Chapter 1: Business Activity

• What is a business?

  An organization that sells goods or services to make a profit.
• What is a need?

  A need is a good or service that is essential for living.
• What is a want?

  A want is a good or service people would like to have but isn't essential for living - people's wants are unlimited.
• What is the economic problem?

  The economic problem is that there are unlimited wants but limited resources in our economy. This creates scarcity.
• What is business?

  An organization that sells goods or services to make a profit.
• What is a need?

  A need is a good or service that is essential for living
• What is a want?

  A want is a good or service which people would like to have but is not essential for living- people's wants are unlimited.
• What is the economic problem?

  The economic problem is that people have unlimited wants but there are limited resources to produce the goods and services to satisfy those wants. This creates scarcity.
• Real cause of the economic problem equation

  unlimited wants + limited resources = scarcity
• What are the factors of production?

  Factors of production are the resources needed to produce the goods and services. There are 4 factors of production and they are in LIMITED supply.
• What are the 4 factors of production?

  Land, Labour, Capital and Enterprise
• What is land in terms of factors of production?

  All the natural resources by nature - fields, forests, gas, metals, oil and other mineral resources.
• What is labour in terms of factors of production?

  Labour are the number of people available to make the goods and services (products).
• What is capital in terms of factors of production?

  Capital is the finance. machinery and equipment/supplies needed for the manufacture of these goods and services (goods/products).
• What is enterprise in terms of factors of production?

  Enterprise is the skill and risk-taking ability of a person who puts all the other factors of production or other resources together to produce a good or service. These people are called enterpreneurs e.g. owner of a business.
• What is scarcity?

  Scarcity is the lack of sufficient products (goods and services) to fulfil the total wants of the population.
• What is opportunity cost?

  Opportunity cost is the next best alternative GIVEN UP by choosing another item.
• What is specialisation?

  Specialisation occurs when people and businesses concentrate on what they are best at.
• Why is specialisation so common?

  1.) Increased competition so businesses have to keep costs low

  2.) Improved machinery and technologies now are widely available

  3.) Most people realize that there are higher living standards when/from being specialised
• What is division of labour?

  Division of labour is a form of specialisation. Division of labour is when the production process is divided into different tasks and each worker performs one of these tasks.
• What are the advantages of division of labour?

  - Increased efficiency and output as the workers are trained and specialise in that one task

  - Less time is wasted from moving one bench(task) to another

  -Quicker and cheaper to train works as fewer things need to be taught
• What are the disadvantages of division of labour?

  - Efficiency might fall as the worker may become bored of their job/task

  - If one worker is absent and NO ONE ELSE CAN DO THE JOB, production might be stopped
• What do businesses do?

  Businesses combine the four factors of production (land, labour, capital, enterprise) to make goods or services to satisfy people's wants.
• In undeveloped economies, what do people do (as there are no businesses)?

  People are self-sufficient.
• What does business activity do? PCE

  - produce goods and services which are needed to satisfy the needs and wants of the population

  - combine scarce factors of production to produce goods and services

  - employ people (as workers) and then pay them wages so they can buy/consume goods and services produced by other people
• What is added value?

  The difference between the selling price of a product and the cost of bought in materials and components.
• Why is added value important?

  Added value is important because sales revenue is BIGGER than the costs of materials brought in by the business. This means if a business didn't have added value, no profits would be made and other costs can't be paid (such as labour costs, management expenses and costs for things like advertising and power (electricity).
• Is all added value profit?

  NO, not all added value is profit as a business still has to pay wages and other costs too.
• How can a business increase its added value?

  1.) Increase selling price but keep cost of materials the same - this might be possible if the business tries having a higher quality image (jewellery shop more decorated- however this could take a lot of money and time).

  2.) Keep selling price the same but reduce costs of materials- when you keep your selling price the same but reduce the costs of materials, you have an increased value. HOWEVER, would consumers notice the change in the quality as its more cheap now?