YEAR 10- [2020-2021]

Contents- section 1
understanding business activity

1. Business activity
2. Classification of business
3. Enterprise, business growth and size
4. Types of business organization
5. Business objectives and stakeholders
• Case study
• Business activity
• Learning objectives:
• By the end of this unit you should understand:
• the concepts of needs, wants, scarcity and
opportunity cost
• the importance of specialization
• the purpose of business activity
• the concept of added value and ways to increase
added value.
 The purpose of Business Activity
• A business Activity (business) – Refers to any
undertaking that combines factors of
production (resources) to make products
(goods and services) which satisfy people’s
wants/needs.
• Need – It is a good or service essential for
living. Example: water, food, shelter, clothes
and money.
• Or
• Needs are things we can't live without
• Want – It is a good or services which people
would like to have but which is not essential
for living. People’s wants are unlimited.ie they
are so many i.e. they don’t end.
• Or
• Wants are simply our desires that we can live
without
• Business activity……
• Combines factors of productions to produce
goods and services.
• Produces goods and services which are
needed to satisfy the population’s needs and
wants.
• Employs people as workers and pays them
wages to allow them to consume products
made by others.
Why is business activity needed (summary)
• Provides goods and services from limited
resources to satisfy unlimited wants
• Scarcity is the result of the economic problem
- limited resources and unlimited wants
• Choice is necessary for scarce resources. This
leads to opportunity costs
• Specialization is required to make the most
out of sources
 The Economic Problems:

• Meaning of an economic Problems:

• This is a situation where, there are unlimited
wants but limited resources to produce the
goods and services to satisfy those wants.
• Basically, all humans have needs and wants.
Needs are things we can't live without, while
wants are simply our desires that we can live
without.
• We all have unlimited wants, which is true,
since all of us want a new PC, a car, new video
game, etc. that we actually do not need to
live.
• It is the real cause of the scarcity of goods and
services because there are not enough factors
of production to make all of the goods and
services that the populations needs and
wants.
• Scarcity results from limited resources and
unlimited wants.
• There are mainly three economic problems
and they are related, these include:
• Scarcity – is a situation where there are
unlimited wants but resources are limited to
produce the goods and services to satisfy
those wants.
• Basically, all humans have needs and wants.
• Or

• Scarcity can be defined as the lack of sufficient

products to fulfill the total wants of the
population.

• Because of scarcity, choice is necessary –

Businesses have to choose between which
goods and services to produce.
• Consumers also have to choose between
different options of goods and services to
consume.

• As choice is made, opportunity cost is incurred.

• Opportunity cost is the second next alternative

foregone when choice is made.
• EXAMPLE 1:
• QN .: Business A is a retailer. Next to the shop
the business owns a large plot of land. The
business can either use the space to extend
the shop or turn it into a customer car park. It
decides to extend the shop. The opportunity
cost is the …car park………………………..
 Factors of Production (resources)

• Factors of production – The resources needed

to produce goods and services. There are four
in total and limited supply.
• Land - It covers all the natural resources. It
includes fields, forests, oil, gas and other
mineral resources.
• Labour – It is the human effort/effort of
workers required to make a product or service.
People who make the product.
• Capital – It is the finance needed to purchase
machinery equipment for the manufacture of
goods.
• Or its man made assets used to produce other
goods.
• Enterprise – It is the skill and risk-taking ability
of the entrepreneur who brings the other
resources together to produce goods and
services.
• Entrepreneurs are people who combine these
factors of production to make a product with
an aim of making a profit.
 
