ppt on business activity

1. Sampoerna
Academy
10 S
Business Activity
Unit 1. Introduction to business activity

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Learning outcomes
■ Develop an understanding of needs, wants and scarcity
■ Understand the purpose of business activity
■ Develop knowledge of the objectives of non-profit making activity
,
private enterprise and public enterprise
■ Appreciate the concept of adding value
■ Definition of ‘scarcity’
■ The basic economic problem that arises because people have
unlimited wants but resources are limited. Because of scarcity
,
various economic decisions must be made to allocate resources
efficiently

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What is enterprise?
■ The term “enterprise” has two common meanings.
■ Firstly
, an enterprise is simply another name for a business. Y
ou will
often come across the use of the word when reading about start-ups and
other businesses…“Simon Cowell’s enterprise” or “Michelle set up her
successful enterprise after leaving teaching”.
■ Secondly, and perhaps more importantly
, the word enterprise
describes the actions of someone who shows some initiative by
taking a risk by setting up, investing in and running a business.

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Business Activity
■ Businesses produce goods and services.These are the
products of the business.
■ Which are goods and which are services?

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Business Activity

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Business Activity
■ Goods are things you can touch
■ Services are things that other people do for you

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Needs and wants
■ What we need and what we want can sometimes be confusing.
■ Often you say you need a new iPod/mobile device when in
fact you want it rather than need it.
■ Which items do you think people need and which items do
you think people want?

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Business in context
Kuwait Petroleum Corporation (KPC) is one of the world’s largest oil companies.
The company makes products such as petrol and diesel from crude oil. Crude oil is
oil in it’s raw or natural state. It occurs naturally in deposits within the earth.To
produce the petrol that people buy from garages, KPC must first extract the crude
oil from the earth.The company does this by drilling oil wells,many of which are
under the sea. KPC then transports the crude oil to oil refineries where it is turned
into petrol or other oil products customers want.
Individually answer the following questions:
1. What does KPC produce?
2. Does KPC produce goods or services?
3. Where can you buy KPC’s product?
4. What is KPC’s product made from?
5. Why do you think KPC produces petrol and diesel?

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Business in context
1. KPC produces oil products such as petrol and diesel.
2. KPC produces goods (products).
3. KPC’s product can be purchased at garages and gas or petrol
stations.
4. KPC’s product is made from raw or crude oil.
5. Student’s own answer. Points to consider could include:
KPC has the necessary raw materials in its country
.
KPC has developed the skills to extract and produce petrol and
diesel.This means it could seek new locations to find oil.
There is a market for the product.

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Think carefully about the following products and answer the questions.
(a)A loaf of bread (b) An oak coffee table (c) a book
1. What are the raw materials that each product is made of?
2. Where do these raw materials come from?
3. If society keeps using these raw materials, will they run out? Explain your
answer.
Definition ‘raw materials’
A material or substance used in the primary production or
manufacturing of a good.
1.1 Activity

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1.1 Answers
1. Bread is made from flour; an oak coffee table is made of
wood; the book is made of paper.
2. Flour is made from wheat that is grown on farms; wood comes
from trees that grow on the land; paper is made from wood and
other fibres.
3. Wheat and trees are both renewable.This means that as they
are used to make products,new wheat and trees can be grown.
However, while a new crop of wheat can be grown every year, it
takes many years for trees to grow. If these resources are used
to make products faster than they can be replaced, supplies will
run out.

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Demand and effective demand
■ Our wants influence the way we satisfy our needs. For
instance, if you need food which would you choose to satisfy
your need?
■ Y
ou may choose to satisfy your need by eating a burger
because that is what you want.

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Demand and effective demand
■ When you want something, you create a demand for it.
■ Y
ou have decided that you want the new iPhone 4S.What do
you require to satisfy your want?

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Demand and effective demand
■ To satisfy your want you will need money to pay for it as well as
the willingness to spend the money on it.Y
ou may wish to
spend the money on something else

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■ Y
our demand for an iPhone 4s will not be successful
unless other people want the same phone too and have
the money and are willing to pay for it.
■ Apple would not make these products if you are the only
person who wants them.The same response applies to
businesses.
■ This is called effective demand. People create effective
demand when enough people want something and are
able to and willing to pay for it.
Demand and effective demand

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Needs and wants
Needs
Clothing Shelter Food

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Needs and wants
Wants
Clothing
Jean
s
Party Dress
Shelter
House
Apartment
Food
Burger
Pizz
a

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The purpose of business activity
■ Businesses have been set up to produce goods and services.
These goods and services are supplied to individuals and
other business organisations that want them.
■ There are many types of business organisation. Some are
major international businesses and others are smaller local
businesses.
■ Activity: Come up with 3 major international businesses and 3
smaller businesses that operate in their own country.

