BUSINESS ACTIVITY
★ Businesses: combine factors of production to make products (goods and services)
which satisfy people’s wants.
★ Need: is a good or service essential for living.
★ Want: is a good or service which people would like to have, but which is not essential
for living. People’s wants are unlimited.
★ The economic problem: there exist unlimited wants but limited resources to produce
the goods and services to satisfy those wants.This creates scarcity.
FACTORS OF PRODUCTION: (LIMITED RESOURCES)
★ Resources needed to produce goods or services. There are four factors of production
and they are in limited supply.
4 FACTORS OF PRODUCTION:
● LAND: used to cover all of the natural resources provided by nature and includes
fields and forests, oil, gas, metals and other mineral resources.
● LABOUR: number of people available to make products.
● CAPITAL: the finance, machinery and equipment needed for the manufacture of
goods.
● ENTERPRISE: skill and risk-taking ability of a person (such as the owner of a
business) who brings the factors of production together to produce a good or service.
These people are called entrepreneurs.
★ Scarcity: is the lack of sufficient products to fulfil the total wants of the population.
Limited resources: the need to choose
Opportunity cost:
★ is the next best alternative given up by choosing another item.
Specialisation:
★ occurs when people and businesses concentrate on what they are best at.
Improves the efficient use of resources.
Division of labour
★ is when the production process is split up into different tasks and each worker
performs one of these tasks. It is a form of specialisation.
- Advantages: increases efficiency and output, less time wasted, quicker and
cheaper as few skills need to be taught.
- Disadvantages: workers can become bored so efficiency might fall, if one
worker is absent no one can do the job so production might be stopped.
Business activity:
• combines scarce factors of production to produce goods and
services
• produces goods and services which are needed to satisfy the
needs and wants of the population
• employs people as workers and pays them wages to allow them to
consume products made by other people.
Added value
★ Is the difference between the selling price
of a product and the cost of bought-in
materials and components.
★ (SELLING PRICE - COSTS OF
BOUGHT-IN MATERIALS/COMPONENTS)
If value is not added, then:
,• other costs cannot be paid for
• no profit will be made.
Why is important?: because sales revenue is greater than the cost of materials bought in
by the business. By this the business:
• can pay other costs (such as labour costs, management expenses
and costs).
• may be able to make a profit if these other costs come to a total that is less than the added
value.
How could a business increase added value?
TWO MAIN WAYS:
➢ Increase selling price but keep the cost of materials the same.
Possible if the business tries to create a higher quality image. if consumers are
convinced they might pay higher prices and buy the same quantity as before the
price rise.
Note though: other costs might increase when trying to create this quality image.
➢ Reduce the cost of materials but keep the price the same.
Note though: lower priced materials might reduce the quality of the\product.
CLASSIFICATION OF BUSINESSES
By activity or ownership
Stages / SECTORS of economic activity
1. PRIMARY: Extracts and uses the natural resources of the earth to produce raw
materials used by other businesses.
2. SECONDARY: Manufactures goods using the raw materials provided by the primary
sector.
3. TERTIARY: Provides services to consumers and other sectors of industry.
Changes in sector importance
★ de-industrialisation: occurs when there is a decline in the importance of the
secondary, manufacturing sector of industry in a country.
MIXED ECONOMY: Ownership
Every country in the world has a mixed economy with private sector and a public sector:
● Private sector (businesses not owned by the government). They will make their own
decisions about what to produce,how and what price should be charged for it.
Invest more capital
● Public sector – government (or state) owned and controlled businesses and
organisations. The government, makes decisions about what to produce and how
much to charge consumers. Free goods and services are provided by the
government, such as state health and education. The money for these comes from
the taxpayer.
Privatisation: selling some public sector businesses –owned and controlled by government –
to private sector businesses.
★ Capital is the money invested into a business by the owners.
Enterprise, business growth and size:
Entrepreneur
Advantages:
● Independence
● Income may be high
● Use own skills/Interest
, ● May become successful if the bs grows
● Income might be higher than working for another bs
Disadvantages:
● risk, the bs can fail if there is poor planning
● capital, entrepreneurs have to put their own money
● lack of knowledge and experience operating a bs
● opportunity cost, lost income from not being an employee
Characteristics of successful entrepreneurs
● Hard working
● Risk taker
● Creative
● Optimistic
● Self-confident
● Innovative
● Innovative
● Effective communicator
Why governments support business start-ups
➔ Reduce unemployment
➔ Increase competition: new businesses give consumers more choice and compete
with already established businesses.
➔ Increase output
➔ Benefit society
➔ Can grow further
TYPES OF SUPPORT:
- Grants
- Low-cost loans
- Tax incentives
- Low-cost or rent-free premises
- Low-cost or free advice and training
- Training schemes
★ Business plan: is a document containing the business objectives and important
details about the operations, finance and owners of the new business.
IT SHOWS:
● Description of the business
● Products and services
● The market
● Business location and how products will reach customers
● Organisation structure and management
● Financial information
● Business strategy
● Business aim
Methods of measuring business size and limitations of these methods
Who would find it useful to compare the size of businesses?
• Investors – before deciding which business to put their savings into.
