The Purpose Of Business Activity

The purpose of Business Activity

The economics problem: needs and wants.

Basically, all humans have needs and wants. Needs are things we can't live without, while wants are simply our desires that we can live without. We all haveunlimited wants, which is true, since all of us want a new PC, a car, new graphics card, etc. that we actually do not need to live. Businessesproduce goods andservices to satisfy needs and wants.

Although we have unlimited wants, there are not enough resources for everyone. Resources can be split into 4 factors of production, which are:

- Land: All natural resources used to make a product or service.
- Labour: The effort of workers required to make a product or service.
- Capital: Finance, machinery and equipment required to make a product or service.- Enterprise: Skill and risk-taking ability of the entrepreneur.

Entrepreneurs are people who combine these factors of production to make a product.

With these discussed, lets move on to the economic problem. The economic problem results from limited resources and unlimited wants. This situation causes scarcity, when there are not enough goods to satisfy the wants for everybody. Because ofthis, we will have to choose which wants we will satisfy (that will be of more benefit to us) and which we will not when buying things. For any choice, you will have to would have obtained if you didn't spend that money. For example, you would have got a book if you didn't buy the pen, or you would have a burger if you didn't buy the chips. Basically, item that you didn't buy is the opportunitycost. Make sure that the opportunity cost isn't higher than what you bought!


"Opportunity cost: the next best alternative given up by choosing another item."
Here is a diagram showing the whole economic problem:


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Division of labour/Specialisation

Because there are limited resources, we need to use them the most efficient way possible. Therefore, we now use production methodsthat are as fast as possible and asefficient (costs less, earns more) as possible. The main production method that we are using nowadays is known as specialization, or division of labour.


"Division of Labour/Specialisation is when the production process is split up into different tasks and each specialized worker/ machine performs one of these tasks."

Pros:
• Specialized workers are goodat one task and increases efficiency and output.
• Less time is wasted switching jobs by the individual.
• Machinery also helps all jobs and can be operated 24/7.
Cons
• Boredom from doing the same job lowers efficiency.
• No flexibility because workers can only do one job and cannot do others well if needed.
• If one worker is absent and no-one can replace him, theproduction process stops.
Why is business activity needed? (summary)
- Provides goods and services from limited resources to satisfy unlimited wants.
- Scarcity results from limited resources and unlimited wants.
- Choice is necessary for scarce resources. This leads to opportunity costs.
- Specialisation is required to make the most out of resources.

Business activity:
1. Combine factorsof production to create goods and services.
2. Goods and services satisfy peoples wants.
3. Employs people and pays them wages so they can consume other products.
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Business Objectives:
All businesses have aims or objectives to achieve. Their aims can vary depending on their type of business or these can change depending on situations. The most common objectives are:
1.Profit: Profit is what keeps a company going and is the main aim of most businesses. Normally a business will try to obtain a satisfactory level of profitsso they do not have to work long hours or pay too much tax.
2. Increase added value: Value added is the difference between the price and material costs of a product. E.g. If the price when selling a pen is $3 and it costs $1 in material, the...