The purpose of business activity
The economic problem: it results from there being unlimited wants but limited resources to produce goods and services. It creates scarcity. -A need is a good essential for living -A want is a good or service people would like to have but which is not essential. They are unlimited. *Scarcity- the lack of sufficient products to fulfill the wants of the population *Factors of production- resources needed to produce goods or services - Land: natural resources, fields, forests, oil, gas, metals« - Labour: efforts of people - Capital: the finance, machinery and equipment - Enterprise: the skill and risk-taking ability of a person, entrepreneurs Limited resources : lead us to having to choose *Opportunity cost- the next best alternative given up by choosing another want *Specialization- as we have limited resources, it is important to use them in the most efficient way. So the production is split up into different tasks. -advantages: workers are trained to one task, so efficiency rises Less time wasted in moving from one place to another -disadvantages: workers can become bored, efficiency might fall If one part is absent no one can do the job, production stops

1 Paula Hohne-Tarragona

Types of business activity
Levels: there are three main stages in production - Primary sector: extract and use the natural resources of the earth - Secondary sector: manufactures goods using the raw materials provided by the primary sector - Tertiary sector: provides services to consumers and the other sectors of industry Markets: - Free market economy: no government control over factors of production. All resources are privately owned. They produce goods to make profits - Command economy: the government plans and controls the use of resources. - Mixed economy: combines features of free market economy and command economy. It¶s the most common system. Types and goals: y non-profit ± to achieve certain goals e.g. healthcare, education, etc y private ± to make a profit y public ± provide services Privatisation: selling businesses previously owned by government to owners in private sector. *advantages: - making more profit as a main aim encourages owners to run efficiently - Competition is encouraged- increase efficiency and keeps low prices - Owners have additional capital to invest *disadvantages: - Services making losses may be closed, as profit is main aim - Workers jobs could be lost - Only the owners benefit from owning the business

2 Paula Hohne-Tarragona

Business growth
Comparing business size: - By number of employees - By level of sales turnover - By capital employed - By market share * Investors, governments, competitors, workers, banks are interested in business size

Business growth: owners often want to expand their firms Internal growth- a business expands its existing operations External growth- a business takes over or merges with another business Takeover- firms agree to join to make one business Merger- one business buys out the other one Horizontal- In the same industry at the same stage o f production Vertical- same industry at different stage of production. Conglomerate- in a completely different business Small businesses: some businesses stay small- they employ few people and use relatively little capital. There are several reason s for this: -the type of industry the business operates in -the market size -the owners¶ objectives

3 Paula Hohne-Tarragona