- Needs – Goods or services that are essential for living. These can things such as water, basic food and clothing.
- Wants – Goods and services that people would like to have but are not essential for living. For example, PlayStation, Concert tickets and luxury cars.
- Scarcity (The economic problem) – Unlimited wants but not enough products. The cause of scarcity is because of not enough factors of production, the 4 factors of production are…
- Land – Natural resources from nature such as trees, forests and oil
- Labour – Number of workers available to make products
- Capital – Money required for a business to produce items this includes machinery, robots etc…
- Enterprise – Organising and coordinating all other factor of production for profit oriented purpose.
- Opportunity Cost – A benefit/value that must be given up in order to achieve something else. For example, if a doctor spends money on the purchase of a new car, the opportunity cost of the car, could have been him establishing a new hospital or traveling for summer.
- Specialisation – this is when a person. business or region focuses on producing a limited range of goods or services. For example, In a mechanic workshop, while some focuses on the engine, some focuses on the body parts of a car while some specialises in tyre parts. Specialisation can help cut costs and create higher quality products.
|For Firms||1. it improves quality and efficiency which leads to larger profits.|
2. firms may develop good reputation for their specialty in their line of business
|1. training workers will be more varied and expensive to manage.|
2. products they specialise in may go out of fashion/taste which can make them go bankrupt.
|For Workers||1. they might be paid more if their skill is short in supply.|
2 with right skills they can choose the job they want and the benefits that comes with it.
|1. they tend to loose their jobs if machines can easily replace them.|
2. they might become bored doing the same task day-in, day-out.
- Division of labour – Production process has been divided into different tasks for a specialised worker to work on. e.g. painting cars at a car factory.
Purpose of business activity
all business exist to fulfill a need or a want of a customer, some exist to make profit from doing this while some engage in business to profit the environment or social activities. Some major purpose of business activites are:
- create new products
- generate large amount of revenues
- educate local and global community to reduce pollution and damage to the environment
- create large brands across the world
- support community projects and social activities.
Added Value = Selling price of the product – Cost price (materials etc…) Value added is the difference between the selling price of a product and the cost to produce it.
Added value can be increased by either charging higher prices for the same product or by reducing the cost of a product by lowering quality e.g. using cheaper materials.
How to add value
Business can add value to their products in more ways than one, some of which are:
- By Design: this ensures that your product is unique and different from other competitive products. Some clients would not mind paying higher price for the innovative design.
- By Marketing: a brand created through intense marketing allows the customer to recognise the product, logo or packaging associated with the business. For example, the apple logo is recognised everywhere.
- By Quality and Efficiency: ‘the better the quality, the higher the price.’ Products of high quality often sell for more . The lower the cost of making the product, the higher the value added.