Chapter 1 THE PURPOSE OF BUSINESS ACTIVITY The Economics Pro !

!em" # Nee$s % &ants Basically, all humans have needs and wants. Needs are things we cant 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 graphics card, etc, that we actually do not needs and wants. Businesses produce goods and services to satisfy needs and wants.

Although we have unlimited wants, there are not enough resources for everyone. Resources can e split into ! factors of production, which are" #and" All natural resources used to ma$e a product or service. #a our" %he effort of wor$ers re&uired to ma$e a product or service. Capital" 'inance, machinery and e&uipment re&uired to ma$e a product or service. (nterprise" )$ill and ris$*ta$ing a ility of the entrepreneur.

(ntrepreneurs are people who com ine these factors of production to ma$e a product. With these discussed, lets move on to the economic pro lem. +ow the economic pro lem e,ists%he economic pro lem results from limited resources and unlimited wants. %his situation causes scarcity, when there are not enough goods to the wants for every ody. Because of this, we will have to choose which wants we will satisfy .that e of more enefit to us/ and which we will not when uying things. 'or any choice, you will have would o tain if you didnt spend that money. 'or e,ample, you would have got a oo$ if you didnt uy the pen, or you would have a urger if you didnt uy the chips. Basically, the item that you didnt uy is the opportunity cost. 0a$e sure that the opportunity cost isnt higher than what you ought1 %herefore, opportunity cost is the ne,t est alternative given up y choosing another item.

'i(ision o) *a or an$ Specia!i+ation Because there are limited resources, we need to use them in the most efficient way possi le. %herefore, we now use production methods that are as fast as possi le and as efficient .costs less, earn more/ as possi le. %he main production method that we are using nowadays is $nown as speciali2ation, or division of la our. 3ivision of #a our4)peciali2ation is when the production process is split up into different tas$s and each speciali2ed wor$er4machine performs one of these tas$s.

Advantages of )peciali2ation"

)peciali2ed wor$ers are good at one tas$ and increases efficiency and output. #ess time is wasted switching 5o s y the individual. 0achinery also helps all 5o s and can e operated 6!47.

3isadvantages of )peciali2ation" Boredom form doing the same 5o lowers efficiency. No fle,i ility ecause wor$ers can only do one 5o and cannot do others well if needed. 8f one wor$er is a sent and no*one can replace him, the production process stops.

Why is usiness activity needed- .)ummary/ Provides goods and services from limited resources to satisfy unlimited wants. )carcity results from limited resources and unlimited wants. Choice is necessary for scarce resources. %his leads to opportunity costs. )peciali2ation is re&uired to ma$e the most out of resources.

B,siness Acti(it%he main activities that usinesses engage are" 9/ Com ining factors of production to create goods and services. 6/ Producing goods and services to satisfy people wants. :/ (mploying people and paying them wages so they can consume other products.

B,siness O .ecti(es All usinesses have aims or o 5ectives to achieve. %heir aims can vary depending on their type of usiness or depending on their situations. %he most common o 5ectives are" 9/ Profit" Profit is what $eeps a company going and is the main aim of most usinesses. Normally a usiness will try to o tain a satisfactory level of profits so they do not have to wor$ long hours or pay too much ta,. 6/ 8ncrease added value" ;alue added is the difference etween the price and material costs of a product. (.g. 8f the price when selling a pen is <: and it costs <9 in

material, the value added would e <6. +owever, this does not ta$e into account overheads and ta,es. Added value could e increased y wor$ing on products so that they ecome more e,pensive finished products. =ne easy e,ample of this is a mo ile phone with camera would sell for much more than one without it. =f course, you will need to pay for the e,tra camera ut as long as prices rise more than costs, you get more profit. :/ >rowth" >rowth can only e achieved when customers are satisfied with a usiness. When usinesses grow they create more 5o s and ma$e them more secure when a usiness is larger. %he status and salary of managers are increased. >rowth also means that a usiness is a le to spread ris$s y moving to other mar$ets or it is gaining a larger mar$et share. Bigger usinesses also gain cost advantages, called economies of scale. !/ )urvival" 8f a usinesses need to focus on this o 5ective the most when they are" starting up, competing with other usinesses, or in an economic recession. ?/ )ervice to the community" %his is the primary goal for most government owned usinesses. %hey plan to produce essential products to every ody who need them. %hese usiness o 5ectives can conflict ecause different people in a usiness want different things at different times. Sta/eho!$ers A sta$eholder is a person or a group which has interest in a usiness for various reasons and will e directly affected y its decisions. )ta$eholders also have different o 5ectives and these also conflict over time.