IGCSE Business Studies
Key Revision Notes
Page 1
, 1.1.1 Business activity as a means of adding value and meeting customer needs
Adding Value: The difference between the cost to produce and the selling
price as a product moves through chain of production a product is changed
and thereby the price of the product increases – e.g. from a stick of wood to
a chair
Scarcity and Choice
All things are scarce (except the air). There is a limit to how much we can
have. As a result people, businesses and consumers must make choices. In
business these choices based on scarcity are called Opportunity Costs.
Opportunity Costs
All people and businesses have wants and needs. A need is something that is
considered essential and a want is something that would be beneficial but we
could do without.
However all goods and services are scarce – i.e. There is not an unlimited
supply of everything and as such everyone has to make choices. Making a
good choice will however mean that you will give up one thing in favour of
getting another. This is known as an opportunity cost.
Definition to learn
The opportunity cost is the loss of the good or service forgone
Example
Consider a can of coke and a bar of chocolate. Both are priced at KSh 40.
You want to buy both but you only have 40Ksh in your pocket and so you can
only buy one.
If you decided you buy the can of coke then the opportunity cost would
be the bar of chocolate.
All organisations need to make opportunity cost decisions such as a
government may have to decide whether to improve the infrastructure in a
country or build and run a new hospital. If it chooses to build and run a
hospital then the opportunity cost of the hospital would be improve
infrastructure in the country.
Page 2
,1.1.2: Classification of local and national firms into primary, secondary and tertiary sectors
Production
Production is all activities that help to provide goods and services that
people want or need.
Factors of Production
These are the resources needed for a business to exist.
Land: This can be rented or bought. It also includes natural resources
such as oil, forests, and rivers.
Labour: This includes all the people who are paid for their services
and also people who offer their services for free (e.g. voluntary
workers or the family of a business owner.)
Capital: These are the physical equipment, tools and machinery
needed to run the business. Capital also includes money that is used to
set the business up.
Entrepreneurial Skills: This is the person who develops the business
idea and runs the business. An entrepreneur takes the risks, has the
ideas and reaps the rewards through profit (or suffers any losses!)
All of the factors of production work together to allow the business
functions to happen. Business functions include
o Production
o Research & Development
o Finance
o Marketing
o Administration
o Human Resources.
When these come together the business is able to produce the goods or
services that it set out to achieve.
Page 3
, Goods And Services
Consumer Goods: These are goods that are provided for the general public.
Consumer goods fall into two categories: Durable goods and non-durable
goods.
Durable Goods: Goods that are used repeatedly over a period of time.
Although they will eventually need replacing through wear and tear they are
not used up. Examples of durable goods include:
Tables Computers
Cars Mobile Phones
Non-Durable Goods: Goods that are used up and need replacing. In the
shops these are known as “fast moving consumer goods” – FMCGs. Examples
include:
Food Toothpaste
Washing powder Ink Cartridge
Capital Goods. These are goods purchased by businesses to produce the
goods or services that they will eventually sell. Capital goods are one of the
factors of production. Examples include
Vehicles Machinery
Fixtures & Fittings Premises
Many goods fall into different categories depending on where they are in
the production chain. For example a computer in a home is a consumer
durable but to a computer shop it is a capital good. Shampoo at home is a
consumer non-durable but it is a capital good in a hairdressers.
Services: This is an important sector of production that enables industry to
run efficiently. It includes all businesses providing services to industry such
as selling (a restaurant will buy meat form a butcher), to transport (a
manufacturer needs to get its products to their customers either at home
or abroad), banking and insurance and tourism.
Page 4
Key Revision Notes
Page 1
, 1.1.1 Business activity as a means of adding value and meeting customer needs
Adding Value: The difference between the cost to produce and the selling
price as a product moves through chain of production a product is changed
and thereby the price of the product increases – e.g. from a stick of wood to
a chair
Scarcity and Choice
All things are scarce (except the air). There is a limit to how much we can
have. As a result people, businesses and consumers must make choices. In
business these choices based on scarcity are called Opportunity Costs.
Opportunity Costs
All people and businesses have wants and needs. A need is something that is
considered essential and a want is something that would be beneficial but we
could do without.
However all goods and services are scarce – i.e. There is not an unlimited
supply of everything and as such everyone has to make choices. Making a
good choice will however mean that you will give up one thing in favour of
getting another. This is known as an opportunity cost.
Definition to learn
The opportunity cost is the loss of the good or service forgone
Example
Consider a can of coke and a bar of chocolate. Both are priced at KSh 40.
You want to buy both but you only have 40Ksh in your pocket and so you can
only buy one.
If you decided you buy the can of coke then the opportunity cost would
be the bar of chocolate.
All organisations need to make opportunity cost decisions such as a
government may have to decide whether to improve the infrastructure in a
country or build and run a new hospital. If it chooses to build and run a
hospital then the opportunity cost of the hospital would be improve
infrastructure in the country.
Page 2
,1.1.2: Classification of local and national firms into primary, secondary and tertiary sectors
Production
Production is all activities that help to provide goods and services that
people want or need.
Factors of Production
These are the resources needed for a business to exist.
Land: This can be rented or bought. It also includes natural resources
such as oil, forests, and rivers.
Labour: This includes all the people who are paid for their services
and also people who offer their services for free (e.g. voluntary
workers or the family of a business owner.)
Capital: These are the physical equipment, tools and machinery
needed to run the business. Capital also includes money that is used to
set the business up.
Entrepreneurial Skills: This is the person who develops the business
idea and runs the business. An entrepreneur takes the risks, has the
ideas and reaps the rewards through profit (or suffers any losses!)
All of the factors of production work together to allow the business
functions to happen. Business functions include
o Production
o Research & Development
o Finance
o Marketing
o Administration
o Human Resources.
When these come together the business is able to produce the goods or
services that it set out to achieve.
Page 3
, Goods And Services
Consumer Goods: These are goods that are provided for the general public.
Consumer goods fall into two categories: Durable goods and non-durable
goods.
Durable Goods: Goods that are used repeatedly over a period of time.
Although they will eventually need replacing through wear and tear they are
not used up. Examples of durable goods include:
Tables Computers
Cars Mobile Phones
Non-Durable Goods: Goods that are used up and need replacing. In the
shops these are known as “fast moving consumer goods” – FMCGs. Examples
include:
Food Toothpaste
Washing powder Ink Cartridge
Capital Goods. These are goods purchased by businesses to produce the
goods or services that they will eventually sell. Capital goods are one of the
factors of production. Examples include
Vehicles Machinery
Fixtures & Fittings Premises
Many goods fall into different categories depending on where they are in
the production chain. For example a computer in a home is a consumer
durable but to a computer shop it is a capital good. Shampoo at home is a
consumer non-durable but it is a capital good in a hairdressers.
Services: This is an important sector of production that enables industry to
run efficiently. It includes all businesses providing services to industry such
as selling (a restaurant will buy meat form a butcher), to transport (a
manufacturer needs to get its products to their customers either at home
or abroad), banking and insurance and tourism.
Page 4
