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Business Activity

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16 views4 pages

Business Activity

Uploaded by

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

Need: a good or service essential for living. Examples include water and food and shelter.

Want: a good or service that people would like to have, but is not required for living. Examples include cars
and watching movies.

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.

Factors of Production

Factors of Production are resources required to produce goods or services. They are classified into four
categories.

 Land: the natural resources that can be obtained from nature. This includes minerals, forests, oil and gas.
The reward for land is rent.
 Labour: the physical and mental efforts put in by the workers in the production process. The reward for
labour is wage/salary
 Capital: the finance, machinery and equipment needed for the production of goods and services. The
reward for capital is interest received on the capital
 Enterprise: the risk taking ability of the person who brings the other factors of production together to
produce a good or service. The reward for enterprise is profit from the business.

Opportunity Cost – A benefit/value that must be given up in order to achieve something else. For example,
if a restaurant spends money on a new oven, the opportunity cost of the oven could be a new refrigerator to
store food.

Specialization

Specialization occurs when a person or organisation concentrates on a task at which 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. It’s a form of specialisation.

Advantages:

 Workers are trained to do a particular task and specialise in this, thus increasing efficiency
 Saves time and energy: production is faster by specialising
 Quicker to train labourers: workers only concentrate on a task, they do not have to be trained in all
aspects of the production process
 Skill development: workers can develop their skills as they do the same tasks repeatedly, mastering it.

Disadvantages:

 It can get monotonous/boring for workers, doing the same tasks repeatedly
 Higher labour turnover as the workers may demand for higher salaries and company is unable to keep
up with their demands
 Over-dependency: if worker(s) responsible for a particular task is absent, the entire production process
may halt since nobody else may be able to do the task.

Purpose of Business Activity

Business is any organization that uses all the factors of production (resources) to create goods and
services to satisfy human wants and needs.

Businesses attempt to solve the problem of scarcity, using scarce resources, to produce and sell those goods
and services that consumers need and want.

Business Activity:

 Combines scare factors

 Produces goods and services

 Employees people
Added Value

Added value is the difference between the cost of materials bought in and the selling price of the product.

Added Value = selling price – total cost

For example, by transforming cotton into a T-shirt, the business adds value to the cotton, as the same
material can be sold for more after the transformation.

Added Value is NOT the profit because added value does not include the expenses of producing this good
(e.g. labour, electricity, machinery, etc.)

How to increase added value?

 Reducing the cost of production. Added value of a product is its price less the cost of production.
Reducing cost of production will increase the added value.
 Raising prices. By increasing prices they can raise added value, in the same way as described above.
But there will be problems that rise from both these measures. To lower cost of production, cheap labour,
raw materials etc. may have to be employed, which will create poor quality products and only lowers the
value of the product. People may not buy it. And when prices are raised, the high price may result in
customer loss, as they will turn to cheaper products.

In a practical sense, you can add value by:

 Branding
 Adding special features
 Provide premium services etc.
In a practical example, how would you add value to a jewellery store?

 Design an attractive package to put the jewellery items in.


 An attractive shop-window-display.
 Well-dressed and knowledgeable shop assistants.
All of this will help the jewellery store to raise prices above the additional costs involved.

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