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International

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National

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Regional

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Local

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Business Activity
■ Activity 1:
■ In pairs, list 3 major international businesses and 3 smaller
businesses that operate in their own country and 3 local
businesses.

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Activity 1.2
1. What is the main difference between needs and wants?
2. Make two lists: the first showing the things that you need; the
second listing things that you want.
3. Identify 3 kinds of businesses or organisations that supply
each item on your lists.
4. Select two businesses that you have identified and explain
why you think that they supply the item.

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Activity 1.2 answers
1. Needs are items that we must have in order to live, whereas wants are
items that we would like to have but which are not essential for us to
live.
2. Student’s own answer. Needs include items such as food, water,
shelter and clothing.Wants might include a certain style of clothing,
a holiday, a mobile phone and so on.
3. Student’s own answer based on items identified in question 2.
4. Students own answer based on businesses identified in question 3.
Reasons why the business supplies an item could be:
it wants to provide a service
it has spotted a market for the product to make money
.

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Private sector: private businesses
and enterprises
Private Sector: Business activity owned financed and controlled by
private individuals

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Private sector
■ Self-employed traders
■ Professional firms
■ Small and large businesses
■ International companies

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Public sector: businesses owned
and run by the government are
public enterprises
Public Sector: Business Activity owned, financed and controlled by the
state through government or local authorities
Government – key departments set policy and monitor
implementation
Local Authorities – County Councils, District Councils
Schools
Hospitals
Libraries
Public Corporations – BBC
Transport

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Non-profit-making: a third type of
enterprise
■ Non-profit-making organisations include charities and
voluntary organisations.
■ These organisations are set up to fulfil a perceived social
need or to provide help to a specific section of the
community.

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Similarities and differences
■ Non-profit-making and public sector organisations have profit as
a high priority
■ The difference between these two is that public sector
organisations is run by or on behalf of the government whilst
non-profit-organisations could easily be set up by private
individuals who want to support a specific cause.
■ The government focus on enriching society and ensuring a
basic standard of living

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Similarities and differences
■ Non-profit-making and public sector organisations have profit as a
high priority
■ The difference between these two is that public sector organisations is
run by or on behalf of the government whilst non-profit- organisations
could easily be set up by private individuals who want to support a
specific cause.
■ The government focus on enriching society and ensuring a basic
standard of living
■ All organisations in the public and private sector are involved in some
form of business activity and it is only their objectives that differ. For
example: what, whom and why they produce goods and services.

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Activity 1.3
1. Investigate the different types of business in your local area.
Y
ou should find examples of private enterprise,public
enterprise,and non-profit-making activity.
2. Identify the objectives of each.
3. Draw up a table
Type Organisation Objective
Private sector
Public sector
Non-profit-makng

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Deciding on what to produce
■ Resources found on earth are finite or in limited supply such
as:
Crude oil Gold Aluminum

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Scarcity
Some resources such as air satisfy everybody’s needs but
most resources are not plentiful enough for this.
Although trees are renewable you have to be careful of the
amount of trees cut down taking into consideration of the tim t
takes for the replacement tree to grow.
e
i

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Scarcity

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Managing scarce resources
■ Since resources to produce goods and services are scarce a
choice must be made to decide what to produce from them.
■ For example, furniture and houses can be made from timber so
a decision needs to be made whether to cultivate trees for
furniture or houses.
■ Similarly, if a government spends too much money on building
skills then it will not be able to spend much on training extra
doctors

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Cost and opportunity cost
■ If you want an iPod and a pair of shoes but only have enough
money to buy one of them, you will have to choose which one to
buy. Both products cost money and that is their financial cost.
■ There is also an opportunity cost – the possibility of buying
and enjoying the use of the other item.
■ If you buy the iPod, the opportunity cost of the iPod is the
shoes
■ If you buy the shoes, the opportunity cost of the shoes is the
iPod
■ Here's another example: if a gardener decides to grow carrots, his
or her opportunity cost is the alternative crop that might have
been grown instead (potatoes,tomatoes, pumpkins, etc.)

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Business activity and the factors of
production
■ Business activity involves the use of resources known as
factors of production.These are:
■ Land
■ Labour
■ Capital
■ Enterprise

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Factors of production: land
■ Land includes all resources that occur naturally.
■ Can you think of any?

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Factors of production: labour
■ Labour is the effort of work provided by people.
■ Labour-intensive production can often be found in many
developing countries.Labour-intensive production means
labour is plentiful and relatively cheap compared with the
technology available to do the job.
■ In more industrialised countries such as the UK labour-
intensive production can be more expensive in terms of
wages than the cost of running machinery.

