Chapter 1 Understanding Business Acti

IGCSE Business
Studies
Unit 1 – Understanding Business Activity
Chapter 1: Business Activity

In this unit you will learn……. 

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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

Classify these.
Needs

Wants

Needs and Wants


Wants
›



Needs
›

›

Essential goods or services necessary for living.
Satisfy the basic things for life.

›

Non-essential goods and services that people would like to have. Interests, Tastes,
Culture

Make your list
Needs

Wants

Limit your wants to no more than 25 items please!

The Economic Problem


The shortage of goods & services


TOO FEW FACTORS OF PRODUCTION!

Land

Labour

Factors of Production
Capital

Enterprise

Land

All of the natural resources provided by nature

Labour

All people’s efforts to make products

Capital

All finance, machinery & equipment in manufacturing products

Enterprise

All people that have skills & have risk-taking ability  factors of production  produce good or service

Economic Problem
Land

Labour

Factors of Production
Capital

Enterprise

Limited in Supply

Factors of Production
12

rewards for the factors of production
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Each of these factors of production is paid by business


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e.g. The payment for land is rent

Can you think what we call the payments for the other factors?
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Labour
Capital
Entrepreneurs

wage/salary interest profit

Real Economic Problem

Unlimited
Wants

+

Limited
Resources

=

Scarcity

Limited Resources:
Choice
Individual

Business

Government

Summary – Economic
Problem

Limited Resources
Production 200 years ago
1

2

Joe cuts the wood

He assembles the table

3

Joe polishes the table

4

Joe delivers the table on a horse and cart

Limited Resources
Modern Day Production
1

2

The wood for 20 tables is cut with a specialist machine

Carpenters assemble the tables 3

The tables are finished in the polishing department

4

A transport company collects the tables to deliver them to furniture retailers

Making the best use of limited resources 

Specialization / Division of
Labour
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Production Process

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Different tasks split up



Workers perform a task

Specialization
Division of Labour (page 5 textbook) 

Advantages
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Specialised task training
Increases efficiency
Increases output
Save time

Disadvantages
Bored workers
 Possible drops in efficiency
 Production stopped due to absence
(Henry Ford video)
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Why business activity is needed? 


Unlimited wants
4 factors of production




Scarcity




Limited resources – unlimited wants

Choice




Resources in limited supply to make goods and services Opportunity Cost

Specialisation
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Improves efficient use of resources

Business Activity
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Combines s_____ f_____of p_______ in order to produce g_____ and s_______.
Produces those goods and services which are needed to s______ the n______ and w_____ of the p___________
E_______ people as workers and pays them w____ / s______ to allow them to consume p_______ made by other p________. The purpose of business activity Combine factors of production
 Produce products
 Satisfy peoples wants


Classification of Products


Goods
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Physical items
Tangible
Touch and see



Services


Intangible

Value Added
Value
Added
Selling
Price

-

Cost of materials/ Components

=

Value added

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Explain and provide examples for the following……. The difference between wants and

needs, with examples
Scarce resources
Principle of opportunity costs
Importance of specialization in production The concept of added value (how can a business add value? P.8)