• Governments – often there are different tax rates for small and large businesses.
• Competitors – to compare their size and importance with other firms.
• Workers – to have some idea of how many people they might be working with.
• Banks – to see how important a loan to the business is compared to its overall size.
WAYS TO MEASURE BUSINESSES
, ❖ Numbers of employees: Easy to calculate and compare with other businesses.
Limitations:
● some capital-intensive firms produce high output levels but employ few
people they use high costs equipment.
● problem: part-time workers that work half a week each should be counted as
one employee or two?
❖ Value of output: used in manufacturing business to compare their size with other
businesses in the same industry.
Limitations:
● The value of output might not be the same as the value of sales if some
goods are not sold.
❖ Value of sales: used on retailing businesses, specially retailers that sell the same
product.
Limitations:
● It could be misleading when comparing the size of businesses that sell very
different products. (Example: retailer of luxury compared to a business that
sells sweets).
❖ Value of capital employed: the total value of capital invested/used in the business.
Limitations:
● A company employing many workers may use labour-intensive methods of
production which use little capital equipment.
How can businesses grow ?
They can expand in two main ways
➔ Internal gowth: for example a restaurant owner could open other
restaurants in other towns. This is often slow but easier to manage
than external growth.
➔ External growth: involving a takeover or a merger with another
business.
-HORIZONTAL: WHEN ONE FIRM MERGES WITH OR TAKES OVER ANOTHER ONE IN
THE SAME STAGE OF PRODUCTION (EG: TWO TRACTOR MANUFACTURERS).
-VERTICAL:WHEN A FIRM MERGES WITH OR TAKES OVER ANOTHER ONE IN THE
SAME INDUSTRY BUT AT OTHER LEVEL OF PRODUCTION. IT CAN BE FORWARD
(EG: A COPPER WIRE MAKER MERGES WITH AN ELECTRICAL CONTRACTOR, THE
FIRM MERGED WITH ANOTHER ONE FROM A SUBSEQUENT STAGE IN PROD), OR
BACKWARD (EG:A COPPER WIRE MAKER MERGES WITH A COPPER MINE)
-CONGLOMERATE INTEGRATION/DIVERSIFICATION: One firm merges with or takes over
a firm in a completely different industry.
PROBLEMS OF BUSINESS GROW:
● Difficult to control
● Poor communication
● Short of finance (expansion costs)
● Integration with other business is difficult (different management styles)
WHY DO BUSINESSES STAY SMALL
● The type of industry the business operates in (due to personal services/products)
● Market size (if the marketis small, the bs is likely to remain small/ limited consumers)
★ Businesses: combine factors of production to make products (goods and services)
which satisfy people’s wants.
★ Need: is a good or service essential for living.
★ Want: is a good or service which people would like to have, but which is not essential
for living. People’s wants are unlimited.
★ The economic problem: there exist unlimited wants but limited resources to produce
the goods and services to satisfy those wants.This creates scarcity.
FACTORS OF PRODUCTION: (LIMITED RESOURCES)
★ Resources needed to produce goods or services. There are four factors of production
and they are in limited supply.
4 FACTORS OF PRODUCTION:
● LAND: used to cover all of the natural resources provided by nature and includes
fields and forests, oil, gas, metals and other mineral resources.
● LABOUR: number of people available to make products.
● CAPITAL: the finance, machinery and equipment needed for the manufacture of
goods.
● ENTERPRISE: skill and risk-taking ability of a person (such as the owner of a
business) who brings the factors of production together to produce a good or service.
These people are called entrepreneurs.
★ Scarcity: is the lack of sufficient products to fulfil the total wants of the population.
Limited resources: the need to choose
Opportunity cost:
★ is the next best alternative given up by choosing another item.
Specialisation:
★ occurs when people and businesses concentrate on what they are best at.
Improves the efficient use of resources.
Division of labour
★ is when the production process is split up into different tasks and each worker
performs one of these tasks. It is a form of specialisation.
- Advantages: increases efficiency and output, less time wasted, quicker and
cheaper as few skills need to be taught.
- Disadvantages: workers can become bored so efficiency might fall, if one
worker is absent no one can do the job so production might be stopped.
Business activity:
• combines scarce factors of production to produce goods and
services
• produces goods and services which are needed to satisfy the
needs and wants of the population
• employs people as workers and pays them wages to allow them to
consume products made by other people.
Added value
★ Is the difference between the selling price
of a product and the cost of bought-in
materials and components.
★ (SELLING PRICE - COSTS OF
BOUGHT-IN MATERIALS/COMPONENTS)
If value is not added, then:
,• other costs cannot be paid for
• no profit will be made.
Why is important?: because sales revenue is greater than the cost of materials bought in
by the business. By this the business:
• can pay other costs (such as labour costs, management expenses
and costs).
• may be able to make a profit if these other costs come to a total that is less than the added
value.
How could a business increase added value?
TWO MAIN WAYS:
➢ Increase selling price but keep the cost of materials the same.
Possible if the business tries to create a higher quality image. if consumers are
convinced they might pay higher prices and buy the same quantity as before the
price rise.