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Factors of production: capital
Capital includes items used in the production of goods and services
made by people.These include:
Buildings
Machinery
Equipment
Finance required to purchase these items
Production that uses a high proportion of capital compared to labour is
called capital-intensive. Capital-intensive production can be seen as a
cheaper and more efficient production using the latest technology than
by hand (labour-intensive)

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Factors of production: enterprise
Enterprise is the ability, skill and enthusiasm to take risks involved in
developing a business idea and gathering appropriate resources.
All businesses combine factors of production to produce goods and
services that people want to buy.
A large company like Kuwait Petroleum Corporation will use all four
elements to produce the final product (petrol or diesel).
1. Land- oil wells and refineries
2. Labour- staff
3. Capital- drilling equipment, pipelines, office buildings
4. Enterprise- the skill of senior management

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Village fisherman
Land:
Labour:
■ Capital:
Enterprise:

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Adding Value
■ Added value = the difference between the price of the finished
product/service and the cost of the inputs involved in making it.
■ This is because of the work carried out increases the value of
the parts and raw materials used.When the product is complete
its value and the price it is sold at is more than the value of the
factors of production used to make the product.
■ So added value is the increase in value that a business creates
by undertaking the production process.
■ It is quite easy to think of some examples of how a production
process can add value.
Consider the examples of new cars rolling down the production
line being assembled by robots. The final, completed and shiny
new car that comes off the production line has a value (price)
that is more than the cost of the sum of the parts. Value has
been added. Exactly how much added

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Activity 1.4
1. Consider one of the following businesses:
a farm
a furniture maker
a shop
a cosmetics manufacturer
a paper producer
a producer of music CDs

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Activity 1.4
■ Construct a table like the one shown below. Complete your
table with examples of the types of resources or factors of
production used by your selected business.The first line of the
table has been completed as an illustration.
Factors of production
Busines
s
Land Labour Capital Enterprise
Farm Land for
grazing
animals or
growing
crops
Farm
workers
Tractors Skills and
efforts of the
farmer in
setting up and
running the
farm

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Activity 1.4
■ Design a poster of diagram showing how, by combining these
resources and transforming them into a finished product, the
business adds value to the resources.

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Adding value
■ Y
ou don’t have to use robots or have the culinary skills of Gordon
Ramsay to “add value”. For example, businesses can
add value by:
■ Building a brand – a reputation for quality, value etc that
customers are prepared to pay for. Nike trainers sell for much
more than Hi-tec, even though the production costs per pair are
probably pretty similar!
■ Delivering excellent service – high quality, attentive
personal service can make the difference between achieving a
high price or a medium one
■ Product features and benefits – for example, additional
functionality in different versions of software can enable a
software seller to charge higher prices; different models of
motor vehicles are designed to achieve the same effect.
■ Offering convenience – customers will often pay a little
more for a product that they can have straightaway, or which
saves them time.

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Adding value Why would people pay a bit more
money for a loaf of bread than
make it at home?

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Summary
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Summary
1. We all have needs and wants.
2. The main purpose of business activity is to supply the goods and
services people want.
3. The objective of most private sector businesses is making a profit.
4. The main objective of public enterprise is to provide services to the
local and national community.
5. The main objective of non-profit-making organisations is to meet a
perceived social need or to provide help to a specific section of the
community that is not met by private or public enterprise
6. Businesses produce goods and services using scarce resources known
as factors of production: land, labour, capital, enterprise.
7. Value is added to the resources because of the work carried out to produce
the finished product has a value that increases the value of the parts and
raw materials used.

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+Key terms
■ Added value – the difference between the selling price of a
product and the cost of raw materials used to make it
■ Effective demand – demand for a product that is backed up by the
ability and willingness to pay for it
■ Factors of production – the four categories of resources that
are used to produce goods and services: land, labour, capital,
enterprise
■ Goods- tangible products that can be touched and consumed
■ Needs – things necessary to sustain life
■ Opportunity cost – the cost of something in terms of the next
best thing
■ Private sector – the sector of business consisting of businesses
owned by private individuals or groups

53. ■ Profit – the profit a business makes is the amount by which its
income from selling the goods and services it produces exceeds
the costs of producing those goods and services
■ Public sector – the sector of business consisting of
businesses owned by the state
■ Resources – items of limited availability that can be used in
human activity
■ Services – things other people or businesses do for you
■ Wants – things chosen to satisfy a need or to make life more
enjoyable

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Factors of production
Match each factor of production to the correct
description and example (cards).
Exemplar question:
What is meant by the term ‘added value’? (2)