Business activity

IGCSE 0450
Unit 1.1
Ms. Elaine B Gili
Sep 2018
Do I need to emphasize the
importance of:

1. Reading the book

2. Paying attention
3. Having organised
notes/file
4. Participating in class
5. Asking questions
6. Apply the knowledge to
real life
 Extract from
IGCSE 0450 syllabus 2019
1.1 Business activity

1.1.1 The purpose and nature of business

activity:

• Concepts of needs, wants, scarcity and

opportunity cost
• Importance of specialisation
• Purpose of business activity
• The concept of adding value and how
added value can be increased
 OUR Objectives
1. understanding the syllabus content

2. start adding new terminology to our

vocabulary

3. learning exam skills e.g. understanding the

expectations of different command terms
and the number of marks
 INTRODUCTION
to
BUSINESS STUDIES
 What is a business?
Throw your ideas at me
 Definition - business:
A business is a decision-making organisation
involved in the process of using inputs to
produce goods and/or to provide services.
 What is a business?
• you take inputs (e.g. raw/materials money),
• you add processes (human actions/activities),
• and you turn those inputs into outputs
(goods and services, profits)
Consider a jeans producer
 Class activity
With this textile example in mind, try to
identify examples of:

• Inputs
• Processes
• Outputs

Here are some pictures to help you think……

 The business system
INPUTS POCESSES OUTPUTS
 How it’s made – jeans

https://www.youtube.com/watch?
v=C8vA0UwLS70

7 min
The Factors of Production

The inputs are classified into 4 groups

known as the
FACTORS of PRODUCTION
 The Factors of Production
Inputs can be divided into 4 categories
referred to as the factors of production.
The 4 categories are:
1. Land
2. Labour
3. Capital
4. Entrepreneurship
 The factors of production
• Land – all the natural resources whether they are
renewable or not

• Labour – all the workers – the physical and mental effort

• Capital – all the machinery, money, buildings, tools. These

are the non-natural resources used.

• Entrepreneurship – the management or owner/s with the

main idea. They usually provide the funds needed but not
necessarily. This person is in charge of coordinating the
above into a successful business. aka entrepreneur or
enterprise.
What is meant by
enterprise,
entrepreneur,
entrepreneurship?
Who is this?
Who is this?
 The entrepreneur
The entrepreneur is the person having the
business idea and drive to set up the business.

S/he might not have all the money needed but

they have the drive/energy/passion/willingness
to get a business started and to take the risk to
start a business.
 Entrepreneur
Traits:
 Entrepreneur
Traits:
Risk taker
Has vision – sees the future changes/trends
Charismatic, charming,
Great leader – workers follow him/her
Great communication and listening skills
Perceivers – does not give up easily
Able to take decisions
 Homework
• Identify an entrepreneur that you admire and
look up to.
• On myschool (an assignment will be created),
upload a 100 word write up about this
personality.
• If possible find his/her net worth and the
ranking on the Forbes list.
• Print an A4 size picture to be used in class for
the WALL OF FAME.
 Example: Duncan Bannatyne
NET Worth £175 million.
Became famous through the program: the
Dragons Den.

It took him long to settle down and was

even dishonoured from the Royal Navy for
throwing an officer off board. His business
ventures started off when he was 30 with
Bibliography available in the purchase of an ice cream van worth
LIBRARY!!!! £450 and he later expanded into day care
centres, child care centres, fitness centres,
bars, hotels and property.

He is also a philanthropist e.g. He funded

Casa Bannatyne in Romania to help orphans
with HIV and AIDS.
 HW – TED TALK

http://www.ted.com/talks/cameron_herold_let_
s_raise_kids_to_be_entrepreneurs

20 minutes
A business can produce either
NEEDS or WANTS

??
Needs vs Wants
What is the
difference!!
 Needs vs Wants

Needs are basic to

survival and limited e.g. Wants are over and above
basic shelter, water, basic basic needs and they tend
clothing. to be unlimited.
Needs vs Wants
 Conclusion
• A business could be providing its customers with a
need or a want.

• This idea of needs vs wants is not limited to goods

only but can include even services. Think of
education or health care for instance.

• Providing a need or a want will make a huge

difference on the decisions being taken in the
business. Can you explain this?
What are you thinking?
 SCARCITY
What comes to mind with this term?
• Our needs and wants are unlimited
• The resources available to satisfy our needs
and wants unfortunately are LIMITED
– natural resources: land, water, raw materials,
– human resources: workers and their time
– Non natural resources: MONEY!!

THIS PROBLEM is known as:

SCARCITY
 OPPORTUNITY COST
Example: You get 20 euro pocket money

Cinema? Pizza hut? Paint ball?

YOU WILL HAVE TO CHOOSE!!

 SCARCITY
leads to CHOICES
we cannot have everything and
so we have to choose!
Does it ever happen to YOU?
 OPPORTUNITY COST

3 1 2
If you choose the pizza hut and the first runner up is the paint
ball, than the paint ball is your opportunity cost.
 Opportunity cost
• Opportunity cost refers to the next best alternative
that is forgone when a choice is made.

