1.1 Business activity

Question 1

A need is

Answer 1

a good or service essential for living.

Question 2

A want is a

Answer 2

a good or service
which people would like
to have, but which is not
essential for living. People’s
wants are unlimited.

Question 3

The economic problem

Answer 3

there exist unlimited
wants but limited resources
to produce the goods
and services to satisfy
those wants. This creates
scarcity.

Question 4

Factors of production

Answer 4

are
those resources needed to
produce goods or services.
There are four factors of
production and they are in
limited supply.

Question 5

Scarcity

Answer 5

is the lack of
sufficient products to
fulfil the total wants of the
population.

Question 6

There are four factors of production:

Answer 6

Land
Labour
Capital
Enterprise

Question 7

Land

Answer 7

this term is used to cover all of the natural resources provided by
nature and includes fields and forests, oil, gas, metals and other mineral
resources.

Question 8

Labour

Answer 8

this is the number of people available to make products.

Question 9

Capital

Answer 9

this is the finance, machinery and equipment needed for the
manufacture of goods.

Question 10

Enterprise

Answer 10

this is the skill and risk-taking ability of the person who brings
the other resources or factors of production together to produce a good
or service, for example, the owner of a business. These people are called
entrepreneurs.

Question 11

What does the economic problem of scarcity arise from?

Answer 11

The limited supply of factors of production (land, labour, capital, and enterprise) to meet unlimited wants.

Question 12

Why is there an economic problem of scarcity?

Answer 12

Because there is never enough land, labour, capital, or enterprise to produce all the needs and unlimited wants of a population.

Question 13

Why do we make choices every day?

Answer 13

Because we have limited resources but many wants, so we must decide which wants to satisfy and which to ignore.

Question 14

What does every choice involve?

Answer 14

Every choice involves giving something up, leading to opportunity cost.

Question 15

What is opportunity cost?

Answer 15

The next best alternative given up by choosing another item.

Question 16

Who faces the problem of opportunity cost?

Answer 16

Consumers, governments, and businesses all face the problem of opportunity cost when making choices.

Question 17

What should be considered when making choices?

Answer 17

The opportunity cost should be carefully considered to ensure it is not worth more than the item being purchased.

Question 18

Why is specialisation important in all societies?

Answer 18

Because the factors of production are in limited supply, and specialisation allows for the most efficient use of these resources.

Question 19

What are some reasons why specialisation has become common?

Answer 19

Specialised machinery and technologies are widely available.

Increasing competition forces businesses to keep costs low.

Higher living standards can result from specialisation.

Question 20

What is specialisation?

Answer 20

Specialisation occurs when people and businesses concentrate on what they are best at.

Question 21

What is division of labour?

Answer 21

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.

Question 22

What are the advantages of division of labour?

Answer 22

Workers specialise in one task, increasing efficiency and output.

Less time is wasted moving from one workbench to another.

Training workers is quicker and cheaper, as fewer skills need to be taught.

Question 23

What are the disadvantages of division of labour?

Answer 23

Workers can become bored doing just one job, which may reduce efficiency.

If one worker is absent and no one else can do their task, production may stop.

Question 24

What is the purpose of business activity?

Answer 24

The purpose of business activity is to combine the factors of production to make products (goods and services) that satisfy people’s wants.

Question 25

What are the two types of products businesses can produce?

Answer 25

Businesses can produce goods (physical items like cars and shoes) or services (like insurance, tourism, and banking).

Question 26

What do all businesses have in common?

Answer 26

All businesses combine the factors of production to make products that satisfy people’s wants.

Question 27

What would life be like without business activity?

Answer 27

In undeveloped economies, people are self-sufficient, doing everything for themselves and living a basic existence with low living standards.

Question 28

How did businesses begin to form in early economies?

Answer 28

People began to specialise in what they were best at and traded goods with others, leading to the formation of businesses and the expansion of trade.

Question 29

What is the role of business activity in today’s world?

Answer 29

Business activity combines scarce factors of production to produce goods and services, satisfies the needs and wants of the population, and employs people to pay wages for them to consume products made by others.

Question 30

What are the key functions of business activity?

Answer 30

Combining scarce factors of production to produce goods and services.

Producing goods and services to satisfy the needs and wants of the population.

Employing people and paying them wages to allow them to consume products made by others.

Question 31

What is added value?

Answer 31

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

Question 32

Why is added value important for businesses?

Answer 32

Added value is important because it ensures that sales revenue is greater than the cost of materials, allowing the business to pay other costs (like labour and advertising) and potentially make a profit.

Question 33

How does a business increase added value?

Answer 33

Increase the selling price while keeping material costs the same (by creating a higher quality image).

Reduce material costs while keeping the selling price the same (by using cheaper materials).

Question 34

What happens if value is not added to the materials and components a business buys?

Answer 34

The business cannot pay other costs and will not make a profit.

Question 35

Example of added value:

Answer 35

Selling price of a house: $100,000

Cost of bought-in materials: $15,000

Added value: $85,000 (not all profit, as the builder must cover other costs like wages).

Question 36

What is the LEGO Group’s strategy to add value?

Answer 36

LEGO adds value by creating themed building sets (e.g., spaceships, pirate ships) and linking them to popular movies like Harry Potter and Star Wars, encouraging consumers to pay a higher price.

Question 37

What are the two main ways to increase added value?

Answer 37

Increase selling price while maintaining material costs.

Reduce material costs while maintaining the selling price.