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Chapter 1 The Purpose & Nature of Business Activity - Coggle Diagram
Chapter 1
The Purpose & Nature of Business Activity
What is business?
Individuals or groups of individuals (organizations) combine resources or factors of production to make products to satisfy needs and wants.
What are Needs & Wants?
Need
: a good or service
essential
for living. Examples: water, food, shelter & clothing.
Want
: good or service which people
would like to have
, but which is not essential for living. People's wants are unlimited. Examples: I pad, mobile phones, cars... etc.
Factors of production
Although we have unlimited wants, there are not enough resources for everyone. Resources are limited and can be split into 4 factors of production
Land
: All natural resources used to make a product or service.
Labour
: The mental & physical efforts of workers required to make a product.
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.
What is a Product?
A
good
(
tangible
) or
service
(
intangible
) created as a result of a process and serves a need or satisfies a want.
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.
"
Opportunity cost
: the next best alternative given up by choosing another item."
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.
Economic Problem
= limited resources + unlimited wants - scarcity choice - opportunity cost
The main production method that we are using nowadays is known as
specialization
, or
division of labor
.
Specialization
When people and businesses focus on what they are best at.
Advantages
:
• Specialized workers are good at one task and increases efficiency and output.
• Less time is wasted switching jobs by the individual
Disadvantage:
• Boredom from doing the same job lowers efficiency.
• If one worker is absent and no-one can replace him, the production process stops.
Importance of Specialization
• Increases efficiency.
• Reduces cost of production
• More goods available at lower prices for consumers
Division of labour
is when production is split in different tasks and each worker performs one of these tasks