Business Activity and Economic Principles

Study Notes

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.

Description

This quiz covers the fundamental concepts of business activities, including the distinction between goods and services, as well as the understanding of needs and wants. It explores the implications of scarcity in economics and how it influences decision-making in business contexts.