Business Activity (Chapter 1).

Question 1

What is a need?

Answer 1

A need is a good or service essential for living.

Question 2

What is a want?

Answer 2

A want is a good or service which people would like to have, but which is not essential for living.

People’s wants are unlimited.

Question 3

What is an 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

The government decides to try to ‘solve’ problems by printing more bank notes, doubling everyone’s incomes. Why is this not good?

Answer 4

Printing more money does not produce more goods and services, it will just lead to inflation so more goods cannot be afforded.

Question 5

Define factors of production.

Answer 5

Factors of production are those resources needed to produce goods or services.

Question 6

There are four factors of production and they are in limited supply: Name them?

Answer 6

There are four factors of production and they are in limited supply: Land, labour, capital and enterprise.

Question 7

There are four factors of production: Define land.

Answer 7

This term is used to cover all of the natural resources provided by nature.

Question 8

Give some examples to natural resources provided by nature?

Answer 8

Fields and forests, oil, gas, metals and other mineral resources.

Question 9

There are four factors of production: Define labour.

Answer 9

This is the number of people available to make products.

Question 10

There are four factors of production: Define capital.

Answer 10

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

Question 11

There are four factors of production: Define enterprise.

Answer 11

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.

Question 12

What is an entrepreneur?

Answer 12

An entrepreneur is an owner of a business.

Question 13

State the word diagram for the real cause of the economic problem.

Answer 13

Unlimited wants + limited resources = scarcity.

Question 14

Define opportunity cost.

Answer 14

Opportunity cost is the next best alternative given up by choosing another item.

Question 15

For example, I have to choose between a holiday or a car and I choose the holiday, what is the opportunity cost?

Answer 15

If I choose the holiday, the car becomes the opportunity cost.

Question 16

For example, I have to choose between machine a or a machine b and I choose machine a, what is the opportunity cost?

Answer 16

If I choose machine a, machine b becomes the opportunity cost.

Question 17

State the economic problem revision summary equation.

Answer 17

Land + Labour + Capital + Enterprise = Limited resources = ECONOMIC PROBLEM = unlimited wants = scarcity = choice is necessary = leads to opportunity cost.

Question 18

Define specialisation.

Answer 18

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

Question 19

Specialisation is now very common because:

Answer 19

Specialisation is now very common because:

• Specialised machinery and technologies are now widely available.
• Increasing competition means that businesses have to keep costs low.
• Most people recognise that higher living standards can result from being specialised.

Question 20

Define division of labour (it is a form of specialisation).

Answer 20

Division of labour is when the production process is split up into different tasks and each worker preforms one of these tasks.

Question 21

List the three advantages of division of labour:

Answer 21

• Increases efficiency and output.
• Less time is wasted moving from one workbench to another.
• Quicker and cheaper to train workers.

Question 22

List the two disadvantages of division of labour:

Answer 22

• Workers can become bored doing just one job - efficiency might fall.
• If one worker is absent and no one else can do the job, production might be stopped.

Question 23

Fill in the missing spaces:
- People have ______ ______.

• The four factors of production - ___ _________ ______ __ ____ _____ - are in _______ supply.
• Scarcity results from _______ ________ and _________ _____.
• ______ is necessary when resources are scarce. This leads to ___________ ____.
• ______________ improves the _________ use of resources.

Answer 23

• People have unlimited wants.
• The four factors of production - the resources needed to make goods - are in limited supply.
• Scarcity results from limited resources and unlimited wants.
• Choice is necessary when resources are scarce. This leads to opportunity cost.
• Specialisation improves the efficient use of resources.

Question 24

What is the purpose of businesses?

Answer 24

The purpose of all businesses is to combine the factors of production to make products which will satisfy people’s wants.

Question 25

Businesses produce products; these products can either be two things. Name them.

Answer 25

These products can either be goods, such as cars and shoes, or they can be services, such as insurance, tourism or banking.

Question 26

Business activity does three things for people lives: Name them.

Answer 26

• Combines scares factors of production to produce goods or services.
• Produces goods or services which are needed to satisfy the needs and wants.
• Employs people as workers and pays them wages.

Question 27

What is added value?

Answer 27

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

Question 28

Why is added value important?

Answer 28

Added value is important because sales revenue is greater than the cost of materials bought in by the business.

Question 29

All businesses attempt to add value. If value is not added to the materials and components that a business buys in, then:

Answer 29

All businesses attempt to add value. If value is not added to the materials and components that a business buys in, then:

• Other costs cannot be paid for.
• No profit will be made.

Question 30

Added value is important because sales revenue is greater than the cost of materials bought in by the business. This means the business:

Answer 30

This means the business:

• Can pay other costs such as labour costs, management expenses, advertising and power.
• May be able to make a profit if these other costs come to a total that is less than the added value.

Question 31

How could a business increase added value?

Answer 31

a) Increase selling price but keep the costs of materials the same.
b) Reduce the cost of materials but keep the price the same.

Question 32

Increase selling price but keep the costs of materials the same. How can this be possible?

Answer 32

This might be possible if the business tries to create a higher-quality image for its product or service.

Question 33

Increase selling price but keep the costs of materials the same. This might be possible if the business tries to create a higher-quality image for its product or service. What happens if consumers are convinced by this?

Answer 33

If consumers are convinced by this then they might be prepared to pay higher prices and buy the same quantity as before the price rise.

Question 34

Reduce the cost of materials but keep the price the same. How can a higher added value be possible?

Answer 34

If the price charged to customers stays the same but the cost of materials is reduced then a higher added value will be made.