Business revision notes

Key definitions

Needs : Goods or services necessary for life

Wants : Goods or services that are not necessary for life but are still sought after

Scarcity : The basic economic problem; unlimited wants but limited resources

Opportunity cost : The next best alternative forgone

Specialisation : When a business focuses on producing a specific type of good or service that

• they are good at

Factors of production: Factors that must be available for the production of goods/services

Capital: Man made machinery and equipment

Enterprise: The entrepreneur ready to take the risk

Land: All natural resources involved

Labour: The people available to work

Importance of specialisation

• Builds brand reputation
• Increased product quality from focused production
• Increased productivity as production processes are broken down
• Increased PROFIT!! (as a result)

Specialisation of workers : division of labour

• When workers are assigned specific tasks or jobs
• Employee skills are developed If one worker is absent the whole production
• Quality of products increases as employees is disrupted
• become skilled at one task The job can get repetitive
• Production is more efficient Bored workers are more likely to quit
• Quicker training (increased labour turnover)
• In turn, the quality of products could also
• decrease

Purpose of business activity

To use the factors of production to create goods/services that meet consumer wants and needs.

Added value equation (the difference between): Selling price – Cost of materials

To increase added value, you: 1. Increase selling price of product OR 2. Reduce cost of production

• OR you can…

Adding value : methods of increasing added value

Branding Creating a unique brand image that makes the business identifiable to consumers.

• Essentially, brand reputation. E.g., people like buying branded bags
• Excellent Providing unique services that make the customer want to return. E.g., having a 2-
• service year warranty
• Product Having unique product features that make it stand out from competitors, resulting in

features customer return.

• Convenience The location in which the good/service is being sold. A customer would prefer
• purchasing bread at their nearest grocery store over driving 20 km for a similar

variety.