business

• Needs are goods or services that we need in order to live.
• Wants are goods or services which people would like to have but are not essential for living.
• People’s wants are unlimited but the resources available to produce them are limited, leading to the basic economic problem of scarcity.
• Scarcity refers to the fact that there are not enough products to fulfil the wants of the population.
• Resources, also known as factors of production, include Land, Labour, Capital & Enterprise.
• Land refers to any natural resource used in production.
• Labour refers to the mental and physical efforts of a human.
• Capital refers to man-made goods used in production.
• Enterprise refers to the risk-taking ability of an entrepreneur.
• Scarcity means that people are always forced to make a choice, and this choice involves giving up something, which is known as opportunity cost.
• Opportunity cost is the next best alternative that is given up by choosing another item.
• Specialisation is when people and businesses focus on what they are best at.
• Division of labour is when production is split into different tasks and each worker performs one of these tasks.
• Advantages of division of labour include increased efficiency due to workers specializing in certain tasks and less time wasted from one workbench to another.
• Disadvantages of division of labour include workers becoming bored of doing the same job and efficiency potentially falling.
• If a worker is absent, no other worker can do the job in division of labour.
• As the business becomes more efficient due to division of labour, output increases which may lead to economies of scale.
• Employees in division of labour have to rely on each other to produce products, leading to a fall in productivity.
• Workers in division of labour become more skilled and experienced, reducing the mistakes made.
• The private sector does not have social objectives, making their products unaffordable.
• An entrepreneur is a person who organises, operates and takes risks to make the business better.
• Characteristics of entrepreneurs include being hard working, risk takers, creative, effective communicators, optimistic, self-confident, and innovative.
• Advantages of being an entrepreneur include being independent, able to choose how to use time and money, profits to themselves, no need to share them with anyone, and the ability to make use of personal interests and skills.
• Disadvantages of being an entrepreneur include having to put their own money into the business, having to put their own ideas into practice, many entrepreneur’s businesses fail, and lack of knowledge and experience in starting and operating a business.
• A business plan contains business objectives, important details about the operations, finance, and the owners.
• Business plans assist entrepreneurs because they help gain finance, force the entrepreneur to plan ahead carefully, and reduce risk of the business failing.
• The main parts of a business plan include the name, type of organization, business aim and forecast profit.
• Governments encourage entrepreneurs to set up a business because start-ups reduce unemployment, increase competition, increase output, and can grow further and become large and important businesses which pay government more taxes.
• Governments may give support to entrepreneurs by providing business ideas and help, lending loans at low interest rates or grants, providing grants for training employees to make them more efficient and productive, and allowing entrepreneurs to use research facilities in universities.
• There are several different measurements of business size and they all have limitations.
• Some businesses employ few people but produce high output values.
• The value of output of the business is not a good measure of the size of the business as different businesses sell different products (expensive and cheap).
• The total value of capital (money) invested into the business is not a good measure of the size of the business as some companies may use cheap labor giving low output with low-cost equipment.
• Businesses choose the method they think is the best to measure the size of their business.
• Businesses combine scarce factors of production to produce goods or services to satisfy people’s wants and needs.
• Added value is the difference between the selling price and the cost of bought-in raw materials and components.
• Added Value = selling price – total cost
• Added value does not include the price to pay for labour, transport etc.
• To increase added value, a business can either: Increase the selling price of product, while keeping the total cost of material the same Create a brand image Improve packaging Make products more appealing by adding features Provide higher quality goods and services Decrease the total cost of materials, while keeping the selling price of the product the same
• Tertiary sector – provides services