1.1.1 The purpose and nature of business activity:
- Concepts of needs, wants, scarcity and opportunity cost
- Importance of specialisation
- Purpose of business activity
- The concept of adding value and how added value can be increased
Purpose and nature of business activity
The main purpose of a business is to provide a service or goods that meet the needs and wants of its customers. Most businesses will provide their goods or services at a cost so they can make profit. However not all businesses are there to make profits it all depends on the nature of the business.
In simple words nearly all business will aim to generate revenue and profits to sustain operations, grow, innovation, and provide returns to shareholders or owners. Their Purpose is to meet our demand! This maybe by selling their services, goods or moneys collected from donors (charities).
All the shops you see, whether local or big co-operations will often contribute to economy, it will help it growth, create jobs for the locals, and help in development of society.
I have put together a video that covers this complete lesson. you will find it very useful as it goes deep into the topics and I have provided more examples in the video.
Goods and Services
Goods are things we can physically touch and see;
Examples: Cars, food, TV, Computers, water, the chair your sitting on, the clothes your wearing, the room your sitting in right now and so on.
Services are things we can not touch and are not there physically (intangible); however they still serve us and has a purpose:
Examples:
Car insurance – you can not touch or see it but its there to cover you against any damage to your car.
This website – its here to help you learn business studies and other subjects but you can not touch it
Bank services, government services, the internet it self is a service.
Social media – is a service it helps you connect with friends locally and anywhere in the world.
Needs and Wants
Needs are things that we need to survive, the very basic things in life without which we can live. These are the most important things in life. The every day essentials:
Example: Water, Food, clothes and shelter (house, a place to live)
Wants: These are things that we do not need to survive but would like to have. Wants can be unlimited, the more things we see in life the more will we will want. Wants are things that are not essential for everyday life.
Examples: branded watches, Nice cars, the latest phones and so on
Businesses and entrepreneurs invent and introduce new goods every minute and this increases the desire to want more. As humans we are never satisfied, we want more but the earth we live in has limited resources
Limited resources causes economic problems because there isn’t enough goods for everyone. Shortage of resources.
Scarcity
Scarcity is when there is not enough goods and services to meet the needs of everyone. When there is limited resources but high demand.
Scarcity is the gap between unlimited wants and limited resources. This situation forces businesses and entrepreneurs to allocate and make use of resources efficiently to meet all the basic needs of our populations and also as many wants as possible.
Scarcity has a formula which is: unlimited wants + limited resources = Scarcity
Factors of production
There are 4 factors to production, Land, Capital, Labour and Enterprise. I have explained each Below.
Land – all raw materials and natural resources. The physical land, Extractable natural resources such as coal, oil and gas
Capital – is money, it can also be investment. The Assets of the business. Man- made tools that help product such as equipment and machinery can also be our capital.
Labour – People who work in the business, workers who contribute to the production of goods and services, the skills of people
Enterprise – Bringing together the 4 factors of production together to produce goods or services that people want and need.
In Enterprise, we have (entrepreneurs) these are people that take risk to bring new inventions to the markets in hope to make profits, they are risk takers.
So we can see enterprise is taking risk and bring goods and service to the market for us the customers in hope to make some profits.
More examples are in the video!
Opportunity cost
loss of other alternatives when one alternative is chosen.
In every situation we have we have number of options, selecting one option will mean we will be losing out on all the other options.
Example:
Your friend is asking you to go cinema with them to watch the latest movie but you have an example coming up this week.
You choose to decline his offer and stay at home and study for the exam so you can get good grades.
The opportunity cost to you is that you missed out on the latest movie
another example:
You pay £100 to buy new shoes instead of paying for rent this month.
The opportunity cost is that the landlord will kick you out of the house and you become homeless.
Specialisation
Specialisation – is where a business or an individual is really good at a service, production of product or skill. The best of best in the field.
Examples
in medical we have doctors who specialise in dentists, operating technicians and lab doctors who work on producing tablets to cure certain illness.
Solicitors – some specialise in public matters, some specialise in civil matters.
You may have a business that specialises in producing packaging.
Division of labour
Dividing a job into many specialised parts with a single worker or few workers assigned to complete each part. Dividing the production process into different parts enabling individuals to focus on smaller tasks.
This helps in that individual becoming specialised in that specific task, resulting in efficiency.
Division of labour is important for mass production however there are advantages and disadvantages which we need to keep in mind.
Advantages: Saving time, as less movement of workers: Giving each employee tasks that best suits them will increase productivity
disadvantage: fall in motivation; as workers specialise in one task, they will be doing the same job day in, day out. if there is an absent worker, there maybe no one else to cover them.
Adding Value
When the selling price of an item produced is higher than the cost of all the resources used to make it. Raw materials. equipment, building, staff.
Adding value is enhancement or adding extra features to a product then offering it to customers.
It is the cost of materials that is used to make the product or service but it does not take into account rent and staff wages.
There are number of ways to add value to their product/ service
- after buy services
- personisle the product for you to suit you better
- give you options and different features
More examples in the video below!
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