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1.1 – Business Activity

Home Notes Business Studies – 0450 1.1 – Business Activity

The word ‘business’ is very familiar to us. We are surrounded by

businesses and we could not imagine our life without the products we
buy from them. So what is a business, or what is business studies?
Here’s the very posh definition for it: “the study of economics and
management”
Not clear? Don’t worry, by the end of this chapter, you should be getting
a clear picture of what a business is.

The Economic Problem

Need: a good or service essential for living. Examples include water and
food and shelter.

Want: a good or service that people would like to have, but is not
required for living. Examples include cars and watching movies.

Scarcity is the basic economic problem. It is a situation that exists when

there are unlimited wants and limited resources to produce the
goods and services to satisfy those wants. For example, we have a
limited amount of money but there are a lot of things we would like to
buy, using the money.

Opportunity cost

Opportunity cost is the next best alternative forgone by choosing

another item. Due to scarcity, people are often forced to make choices.
When choices are made it leads to an opportunity cost

SCARCITY → CHOICE → OPPORTUNITY COST

Example: the government has a limited amount of money (scarcity) and

must decide on whether to use it to build a road, or construct a hospital
(choice). The government chooses to construct the hospital instead of
the road. The opportunity cost here are the benefits from the road that
they have sacrificed (opportunity cost).

Factors of Production
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Factors of Production are resources required to produce goods or

services. They are classified into four categories.

Land: the natural resources that can be obtained from nature. This
includes minerals, forests, oil and gas. The reward for land is rent.
Labour: the physical and mental efforts put in by the workers in the
production process. The reward for labour is wage/salary
Capital: the finance, machinery and equipment needed for the
production of goods and services. The reward for capital is interest
received on the capital
Enterprise: the risk taking ability of the person who brings the other
factors of production together to produce a good or service. The reward
for enterprise is profit from the business.

Specialization

Specialization occurs when a person or organisation concentrates on

a task at which they are best at. Instead of everyone doing every job,
the tasks are divided among people who are skilled and efficient at
them.

Advantages:

Workers are trained to do a particular task and specialise in this, thus

increasing efficiency
Saves time and energy: production is faster by specialising
Quicker to train labourers: workers only concentrate on a task, they
do not have to be trained in all aspects of the production process
Skill development: workers can develop their skills as they do the
same tasks repeatedly, mastering it.

Disadvantages:

It can get monotonous/boring for workers, doing the same tasks

repeatedly
Higher labour turnover as the workers may demand for higher
salaries and company is unable to keep up with their demands
Over-dependency: if worker(s) responsible for a particular task is
absent, the entire production process may halt since nobody else may
be able to do the task.

Purpose of Business Activity

So we’ve gone through factors of production, the problem of scarcity

and specialization, but what is business?

Business is any organization that uses all the factors of production

(resources) to create goods and services to satisfy human wants and
needs.

Businesses attempt to solve the problem of scarcity, using scarce

resources, to produce and sell those goods and services that consumers
need and want.

Added Value

Added value is the difference between the cost of materials bought in

and the selling price of the product.
Which is, the amount of value the business has added to the raw
materials by turning it into finished products. Every business wants to
add value to their products so they may charge a higher price for their
products and gain more profits.
For example, logs of wood may not appeal to us as consumers and so
we won’t buy it or would pay a low price for it. But when a carpenter can
use these logs to transform it into a chair we can use, we will buy it at a
higher cost because the carpenter has added value to those logs of
wood.

How to increase added value?

Reducing the cost of production. Added value of a product is

its price less the cost of production. Reducing cost of production will
increase the added value.
Raising prices. By increasing prices they can raise added value, in the
same way as described above.

But there will be problems that rise from both these measures. To lower
cost of production, cheap labour, raw materials etc. may have to be
employed, which will create poor quality products and only lowers the
value of the product. People may not buy it. And when prices are raised,
the high price may result in customer loss, as they will turn to cheaper
products.

In a practical sense, you can add value by:

Branding
Adding special features
Provide premium services etc.

In a practical example, how would you add value to a jewellery store?

Design an attractive package to put the jewellery items in.

An attractive shop-window-display.
Well-dressed and knowledgeable shop assistants.

All of this will help the jewellery store to raise prices above the additional
costs involved.

For detailed explanation on factors of production and opportunity cost,

head over to our Economics section on the same topic.

Notes submitted by Gayatri

Click here to go the next topic

Click here to go back to the Business Studies menu

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35 thoughts on “1.1 –
Business Activity”
Mansi Bafna says:
February 5, 2022 at 6:11 pm

These notes are so helpful, thank you so much!

! Liked by 1 person
REPLY

Christian says:
December 6, 2021 at 1:47 pm

Is there any way I could print these notes?

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Lintha says:
December 7, 2021 at 4:17 am

Hello Christian!
We haven’t made printable versions of our notes available yet. But
you can still print the webpage from your browser in the meantime.
On Google Chrome, click the three dots on the upper right side of
the browser, and select ‘Print’.

