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Section - 1 Understanding Business Activitiy: Teacher: Hanan Salman High Level Academy

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Section -1

Understanding business Activitiy


Teacher: Hanan Salman
High Level Academy
TABLE OF CONTENTS

01 02 03 04 05

Business Types of
Classification Enterprise, Business
Activity
of business business growth business objectives and
and size. organization stakeholders
objectives
Objectives

In this chapter you will learn about:

 needs, wants, scarcity and opportunity cost.

 The importance of specialization to businesses

and consumers.

 The purpose of business activity

 what is meant by ‘added value’

 How a business adds value.


Section 1/ lesson 1 : Business Activity
Section 1/ lesson 1 : Business Activity

Business Activity

Business Activity: the process of producing goods and services to satisfy


consumer demand
Section 1/ lesson 1 : Business Activity

Business Activity

Business Activity: the


process of producing
goods and services to
satisfy consumer demand
Section 1/ lesson 1 : Business Activity

Business Activity

Business Activity: the process of producing goods and services to satisfy


consumer demand

Need: a good or services which is essential to living

Want: a good or service which people would like, but is not


essential for living.
Section 1/ lesson 1 : Business Activity

Business Activity

What is the purpose of business activity?


the purpose of business activity is to provide consumers with goods and services
that meet their needs and wants
Section 1/ lesson 1 : Business Activity

 Make a list of your ten most important ‘wants’.


 Do you own any of these items.
 If you are lucky enough to own all of these items,
does this mean that you no longer have any wants.

Activity 1.1
Section 1/ lesson 1 : Business Activity
Section 1/ lesson 1 : Business Activity
Section 1/ lesson 1 : Business Activity

Factors of Production
The production of goods and services requires four factors of production:

Land: is all natural recourses such as minerals, ores, fields ail and forests..

Labor: is the number of people available to work.

Capital: is machinery, equipment and finance needed for production of goods


and service.

Enterprise: is people prepared to take the risk of setting up business – they


known as entrepreneurs.
Section 1/ lesson 1 : Business Activity

Opportunity cost
• The next best alternative you give up is known as the opportunity cost of your

decision.

• The benefit that could have been gained from an alternative use of the same

resource.
Section 1/ lesson 1 : Business Activity

Answers:
1. Land – natural resources, such as wheat for flour used in cakes.
Labor – number of people available to work in Fatima’s business
Capital - machinery, equipment and finance needed to make cakes.
Enterprise – Fatima prepared to take risk in setting up businesses.
Section 1/ lesson 1 : Business Activity

Answers:

2. Wages she earns from working in bakery.


Section 1/ lesson 1 : Business Activity

Answers:
3. ‘Needs’ are things that people need to survive. ‘wants’ are things that people would like, but are
not essential for living. Fatima produces cakes for special occasions. Although cakes are food, they
are luxury items so are ‘wants’ rather than ‘need’
Section 1/ lesson 1 : Business Activity

Importance of specialization

• consumers, businesses and governments must make choices.

• They must do this because of the scarcity of goods and services which results

from limited factors of production.

• It is very important that the factors of production are not wasted on the production of

goods and services that consumers do not need or want.


Section 1/ lesson 1 : Business Activity

Importance of specialization

• Making the best use of limited recourses.

• Breaking production down into small tasks (Division of labour) and each

worker becomes a specialist!, or/and using special tools and machines.

• Specialization: people and businesses concentrate on what they are best at.

• Division of labor: production is divided into separate tasks and each worker does

just one of those tasks.


Section 1/ lesson 1 : Business Activity

Advantages and disadvantages of


specialization

 Advantages

https://www.youtube.com/watch?v=ZtWkGfKhsG8

https://www.youtube.com/watch?v=8DiEG0vot_w
Section 1/ lesson 1 : Business Activity

Advantages and disadvantages of


specialization
Efficiency: the ability of
accomplish a task with
 Advantages
least waste of time and
effort
• Increases the efficiency and productivity of businesses.

• Reduces the costs of production. This benefits its consumers by providing more goods

and services at lower prices . (example: Microsoft).


