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Enterprise - lesson 1 notes

The document outlines the fundamental concepts of business activity, including its purpose to create value and meet customer needs through various means such as production and marketing. It emphasizes the economic problem of scarcity, leading to opportunity costs that businesses and other economic units must navigate when making decisions. Additionally, it discusses the importance of entrepreneurs and enterprise in enhancing a country's economy.

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7 views

Enterprise - lesson 1 notes

The document outlines the fundamental concepts of business activity, including its purpose to create value and meet customer needs through various means such as production and marketing. It emphasizes the economic problem of scarcity, leading to opportunity costs that businesses and other economic units must navigate when making decisions. Additionally, it discusses the importance of entrepreneurs and enterprise in enhancing a country's economy.

Uploaded by

vmasumbukera
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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UNIT 1.

BUSINESS AND ITS


ENVIRONMENT
ENTERPRISE
LO:
Analyse what business activity involves
Recognise that making choices as a result of the ‘economic problem’ always results in opportunity cost
Analyse the meaning and importance of creating value
Recognise the key characteristics of successful entrepreneurs
evaluate the importance of enterprise and entrepreneurs to a country’s economy
Analyse the meaning, purpose, benefits and limitations of business plans
What is a business?
• A business is any organisation that combines factors of
production to meet the needs of customers by providing a
product or service that they demand
• Businesses vary in size from small one person entities to large
corporations with thousands of shareholders
• identify a business and explain its main purpose
PURPOSE OF BUSINESS ACTIVITY
• To create and add value to resources thus making them more
desirable and valued by the consumer
• Business activity allows people to have access to goods which
they are not able to produce on their own
• The provision of goods and services allow us all to enjoy a very
much higher standard of living than would be possible if we were
self-sufficient
What is a business?
• A business is any organisation that combines factors of
production to meet the needs of customers by providing a
product or service that they demand
• Businesses vary in size from small one person entities to large
corporations with thousands of shareholders
STARTER: FACTOR OF PRODUCTION
EXAMPLES
• Land
• Enterprise
• Labour
• capital
Adding value to
products/services
Definition: Added value
• Added value is the difference between the price that is charged to
the customer and the cost of inputs required to create the product
or service

• This can be achieved through the product itself or the way that
consumers perceive the product
CREATING OR ADDING VALUE

• When a business creates a product which is worth more than the cost
of making it, then it has added value
• Added value is the difference between the selling price and the cost of
bought in materials and components
• Without creating value a business will not be able to survive as other
costs have to be paid and usually a profit must be made to justify
staying in operation
ADDED VALUE

• Added value is not the same as profit.


• Other costs such as workers’ wages, rent, energy costs must be
deducted from the added value to calculate profit
• Profit will increase if a business is able to increase its added value
without increasing its costs
• In practice, it is difficult to increase added value without increasing
costs
• If the increase in added value is greater than the costs of achieving it,
profits will rise
HOW TO ADD VALUE

• BRANDING
• EXCELLENT SERVICE AND QUALITY
• PRODUCT FEATURES
• ATTRACTIVE PACKAGING AND DISPLAY
• EXTENSIVE ADVERTISING OF BRAND WHICH COULD LEAD TO
POPULARITY AND HIGHER PRICING
• CONVENIENCE
How can a business add value?
• Design – develop new
technology/design features to make Aspirational product –
their product unique (differentiation name a prestige watch
advantage) brand – did you say
Rolex? Is that
• Production – achieving quality and
efficiency adds value. customer perception?
• Quality will ensure a higher price can be
charged (differentiation advantage)
• Efficiency helps cut costs of the input
(cost advantage)
• Marketing – creating an image that
makes the product more desirable, a
brand differentiation advantage
How value can be added
Process e.g. cooking, slicing, canning

Additional ingredients e.g. cake mix

Convenience e.g. In supermarket

Packaging e.g. Handy cake slice in plastic

Finished
Raw goods
materials
ECONOMIC ACTIVITY
AND THE PROBLEM OF
CHOICE
ECONOMIC ACTIVITY AND THE PROBLEM
OF CHOICE
• In the world, there is both great wealth and great scarcity
• The very poor are unable to afford the basic elements of life such as
food, clean water and shelter
• The very rich may not be able to satisfy all the luxuries they desire
• This implies that there are insufficient or limited goods to satisfy all our
needs and wants
• This is called the ‘economic problem’
• Although businesses engage in providing goods and services, we are
still left wanting more
• This shortage of products together with the resources needed to make
them results in all of us having to make choices
OPPORTUNITY COST
• As we cannot satisfy all of our wants and needs, we must choose those
that we will satisfy now and those that we will forgo.
• If we are being rational, we will choose those things which give us the
greatest benefit leaving out those things of less value to us
• Choices have to be made not only by consumers but by all economic
units such as governments, businesses, charities, workers etc.
• This results in opportunity cost
• Opportunity cost is the value of the next most desired option
which is given up in order to choose something else
• All economic decision-makers have to make choices: governments,
businesses, workers, charities, and so on.
OPPORTUNITY COST
• Businesses experience opportunity costs in many ways because
factors of production needed to produce goods and services are in
short supply (Scarce).
• For example, a business might choose between buying a new
machine or spending more on advertising in order to increase its
customers
• A government for example may have to choose between
increasing expenditure on education or constructing new roads
• whichever decisions that businesses make will involve missing an
opportunity which creates an opportunity cost
THE DYNAMIC BUSINESS
ENVIRONMENT

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