LI Business Activity Key definitions (Precise definition from the textbook) Wheed - a good or service essential for living. Aiwant - a good or service which people would like to have, but which is not essential for living. Economic Problem - exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity, Factors of production - resources needed to produce goods or services. Seareity - lack of sufficient resources products to fulfill the total wants of the production Opportunity cost - the next best alternate given up by choosing another item. Specialization - occurs when people and businesses concentrate on what they are best at. Division of labour - when the population process is split up into different tasks and each worker performs one of these tasks (a form of specialization) Added Value - the difference between the selling price of a product and the cost of bought-in materials and components Factors of production - Land Labour Capital EnterpriseHow does scarcity create? Unlimited ! Limited | => Scarcity Wants Resources | C— Scarcity = Economic Problem ‘Mind map of an economic problem Labour__ _Capital land | d resources Economic Problem} Unlimited wants Leads to opportunity Choice is necessary cost “—~ Enterprise ScarcityImportance of specialization: the best - Specialized machinery and technologies are now widely available - Increasing competition means that businesses have to keep costs low - Most people recognize that higher living standards can result from being specialized. Division of Labour (Advs and Disadvs) & Workers are trained in one task and specialize in this, it could increase efficiency and output Workers can become bored doing just one job - efficiency might fall Less time is wasted moving from one workbench fo another 4 Quicker and cheaper to train workers as fewer skills need to be taught If one worker is absent and no more else can do the job, production might be stopped Purpose of business activity People have unlimited wants Factors of production - Limited supply > Scarcity results from limited resources and unlimited wants > Opportunity cost > SpecializationBusinesses combine factors of production to make products (goods and services which satisfy people's wants. Diagram of added value Value added cs Selling price of product \ Material and bought-in Exam-style questions Exam-style questions 88 isa bakery business that produces bread and cakes. I specialises in high quality cakes for weddings {and birthdays, Theres little dvsion of labour used. A typical wedding cake is sold for $50 using bought Iningredients costing $15. Bashir, B's owner, wants to increase added value and thinks the best way to do this is to buy in cheaper ingredients forthe bread and cakes his business produces, 1a) What is meant by “dvsion of labour’? a bb) Calculate the added value of each wedding cake. @ ©) enti and explain two factors of production that BB needs. @ 4) Identity and explain one benefit and one drawback to 8B of, Specialising in high quality cakes (61 €) Bashir thinks that the best way for BB to increase added value is to buy in cheaper ingredients. Do you agree with him? Justify your answer (6)