Business Activity and Economic Principles

Purpose of Business Activity

• Businesses provide goods and services to meet customer needs and wants.
• All businesses aim to satisfy customer demand and generate profit.
• Goods are tangible products (e.g., cars, bread, water, food, chocolate).
• Services are intangible (e.g., car insurance, websites, YouTube channels, knowledge, Facebook, government services).

Needs and Wants

• Needs are essential for survival (e.g., water, food, shelter).
• Wants are non-essential (e.g., iPhones, luxury cars, expensive watches).
• Wants are unlimited, often leading to dissatisfaction with existing options.

Scarcity

• Scarcity arises from limited resources and unlimited wants.
• Scarcity necessitates efficient resource allocation to meet needs and wants.
• Scarcity formula: Unlimited wants + Limited resources = Scarcity.

Opportunity Cost

• Opportunity cost is the value of the next best alternative forgone.
• Choosing one option means foregoing another option.
• Example: Studying for a test instead of going to a movie; the opportunity cost is the movie.

Specialization

• Specialization in business involves expertise in a specific area (product, service, skill).
• Examples: Dentists, corporate lawyers, tire manufacturers.

Division of Labor

• Dividing a job into smaller tasks assigned to individual workers increases efficiency.
• Workers specialize in specific tasks.
• Advantages: Time savings, reduced worker movement, increased productivity.
• Disadvantages: Potential for boredom, reduced motivation, reliance on specific workers, and potential production disruptions if crucial workers are absent.

Adding Value

• Businesses add value when the selling price exceeds production costs.
• Resources include raw materials, equipment, buildings, and staff.
• Value-added = Selling price - Production cost.
• Value-added is not profit; profit comes after deducting other expenses (rent, wages, utilities).
• Adding value happens through features like after-sales service, personalization, branding, and quality.