Business Studies

Business

Studies

Summary

Chapter 1: The purpose of business activity

The Economic Problem: The result of having unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.

Factors of production: Resources needed to produce goods or services.

- Land (natural resources provided by nature)

- Labour : physical and mental contribution to production

- Capital (finance, machinery, equipment) MAN MADE RESOURCES

- Enterprise: the skill and ability to take risks of the person Who brings the resources to produce a good or service) ADMINISTRATES THE THREE FACTORS OF PRODUCTION IN ORDER TO GAIN A GREAT PROFIT.

The factors of production are limited in supply... While there are unlimited human wants

Such ECONOMIC PROBLEM leads to:

Opportunity cost: Is the best alternative given up by choosing another item. (For example going on a holiday instead of buying a car, the car is the opportunity cost).

Within production processes....

• Specialisation: when resources are used to concentrate on producing one particular product.

Examples:

• Countries- Qatar in oil production

• Firm - Division of labour

• Division of labour: Is when the production process is split up into different tasks and each worker performs one (Also known as specialization).

Advantages: increases efficiency

Less time consuming

Disadvantages: Less work motivation

If a worker is sick nobody can replace him, or, if one area fails, then the whole production process is stopped.

Why is business activity needed?

Business activity...

• Combines scarce factors of production in order to produce goods and services.

• Produces those goods and services which are needed to satisfy the needs and wants of a population.

• Employs people as workers and pays them wages to allow them to consume products made by other people.

SO... business activity is needed as it is the vehicles which moves people from its desiring wants, into getting them as a result of their own effort.

Business combines factors of production to make products which satisfy people’s wants.

Business objectives: the target or aims that a business is working towards.

They mainly are to increase sales, increase profits, and survive. Objectives can differ between businesses or change over time such as surviving in the start up, and making profits once it is established.

Some common objectives:

- make profit

- increase added value (the difference between the cost of production and the selling price)

- expand the business

- achieve survival

- provide a service to the community

Added value: the difference between the selling price of a completed item with the value of bought in materials or components.

Ex.

• The selling price of a newly built house is $100000

• The value of bought in bricks, cement, wood and other materials was $15000

• The value added by the builder is $85000 but this is not the builder’s profit, as so many costs and expenses have to be taken into account too.

How to increase added value:

- Give the product or store a luxury feeling, offer extra free services

- Adding more features to a product.

Why does a business want to grow?

- To make jobs more secure

- To increase the salaries and status of managers

- Spread the risks of the business (moving to other markets)

- Gain market share

- Obtain economies of scale

ISSUES INVOLVED WITH BUSINESS GROWTH:

• Survival: a recently set up business could aim for survival more than anything else, even making a profit, which is why, they sometimes opt for lowering their costs to attract customers. New competitors also threaten businesses, so sometimes managers have to make decisions which could affect the company’s profits.

• Providing a service: In some countries, important businesses are owned by the government (such as water, electricity). The main aim of these businesses is not to grow or make profits, but to provide a service to the community, provide more jobs, etc.

Conflict in business activities:

May change over time

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Make profits growth value added survival provide a service to the community

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Business Objectives

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Interested groups can have different objectives

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OWNERS COMMUNITY

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