Section 1: Introduction to business activity

Exam practice questions. P.19

Question 1

a. Identify two stages of business activity.

Jonah has identified that consumers want to buy wooden toys, Jonah buys raw
material and other resources needed to produce wooden toys, Jonah converts
raw materials into finished products which satisfies consumer wants. [2]

b. What is meant by 'factors of production'

The resources needed to produce goods and services – land, labour, capital, and
enterprise.

c. Using the information in the case study, explain the meaning of '
opportunity cost'.

Opportunity cost is the next best alternative that the Jonah will have to give up
to choose another one[1], in the case study when Jonah has decided to leave his
job as a joiner in the firm to set up his own toy – making business. So, he will
lose the wage of being an employee in the firm[1], so his job as a joiner in the
firm is the opportunity cost.[1]

d. Identify and explain two ways Jonah could add value to his toys.
Adding value means to convert the raw material into a good or services to
sell them to customer at a price greater than the cost of the raw material.[2]
This may happen by:
 Giving the toys a brand name and run an advertisement campaign
(branding), so customers will be more aware of his product other than
competitors' products, so he will be able to charge a higher price.[2]
 He can paint the toy according to the colors asked by the customers
(personalized services), this will make his toys unique and customer
will pay more for this service.[2]
 e. Do you agree with jack that "specialization of labor brings many benefits of
the business and its workers? Justify your answer.

Yes I agree, specialization is to let each labour concentrate on one thing that
he is best at, by doing so, workers will accomplish the task in much less time
than before which will increase efficiency, reduce waste and increase quality,
and this will reduce the cost of production, so john can lower prices and this
will increase sales.

Question 2:

a. Identify two factors of production.

Land, labour, capital and enterprise

b. What is meant by "needs"?

Something that is essential to life, e.g water and food.

c. Using the information in the case study, explain the meaning of

specialization.
When people or businesses concentrate on what they are best at doing,
company X is better at producing pottery products than other types of
products, there is division of labour in the company, production is divided
into nine different processes and each worker only performs the tasks in one
of these processes.

d. Identify and explain two stages of company X's production process?

Taking clay and shaping this into plates and bowls is likely to be labour
intensive and require a high level of skills. Taking the clay plates and bowls
and putting them into an oven is not a skilled process and is capital intensive.
e. Suggest two ways the marketing manager might increase company X's
added value. Justify your answer.
Company takes raw materials and convert these into plates and bowls, which
it sells to consumer at price higher[2] than the cost of raw materials used in
production process. Managers can add value by: improving branding of
company X products[1], through increased advertising or promotion of
company's products[1], improving service to customers [1]offering
personalized products [1]to hotels and restaurants that company sells to, e.g
by visiting them in person and making sure that they receive the products
that meet specific needs.