Business
It involves organizing and combining resources into firms with the purpose
producing goods and services to satisfy needs and wants of consumers.
The term business means “state of being busy”. It refers to an organization or
enterprising entity engaged in commercial, industrial, or professional activities.
What to do before starting a business?
Identifying consumer wants and needs:
It is necessary to identify the needs and wants of a consumer in the market
before starting a business. It helps in knowing their needs, wants, purchasing
power, taste and preference, standard of living etc
Make resources available:
After identifying their needs and wants, the next step is to make all those
resources available which will satisfy their needs and wants.
The resources are used to produce goods and services are also known as
factors of production. There are four factors of production.
Factors of production:
 Land: It includes all natural resources like plants, animals, fish, forests,
water, air etc
 Labour: It is a human effort t produce goods and services.
 Capital: Refers to man-made resources such as machine, computers,
tools etc which are used for production of goods and services.
 Enterprise: Refers to the knowledge, skills and desire some people have
to own and run their business.
Organizing the available resources:
The final step is to combine all resources and organize them into firms to
produce goods and services.
Consumer: A consumer is the one who purchases the product for his/her own
need and uses or consumes it. A consumer cannot resell the good, product or
service but can consume it to earn his/her livelihood and self-employment.
Consumer is the end-user of a product.
Customer: A customer is a person who buys goods and services regularly from
the seller and pays for it to satisfy their needs. Many times, when a customer
who buys a product is also the consumer, but sometimes it’s not. For example,
when parents purchase a product for their children, the parent is the customer,
and the children are the consumer. They can also be known as clients or
buyers.
Customers are divided into two categories:
Trade Customer- These are customers who buy the product, add value and
resell it. Like a reseller, wholesaler, and distributor, etc.
Final Customer– These are the customers who buy the product to fulfil their
own needs or desires.
Consumption: It is the process of using up of goods and services to satisfy
consumer wants and needs.
Concept of needs, wants and scarcity:
BASIS FOR
NEEDS
WANTS
COMPARISON
Meaning
Needs refers to an Wants are described as
individual's basic
the goods and services,
requirement that
which an individual like
must be fulfilled, in to have, as a part of his
order to survive.
caprices.
Nature
Limited
Unlimited
What is it?
Something you must Something you wish to
have.
have.
Represents
Necessity
Desire
Change
May remain constant May change over time.
over time.
Non-fulfilment
May result in onset May result in
of disease or even disappointment
death.
Scarcity:
Scarcity is the concept that resources are only available in limited supply,
whereas consumer’s demand for those resources is unlimited.
The concept of scarcity was firstly given by Lionel Robbins in 1932.
Scarcity of resources leads to the demand of goods and services.
 Therefore, every business in the world should choose how to use scarce
resources to satisfy as many needs as possible.
HOW TO ACHIEVE MAXIMUM SATISFACTION OF NEEDS AND WANTS
FROM LIMITED RESOURCES
Production possibility curve:
The production possibilities curve illustrates the maximum possible
output for two or more products when there are limited resources.
Opportunity cost:
It is a value of what a business loses when choosing between two or
more options.
It is the cost which has been foregone for the next best alternative. Also
known as alternative cost.
This concept was given by Gotfried Haberler when he firstly propounded
production possibility curve.
Utility:
This concept is meant to achieve maximum satisfaction of needs and
wants and maximum
utilisation of limited resources.
 Utility is the want satisfying capacity of a product.
 More benefits mean more utility.
 Measure un utils.
 Concept was given by Alfred Marshall.
Specialization:
It is method of production whereby an entity focuses on the production
of a limited scope of goods to gain a grater degree of efficiency.
It increases productivity.
So, for producers, it is important to specialize in the production of only
those goods or service which match best to their skills and interests.
E g A car manufacturer specializes in the production of cars, a banker
specialises in the field of banking and finance.
Division of labour:
Modern specialisation focusses on dividing task or production process
into different tasks and a lot those tasks to different persons according to
the specialisation.
 Right job to right person.
 Adam Smith gave concept of Division of labour.
Benefits
Employees will become more skilled by doing some work again and
again.
Better quality of production.
Time management.
Speed in work
Limitations
 Repetition creates boredom and monotony.
 Breaking down the production process into different tasks makes it
easier to replace humans with machines and this leads to structural
unemployment
 Division labour creates interdependence in production. If one group of
workers goes on strikes it brings the whole production process to a Holt.
 Individuals must rely on others to produce goods or services they want
but cannot produce themselves.
How business can increase added value:
Value added: It is the difference between the price paid for a product by
a consumer and the cost of product.
Business can increase adding value by:
 Satisfying consumer’s needs and wants.
 Employment and incomes
 Increase delivery speed.