businessactivityunit1 54 slides.pdf

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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. You 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
 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?
 You may choose to satisfy your need by eating a burger
because that is what you want.

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 When you want something, you create a demand for it.
 You have decided that you want the new iPhone 4S.What do
you require to satisfy your want?

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 To satisfy your want you will need money to pay for it as well
as the willingness to spend the money on it.You may wish to
spend the money on something else

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 Your 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.

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Needs and wants
Needs
Needs
Clothing
Clothing Shelter
Shelter Food
Food

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Needs and wants
Wants
Wants
Clothing
Clothing
Jeans
Jeans
Party Dress
Party Dress
Shelter
Shelter
House
House
Apartment
Apartment
Food
Food
Burger
Burger
Pizza
Pizza

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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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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.
You 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 time
it takes for the replacement tree to grow.

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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

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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
Business 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
 You 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
Enterprise
Enterprise
Enterprise
Enterprise
Opportunity
Opportunity
cost
cost
Opportunity
Opportunity
cost
cost
Factors of
Factors of
production
production
Factors of
Factors of
production
production
Scarcity
Scarcity
Scarcity
Scarcity
Effective
Effective
demand
demand
Effective
Effective
demand
demand
Demand
Demand
Demand
Demand
Capital
Capital
Capital
Capital
Labour
Labour
Labour
Labour
Land
Land
Land
Land
Supplying
Supplying
needs and
needs and
wants
wants
Supplying
Supplying
needs and
needs and
wants
wants
Goods and
Goods and
services
services
Goods and
Goods and
services
services
What is
What is
business?
business?
What is
What is
business?
business? Resources
Resources
Resources
Resources
Adding value
Adding value
Adding value
Adding value
Selling price
Selling price
minus cost
minus cost
Selling price
Selling price
minus cost
minus cost

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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

 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)

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