Business activities

Chapter-1
 Needs and wants
What are needs? What are wants?
Needs are things we can’t live without. Wants are things we don’t necessarily
For example need but would like to have.
• Food For example
• Water • Phone
• Shelter • Snacks
• A Lamborghini and etc.

Our wants can be unlimited, but on the other hand our Earth’s resources are limited. This results in economic
problem.

What is the Economic problem?

The Economic problem is something we face when there is not enough resources to fulfill the population’s needs
and wants. This creates scarcity.

What is scarcity?
Scarcity has a similar meaning to this.
Scarcity is lack of products and services to fulfill the population’s needs and wants.

Formula: Unlimited wants + Limited resources = Scarcity

 Factors of Production
The main cause of scarcity is that there is not enough factors of production.

What are factors of production?

Factors of productions are resources needed to produce a good or a service.
There are four factors of production.
• Land
All the natural resources which includes coal, oil, gas and the land itself.

• Capital
This is the money you needed for everything such as equipment, labor, machinery, etc.

• Labor
The number of people you need for production.
• Enterprise
This is a skill of a person who bring all the factors together to produce a good or a service. This kind of people are
called “Entrepreneurs”.
 Opportunity Cost
What is opportunity cost?
Opportunity cost is something we face when deciding between two things. All choices include giving up one.

For example-

1$
? ?

Take a bus home Eat ice-cream

You have a dollar and you can choose whether you want to eat ice cream or take a bus home.

If you choose to eat ice cream the opportunity cost is that you have to walk home.
If you choose to take the bus the opportunity cost is that you can’t eat ice cream.
 Division of Labor & Specialization
What is Division of labor?
Division of labor is giving each worker their own role or job.

For example- In a restaurant-

There will be a chef, a waiter, maybe a receptionist and many other workers. This is called Division of Labor. Each
worker has their own role.
What is Specialization?
Specialization is giving each worker their own role or job based on what they’re best at.

For example-

There are many types of chefs such as sauce chef, meat chef, vegetable chef, etc. This is called Specialization. Each
worker is given their own role based on what they’re best at.
 Adding value
What is added value?
Added value is the difference between the price of the product and cost of all the materials needed to produce the
product.

For example-
The cost of all materials
The price of this cake such as flour, egg, milk,
is 10$ FLOU etc. is 8$
R

So the added value here is 2$. Also the price of a product is usually more than the cost of all the materials, in order
to make profit.

Price of product

Cost of all the materials

added value

Formula: price - cost of all the materials= added value