Business is all around us – from the local shop where we buy snacks to giant companies like Apple or Samsung. But why do businesses exist? How do they work? These notes will help you understand the basic ideas behind business activity and why it’s important in our daily lives.
1. The Purpose of Business Activity #
At its heart, business activity exists to meet human needs and wants. But what’s the difference between needs and wants?
Understanding Needs vs Wants #
The Business Cycle #
Businesses create a cycle that keeps the economy moving:
- Production: Businesses combine resources to make goods or services
- Employment: They hire people and pay wages
- Consumption: Workers use their wages to buy goods and services
- Continuation: This creates demand for more goods and services
2. Scarcity and Choice #
Scarcity is a fundamental problem in economics and business. It means we can’t have everything we want because resources are limited.
Understanding Scarcity #
- Limited Resources: The world has finite resources (materials, time, money)
- Unlimited Wants: Human wants are endless – we always want more
- Choice: Because of scarcity, we must make choices about how to use resources
3. Factors of Production #
To make goods and services, businesses need four main resources, called factors of production:
Land #
- Natural resources
- Raw materials
- Physical location
- Example: Farm land, mining sites
Labour #
- Human effort
- Physical and mental work
- Skills and expertise
- Example: Factory workers, teachers
Capital #
- Man-made resources
- Tools and equipment
- Buildings and machinery
- Example: Computers, vehicles
Enterprise #
- Business ideas
- Risk-taking
- Decision-making
- Example: Starting a new business
4. Opportunity Cost #
When we make choices due to scarcity, we give up alternatives. The best alternative we give up is called opportunity cost.
Examples of Opportunity Cost #
Personal Examples: #
- Time: Studying vs. watching TV – if you choose to study, watching TV is the opportunity cost
- Money: Saving for a laptop vs. buying new clothes – if you buy the laptop, the clothes are the opportunity cost
Business Examples: #
- Investment: Building a new factory vs. updating existing equipment
- Resources: Using land for a shopping center vs. using it for housing
5. Division of Labour #
Division of labour means breaking down a complex task into smaller, specialized tasks assigned to different workers.
Advantages #
- Increased Efficiency: Workers become experts at their specific tasks
- Higher Productivity: Less time wasted switching between tasks
- Better Quality: Specialized skills lead to better results
- Faster Training: Workers only need to learn one task
Disadvantages #
- Boredom: Repetitive tasks can lead to low motivation
- Dependency: Production can stop if one worker is absent
- Limited Skills: Workers may not learn other useful skills
- Less Flexibility: Workers may struggle to adapt to changes
Real Business Examples #
- Car Assembly Line: Different workers specialize in different parts (engines, doors, paint)
- Fast Food Restaurant: Different staff for cooking, serving, cleaning
- Clothing Factory: Separate workers for cutting, sewing, quality control
