business-understanding business activity

• Needs


  Essential e.g. shelter or food
• Wants


  Desires which are non-essential, even if consumers consider them to be essential e.g. Nike trainers
• Scarcity


  The problem that choices have to be made by producers, consumers, workers and governments about the best (most efficient) use of resources
• Factors of production


  Land, labour, capital and enterprise
• Opportunity cost


  The loss of the next best alternative when making a decision
• Opportunity cost for a consumer

  • When a consumer chooses to purchase a new phone, they may be unable to purchase new jeans. The jeans represent the loss of the next best alternative (the opportunity cost)
• Opportunity cost for a producer


  • When a producer decides to allocate all of their resources to producing electric vehicles, they may be unable to produce petrol vehicles. The petrol vehicles represent the loss of the next best alternative (the opportunity cost)
• Opportunity cost for a government


  • When a government decides to provide free school meals to all primary students in the country, they may be unable to fund some rural libraries which may have to close. The libraries represent the loss of the next best alternative (the opportunity cost)
• Specialisation


  When people and workers focus on one particular role or task and thereby gain significant skill in doing it
• Division of labour


  The separation of a work process into a number of tasks that are completed by a separate person or group of persons
• Specialisation


  • Occurs on individual, business, regional and global levels
  • Results in higher output per worker which increases productivity
  • More common due to specialised technology, machinery and increasing global competition
• Purpose of business activity

  To produce goods or services that meet customer needs while adding value
• The primary purpose of business activity is to produce goods or services that satisfy a need or demand in the market
• Goods


  Physical products, such as bicycles and T-shirts
• Services


  Non-physical items such as hairdressing, tourism and manicures
• Meeting customer needs


  The ultimate goal is to create products that meet the needs and preferences of customers and provide value to them
• Adding value


  Value-added features can differentiate products from competitors, create a unique selling point, and increase customer satisfaction
• Examples of adding value


  • A product that is easier to use, has a better design, or is of higher quality than competitors can create a competitive advantage for a business
• The Three Main Business Sectors

  • Primary
  • Secondary
  • Tertiary
• Primary sector


  • Concerned with the extraction of raw materials from land, sea or air such as farming, mining or fishing
• Secondary sector


  • Concerned with the processing of raw materials such as oil refinement, and the manufacture of goods such as vehicles
• Tertiary sector


  • Concerned with the provision of a wide range of services for consumers and other businesses such as leisure, banking or hospitality
• Chain of production


  Series of steps taken to turn raw materials into a finished product that can be marketed and sold
• As economies grow and develop

  Many firms change their sector of operation (sectoral change)
• Generally speaking, there are successively higher levels of profits to be made in each subsequent sector
• The reason for this is that each sector adds more value than the previous sector
• Higher added value equates to higher profits
• Less developed economies


  • Primarily focused on the primary sector, with most people employed in agriculture and the production of food
• There has been a global trend away from employment in primary sector industries over the last two decades
• Only in the least developed nations is the proportion of the workforce employed in the primary sector consistently high
• This is partly as a result of lower participation rates in education and a lack of infrastructure to support manufacturing or service provision
• Emerging economies


  • Improved technology enables less labour to be needed in the primary sector and more workers are involved in manufacturing
  • Many businesses have relocated production facilities to take advantage of the lower average wage rates in these economies
  • Experienced growth in the tertiary and quaternary sectors in recent years, with many businesses now focused on the provision of consumer services
• Developed economies


  • Have a very high proportion of the workforce employed in the provision of services, increasing focused on the quaternary sector
  • Use their wealth to fund advanced education and higher-level skills training which further supports the growth of these industries
  • Some exceptions such as Australia and Norway continue to have significant primary sectors
• As economies develop, we see a movement away from the primary sector towards the secondary sector. Post-industrial economies are focused on the tertiary and quaternary sectors.
• It is easy to assume that tertiary sector employment is higher-paid than jobs in the secondary sector. This is not necessarily the case.
• Value-added is certainly higher in most tertiary industries than in secondary sector industries but in many tertiary sectors (such as hospitality and healthcare) pay is very low and a cause for concern.
• In contrast, high-paid secondary sector engineering and construction sectors in economies such as Germany and Norway make employees in these economies some of the highest-paid in the world.