may spend all her time designing dresses. If Aditi is ill there will be no one to sew the dresses and production will fall. Exam-style questions: Short answer and data response (contd) e) Do you think that Gowri’s business will be able to sell all of the clothes that it makes? Justify your answer. [6] Sales of dresses will depend on how good the designs are and the quality of the dresses. If other businesses exist then there will be a lot of competition which will reduce chances of success. If Gowri knows what her customers want in terms of designs, price and quality then this will increase chances of selling all dresses the business makes. Overall conclusion/judgement needed.
