UNIT 1 - Chap 1: Business activity

Question 1

Need?

Answer 1

A need is a good or service essential for living.

Question 2

Want?

Answer 2

A want is a good or service which people would like to have, but can’t

Question 3

Economic problem?

Answer 3

The economic problem – there exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.

Question 4

Factors of production

Answer 4

Factors of production are those resources needed to produce goods or services. There are four factors of production and they are in limited supply.

Question 5

Scarcity?

Answer 5

Scarcity is the lack of sufficient products to fulfil the total wants of the population.

Question 6

Opportunity cost?

Answer 6

Opportunity cost is the next best alternative given up by choosing another item.

Question 7

Specialisation?

Answer 7

Specialisation occurs when people and businesses concentrate on what they are best at.

Question 8

Division of labour?

Answer 8

Division of labour is when the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialisation.

Question 9

Businesses?

Answer 9

Businesses combine factors of production to make products (goods and services) which satisfy people’s wants.

Question 10

Added value

Answer 10

Added value is the difference between the selling price of a product and the cost of bought-in materials and components.

Question 11

Land?

Answer 11

Natural resources used in the production of goods and services

Question 12

Labour?

Answer 12

This is the number of people available to make products.

Question 13

Enterprise?

Answer 13

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, for example, the owner of a business. These people are called entrepreneurs.

Question 14

Capital?

Answer 14

This is the finance, machinery and equipment needed for the manufacture of goods.

Question 15

Why is specialization very common?

Answer 15

• 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.

Question 16

Adv and dis of division of labour?

Answer 16

Adv:
* Workers are trained in one task and specialise in this – this increases efficiency and output
* Less time is wasted moving from one workbench to another

Dis:
* 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 17

Business activity includes?

Answer 17

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

Question 18

What happens when value is not added to the materials and components that a business buys in?

Answer 18

• other costs cannot be paid for
• no profit will be made.

Question 19

Why is added value important and what does it mean for the business?

Answer 19

Added value is important because sales revenue (money from product) is greater than the cost of materials bought in by the business.
Meaning the business can now:
* can pay other costs such as labour costs, management expenses and costs including advertising and power
* may be able to make a profit if these other costs come to a total that is less than the added value.

Question 20

How could a business increase added value?

Answer 20

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