Nature of Business Activity

 Needs: goods or services that we need in order to live

 Wants: goods or services which people would like to have. But are not essential for

living.

 People’s wants are unlimited (you will always want something) but the resources

available to produce them are limited which leads to scarcity (the basic economic

problem)

 Scarcity: 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 – any natural resource used in production

 Labour – mental and physical efforts of a human

 Capital – man-made goods used in production

 Enterprise – the risk-taking ability of an entrepreneur

 As there are limited resources, people are always forced to make a choice. This means

that we will be giving something up, this is known as opportunity cost

 Opportunity cost: it is the next best alternative that is given up by choosing another item.

Purpose of Business Activity:

 Businesses combine scarce factors of production to produce goods or services to

satisfy people’s wants

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 A business also employs people as worker and pays them wages to allow them to

consume products as well

Business Objectives
 Business objectives are aims or targets a business works towards

 Benefits of having business objectives:

 Employees have a clear target to work towards

 Decisions made keeping in mind objectives

 Clear & measurable objectives will make sure the entire organisation works towards the

same goal

 Managers will be able to compare performance

 A business objective maybe changed if economic conditions change or one objective

has already been achieved

 Private sector business objectives:

 Business Survival - Adjust to business environment, change price of products if

necessary

 Generating profit – pay a return to owners or provide finance to invest further in

business

 Returns to shareholders - discourage shareholders from selling their shares. Can be

increased by increasing profit or increasing the share price

 Growth of business – increase salaries, economies of scale. only achieved if

customers are satisfied with the product

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 Market Share – the proportion of the total market sales by one business, gives good

publicity, more influence over suppliers and customers

 Service to community – provide jobs, support disadvantaged groups in society, protect

environment

Specialisation
 Specialisation: when people and businesses focus on what they are best at.

 Division of labour is when production is split in different tasks and each worker performs

one of these tasks

Advantages
Workers specialized in certain task,
increases efficiency
Less time is wasted from one workbench
to another, more efficiency
As the business is more efficient, output
increase which may lead to economies
of scale
Workers become more skilled and
experienced, reducing the mistakes
made
Disadvantages
Workers become bored of doing the same
job. Efficiency might fall
If a worker is absent, no other worker can
do the job. Efficiency might fall
Employees have to rely on each other to
produce products, leading to a fall in
productivity

Added Value
 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

 It is NOT the profit because added value does not include the price to pay for labour,

transport etc.

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 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.

Public Sector
 The public sector includes every business owned by the government.

 Businesses in the public sector are public services, i.e. education, transport, hospitals,

education and police

 Usually these businesses have been nationalized (used to be private sector but

government bought it)

 Capital comes from taxes, by tax payer

Advantages
Reduces wastage of resources (if a
monopoly)
Allows access of essentials to everyone
Continued even if in losses
Keeps in mind social costs of decisions
(non-profitable)
Disadvantages
Low efficiency due to lack of competition
Easily manipulated by the government to
exploit citizens
Not flexible as profit is not a main aim
Will have to be subsidized if in losses,
opportunity cost

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