1.

1- Purpose and Nature for Business

What is business?
● Everyone have needs
○ Things that we cannot live without
● Everyone has wants
○ Things we desire but not essential for living
● Only some people provide all the goods and services to satisfy these need and wants
○ Most people not self sufficient
○ Most people rely on others to provide these goods for them to use (consume)
○ Consumption
■ Using up goods and services to satisfy consumer needs and wants
● Most parts of the world- goods and services are provided by 2 groups
○ Businesses or private sector
■ Products with the aim of making profit
● Revenue (money received for sales) less the cost to make the product
○ Government or public sector
■ Provides goods and services to its citizens who cannot afford them
● Goods and services are made my using inputs and making outputs
○ CELL
■ Capital (man made resources)
■ Enterprise (business know-how)
■ Labour (human skills and effort)
■ Land (natural resources)
● Basic economic problems
○ Human wants are unlimited but resources are scarce
■ Choices have to be made
○ Limited amount of resources with a number of ways to be used
■ Resource allocation involved many decisions to be made
○ Opportunity cost
■ True cost of something is what you gave up to get it
● Choose to go through door a, you lose what you would get in door b and
vice versa
■ Choice over what, how and who means that cost of what might have been gained
by making a different decision

Specialisation
● Specialisation means concentrating on a small number of activities
○ Business specialise by making a single or limited range of products
○ Workers specialise by doing one specific job or skill
■ Plumber
■ Electrician
● Importance of specialisation
○ Allows firms and people to concentrate what they are good at
 ■ Not trying to satisfy needs and wants
○ Become better at tasks and more efficient
■ Produce more and make less waste
○ Need to agree on change between producers by agreeing how much should be charged
● Advances due to specialisation
○ Exchanging goods and services for money
■ Trading is much easier
○ Specialising machinery- we have improved speed and quality of goods produced
○ Production of goods became automated
■ Jobs that people were doing are now being done by machines
○ People have developed more specialised skills
○ International trade
■ Can buy goods from all around the world

Division of Labour
● Workers specialise in specific task or production process
○ Advantages
■ Makes best use of abilities
■ Reduces time spent changing tasks
■ Can produce more and reduce waste
■ Producing more and can get more rewards
○ Disadvantages
■ Carrying out same task can be boring
■ May lack pride in their work as they cannot see final results
■ May have to rely on others to produce before them
■ Some lose their jobs because of machines

Adding Value
● Production adds value to resources by turning them into goods and services that consumers want
○ Value added
■ Difference between selling price and price paid for a product by a consumer and
the cost of the natural and man-made material, components and resources used to
make it.- Profit + costs
○ Aim is to increase difference between cost price and selling
■ Increasing specialisation can reduce the cost price
■ Reducing waste
■ Finding cheaper raw materials or paying less wages
■ Making product more attractive to charge more
■ Advertising to make it appeal more
■ Creating idea of a family of products (brand)
● People to think it is the same quality and willing to pay more
Profit
● Businesses start and run with aim or objective of making a profit for people who began them
○ Use their knowledge to start businesses
 ■ Entrepreneurs
○ Combine other factors to sell products that people want for more than it costs to make
profit
■ Reward for taking the risk to start the business
■ Motivates them to make new and better products and grow the business
● Calculating profits
○ Revenue: selling price x number of sales
■ All the money received for the sales
○ Incur costs for materials and wages
○ Revenue less all costs = profit
■ Left over from revenue after all costs are paid
○ If a business does not make enough revenue to cover cost of making goods
■ Make a loss
■ Needs to consider the change production method, product or close the business

Aims
● Charities
○ Aim to raise money through donations
■ People
■ Animals
■ Environment
● Local social or sports clubs
○ Sim to provide a better service to their community
● Government organisations
○ Provide public services (healthcare or education)
○ Cheaply or free if they decide people need it
■ Cover costs by charging with taxes

1.2 Classification of business

● 2 ways to classify businesses

○ Types of goods and services they provide
○ How they are owned and controlled
 Chains of Production
● Most products go through various stages of production and processing
○ From natural materials to finished goods
■ Before they reach their eventual

Industrial sectors
● Group businesses together depending on the similar products or making products in the same way
○ Primary
■ work with natural resources
● Fishing
● Mining
● Farming crops
○ Secondary
■ Process natural resources into finished goods and services
● Textile industry
● Oil and gas refining
● Construction
○ Tertiary
■ Provide service
● Retail
● Education
● Legal services

National Economies
● Every country has an economy
○ Involves business activities and the exchange of goods and services
■ Between consumers and producers
● Has an industrial structure too
○ Mix of primary, secondary and tertiary industries are different
■ Each industry is more or less important
● Depend on its relative size and contribution to the economy as a whole
■ Developed Economies
● Large secondary and tertiary sectors
○ UK and France
■ So customers buy their products from newly
industrialised or developing countries
● China, india or brazil
○ Output and employment has expanded
rapidly
■ De-industrialisation
● Over time, primary and secondary sectors decline
● And service sectors grow
Developed Countries
● Small primary sector
● Manufacturing output and employment has declined
● Service sector has expanded
● Income and living standards are good
○ Spend a large of what they earn on services
● A wide variety of goods and services available

Rapidly developing economies

● Large but shrinking primary sector
● Manufacturing is expanding
○ Rapidly drawing workers from primary sector to better paying secondary jobs
● Service sector output and employment are also growing
● Incomes and living standards are improving
● Amount and variety of goods and services are growing quickly

Less-developed economy
● Most workers are employed in primary sector industries
● Few manufacturing jobs
● Service sector is small and growing slowly
● Incomes and living standards are low
● Few goods and services are available to consumers

Economic systems
 Mixed Economies
● Mix of producers and decision makers for resources between
○ Private sector
■ Businesses owned and controlled by firms and private industries
● Aiming to make profit
○ Public sector
■ Have organisations owned and controlled by the government

Public sector
● Role
○ Can provide goods and services people need that the private sector are unwilling or
unable to produce
■ Private sectors aim to make a profit
● Many people may not be able to buy them
○ Gov may provide them at eiother reduced cost or no cost
● Examples
○ Government authorities
■ Oversee laws and regulations
○ Government departments
■ Look after specific services
○ Public corporations
■ May operate like profit seeking firms
● Run public sector functions
○ Water
○ Electricity

Changing size of the public sector

● Most governments have been reducing the size of their public sector by
○ Encouraging the private sector to make more
■ Reducing their taxes or offering grants
○ Privatisation
■ Selling off public corporations and trading bodies to private sectors firms

Privatisation
● Government can sell to a private sector or let company take over
○ Running public services are expensive and paid by charging people with taxes
■ Smaller public sector means lower taxes and people can buy more goods and
servies
○ Public organisations are funded by taxes regardless
■ Make a profit or not- wasteful
○ Sole provider of their service
■ Don’t feel pressure to improve to keep customers
○ Private sector for profit may cut jobs or charge high prices
■ Not affordable for many

Stakeholders
● Direct interest or affected by the business
○ Internal stakeholders
■ Owners- Care about the profit
■ Managers- Measured on how well the business performs
■ Workers- Want job securtiy and the best pay possible
○ External stakeholders
■ Customers- care about the price
■ Competitors- want to know about their methods and performances
■ Local community- pollution you make
■ Government- if you’re paying the right tax
○ Stakeholder conflict
■ They may disagree