Business

• Needs


  Goods or services that are essential for survival
• Wants


  Goods or services customers desire but are not essential for survival
• Economic Problem


  Unlimited wants but limited resources to satisfy the wants
• Scarcity


  The lack of sufficient products to fulfil the total wants of the population
• Factors of production


  • Land
  • Labour
  • Capital
  • Enterprise
• Opportunity Cost


  The next best alternative is given up by choosing another item
• Specialisation


  When people and businesses focus on what they are best at
• Division of labour


  Production is split into different tasks, and each worker performs one of these tasks
• Advantages of specialisation


  • Workers are trained in one task and specialise in this, increasing productivity and efficiency
  • Specialisation with division of labour will result in better quality output
  • An increase in efficiency will lead to economies of scale
  • Workers become more skilled and experienced, reducing waste of time and resources
• Disadvantages of specialisation


  • Repetitive tasks can cause boredom and burnout for employees, reducing motivation and job efficiency
  • If a worker is not present, production will be disrupted, causing a waste of time and resources, as well as less output and efficiency
  • Specialised workers require higher wages, and training current employees will increase costs
• Business Activity


  Combines scarce factors, produces goods and services, employs people
• Added Value


  The difference between the cost of purchasing bought-in material and the price of the finished goods
• Advantages of added value


  • May be able to make a profit if these other costs come to a total less than the added value
  • It can be used to pay other expenses
• Disadvantages of added value


  • Increasing the product's price can lead to lower sales and, perhaps, profit
• Ways to increase added value


  • Increase the selling price by increasing the quality of goods and services to convince customers/consumers
  • Reduce the cost of materials but keep the price the same
• Sectors of business


  • Primary Sector
  • Secondary Sector
  • Tertiary Sector
• Developing Countries


  Where the primary sector is the most important, as more employees and output are produced than in secondary and tertiary sectors
• Developed Countries


  Where the output of the tertiary sector is often higher than the other two sectors combined
• De-industrialisation


  When there is a decline in the importance of the secondary sector
• Reasons for changes in the relative importance of the three sectors over time


  • When sources of some primary products become depleted
  • Developed economies are losing competitiveness to newly industrialised countries
  • Due to the rise in living standards, consumers spend more of their income on services such as travel and restaurants than on manufactured goods
• Mixed Economy


  Has both a private sector and a public sector
• Private Sector


  Businesses NOT owned by the government will decide what and how to produce. The main aim is to make profits
• Public Sector


  Owned by the government. Government will decide what and how to produce (i.e. healthcare, education, defence, public transport). The main aim is to provide a service to customers
• Privatisation


  Selling a public sector business to the private sector
• Arguments for Privatisation


  • Costs can be controlled because the private sector's main objective is profit
  • More efficient use of capital
  • Competition between private sector businesses will help improve product quality
• Arguments against Privatisation


  • Increased unemployment as private sector businesses may want to cut costs
  • Less likely to focus on social objective
• Entrepreneur


  A person who organises, operates and takes risk to make the business better
• Characteristics of Entrepreneurs


  • Hard-working
  • Risk Takers
  • Creative
  • Effective Communicators
  • Optimistic
  • Self-confident
  • Innovative
  • Independent
• Advantages of being an Entrepreneur


  • Independent, able to choose how to use time and money
  • Able to put own ideas into practice
  • It may become successful and very profitable if the business grows
  • Able to make use of personal interests and skills
  • Profits to themselves, no need to share them with anyone
  • Income is higher than a regular employee
• Disadvantages of being an Entrepreneur


  • entrepreneurs will have to put their own money into the business
  • many entrepreneur's businesses fail (risky)
  • Lack of knowledge and experience in starting and operating a business
  • Lost income from not being an employee for another business (Opportunity cost)
  • They will have to invest their savings as well as find other sources of finance, which is time-consuming and expensive
• Need


  A good or services essential for living (water, food, shelter)
• Want


  A good or services which is not essential for living (luxury items)
• Economic problem


  There are unlimited wants but limited resources to produce the goods and services to satisfy those wants. Creates scarcity
• Factors of Production (FOP)


  • Land
  • Labour
  • Capital
  • Enterprise
• Land


  Natural resources (oil, gas, fields, forests)
• Labour


  Number of people available to make products
• Capital


  Finance, machinery, equipment needed for manufacture of goods
• Enterprise


  Skill and risk-taking ability of the person who brings other resources or FOP together to produce a good or service
• Opportunity cost


  The next best option given up by choosing another item
• Opportunity cost


  • Holiday or car - Person A chooses holiday, so the car is the opportunity cost