chapter 1 - business activity

Question 1

what is the economic problem?

Answer 1

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

Question 2

how do some countries solve the economic problems?

Answer 2

some countries solve this problem by trading agreements with other countries.

Question 3

what is the real cause of scarcity (2)

Answer 3

the real cause of the shortage or scarcity of goods and services is that there are not enough factors of productions to make all of the goods and services that the population needs and wants.

Question 4

what are the factors of production? (4)

Answer 4

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

labour - this is the number of people available to make products.

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

enterprise - 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, ex: the owner of a business.

Question 5

why is specialization common now? (3)

Answer 5

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

Question 6

advantages of division of labour? (3)

Answer 6

• Workers are trained in one task and specialize in this – this increases efficiency and output.
• Less time is wasted moving from one workbench to another.
• Quicker and cheaper to train workers as fewer skills need to be taught.

Question 7

disadvantages of division of labour? (2)

Answer 7

• 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 8

what are the business activities? (3)

Answer 8

• Business (activities) combine 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.

Question 9

what happens when value is not added to the materials? (3)

Answer 9

• If value is not added to the materials and components that a business buys in then other costs cannot be paid for and no profit will be made.
• This means that businesses can pay other costs such as labour costs, management expenses and costs including advertising and power.
• Businesses may also be able to make a profit if these other costs come to a total that is less than the added value.

Question 10

what are the two main ways to increase added value? (2)

Answer 10

• Increase selling price but keep the cost of materials the same.
• Reduce the cost of materials but keep the price the same.