• Here is a diagram showing the whole
economic problem:
Summary of nature of business activity.
 Added Value
• It is the difference between the selling price
of a product and the cost of bought in
materials and components.
• It is the increased worth that a business
creates for a product.
• Businesses produce goods and services by
adding value to the resources that they use.
• If value is not added to the materials and
components that a business buys, other costs
cannot be paid for and no profit will be made.
• Added value is important because……..
• Sales revenue is greater than the cost of materials
bought in by the business.ie maximizes sales
revenue.
• It can pay other costs such as labour costs,
management expenses and costs such as
advertising and power.
• It may be able to make profit if these other costs
total less than the added value.
• We can increase added value by …….
• Improving the quality
• Convenience and speed
• Packaging
• Brand name
• Good design
• Unique selling point/ proposition (something
that makes the product worth paying extra for)
i.e. is the one thing that makes your business
better than the competition. An example of a USP
could be:
• With their slogan Don’t just fly, fly better, the state-
owned airline company Emirates is taking pride in offering
the most exclusive experience for their first class
passengers:
• Which, according to the statement above, has been
possible by investing in the largest and most modern fleet
of Boeing 777 and A380 aircraft in the world. But also by
providing an incredible attention to their customers and
ensuring their great experience from take off to landing.
• While many of their competitors are focusing on 
cost leadership, Emirates are taking a different approach
for their brand. And they are doing an excellent job with it
• Increasing selling price but keeping the cost
of materials the same
• Reducing the cost of materials but keeping
the price the same
• summary:
• Added value is how much more a business sells a
product for than the total cost of materials
• Added Value = selling price – total cost
• It is NOT the profit because added value does not
include the price to pay for labour, transport etc.
• To increase added value, a business can either:
• Increase the selling price of product, while
keeping the total cost of material the same
• Decrease the total cost of materials, while
keeping the selling price of the product the same.
• Example 2:
• KSK is a leading manufacturer of mobile
phones.
• Outline two ways in which KSK could increase
added value. [4]
• Sample answer:
• Way 1: add new features [1] such as better
camera zoom. [1]
• Way 2: create a strong brand image [1] so that
people are willing to pay more for its phones.
[1]
 Specialiasation & division of labour: The
Best Use of Limited Resources

• Because there are limited resources, we need to

use them the most efficient way possible.
• Therefore, we now use production methods that
are as fast as possible and as efficient (costs less,
earns more) as possible.
• The main production method that we are using
nowadays is known as specialization, or division of
labour.
• Meaning of Specialization:
• This is a situation where people and
businesses concentrate on doing what they
can do best leaving other people to do other
things.
• Division of labor : is when the production
process is split up into different tasks and
each specialized worker or machine performs
one of these tasks.
• Advantages :[ pros ]
• Specialization improves the efficient use of
resources.
• It is important to use resources in the most efficient
ways possible.
• Machinery and technology are now widely
used.Machinery helps all jobs and can be operated
24/7.
• Larger firms often employ workers that specialise in
one skill and most businesses specialise on one
product. This increases efficiency and output.
• Less time is wasted switching jobs by the individual.
• Disadvantages [ cons ]

• Boredom from doing the same job lowers

efficiency.
• No flexibility because workers can only do one
job and cannot do others well if needed.
• If one worker is absent and no-one can
replace him, the production process stops.
• Division of Labour
• It is when the production process is split up
into different tasks and each worker performs
one of these tasks.
• It is a form of specialization.
• Advantages:[ pros ]
• Workers are trained in one task and specialize
in this which increases efficiency and output.
• Less time is wasted moving from one
workbench to another.
• Disadvantages: [ cons ]
• Workers can become bored doing just one job
and efficiency might fall.
• If one worker is absent and no one else can do
the job, production might be stopped.
Summary of specialization and division of labour
 Classification of Business Activity
• Businesses can be classified in a number of ways
1.Classification according to stages of Economic
Activity/sector of economic activity.
• Primary sector – This industry extracts and uses the
natural resources of the earth to produce raw materials
used by other businesses.
• Examples of primary sectors are…..
• Farming/agriculture
• Coal mining
• Oil drilling
• fishing
• Secondary sector – This industry
manufactures goods using the raw materials
provided by primary sector.
• Examples of secondary sectors are …..
• Aircraft and car manufacturing
• Construction
• food processing, textiles and clothing, iron and
steel production, vehicle manufacturing, and
electronics.
• Tertiary sector – This industry provides
services to consumers and the other sectors of
industry.
• Examples of tertiary sectors are ….
• Hotels
• Hairdressing
• Catering
• tailing, transport, logistics, banking, insurance
and education.
 Importance of Economic Sectors

