BUSINESS STUDIES

SYLLABUS SECTION
1
UNDERSTANDING BUSINESS ACTIVITY
DEFINITION OF TERMS

• Business activity - the process of producing goods and services to satisfy customer demand
• Need – a good or service which is essential to living
• Want – a good or service which people would like to have, but is not essential for living
• Scarcity – there are not enough goods and services to meet everyone’s wants
• Opportunity cost – the benefit that could have been gained from an alternative use of the same resource but
is lost because of the decision made to use the resource in a certain way
• Specialisation – when people and businesses focus on what they are good at instead of trying to do everything
• Adding value – the process of taking raw materials and processing them, sometimes turning them into a
different good or service, to sell to consumers at a higher price
CONCEPTS OF NEEDS, WANTS, SCARCITY, AND
OPPORTUNITY COST
• People want everything and only a few of those
Unlimited
things are essential for life. wants

• The problem is we can’t all have everything. Lose out on

another
There aren’t enough resources to use to make product
• Opportunity
A few needs

cost
those things (scarcity) so we have to choose.
• But when you choose the more important thing,
you don’t get the benefits from the other thing Can’t have Limited
everything so resources
you could have gotten (opportunity cost) we choose • Scarcity
IMPORTANCE OF SPECIALISATION

• Increases productivity: businesses focusing on one thing get better and more efficient at it.
• Increased productivity makes business more competitive and allows them to focus on growth

• Increases efficiency: businesses use fewer resources at the same output which lowers variable
costs
• Increases profitability: eliminating inefficient, unproductive and less profitable business lines
reduces costs of funding them and results in higher profits
• Increases innovation: businesses can use more resources for research and development to
improve product in new ways
• Improves market position: specialised brands create a strong brand identity, increase brand
value, and establish trust with their customers which can increase sales and revenue
THE PURPOSE OF BUSINESS ACTIVITY

• Businesses combine the limited resources: land (where they conduct their business),
labour (the people who work), capital (the money and equipment used to start the
business), and entrepreneurship (someone’s willingness to take on the risk of starting
something new)
• The combined resources are used by businesses to produce goods and services that satisfy
people’s wants and needs
• The businesses employ people and pay them wages that they can use to consume
products made by other people
THE CONCEPT OF ADDING VALUE AND HOW
ADDED VALUE CAN BE INCREASED
Added value is the difference between the selling price of a product and the cost of the materials
and components.
• Value addition is important in order to pay for other costs and to make a profit.
• Other costs include labour, advertising and electricity costs, management expenses, etc
• The company only makes a profit when the added value is greater than the total costs
There are 2 main ways of increasing added value
• Increase the selling price but keep the cost of materials the same
• Reduce the cost of materials but keep the value of the product the same
WAYS OF INCREASING ADDED VALUE:
INCREASING PRICE AT THE SAME COST OF
MATERIALS
This involves influencing the customer by
• Improving the design and functionality of the product
• Improve brand image and make it seem like a luxury good
• Change packaging to make it seem like a different, better product
• Improve customer relationships (customer service)
• Make the product more convenient
It is usually difficult to improve the product without increasing variable costs.
• Just increasing the price of the product can result in lower sales and usually lower profits
WAYS OF INCREASING ADDED VALUE: REDUCING THE COST OF
MATERIALS AT THE SAME PRICE

• Reduce material costs by

• Finding cheaper material vendors
• Getting discounts from existing vendors

• Increasing added value by reducing material costs is difficult because cheaper materials
can result in a poor quality product which reduces customer satisfaction and can result in
lower sales