Business Handy Handout

Business Handy handout
1.1 Business activity

The economic problem
Need- good or service essential for living.
Want- good or service which people would like to have, but which is not
essential for living.
Economic problem- unlimited wants but limit resources to produce goods and
services to satisfy these wants, therefore scarcity exists.
Factors of production- are those resources needed to produce goods or

services.
 There are four factors of production.
 They are in limited supply.
1. Land- all the natural resources provided by nature
2. Labour- this is the number of people available to make products.
3. Capital- is finance, machinery and equipment needs for the manufacture
of goods.
4. 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 on service.
Scarcity- lack of sufficient products to fulfil the totals wants of the population.
Opportunity cost- is the next best alternative given up by choosing another

item.
The importance of specialisation: the best use of limited resources
Specialization- occurs when people and businesses concentrate on what they

are best at.
Why specialization common nowadays?
# Specialized machinery and technologies are now widely available.
# Increasing competition means that businesses must keep costs low.
# Most people recognize that higher living standards can result from being
specialized.
Division of labor is when the production process is split up into different

tasks and each worker performs one of these tasks. It is form of
specialization. Workers are trained in one task and specialize in this.
Advantages Disadvantages
Increases efficiency and output. Workers can become bored doing

just one job- efficiency may fall.
Less time is wasted moving from If one worker is absent and no one
one task to another. else can do the job thus production
might be stopped.
Quicker and cheaper to train

workers as fewer skills need to be
taught.
The purpose of business activity-
# 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.
Added value- it is the difference between the selling price of a product and the
cost of bought-in materials and components.
Why is added value important?
Added value is important because sales revenue is greater than the cost of
materials bought in by the business. Means-
 Can pay other costs such as labor, 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.
How could a business increase added value?

a) Increase selling price but keep the cost of materials the same. This could
be possible if the business tries to create a higher image of its product
Infront of consumers- higher brand value.
b) Reduce the cost of materials but keep the price same. Lowers qualities +
customers might not agree to pay same price for lower quality products.
1.2 Classification of businesses
Stages of economic activity
Primary –
Involves the earth’s natural resources.
e.g., activities- farming, fishing, forestry, and the
extraction of natural materials.
Wood cutter
Secondary –
Involves taking the materials and resources provided by the primary
sector and converting into manufactured and processed goods.
e.g., activities- industry, including building and construction, aircraft,
and car manufacturing, computer assembly, bread baking.
Tertiary –
Involves providing services to both consumers and other businesses.
e.g., activities- transport, banking, retail, insurance, hotels, and
hairdressing.
Relative importance of economic sectors –

The most important sector of industry for each country depends on-
# The percentage of the country’s total number of workers
employed in each sector.
# Value of output of goods and services and the proportion this is
of total national output.
Changes in sector importance

Reasons-
# Sources of some primary products become depleted.
# Most developed economies are losing competitiveness in
manufacturing to newly industrialiser countries.
# As a countries’ total wealth increases and living standards rise,
consumers tend to spend a higher proportion of their incomes on
services such as travel and restaurants than on manufactured
products produced from primary products.
Mixed economy-
Is both private and public sector.
Private sector- businesses not owned by the government. These

businesses will make their own decision about what to produce, how
it should be produced and what priced should be charged for it.
They aim to make a profit.
Public sector- government owned and controlled businesses and
organizations. The government, and other public sector authority,
makes decisions about what to produce and how much to charge
consumers.
Business activities which are usually in the public sector include

health, education, defense, public transport, water supply, and
electricity supply.
Governments have changed the balance between the private and

public sector by selling some of their forms to private sector firms as
they believe that private sector firms are well of for the fact that they
have more capital than the government can afford.
However, such a business would make more workers unemployed

than a public sector business in order to cut costs.
1.3 Enterprise, business growth and size
Entrepreneur- is a person who organizes, operates, and takes risks

for a new business venture.
Benefits Disadvantages
Independence as to how to use Risk- many new businesses fail

time and money. due to poor planning.
Can put on own ideas to practice. Capital- need to put in their own
money.
Can become famous and Lack of knowledge and

successful if business grows. experience in starting and
operating a business.
Can be profitable and the income Opportunity cost- lost income

might be higher compared to from not being employee of
working as an employee for another business.
another business.
Can make use of personal

interests and skills.
Characteristics of a successful entrepreneurs
Business plan- a business plan is a document containing the business objectives
and important details about the operations, finance, and owners of the new
business.
Why do government support business startups?
1. To reduce unemployment- providing job opportunities

2. To increase competition- giving consumers more choice
3. To increase output- economy benefits
4. To benefit society- supporting disadvantaged groups in society
5. Can grow further- small firms can grow bigger and advantageous for
future.
How do government support business startups?
Methods of measuring business size and limitations of these methods

measurement explain limitation
no. of people employed easy to capital-intensive firms make use
calculate and of automation and have high
compare output value but employ fewer
people. Make comparison
inaccurate because low output
business may have more workers.
Another issue is
Why may the owners of a business want to expand the business?
# High profits
#

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1.1 Business activity

Need- good or service essential for living.

Factors of production- are those resources needed to produce goods or

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

Specialization- occurs when people and businesses concentrate on what they

Division of labor is when the production process is split up into different

Increases efficiency and output. Workers can become bored doing

Quicker and cheaper to train

The purpose of business activity-

# Combines scarce factors of production to produce goods and

How could a business increase added value?

1.2 Classification of businesses

Stages of economic activity

Relative importance of economic sectors –

Changes in sector importance

Private sector- businesses not owned by the government. These

Business activities which are usually in the public sector include

Governments have changed the balance between the private and

However, such a business would make more workers unemployed

1.3 Enterprise, business growth and size

Entrepreneur- is a person who organizes, operates, and takes risks

Independence as to how to use Risk- many new businesses fail

Can become famous and Lack of knowledge and

Can be profitable and the income Opportunity cost- lost income

Can make use of personal

1. To reduce unemployment- providing job opportunities

How do government support business startups?

Methods of measuring business size and limitations of these methods

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