• This situation is not limited to private individuals with

limited resources (you only had 20 euro)

• It also extends to businesses which have limited

resources whether they be financial, space, time,
human. Businesses have to take decisions which bear
an opportunity cost. We will be looking at tools that
aid businesses in making rationale (informed)
decisions.
 Common exam question
• Explain how the concepts of scarcity, choice
and opportunity cost are related? (4)

• Model Answer – The world we live in is made up of limited resources e.g.

raw materials, space, time, money. However our wants are unlimited –
think about all the things that you desire. This brings scarcity as there are
not enough resources to satisfy all our need and wants. As a result we
need to make choices which leads to opportunity cost. When we choose
between two options, the next best alternative is the opportunity cost.
Specialisation
What is it?
 Specialisation
• The business concentrates on the production
of one particular area of product or service
e.g. an Italian restaurant which is specialised
in Italian food.
• The more specialised a business is, the more
efficient and effective it would be in the
production of the good or service.
• Advantages/disadvantages ??
 Division of labour
This term is sometimes interchanged with specialisation BUT

Specialisation is on a personal (professionals),

business or country level

Division of labour is on production worker’s

level (tasks)

ANY IDEA of what is division of labour?

Make sure you know pros and cons thereon!
 Specialisation
PROS CONS
 Specialisation
PROS CONS
The business/professional becomes This can make the
an expert in this field, producing business/profession
better quality products and earning al too specialised,
a very good reputation.
increasing the risk
The products are not only better in of failure if the
quality, but also more efficiently product/service is
produced. no longer popular
Easier to attract workers, customers or no longer in
and support demand.
 Division of labour
PROS CONS
 Division of labour
PROS
Faster production runs.
Workers are easier to train
(easy to hire, easy to fire).
Lower cost of production =
higher profits OR lower
prices (more competitive)
CONS
Bored workers from
repetition.
The broken down
tasks reduce job
satisfaction, the sense
of belonging, the
security at work and
the wages.
WATCH – to reinforce division of
labour and specialisation
https://www.econlib.org/library/Topi
cs/HighSchool/DivisionofLaborSpecia
lization.html
Customer vs Consumer
Is there a difference?
 Customer vs consumer
Customer Consumer
• The person that buys the • The person that really
product but does not consumes the product
necessarily consume it

YOU buy this YOUR brother finds it!!

 VALUE ADDED

No I am not referring to the VAT (value added tax)

charged by governments and that went up to 21% in Spain
even though people there are struggling to keep up!!

What is meant by VALUE ADDED

keeping in mind a business?
 Value added
Value added is the difference between a product’s price and
the total cost of the inputs that went into making it. It is the
extra worth created in the production process.
source: Business & management by Paul Hoang: page 17

Cost of The MAGIC done by the

inputs = business adds the value of the Price = $250
inputs as products or services
$100 are created.

Value added = Price – cost of inputs = $150

 Value added
Customers are ready to pay an extra $150 for
the perceived value added by the business.
This $150 is the not all profit for the business.
Other costs need to be deducted before the
profit is calculated.
WHY are customers ready to pay $150 extra?
What do they value?
 Value added can come in the form of:
• The quality of the service provided
• The speed of the service
• The feel good factor
• The perceived value for money
• The prestige associated with the product
• The brand image thereon
• The brand loyalty instilled in customers
• The taste and design of the product
• There is no other possibility to get the product from
anywhere else i.e. no competition
 How can a business increase
value added?
Selling Price

VALUE Total cost

ADDED

Cost of inputs
How can
we
increase
the blue
section?
 How can a business increase
value added?

• Increasing the PRICE

• Decreasing the COSTs

HOW????
 How can a business increase
value added?
• Training workers to improve quality
• Adding services such as delivery
• Providing something unique e.g. unique
packaging, unique features
• Making the product cheaper
• Improving brand reputation and recognition
• Professional customer support
• Etc…..think of more!
Why are businesses important for
society and the economy?
Why are businesses important for
society and the economy?
• Jobs are created
• Citizens earn money = less crime and poverty
• A larger choice of products is offered to customers
• They can produce things cheaper and better than
individuals can, making better use of scarce
resources
• Make a country richer and more competitive
 The purpose of business activity
• Most businesses aim to make a profit

• Some businesses have other objectives e.g.

– charities aim to support a group in need
– sports clubs aim to promote athletes and sports
– Government businesses (known as the public
sector) aim to provide a necessary service to all
citizens e.g. free education.
 Watch – it is not just profits!
• WIGS - https://www.youtube.com/watch?v=ycY1rxzaBgk

• Shoes: https://www.youtube.com/watch?v=s8JhNqFXU8s

• https://www.businessinsider.com/device-helps-children-wi
th-disabilities-walk-2018-5
 Revise using the
Unit 1.1 revision sheet