1 Business Activity

IGCSE ONE BUSINESS
Business Activity
08/09/202 DIA 1
Lesson Objectives
You should be able to:
• The concept of needs, wants, scarcity and opportunity cost
• The factors of production
• The development of economic activity and the use of
specialization
• The purpose of business activity
• The concept of added value
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The economic problem:
Needs, Wants & Scarcity
• A need is a good or service essential for

living
• The economic problem: there exist
unlimited wants but limited resources
to produce the goods and services to
satisfy these wants. This creates • A want is a good or service which people
scarcity. would like to have, but which is not
essential for living. People’s wants are
unlimited
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Class activity
• Make lists of your need – those things you think are

necessary for living.
• Make lists of your wants – things you would like to be able

to buy and own
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The real cause of the economic problem
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Factors of production
Factors of production are the Land – this term is used to cover all of the natural
resources used to make all of resources provided by nature and includes fields and
the goods and services that the forests, oil, gas, metals and other mineral resources.
population needs and wants
Labour – this is the number of people available to
make products.
Factors of production Capital – the man-made resources that are used to

produce goods/services (e.g. tractor)
In any one country, and in the Enterprise – this is the skill and risk-taking ability of the
person who brings the other resources or factors of
world as a whole, these factors
production together to produce a good or service. For
of production are limited in example, the owner of a business. These people are called
supply – scarcity entrepreneurs.
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Opportunity cost
Opportunity cost defined
Is the next best alternative given up

Limited resources: the need to choose by choosing another item.
We have to, as we have limited
resources but so many wants. We
therefore have to decide which wants we Opportunity cost illustration
will satisfy and those which we will not.
All choices involve giving something up 1. Should I take a bus to school or use
the money for a new pen to write
clear Business Studies notes?
2. Do I buy a new pair of trainers or
spend the money on a new mobile
phone?
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Examples of opportunity cost
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Revision summary: the economic problem
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Specialisation and the division of labour
Specialisation
Occurs when people and businesses

concentrate on what they are best at.
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.
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Specialisation and the division of labour
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Division of labour
Advantages Disadvantages
1. Workers are trained in one task 1. Workers can become bored doing
and specialise in this - this just one job – efficiency might fall
increases efficiency and output
2. If one worker is absent and no
2. Less time is wasted moving from one else can do the job,
one workbench to another production might be stopped
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The purpose of business activity
• People have unlimited wants.

• The four factors of production – the resources needed
to make goods – are in limited supply.
Issues discussed so far:
• Scarcity results from limited resources and unlimited
wants.
• Choice is necessary when resources are scarce. This
leads to opportunity cost.
• Specialisation improves the efficient use of resources.
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The purpose of business activity
• Combines scarce factors of production to

produce goods and services
• Produces goods and services which are

Business activity therefore: 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.
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The concept of added value
Added value
Is the difference between the selling price
of a product and the cost of bought in
materials and components
Added value: illustration

• The selling price of a newly built house is
$I00000.
• The value of the bought in bricks, cement,
wood and other materials was $15000.
• The added value of the building firm was
$85 000. This is not profit – out of this the
builder must pay wages and other costs
too.
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The concept of added value
Why is added value important?

Added value is important because
sales revenue is greater than the cost
of materials bought in by the
business. This means the business: How could a business increase added value?
• Can pay other costs such as labour • Increase selling price but keep the
costs, management expenses and cost of materials the same.
costs such as advertising and power
• Reduce the cost of materials but
• May be able to make a profit if these keep the price the same.
other costs total less than the added
value.
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Revision summary: adding value
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Revision checklist
In this lesson you have learned:

• What the ‘economic problem’ means
• The difference between wants and needs
• Why scarcity of resources results in choices and
opportunity cost
• Why specialization is important
• The purpose and nature of business activity
• How business can try to increase added value
08/09/202 DIA 18
IGCSE ONE BUSINESS
NEXT TOPIC
Classification of Businesses
Required reading:
Cambridge IGCSE Business Studies 4th Edition
Karren Borrington & Peter Stimpson Page 11 – 19
08/09/202 DIA 19
• Post them on Schoology.com
• You can also ask them during our Live

Meeting
08/09/202 DIA 20

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IGCSE ONE BUSINESS

• A need is a good or service essential for

• Make lists of your need – those things you think are

• Make lists of your wants – things you would like to be able

Factors of production Capital – the man-made resources that are used to

Opportunity cost defined

Is the next best alternative given up

Occurs when people and businesses

Is when the production process is

• People have unlimited wants.

• Combines scarce factors of production to

• Produces goods and services which are

• Employs people as workers and pays them

Added value: illustration

Why is added value important?

In this lesson you have learned:

• You can also ask them during our Live

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