Section 1.1 Business Activity Flashcards
What is the purpose of business activity?
To provide consumers with goods and services that meet our needs and wants
What are goods?
Tangible - Can physically touch Example: Cars, Water, Bread
What are services?
Intangible - Cannot touch Example: Websites, Youtube, Facebook, Bank service
What are needs?
Things we cannot live without (essential for living) Example: Water, Food, Shelter
Need = Limited
What are wants?
Things we can live without but would like to have (wish, desire) Example: Gold watches, Ferraris, Iphones Want = Unlimited
What is the economic problem?
Unlimited wants cannot be met because there are limited resources (factors of production). This creates scarcity.
What is scarcity?
This is the basic economic problem. When there are not enough goods and services to meet the want of the population.
Formula: Scarcity = Unlimited wants + Limited resources
What are the 4 factors of production?
The resources needed to produce goods and services:
Land Capital
Labor Enterprise
What is Land? (Factor of Production)
All natural resources. Example: Land that the business is built on, minerals, ores, fields, oils and forest.
What is Labour? (Factor of production)
Worker who contribute to the production of goods and services. Example: factory workers
What is Capital? (Factors of Production)0
Machinery, equipment and finance needed for the production of goods and services. Examples: Truck, investments, tools
What is Enterprise? (Factors of Production)
Are the people prepared to take the risk of setting up business (entrepreneurs) Example: CEO
What is opportunity cost?
Loss of alternatives when one alternative is chosen
Example: You have and option to study or watch a movie. If you choose to study, you will miss out on watching the movie, in this case the movie is the opportunity cost.
What is specialization?
When people and businesses concentrated on what they are the best at.
Example: A dentist is a doctor that specialises in teeth
What is division of labour?
Production process is divided into separate tasks in which employees do what they specialise in.
Example: Production of cars. Some worker specialising in making windows while the other in making tyres.
What are the advantages of division of labour?
- Saves time
- Increased productivity
- Employee specialises in their task
- Increases efficiency
What are the disadvantages of division of labour?
- Fall in motivation in employees as task become repetitive
- If one employee is absent, production will stop
What are consumer goods and services?
Goods and services which are sold to the public (consumers) for their enjoyment
Example: Food, bus services, bank service
What are capital goods?
Products which are sold to other businesses not for their enjoyment but to help make object goods and services
What is added value?
When the selling price of an item produced is higher than the cost of all the resources used to make it (NOT PROFIT)
Formula: Value added = selling price - cost to make the product
Example of added value?
Selling price of a car = 10,000
Cost = 3,000 in material (metal, glass, tyres)
10,000(selling price) - 3,000(cost of material) = 7,000(Value added)
Not profit as it does not take into account rent, staff wages, electricity bills, ect…
How can businesses add value?
- After buy service
- Personalise the product or service
- Extra features
- Branding
- Quantity
