Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

Notes
Chapter 1: Business Activity

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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

The Purpose of Business Activity

People have unlimited wants.

The four factors of production are in limited supply.
Scarcity results from limited resources and unlimited wants.
Choice is necessary - opportunity cost.
Specialisation improves the efficient use of resources.
Businesses They combine factors of production to make products
( goods and services) which satisfy peoples wants.

Business activities
a) combines factors of productions to produce goods and services.
b) produces goods and services which are needed to satisfy the
populations needs and wants.
c) employes people as workers and pays them wages to allow them to
consume products made by others.
Need It is a good or service essential for living. Example: water, food,
shelter, clothes and money.

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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

Want It is a good or services which people would like to have but which
is not essential for living. Peoples wants are unlimited.

The Economic Problem

There are unlimited wants but limited resources to produce the goods and
services to satisfy those wants.
It is the real cause of the scarcity of goods and services because there
are not enough factors of production to make all of the goods and services
that the populuations needs and wants.
Scarcity It is the lack of sufficient products to fulfil the total wants of the
population.
Factors of production The resources needed to produce goods and
services. There are four in total and limited supply.
Factors of Production
Land - It covers all the natural resources. It includes fields, forests, oil, gas
and other mineral resources.
Labour It is the people who make the product.

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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

Capital It is the finance needed to purchase machinery equipment for

the manufacture of goods.
Enterprise It is the skill of the people who bring the other resources to
produce goods and services.
Limited resources. The Need to Choose
In any one country, factors of production are limited in supply. Therefore,
there is an economic problem of scarcity.
Because resources are limited, we have to make choices. We have to
decide which wants we will satisfy and those which we will not. All choices
involve giving something up (opportunity cost).
Opportunity cost It is the next best alternative given up to acquire or
achieve something else.
Specialiasation. The Best Use of Limited Resources
Specialisation- It occurs when people and businesses concentrate on
what they are best at.
It is important to use resources in the most efficient ways possible.
Machinery and technology are now widely used.
Larger firms often employ workers that specialise in one skill and most
businesses specialise on one product.
Division of Labour

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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

It is when the production process is split up into different tasks and each
worker performs one of these tasks. It is a form of specialisation.
Advantages:
a) Workers are trained in one task and specialise in this which increases

efficiency and output.

b) Less time is wasted moving from one workbench to another.
Disadvantages:
a) Workers can become bored doing just one job and efficiency might fall.
b) If one worker is absent and no one else can do the job, production
might be stopped.

Added Value
It is the difference between the selling price of a product and the cost of
bought in materials and components.
It is the increased worth that a business creates for a product.
If value is not added to the materials and components that a business
buys, other costs cannot be paid for and no profit will be made.
Added value is important because..
a) Sales revenue is greater than the cost of materials bought in by the
business.
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Source: Cambridge IGCSE Business Studies, 4th edition, Karen Borrington & Peter Stimpson

b) It can pay other costs such as labour costs, management expenses

and costs such as advertising and power.
c) It may be able to make profit if these other costs total less than the
added value.

We can increase added value by .

a) Improving the quality
b) Convenience and speed
c) Packaging
d) Brand name
e) Good design
f) Unique selling point/ proposition (something that makes the product
worth paying extra for)
g) Increaseing selling price but keeping the cost of materials the same
h) Reducing the cost of materials but keeping the price the same

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