Chap 1 - Business Activity

IGCSE LEVEL 1 BUSINESS
STUDIES
CHAPTER 1
BUSINESS ACTIVITY
The Economic Problem: Needs, Wants and Scarcity
Need– It is a good or service essential for living. Example:
water, food, clothing.
Want-It is a good or service that people would like to have,

but is not required for living. Example: car, smartphone.
Scarcity is the main economic problem. Economic

problem is a situation that exists when there are
unlimited wants and limited resources to produce the
goods and services to satisfy those wants.
ALTHOUGH WE HAVE UNLIMITED WANTS, THERE ARE

NOT ENOUGH RESOURCES FOR EVERYONE.
Factors of Production
Factors of Production- Resources required to produce goods or
services. There are 4 factors of production and they are in
limited supply.
The four factors of production are:
Land-Land is the natural resources that can be obtained from
nature. This includes minerals , forests , oil and gas. The
reward for land is rent.
Labour – It is the physical and mental efforts put in by the

workers in the production process. The reward for labour is
wage/salary.
Capital-Capital is the finance, machinery and equipment

needed for the production of goods and services. The reward
for capital is interest received on the capital.
Enterprise-The risk taking ability of the person who brings the

other factors of production together to produce a good or
service, for example, the owner of a business. These people
are called Entrepreneurs. The reward for enterprise is profit
from the business.
FACTORS OF PRODUCTION
OPPORTUNITY
COST
SCARCITY→ CHOICE
→OPPORTUNITY COST
Example – The government

has a limited amount of
money (scarcity) and must
decide on whether to use it to
build a road , or construct a
hospital (choice). The
government chooses to
construct the hospital instead
of the road. The opportunity
cost here are the benefits
from the road that they have
sacrificed(opportunity cost).
THE ECONOMIC PROBLEM
 SPECIALISATION
Specialization occurs when PEOPLE

or BUSINESSES concentrate on a task
at which they are best at.
DIVISION OF LABOUR
Division of labour is when the production process
is split up into different tasks and each worker
performs one of these tasks. Division of work
leads to specialisation. This results in efficiency.
ADVANTAGES DISADVANTAGES
 Workers are trained to do a
particular task and specialise in  It can get monotonous/boring
this- thus increasing for workers, doing the same
efficiency tasks repeatedly.
 Saves time and energy-  Higher labour turnover as the
production is faster by workers may demand for higher
specialising. salaries and company is unable
 Quicker to train labourers– to keep up with their demands.
Workers only concentrate on a  Over-dependency –
task, they do not have to be if worker(s) responsible for a
trained in all aspects of the particular task is absent, the
production process. entire production process may
 Skill development- workers stop since nobody else may be
can develop their skills as they able to do the task.
do the same tasks repeatedly,
mastering it.
WHY IS BUSINESS ACTIVITY NEEDED?
(PURPOSE)
• Provides goods and services from limited resources to

satisfy unlimited wants.
• Scarcity results from limited resources and unlimited
wants.
• Choice is necessary for scarce resources. This leads to
opportunity costs.
• Specialisation is required to make the most out of
resources.
Businesses COMBINE the factors of

production (resources) to create goods and
services to satisfy human wants and needs.
Added Value
Added value is the difference between the selling price
of the product the cost of bought-in materials and
components.
Which is, the amount of value the business had added to the
raw materials by turning it into finished products. Every
business wants to add value to their products so they may
charge a higher price for their products and gain more
profits.
How to increase added value?
• Reducing the cost of production. Added value of a

product is it’s price less the cost of production. Reducing
cost of production will increase the added value. But to
lower cost of production, cheap labour, raw materials etc
may have to be employed, which will create poor quality
products and only lowers the value of the product. People
may not buy it.
• Raising prices. By increasing prices they can raise added
value, in the same way as described above. But when prices
are raised, the high price may result in customer loss, as they
will turn to cheaper products.
Thank you

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IGCSE LEVEL 1 BUSINESS

Want-It is a good or service that people would like to have,

Scarcity is the main economic problem. Economic

ALTHOUGH WE HAVE UNLIMITED WANTS, THERE ARE

Labour – It is the physical and mental efforts put in by the

Capital-Capital is the finance, machinery and equipment

Enterprise-The risk taking ability of the person who brings the

Example – The government

Specialization occurs when PEOPLE

• Provides goods and services from limited resources to

Businesses COMBINE the factors of

How to increase added value?

• Reducing the cost of production. Added value of a

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