G 10 Business The Purpose of Business Activity

G 10 Business - The Purpose of Business Activity

The Economic Problem: Needs & Wants A need is something we have to live e. g. food, water, clothing A want is something we desire but don’t necessarily have to have e. g. jewellery, holidays abroad. Activity: Make a list of your personal needs and wants. Limit your wants to 10 items.

The Economic Problem Wants are unlimited, however, resources are limited. This creates scarcity. Because of scarcity, we have to make choices. When making a choice, the next best alternative we had to give up is called the opportunity cost.

Opportunity Cost Activity What could be the opportunity cost of using some land to build a restaurant? What could be the opportunity cost of spending 400 RMB on a pair of Nike sports shoes?

Factors of Production Four resources are needed to produce any product: Land = Natural resources provided by nature e. g. land, forests, fisheries Labour = The efforts and skills of people Capital = Finance, machinery and equipment Enterprise = The risk-taking ability of the person who brings together the resources to produce a product.

Making the best use of limited resources: specialisation It is important to use the resources we have in the most efficient ways. Specialisation is when each worker focuses on some part of the production process. This dividing up of the production process into different tasks is called division of labour. Specialisation and the division of labour increase efficiency and output. Can you think of any possible problems with dividing up the production process in this way?

Why is business activity needed? The aim of all business is to combine the factors of production to make products (goods or services) which will satisfy people’s wants. Businesses add value to the factors of production. Businesses employ workers and pay them wages, this allows them to consume products made by other people.

Business objectives The most common business objectives are (but not limited to): To make a profit To grow To survive To provide a service To increase added value

Added Value The difference between the selling price of a product and the cost of producing it. Eg A tailor buys cotton for $2. They make a shirt that sells for $7. What is the added value?

Which groups are involved in business activity? Any person who is affected in some way by a business is called a stakeholder. Stakeholders include: Owners Workers Customers Government Can you think of any others?

Stakeholders Activity Draw a star diagram of the stakeholders of NIS.

Stakeholders and the conflict of business objectives Each stakeholder group has its own interest the a business. The objectives of each group often conflict with one another. Example: Management may want to increase profits by using low cost production methods. This may increase pollution which conflicts with the community’s objective of a clean environment.

Stakeholder Conflict Identify and explain TWO possible conflicts that could take place between different stakeholders at NIS.

Key terms Needs Wants Scarcity Factors of production Opportunity cost Division of labour Specialisation Stakeholders Economic problem Added value Conflict Profit