Chapter 1 Flashcards
Business activity (needs and wants)
Define the term ‘need’.
A good or service essential for living, e.g., water, food, shelter.
Needs are fundamental for survival.
Define the term ‘want’.
A good or service which people would like to have, but which is not essential for living.
Wants are unlimited.
What is the economic problem?
The existence of unlimited wants but limited resources to produce goods and services.
This creates scarcity.
What are the factors of production?
Resources needed to produce goods or services. There are four factors:
* Land
* Labour
* Capital
* Enterprise
Factors of production are in limited supply.
Define scarcity.
The lack of sufficient products to fulfill the total wants of the population.
Scarcity arises due to limited resources.
What is opportunity cost?
The next best alternative given up by choosing another item.
It reflects the trade-off in decision making.
What is specialisation?
When people and businesses concentrate on what they are best at.
This improves efficiency.
Define division of labour.
When the production process is split into different tasks, and each worker performs one task.
It is a form of specialisation.
What is the purpose of business activity?
To combine factors of production to make products (goods and services) that satisfy people’s wants.
Because of these issues:
- People have unlimited wants.
- The four factors of production 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.
Businesses operate in all sectors of the industry.
What is added value?
The difference between the selling price of a product and the cost of bought-in materials and components.
It reflects the enhancement a company gives its product.
How can a business increase added value? (List 3 ways)
A business can increase added value by:
* Increasing price
* Reducing cost of materials
* Changing packaging
* Improving the design of the product
* Adding extra features
These strategies can enhance perceived value.
True or False: Unlimited wants and limited resources lead to scarcity.
True
This relationship is fundamental to the economic problem.
Fill in the blank: The four factors of production are _____, _____, _____, and _____.
Land, Labour, Capital, Enterprise
Each factor plays a crucial role in production.
What is a business objective?
The aims or targets that a business works toward.
Objectives guide business strategy.
What is the importance of specialisation?
- 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.
Business activity therefore?
- Combine scarce resource
- Produce goods and services
- Employs people
Importnace of added vlaue
- No other costs can be paid for
- no profits will be made
