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BUSINESS STUDIES
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IGCSE
OMAR ALI SHAALAN

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 The Purpose of Business Activity

Need: A good or service essential for living.

Want: A good or service which people would like to have but which is not essential
for living. People's wants are unlimited.

Economic problem: A problem resulting from there being unlimited wants but limited
resources to produce the goods and services required to satisfy those wants. This
creates scarcity.

Needs Wants

Shelter Books

Water Cars

Clothing Computers

Food Television

Warmth Phones

Scarcity: The lack of sufficient products to fulfill the total wants of the population.

Opportunity Cost: The next best alternative given up by choosing another item.

Individual Business Government

Holiday Machine A New road

Or Or Or

Car? Machine B? New school?

The individual chooses to The company decides to buy The Government chooses to
buy the holiday so the car Machine A, so Machine B build a new road so the
becomes the opportunity becomes the opportunity school becomes the
cost. cost. opportunity cost.

Revision Summary: the economic problem

Factors of Production

Those resources needed to produce goods or services. There are four factors of
production and they are in limited supply:

Land

Labour

Capital

Enterprise

Land: Used to describe all natural resources provided by nature, includes land
literally, forest, oil, gas etc.
Examples include farming, mining, forestry and also include such things and fishing
from the sea.

Labour: This is the human efforts needed to make products or services.

Examples include production workers (factory workers) even jobs such as doctors.

Capital: This includes money or finance, machinery or any other equipment that is
needed to manufacture goods.

Enterprise: This person has the ability to combine or bring together the other factors
of production.

Division of Labour: When the production process is split up into different tasks and
each of the workers performs one of these tasks. It is also known as specialization.

Before Specialization:

1) Joe cuts the wood

2) He assembles the table
3) He polishes the table
4) Joe delivers the table by cart
After Specialization:

1) The wood for 20 tables is cut by a specialist machine

2) Carpenters assemble the table
3) The tables are finished in the polishing department
4) A transport business collects the tables to deliver them
to furniture retailers.
Advantages of specialization: Greater efficiency; Employees become good at tasks;
Less time is wasted moving from area to area.

Disadvantages of specialization: Boredom; Absence may halt production.

Why do we need business activity and what is it?

The aim of all business is to combine the factors of production to make products
which will satisfy people’s wants. These products can either be goods –physical items
such as cars and shoes which we can touch or see– or they can be services, such as
insurance, tourism and banking.

They combine factors of production to make products which satisfy people’s wants.

Business activity combines scarce factors of production in order to produce goods and
services, produces those goods and services needed to satisfy the needs and wants of
the population and employs people as workers and pays them wages to consume
products made by other people.

Business Objectives

An objective is an aim or a target to work towards. All businesses have objectives.

These objectives are often different for different businesses. Businesses are started by
people, and sometimes by governments, for many different reasons. The most
common business objectives are:

 To make a profit
 To increase added value
 To expand the business
 To achieve business survival
 To provide a service to the community
When a business is owned by private individuals, rather than government, it is usually
the case that the business runs to make profits.

Value added is not the same as profit. It is the difference between the selling price of a
completed item and the value of the inputs or bought in materials and components. A
business can increase added value in numerous ways. Here are some examples:

 A retailer such as a jeweler could present items in attractive displays, create a

luxury feel to the shop and offer a gift-wrapping service. These could make
consumers more willing to pay higher prices.
 A manufacturer could add features to a product. For example, a camera maker
could add a zoom lens and panoramic options. A higher price could then be
charged.
Growth
The owners & managers of a business may aim growth in the size of the business

 To make jobs more secure if the business is larger

 To increase the salaries & status of mangers as the business expands
