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Unit 1_Business Activity

The document outlines the fundamental concepts of business activity, including needs, wants, scarcity, opportunity cost, and the importance of specialization. It explains how businesses combine scarce resources to produce goods and services, add value to products, and the factors of production involved. Additionally, it discusses the advantages and disadvantages of specialization and added value in business operations.

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Keith Brunet
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12 views

Unit 1_Business Activity

The document outlines the fundamental concepts of business activity, including needs, wants, scarcity, opportunity cost, and the importance of specialization. It explains how businesses combine scarce resources to produce goods and services, add value to products, and the factors of production involved. Additionally, it discusses the advantages and disadvantages of specialization and added value in business operations.

Uploaded by

Keith Brunet
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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Grade 10

Unit 1.1: Understanding business activity


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

1.1.1: The purpose and nature of business activity


1.01 Needs and wants
Needs are things that we must have to survive such as shelter, clothing and food.
Wants are things that we would like to have to make our lives more enjoyable.
People can live without satisfying their wants, but not without meeting their needs.

1.02 Scarcity and opportunity cost


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
Choices have to be made by producers, consumers, workers and governments, about the
most efficient use of resources.
For example:
 When a consumer chooses to purchase a new phone, they may be unable to
purchase new jeans
o The jeans represent the loss of the next best alternative (the opportunity cost)

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 When a producer decides to allocate all of their resources to producing electric
vehicles, they may be unable to produce petrol vehicles
o The petrol vehicles represent the loss of the next best alternative (the
opportunity cost)
 When a government decides to provide free school meals to all primary students in
the country, they may be unable to fund some rural libraries, which may have to
close
o The libraries represent the loss of the next best alternative (the opportunity
cost)
1.03 Importance of specialisation
Most production involves more than one person or piece of equipment. People and businesses
specialise, to try not to waste limited resources.
It is now more common due to specialised technology and increasing global competition
Specialisation occurs when people and businesses focus on what they are best at.
Instead of everyone doing every job, the tasks are divided among people who are skilled and
efficient at them.
Division of labour is when production is split into different tasks, and each worker performs
one of these tasks.
Division of labour is a form of specialisation.

Advantages Disadvantages
Workers are trained in one task and specialise Repetitive tasks can cause boredom and
in this, increasing productivity and efficiency. burnout for employees, reducing motivation
and job efficiency.
Specialisation with division of labour will If a worker is not present, production will be
result in better quality output. disrupted, causing a waste of time and
resources, as well as less output and
efficiency.
An increase in efficiency will lead to Specialised workers require higher wages,
economies of scale. and training current employees will increase
costs.
Workers become more skilled and
experienced, reducing waste of time and
resources.

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Cambridge:
Identify two benefits to a business of specialisation.
- Increases output
- Quicker production / increases productivity / higher efficiency
- Lower unit cost / economies of scale
- Workers become expert/more skilled / employees focus on what they are
good at
- Improves accuracy / better quality / fewer mistakes / reduces waste
- Helps improve competitiveness

1.04 The purpose of business activity


Businesses combine scarce factors of production (Land, Labour, Capital and Enterprise) to
produce goods or services to satisfy people’s needs and wants.
What is the purpose of business activities?
To produce goods and services by
1. Combining and organizing scarce resources/factor of productions
2. Determining what goods to produce
3. Adding value to resources to produce goods and services

Business Activity:
- Combines scare factors
- Produces goods and services
- Employs people

Factors of production: Resources needed to produce goods and services; they are:
Factors of Production
Land Any natural resource used in production.
Labour Mental and physical efforts of employees.
Capital Finance, machinery and equipment needed for the manufacture of goods.
Enterprise Individual/s who manage/coordinate the three other factors, make
decisions and take risks.

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1.05 Adding value
Added value: The difference between the selling price of a product and the cost of raw
materials used to make it.
That 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.
Added Value = selling price – total cost

By adding value, businesses can cover production costs, other costs like labour, power,
advertising costs.
By adding value businesses are likely to make a profit if the other costs are less than the
added value.
If value is not added to the materials and components that a business buys then fixed costs
cannot be paid and no profit will be made.
Customers are prepared to pay more for potatoes when they are packaged as oven chips than
they would be willing to pay for a bag of potatoes
Note:
- Value added is not the same as profit; profit applies to a business and includes other
costs, value added applies to a product/service.

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- The greater the added value, the more successful the business is likely to be and the
higher their profits

There are two ways in which a business can increase added value:
1. By increasing the selling price of the product, while keeping the costs of production
the same,
2. By reducing the costs of production, while keeping the selling price the same.

Ways for a business to increase added value include:


• Branding: Brands represent quality and sometimes status. Creating a unique identity that
distinguishes it from competitors increases customers loyalty, trust, and recognition which
translate into higher sales and profitability.
(Brand awareness can encourage customers to pay more for a product if they trust the brand
name that produces it.)
• Quality: Customers are willing to pay premium prices for products or services that are of
high quality because they offer greater value and satisfaction.
• Add extra features to products: Value-added features can differentiate products from
competitors, create a unique selling point, and increase customer satisfaction.
E.g. A product that is easier to use, has a better design, or is of higher quality than
competitors can create a competitive advantage for a business.
• Providing customised services: Businesses providing better quality personalised services
to their consumers add more value. Consumers are willing to pay a little extra for customised
services.
• Improve customer service: Businesses need to provide a good customer service to its
customers. This adds to the experience, so customers are willing to pay more for the
product/service rather than go to cheaper places.

Advantages of added value Disadvantages of added value


Maybe able to make a profit if these other Increasing the product's price can lead to
costs come to a total less than the added lower sales and, perhaps, profit.
value.
It can be used to pay other expenses.

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