1.1 Nature of Business Activity Flashcards
What are needs?
Give some examples.
Needs are goods or services we need to survive.
Examples include food, drink and shelter.
What are wants?
Give some examples.
Wants are goods and services people or consumers desire but aren’t essential for survival.
This could be a holiday stay at a luxury hotel or a PlayStation 5.
Why does scarcity occur?
Scarcity occurs as there are not enough resources, goods or services to provide for consumers’ unlimited wants.
What is opportunity cost?
Explain with an example.
Opportunity Cost is the potential benefit a business misses out on when choosing one alternative over another.
A business may have a choice between investing in new machinery or an advertising campaign.
If the business chooses the new machinery, the opportunity cost of the decision to buy machinery will be that it can’t benefit from the advertising campaign.
What is specialisation?
Explain with examples.
Specialisation means people in business focus on what they do best.
A shoe store focuses on selling shoes only, not clothes or food.
A transport company may hire a website designer to create their website, as their expertise is in driving and vehicles, not in information technology.
What is the purpose of business activity?
Explain with examples.
The purpose of business activity is to satisfy consumers’ wants.
A fast-food outlet satisfies consumers desire to eat a hamburger.
A social media network satisfies users who want to connect with their friends.
Define added value.
Added value is calculated by subtracting the cost of materials from the selling price.
Added value = Selling price - Cost of materials
How is cost of materials calculated?
Cost of materials is calculated by adding together the costs of all the different materials to make a product.
How can value added be increased?
Value Added can be increased by increasing the selling price or reducing the cost of materials.
How can businesses increase selling price and justify it?
**Businesses may offer additional features. **
Mac could add bacon or avocado to the hamburgers they sell.
**They can also improve the quality of materials. **
Mac’s could offer organic cheddar cheese in their burgers rather than processed cheese.
**Branding is crucial in increasing added value. If consumers trust a branded product they will be willing to pay more. **
If Mac has a positive reputation and builds brand identity he may be able to increase prices for his burgers.
Apple can charge high prices for their products due to the strength of its brand image.
