Cambridge IGCSE Business Studies 1.

1.1.1

Needs – Goods or services that are essential for living. These can things such as water, basic food and
clothing.

Wants – Goods and services that people would like to have but are not essential for living. For example,
brand name clothing, expensive food and luxury cars.

Scarcity (The economic problem) – Unlimited wants but not enough products. The cause of scarcity is
because of not enough factors of production, the 4 factors of production are…

Land – Natural resources from nature such as trees, forests and oil

Labour – Number of workers available to make products

Capital – Money required for a business to produce items this includes machinery, robots etc…

Enterprise – Entrepreneurs with skills required to create a business.

Opportunity Cost – A benefit/value that must be given up in order to achieve something else. For
example, if a bakery spends money on a new oven, the opportunity cost of the oven could be a new
refrigerator to store cakes.

Specialisation – Workers/machines specialises in some part of the production process. For example, At a
car factory, some workers cuts metal parts, another worker assembles the product and another paints
the car. Specialisation can help cut costs and create higher quality products.

Division of labour – Production process has been divided into different tasks for a specialised worker to
work on. e.g. painting cars at a car factory.

Advantages of division of labour are

Increased efficiency because the worker does the same task over and over again.

Workers don’t waste time moving from one task to another.

Disadvantages

Workers may become bored doing the same task which results in decreased efficiency

Production may stop if one worker doesn’t do job

Added Value = Selling price of the product – Cost price (materials etc…) Value added is the difference
between the selling price of a product and the cost to produce it.

Added value can be increased by either charging higher prices for the same product or by reducing the
cost of a product by lowering quality e.g. using cheaper materials.

Cambridge IGCSE Business Studies 1.2 – Classification of businesses

1.2.1
Economic Sectors
Primary Sector – Extracts and uses the natural resources from the earth. e.g. Fishing, farming

Secondary Sector – Manufacture goods using raw materials from primary sector. e.g. Car manufacturers
and other factories

Tertiary Sector – Provides service to consumers and other sectors of the industry e.g. Restaurants, car
showroom, travel agent

Importance of economic sector

The sector with the most workers is the most important in a country.

or
The sector with most valuable goods/service is the most important in a country.

Changes in sector importance

De-industrialisation – when manufacturing sector becomes less important in a country.

Why the importance of sectors changes?

Primary sector resources get used up e.g. overfishing, deforestation.

Factory costs (usually wages) are too high e.g. wages in China/India are cheaper

People spend more on the tertiary sector as they become wealthier. e.g. more restaurants, travel agents

1.2.2

Mixed Economy

Private Sector – Businesses not owned by the government but by private individuals. (Goal = Profit)

Advantages

High efficiency and lower costs

Competition is encouraged (prices will be lower)

Disadvantages

Some services may be closed (run out of money)

Workers may lose jobs to improve efficiency/cut cost (private sector business does not care about
employment rates in countries)

Public Sector – Government/State owned businesses.

(Goal = non-profit, service for all citizens) e.g. Electricity, police, public transit

Advantages

Business is funded by government

Encourage more jobs

Disadvantages

Low efficiency

No competition between businesses