• 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…
  1.  Land – Natural resources from nature such as trees, forests and oil
  2. Labour – Number of workers available to make products
  3. Capital – Money required for a business to produce items this includes machinery, robots etc…
  4. 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.
SpecialisationBenefits Drawbacks
For Firms1. 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 Workers1. 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.