1.1 Business Activity

1.1.1 The Purpose and Nature of Business Activity – Cheat Sheet

Needs vs Wants

• Businesses aim to provide for both needs and wants.

Scarcity

• Resources are limited, but wants are unlimited.
• Scarcity forces people/businesses to make choices.
• Example: Government choosing between building hospitals or roads.

Opportunity Cost

• Definition: The next best alternative given up when a choice is made.
• Example: If money spent on new machines, opportunity cost = not being able to increase advertising.

Importance of Specialisation

• Definition: Workers, firms, regions, or countries focus on what they do best.
• Benefits:
  • Higher efficiency, lower costs.
  • Better quality through expertise.
• Drawbacks:
  • Over-dependence.
  • Boredom for workers.
• Example: Bangladesh specialises in textiles; Saudi Arabia in oil.

Purpose of Business Activity

• Combine factors of production (land, labour, capital, enterprise).
• Provide goods/services to satisfy needs and wants.
• Reduce scarcity by efficient use of resources.
• Aim to make a profit (in private sector) or provide public services (in public sector).

Adding Value

• Definition: The difference between selling price and cost of inputs.
• Formula:
  Added Value = Selling Price – Cost of Inputs
• Example: Restaurant buys ingredients for $5, sells meal for $15 → added value = $10.

Ways to Increase Added Value

Quick Recap Keywords

• Needs = essentials
• Wants = luxuries
• Scarcity = limited resources, unlimited wants
• Opportunity Cost = next best alternative forgone
• Specialisation = focus on strengths
• Purpose = satisfy needs/wants, profit/service
• Adding Value = selling price – input cost