Section 1.1 Business Activity

Question 1

What is the purpose of business activity?

Answer 1

To provide consumers with goods and services that meet our needs and wants

Question 2

What are goods?

Answer 2

Tangible - Can physically touch Example: Cars, Water, Bread

Question 3

What are services?

Answer 3

Intangible - Cannot touch Example: Websites, Youtube, Facebook, Bank service

Question 4

What are needs?

Answer 4

Things we cannot live without (essential for living) Example: Water, Food, Shelter
Need = Limited

Question 5

What are wants?

Answer 5

Things we can live without but would like to have (wish, desire) Example: Gold watches, Ferraris, Iphones Want = Unlimited

Question 6

What is the economic problem?

Answer 6

Unlimited wants cannot be met because there are limited resources (factors of production). This creates scarcity.

Question 7

What is scarcity?

Answer 7

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

Question 8

What are the 4 factors of production?

Answer 8

The resources needed to produce goods and services:
Land Capital
Labor Enterprise

Question 9

What is Land? (Factor of Production)

Answer 9

All natural resources. Example: Land that the business is built on, minerals, ores, fields, oils and forest.

Question 10

What is Labour? (Factor of production)

Answer 10

Worker who contribute to the production of goods and services. Example: factory workers

Question 11

What is Capital? (Factors of Production)0

Answer 11

Machinery, equipment and finance needed for the production of goods and services. Examples: Truck, investments, tools

Question 12

What is Enterprise? (Factors of Production)

Answer 12

Are the people prepared to take the risk of setting up business (entrepreneurs) Example: CEO

Question 13

What is opportunity cost?

Answer 13

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.

Question 14

What is specialization?

Answer 14

When people and businesses concentrated on what they are the best at.

Example: A dentist is a doctor that specialises in teeth

Question 15

What is division of labour?

Answer 15

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.

Question 16

What are the advantages of division of labour?

Answer 16

• Saves time
• Increased productivity
• Employee specialises in their task
• Increases efficiency

Question 17

What are the disadvantages of division of labour?

Answer 17

• Fall in motivation in employees as task become repetitive

- If one employee is absent, production will stop

Question 18

What are consumer goods and services?

Answer 18

Goods and services which are sold to the public (consumers) for their enjoyment

Example: Food, bus services, bank service

Question 19

What are capital goods?

Answer 19

Products which are sold to other businesses not for their enjoyment but to help make object goods and services

Question 20

What is added value?

Answer 20

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

Question 21

Example of added value?

Answer 21

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…

Question 22

How can businesses add value?

Answer 22

• After buy service
• Personalise the product or service
• Extra features
• Branding
• Quantity