Chapter – 1

Business Activity
Define the following terms:
1. Needs: A good or service essential for living.
2. Want: A want is a good or service which people would like to have but is not
essential for living. People’s wants are unlimited.
3. Economic problem: There is a scarcity of resources. The wants are unlimited
and resources to produce goods and services to satisfy these wants are limited.
4. Factors of production: They are those resources needed to produce goods or
services. There are four factors of production and they are limited in supply.
Land – includes all natural resources Eg. Minerals and metals, oil reserves,
forests etc. Rent is the reward for land.
Labour – People/human resource used for producing goods and services.
Wages/salaries is the reward for labour.
Capital – Finance and plant and equipment used to manufacture goods and
services. Interest is the reward for capital.
Enterprise – Skill and risk taking ability of the entrepreneur.
5. Scarcity: It is the lack of sufficient products to fulfill the total wants of the
population.
6. Opportunity cost: It is the next best alternative given up by choosing another
item. Eg: when cash is kept idle in hand, the lost interest is the opportunity
cost.
7. Specialisation: It is a method of production whereby an entity (person,
business) focuses on the production of limited number of goods and
concentrate on what they are best at.
What is division of labour? What are its advantages and disadvantages?
Division of labour is when the production process is split into different tasks and
each worker performs one of these tasks. It is a form of specialisation.
Advantages
 Workers are trained in performing one task and becomes an expert in it.
 It increase the efficiency and output for the business.
 Less time is wasted in moving from one place to another.
Disadvantages
 Workers might get bored doing one job. This decreases their efficiency.
 If one worker is absent, production has to be stopped because there is no one to
do the absent worker’s job.
Define the term business.
Businesses combine factors of production to make goods and services which satisfy
people’s wants.
What is the main purpose of business activity?
Main purpose of business activity is:
 To combine scarce factors of production to produce goods and services.
 To produce goods and services which satisfies the needs and wants of the
people.
 To employ people as workers and pay them wages or salaries that allows them
to consume products and services made by other people.
What is added value and why is it important? How can the business increase
added value?
Added value is the difference between the selling price of a product and the cost of
bought in materials and components. The sales revenue should be greater than the
cost of bought in materials and components, so that
 It can pay other costs like labour costs and other management expenses.
 Can make a profit if other costs are less than the added value.
A business can increase its added value in two main ways:
 Increasing the selling price by keeping the cost of materials same. This can be
done by creating a higher quality image and by providing better convenience to
the customers.
 Reducing the cost of materials and components by keeping the selling price
same. For reducing the price of materials quality should not be compromised.
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