Note though: other costs might increase when trying to create this quality image.
➢ Reduce the cost of materials but keep the price the same.
Note though: lower priced materials might reduce the quality of the\product.
CLASSIFICATION OF BUSINESSES
By activity or ownership
Stages / SECTORS of economic activity
1. PRIMARY: Extracts and uses the natural resources of the earth to produce raw
materials used by other businesses.
2. SECONDARY: Manufactures goods using the raw materials provided by the primary
sector.
3. TERTIARY: Provides services to consumers and other sectors of industry.
Changes in sector importance
★ de-industrialisation: occurs when there is a decline in the importance of the
secondary, manufacturing sector of industry in a country.
MIXED ECONOMY: Ownership
Every country in the world has a mixed economy with private sector and a public sector:
● Private sector (businesses not owned by the government). They will make their own
decisions about what to produce,how and what price should be charged for it.
Invest more capital
● Public sector – government (or state) owned and controlled businesses and
organisations. The government, makes decisions about what to produce and how
much to charge consumers. Free goods and services are provided by the
government, such as state health and education. The money for these comes from
the taxpayer.
Privatisation: selling some public sector businesses –owned and controlled by government –
to private sector businesses.
★ Capital is the money invested into a business by the owners.
Enterprise, business growth and size:
Entrepreneur
Advantages:
● Independence
● Income may be high
● Use own skills/Interest
, ● May become successful if the bs grows
● Income might be higher than working for another bs
Disadvantages:
● risk, the bs can fail if there is poor planning
● capital, entrepreneurs have to put their own money
● lack of knowledge and experience operating a bs
● opportunity cost, lost income from not being an employee
Characteristics of successful entrepreneurs
● Hard working
● Risk taker
● Creative
● Optimistic
● Self-confident
● Innovative
● Innovative
● Effective communicator
Why governments support business start-ups
➔ Reduce unemployment
➔ Increase competition: new businesses give consumers more choice and compete
with already established businesses.
➔ Increase output
➔ Benefit society
➔ Can grow further
TYPES OF SUPPORT:
- Grants
- Low-cost loans
- Tax incentives
- Low-cost or rent-free premises
- Low-cost or free advice and training
- Training schemes
★ Business plan: is a document containing the business objectives and important
details about the operations, finance and owners of the new business.
IT SHOWS:
● Description of the business
● Products and services
● The market
● Business location and how products will reach customers
● Organisation structure and management
● Financial information
● Business strategy
● Business aim
Methods of measuring business size and limitations of these methods
Who would find it useful to compare the size of businesses?
• Investors – before deciding which business to put their savings into.
• Governments – often there are different tax rates for small and large businesses.
• Competitors – to compare their size and importance with other firms.
• Workers – to have some idea of how many people they might be working with.
• Banks – to see how important a loan to the business is compared to its overall size.
WAYS TO MEASURE BUSINESSES
, ❖ Numbers of employees: Easy to calculate and compare with other businesses.
Limitations:
● some capital-intensive firms produce high output levels but employ few
people they use high costs equipment.
● problem: part-time workers that work half a week each should be counted as
one employee or two?
❖ Value of output: used in manufacturing business to compare their size with other
businesses in the same industry.
Limitations:
● The value of output might not be the same as the value of sales if some
goods are not sold.
❖ Value of sales: used on retailing businesses, specially retailers that sell the same
product.
Limitations:
● It could be misleading when comparing the size of businesses that sell very
different products. (Example: retailer of luxury compared to a business that
sells sweets).
❖ Value of capital employed: the total value of capital invested/used in the business.
Limitations:
● A company employing many workers may use labour-intensive methods of
production which use little capital equipment.
How can businesses grow ?
They can expand in two main ways
➔ Internal gowth: for example a restaurant owner could open other
restaurants in other towns. This is often slow but easier to manage
than external growth.
➔ External growth: involving a takeover or a merger with another
business.
-HORIZONTAL: WHEN ONE FIRM MERGES WITH OR TAKES OVER ANOTHER ONE IN
THE SAME STAGE OF PRODUCTION (EG: TWO TRACTOR MANUFACTURERS).
-VERTICAL:WHEN A FIRM MERGES WITH OR TAKES OVER ANOTHER ONE IN THE
SAME INDUSTRY BUT AT OTHER LEVEL OF PRODUCTION. IT CAN BE FORWARD
(EG: A COPPER WIRE MAKER MERGES WITH AN ELECTRICAL CONTRACTOR, THE
FIRM MERGED WITH ANOTHER ONE FROM A SUBSEQUENT STAGE IN PROD), OR
BACKWARD (EG:A COPPER WIRE MAKER MERGES WITH A COPPER MINE)
-CONGLOMERATE INTEGRATION/DIVERSIFICATION: One firm merges with or takes over
a firm in a completely different industry.
PROBLEMS OF BUSINESS GROW:
● Difficult to control
● Poor communication
● Short of finance (expansion costs)
● Integration with other business is difficult (different management styles)
WHY DO BUSINESSES STAY SMALL
● The type of industry the business operates in (due to personal services/products)
● Market size (if the marketis small, the bs is likely to remain small/ limited consumers)