Section 1/ lesson 1 : Business Activity

Advantages and disadvantages of


specialization

 Disadvantages

https://www.youtube.com/watch?v=DfGs2Y5WJ14
Section 1/ lesson 1 : Business Activity

Advantages and disadvantages of


specialization

 Disadvantages

1. Workers become bored from repeating the same task. efficiency may fall

2. If the worker is absent, maybe no other worker can do the job, efficiency may fall
Section 1/ lesson 1 : Business Activity
Case study p.13
Section 1/ lesson 1 : Business Activity
Case study p.13

Answers:

a. Special Machinery

b. The production process is divided into 5 stages and one worker only completes only one of
those stages.
Section 1/ lesson 1 : Business Activity
Case study p.13

c. Workers become skilled in just one task so they are able to produce more. Because workers
are skilled at what they do there will be fewer mistakes so the quality of footballs produced will be
better.

d. One benefit to Global Sports is that workers will produce more footballs. This reduces the cost
of producing each football. Global Sports will earn more profit for every football made, or they will
be able to lower their prices below competitors and sell more footballs. The benefit for the
consumers is that they will be able to buy high quality footballs at lower prices
Section 1/ lesson 1 : Business Activity

Purpose of business activity

 Business produce different types of goods and services. These are known as:

1. Consumer goods.

2. Consumer services.

3. Capital goods
Section 1/ lesson 1 : Business Activity

Purpose of business activity

 Business produce different types of goods and services. These are known as:

1. Consumer goods: sold to the public and can be seen (physical goods) and

touched (tangible goods).

• Durable consumer goods : used over and over again: televisions,

computers, cars, tables and chairs.

• Non-durable consumer goods: can only be used once, for example

food and drink.


Section 1/ lesson 1 : Business Activity

Purpose of business activity

 Business produce different types of goods and services. These are known as:

2. Consumer services: sold to the public and cannot be seen (physical goods)

or touched (tangible goods).

Example: Insurance, banking, bus journey.


Section 1/ lesson 1 : Business Activity

Purpose of business activity

 Business produce different types of goods and services. These are known as:

3. Capital goods: are products which are sold to other businesses to help them

in their production process. These are physical goods such as machines,

computers and delivery vehicles.


Section 1/ lesson 1 : Business Activity
Case study p.15
Section 1/ lesson 1 : Business Activity
Case study p.15

a. 600,000 + [ 30% x 600,000] = 780,000

b. Consumer goods are sold to public for their use; can be divided into durable and non-durable.
Printer cartridge are non-durable consumer goods and once ink has been used to print, it cannot
be used again. Capital goods are sold to other business for them to use in the production process,
e.g. computer- controlled equipment to manufacture
Section 1/ lesson 1 : Business Activity
Case study p.15

c. Division of labour is where each member of RTP’s workforce will specialize in one area of the
production process. They will become very skilled at doing the same task and this could increase
RTP's labour productivity. However, the workers may become bored if they are only doing simple
repetitive tasks and this might cause problems for RTP.
(Although not expected at this stage in the course, more able students may identify some of these
problems, e.g. lower productivity, poor quality, increased absenteeism and an increase in labour
turnover.) Student's answer must include suitable justification.
Section 1/ lesson 1 : Business Activity

Adding Value

It’s one of the most important objectives of the businesses


Section 1/ lesson 1 : Business Activity

Adding Value

It does this by taking the raw materials and turning them into a
goods or services, which it sells to consumers at price higher than
the cost of the raw materials used in the business.
Section 1/ lesson 1 : Business Activity

Adding Value

Value added is the increase in worth a business creates to a good or


services as it goes through the production process.

Value added is the difference between selling price of a product and the cost
of raw materials used to produce it.
Section 1/ lesson 1 : Business Activity

Adding Value

Selling price – cost of raw materials = value added

Not the profit!


Section 1/ lesson 1 : Business Activity

Adding Value

Selling price – cost of raw materials = value added

How to increase the added value?

