Chapter 1 Business activity

Question 1

Needs

Answer 1

A good or service essential for survival

Question 2

Wants

Answer 2

A good or service people would like to have but is not essential in order to survive.

Question 3

Economic problem

Answer 3

When unlimited wants exceed finite resources

Question 4

Advantages of specialisation and division of labour

Answer 4

Efficiency, Output, Quicker, Cheaper - Increased CEO of Q

Question 5

Disadvantages of specialisation and division of labour

Answer 5

Dependent, Efficiency can ball because of Boredom. BED

Question 6

Division of labour

Answer 6

It is a form of specialization. The production process is split up into different tasks each worker performs a different task.

Question 7

Added value

Answer 7

The difference between the selling price of a product and the cost of bought-in materials.

Question 8

What is opportunity cost

Answer 8

Next best alternative foregone

Question 9

What are factors of production

name them

Answer 9

They are those resources needed to produce goods or services

Land, labour, capital, enterprise

Question 10

Why is added value important

Answer 10

» So that businesses can pay other costs - eg labour, advertisement, etc

» Could make a profit if total costs < added value

Question 11

2 ways to increase added value

Answer 11

Increase selling price but keep cost of raw materials same

Same selling price but reduce cost of raw materials.

Question 12

Analyse Increase selling price but keep cost of raw materials same for increasing added value

Answer 12

adv:
may think its higher quality - better brand image - more profits

disadv:
other costs may rise tryna make a better brand image - lower profit
may alienate some potential customers - lose out on them - lower profit
if product is price elastic - may lose a lot of customers

Question 13

Analyse Same selling price but reduce cost of raw materials same for increasing added value

Answer 13

adv:
higher gross profit margin - therefore more profits per unit

disadv:
quality of product may take a hit - negatively impact brand image - lose customers - lower profit

Question 14

Purpose of business activity

Answer 14

» combines scarce factors of production to produce goods and services

» produces goods and services which are needed to satisfy the needs and wants of the population

» employs people as workers and pays them wages to allow them to consume products made by other people.