Need: good/ service essential for living
Want: good/ service people would like to have,
but not essential for living; people’s wants are
unlimited
Land—natural resources provided by nature
(fields, forests, oil, gas, metals, minerals, etc.)
Needs, wants, scarcity and
opportunity cost
Factors of production: resources needed to
produce goods/ services; there are four factors
of production, all in limited supply
Labour—number of people available to make
products
Capital—finance, machinery and equipment
needed for the manufacture of goods
Enterprise—skill and risk-taking ability of
entrepreneurs (brings the other resources
together to produce a good/ service)
Unlimited wants and limited resources creates
scarcity (the economic problem), so choices
must be made
Choice results in opportunity cost—the next best
alternative given up
Division of labour: a form of specialisation, the
production process is split up into different tasks
and each worker performs just one task
Workers are trained in one task and specialise in
this—increases efficiency and output
Advantages of specialisation/ division of labour:
Specialisation: occurs when people
and businesses concentrate on what
they are best at
Time is saved during the production process—
workers do not need to move around between
tasks on the production line -> improves the use
of space in the factory so can fit in more
production lines into the limited space
Quicker and cheaper to train each employee—
fewer skills need to be taught
Ch.1 Business activity
Helps keep costs low—only performing one task
makes workers quicker -> allowing lower prices
to be charged
Production workers may become bored doing
the same task repeatedly—may become less
efficient and slow down production
Workers cannot cover for absent colleagues—
production may be stopped or slow down
Disadvantages:
Workers have less job satisfaction—more likely to
leave the business
Worker may find it difficult to find alternative
employment—as only trained/skilled in one task
Purpose of business activity
The purpose of all business is to combine the
factors of production to make goods/ services
which will satisfy people’s wants
Important to a business—to pay other costs
(labour, management, advertising, power, etc.); to
make a profit if the total of these other costs is
less than the added value
Improve the quality —customers will be willing to
pay a higher price; but depends on the prices
charged by competitors -> may lose sales
Added value: selling price of a
product - cost of bought-in materials
and components
(a) Increasing selling price
Introduce a brand image—advertise the product;
makes it more well-known -> may be able to raise
prices as customers like to buy branded products
Use high-quality packaging to wrap the product
to give as a gift—customers will be willing to pay
a higher price if the product is made to appear
more attractive in its packaging
Can be increased by:
(b) Reducing input costs
Buy cheaper materials (e.g. by changing supplier)
—but can lead to lower quality; unhappy
customers may give the business a bad
reputation -> lower sales