• The importance of a sector in any economy or

country is seen or measured depending on two
things:
• The number of people employed and other
resources employed in each sector and the value of
output it contributes toward the national
output/GDP. The sector that employs more
resources and producing the highest output towards
the GDP is the most important in that country.
• In less developed countries, primary industries
employ many people than secondary or
tertiary industries. These tend to be countries
where the secondary industry has only
recently been established. As most people still
live in rural areas with low incomes, they
practice agriculture and agriculture
contributes much to the national output.
• In developed countries, secondary industries
were established many years ago. The
secondary sector employs most of the workers
and contributes more output to the national
output. In such countries the secondary sector
is the most important.
• The process of transferring resources from
primary sector to tertiary sector is called
Industrialisation
• In More Developed countries, the tertiary
sector employs more people and contributes
more to national output. In such countries the
tertiary sector is more important.
• De-industrialisation- It is when there is a
decline in the importance of the secondary,
manufacturing sector of industry in a country
and more resources are converted to tertiary
sector.
• Businesses can also be classified according to
who owns them i.e. Private or Public sector
• Private and Public Sector
• Private sector is part of the economy where
businesses are owned by individuals or
groups of individuals but not the government.
• These businesses will make their own
decisions about what to produce, how to
produce it and what price it should be charged
for. Most of them will aim to run profitably.
• Public sector is part of the economy where
businesses and organizations are controlled
and owned by the government.
• They make decisions on what to produce, how
and what to charge consumers. The money for
public sectors come from taxpayers.
• Examples of activities in public sectors….
• Health
• Education
• Defense
• Public transport
• Water supply
• Electricity supply
• QN. Basing on the industries/activities listed above,
suggest three possible reasons why government of
a country might decide to own and control that
industry/service
• The above classification is directly related to the
different economic systems seen below.
• An economic system is an arrangement in which
resources are owned , allocated and distributed with
in an economy. The economic systems include:
 Types of economies/economic system

1. Free market economy:

All businesses are owned by the private
sector. No government intervention.
• Advantages
• Consumers have a lot of choice
• High motivation for workers
• Competition keeps prices low
• Incentive for other businesses to set up and make profits
Disadvantages
• Not all products will be available for
everybody, especially the poor
• No government intervention
means uncontrollable economic booms or
recessions
• Monopolies could be set up limiting consumer
choice and exploiting them
2. Command/Planned economy:
• All businesses are owned by the public
sector. Total government intervention. Fixed wages
for everyone. Private property is not allowed.
Advantages
• Eliminates any waste from competition between
businesses (e.g. advertising the same product)
• Employment for everybody
• All needs are met (although no luxury goods)
Disadvantages
• Little motivation for workers
• The government might produce things
people don't want to buy
• Low incentive for firms (no profit) leads to low
efficiency
3.Mixed economy:
• Businesses belong to both the private and
public sector. Government controls part of the
economy.
Mixed economy: - recent changes.
• In recent years governments have changed the
balance between the private sector and public
sector in their economies.
• They have done this by selling some public
sector businesses- owned and controlled by
government – private sector.
• This is called privatization.
• In many European and Asian countries the
Water supply, Electricity supply and Public
transport systems have been privatized.
• Why have governments done this?
• It is always often claimed that private sector
businesses are more efficient than public
sector businesses.
• This might be because their main objective is
profit and therefore costs must be controlled.
• More still private sector owners may invest
more capital in the businesses than the
government can afford.
• Further more the competition between
private sector and public sector businesses
can improve product quality.
• However a business in the private sector
might make more workers unemployment
than a public sector business in order to cut
costs.
• More still on the negative side, a private
sector business is less likely to focus on social
objectives.

• Changes in the balance between the private

sector and public sector businesses are likely
to continue in many mixed economies.
• Progress check
• 1.In which sector would you find a public
corporation?
• 2 Give two examples of a secondary sector
business.
• 3 Using a ring as an example of a product,
show the link between the three sectors.
• 4 What is the difference between public and
private sector businesses?
• Sample question- exam style.
• Example:
• Post Now is a private limited company. It is a letter
delivery service in the private sector. Its main
competitor, MPO, is in the public sector.
• Explain two differences between the two businesses. [6]
• Sample answer:
• Difference 1: Post Now is owned by individuals [1] who
bought shares in the private limited company [1], while
MPO is owned by the government. [1]
• Difference 2: Post Now’s objective is to make profit [1]
from delivering letters [1] while MPO’s priority will be
to provide a service. [1]