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Mahi Khambete says:

December 5, 2021 at 10:49 am

Does this cover the 2023 syllabus?

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Lintha says:
December 6, 2021 at 1:22 pm

No. The Business Studies notes cover the syllabus for examinations in
2020, 2021, and 2022.

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Allister says:
October 7, 2020 at 6:41 pm

Hi! This is just a suggestion but you could add ’employs people as
workers and pays them wages to allow them to consume products
made by other businesses’ as part of one of the purposes of business
activity. :>

! Like
REPLY

Lintha says:
October 26, 2020 at 3:35 pm

Well businesses do end up doing just that but it’s not their exact
purpose. Businesses are usually not so virtuous, all they want to do is
exploit or create market demand and profit from it. Your points can
be considered as the benefits of having private businesses.
Thank you for the suggestion! Appreciate comments like these!

! Like
REPLY

Daria says:
November 24, 2020 at 1:14 pm

Thank you!!! Where could I get the past papers tho?

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Sarah says:
November 25, 2020 at 5:36 pm

Have a look at our resources page: https://igcseaid.com/resources/

We’ve linked quite a few past paper websites! Have a browse and
decide which one suits you best

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REPLY

Basma says:
October 7, 2020 at 4:01 pm

I am so glad i found these notes. They will surely help in my test

! Liked by 1 person
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wheee says:
August 5, 2020 at 6:25 am

hi thank you this is helpful!!

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Lintha says:
August 8, 2020 at 12:29 pm

You’re welcome! Glad to be of help!

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Aarthie Surais says:

January 31, 2020 at 5:54 am

Thank you so much for these notes, you’re a life saver! I just need to
know if it’s alright to depend solely on these notes to prepare for my
igcse examinations?

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gayatri2000 says:
May 3, 2020 at 7:00 pm

I think it’s best you read the textbook once and use these notes
for revision to be extra thorough. These notes do cover almost
every topic though.

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Yasmin says:
October 27, 2020 at 9:58 pm

Exactly i wanted to know the same since im preparing for my igcse

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gayatri2000 says:
October 29, 2020 at 9:46 am

I think it’s best you read the textbook once and use these
notes for revision to be extra thorough. These notes do cover
almost every topic though.

! Like
REPLY

Allen says:
January 19, 2020 at 5:46 am

Excellent notes. Thank you for providing a valuable resource. Are there
updates needed to cover 2020?

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gayatri2000 says:
May 3, 2020 at 7:01 pm

We are looking into updating the notes by the end of June.

Thank you for your kind comment!

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aaa says:
January 12, 2020 at 1:09 pm

does this cover the 2020 syllabus? plz answerrrrr

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gayatri2000 says:
May 8, 2020 at 11:09 am

Yes, this does. There aren’t too many significant changes in the
new syllabus.

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faridak says:
January 3, 2020 at 9:56 am

does this cover the syllabus of 2019-2020??

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gayatri2000 says:
May 16, 2020 at 11:21 am

Yes, it does

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Prath says:
June 15, 2019 at 2:32 pm

Can you also cover IGCSE geography? This is really helpful thank you so
much.

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Lintha says:
June 17, 2019 at 1:27 pm

You’re welcome!
Unfortunately, none of us here at IGCSE AID has studies Geography,
so we are not familiar enough with it to make notes. Sorry!

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kayel says:
May 14, 2019 at 5:36 pm

thank you 4 all the useful content in this website

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Shuvaan says:
January 30, 2020 at 12:43 am

WoW this is so useful notes thank you to making these notes in a

easy way to study

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gayatri2000 says:
May 3, 2020 at 9:22 am

Glad we could help!

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Kiana says:
April 7, 2019 at 5:39 am

These notes are amazing!!Im in form one and understand them.Like

THESE NOTES ARE LIFE

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Lintha says:
April 7, 2019 at 7:44 am

Thankyou!!

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jessica says:
February 26, 2018 at 5:53 pm

so useful!! thank you so much

! Liked by 1 person
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Lintha says:
March 1, 2018 at 3:00 pm

Thanks Jessica! Good luck

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A*plzplz says:
February 4, 2018 at 5:58 pm

hey, hi, hello there, listen im SOO glad i found this website, i was actually
looking at some other subject notes when i found this and i was
bewildered it wasnt in my recommendations ,i just really need to know
if this covers the whole 2016-2018 syllabus..and would i be able to rely on
it for my mocks or externals. plz reply soon and THANKU

! Liked by 1 person
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Lintha says:
February 5, 2018 at 5:38 am

Thankyou so much!!
The current syllabus is the 2017-2019 one and yes, we have covered all
of it!
Good luck for your exams!

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sithmi says:
October 1, 2017 at 2:07 pm

This is very use full for my studies

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Lintha says:
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