Selling price – cost of raw materials = value added

Either by increasing the selling price or by decreasing the cost of raw


materials
Section 1/ lesson 1 : Business Activity

How businesses increase added value

1. Branding: spending
money on advertising
and other promotional
activities to build and
maintain the brand,
allow the producer to
charge higher price.
Section 1/ lesson 1 : Business Activity

How businesses increase added value

1. Excellent service quality: providing


high quality customized services allow
producer to charge higher price.
Section 1/ lesson 1 : Business Activity

How businesses increase added value

3. Product features:

Extra features allow the


producer to charge a
higher price.
Section 1/ lesson 1 : Business Activity

How businesses increase added value

4. Convenience

Many busy consumers are


ready to pay higher price
to save time and effort.
Section 1/ lesson 1 : Business Activity

HW

Case study/p.18

Test yourself/p.18
Section 1/ lesson 1 : Business Activity Case study p.18

a. Enterprise, e,g. Mitike Paulos and her


younger sister
Land, eg workshop,
Capital, e.g. equipment;
Labour, e.g. ten workers.

b. Process of producing goods and services to


satisfy consumer demand. Mitike's business
produces leather bags and belts that are sold to
customers

c. Business employs workers who are paid a


wage They can use money from wages to buy
basic needs, e.g. water, food, clothing and
housing
Section 1/ lesson 1 : Business Activity Case study p.18

d. Mitike's business takes raw material leather


and converts this into bags and belts that it sells
to customers at a higher price than what the
business pays for the leather.

d. Add special features to products that will


make them different or better than similar
products offered
by competitors; create a brand image for
products through advertising or persuading local
celebrity to buy products - celebrity
endorsement
Section 1/ lesson 1 : Business Activity

Test yourself p.18

1. A 'need' is something that is essential to living, e.g. food, water, clothing, shelter. A 'want' is
something that people would like but is not essential for living, e.g. mobile phone, holiday.
2. Impossible to produce enough goods and services to meet consumers' needs and wants.
3. Unlimited wants cannot be satisfied because there are limited factors of production. This creates
scarcity.
4. Specialized machinery may help a business to increase productivity, lower costs of production and
produce a wider range of products.
Section 1/ lesson 1 : Business Activity

Math in business
Past
Past papers
papers question
question

1. Kew Construction is specializes in building large houses. Each house costs $30,000 to build and
the company adds 40% to total cost to calculate the selling price.

Calculate the selling price for one house.

price = cost + mark up

mark up = [$30,000 x 40%] = $12,000

price = $30,000 + $12,000 = $42,000 [2]

correct answer [2] method [1]


Section 1/ lesson 1 : Business Activity
Past
Past papers
papers question
question

2. Izaak owns a small fish restaurant. He employs two chefs (cooks) and three workers who serve in
the restaurant.

Izaak has been trying to increase added value to improve profits. Izaak has been looking at the financial
performance of his business. Izaak has received a number of complaints about food and service. He
knows he must improve quality but cannot decide on the best way to do this.
a. Outline two ways Izaak could increase added value. [4]
Way 1:
----------------------------------------------------------------------------------------------------------------------------
Explanation:
---------------------------------------------------------------------------------------------------------------------

Way 2:
Section 1/ lesson 1 : Business Activity
Past
Past papers
papers question
question

2. Izaak owns a small fish restaurant. He employs two chefs (cooks) and three workers who serve in
the restaurant.

Izaak has been trying to increase added value to improve profits. Izaak has been looking at the financial
performance of his business. Izaak has received a number of complaints about food and service. He
knows he must improve quality but cannot decide on the best way to do this.
a. Outline two ways Izaak could increase added value. [4]
Way 1: increase the selling price
Explanation: by adding extra margin to the price of meal served

Way 2: Decrease the cost of raw materials.


Explanation: by buying cheaper fish, buy fish in bulks.
Section 1/ lesson 1 : Business Activity

3. Explain what is meant by added value. use the following information to help you.

A food company buys materials for $2,000. it sells its products for $3,500. it spends $1,000 on wages
and other costs.
Section 1/ lesson 1 : Business Activity

3. Explain what is meant by added value. use the following information to help you.

A food company buys materials for $2,000. it sells its products for $3,500. it spends $1,000 on wages
and other costs.

Value added is the difference between selling price of a product and the cost of raw materials used to
produce it.

Selling price = $3,500

Cost of materials = $2,000

Added value = $3,000 – $2,000 = $1,500

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