Unit 1.1 - understanding business actitivity

Question 1

What are the factors of production?

Answer 1

The resources combined to make goods and services. Includes labor (manpower needed to produce the good/service), capital (money, equipment), enterprise (people who come up with the idea) and land (anything that comes naturally from the planet like plants or oil).

Question 2

What is added value + example with tuna?

Answer 2

The amount of money added to the cost of the raw materials/components needed to make the good/service to create the selling price. It should cover labour costs, marketing, rent of official place, etc.
E.g. value is added for each part of the production process. An example of a tuna can has the added value of being caught, transported, put into cans and brought to a supermarket. The selling price reflects all these actions (combining factors of production like capital, labor) so that the business can make a profit.

Question 3

What are the 4 basic survival needs?

Answer 3

1. Food - provides energy and nutrition
2. Water - essential for survival
3. Shelter - place that provides protection from weather & other dangers
4. Warmth - clothes, roof over head, etc.

Question 4

What is profit?

Answer 4

A surplus pf revenue over the cost of many things like production, etc.

Question 5

What is opportunity cost?

Answer 5

The benefit lost by not consuming or producing the next best alternative. Businesses constantly have to make decisions, and by picking one option, they will miss out on the advantage of another.

Question 6

What is the basic economic problem?

Answer 6

The reason why some people’s basic needs aren’t being met - the fact hat needs & wants are unlimited but the resources that are needed to make these products and services are limited.

Question 7

Who is an entrepreneur?

Answer 7

A person with knowledge and willingness to take the risks and decisions necessary to set up and run a business.

Question 8

What is scarcity?

Answer 8

The lack or limited availability of resources, goods or services; the state of being in short supply. Happens when the demand for a product is greater than the availability.

Question 9

What is the purpose of any business activity?

Answer 9

To combine the factors of production to satisfy customer needs and water. For most, it is also to make a profit but some want to achieve other objectives (e.g. charities, sports clubs); they rely on donations.

Question 10

State 3 ways for a business to increase added value

Answer 10

• Make its products more appealing to customers through advertising
• Use resources as efficiently as possible to achieve maximum output (reduce waste)
• Create a recognized brand that consumers are willing to pay more for

Question 11

What is specialization + examples?

Answer 11

The process where a business focuses on a particular industry/segment of a market. This allows them to become more efficient due to less wastage of resources and less mistakes (products produced in shorter amount of time).
E.g. sawmill focusing on only producing wood for buildings rather than also boats & furniture; mechanic only focusing on repairing cars rather than also bikes, trucks, buses.

Question 12

What are 3 benefits & 3 limitations of specialization?

Answer 12

+ More products are produced at a lower cost
+ Quality of products is higher due to fewer mistakes in the production process
+ Production process is faster
- Business cannot take advantage of market rends since it can’t change production
- Employees may demand higher wages
- A delay in one stage of process may delay whole process if they are closely linked

Question 13

What is division of labor + 1 advantage & disadvantage?

Answer 13

When employees concentrate on a specific part/task of the production process and become highly skilled, resulting in greater efficiency of individual tasks.
+ A business can maximize the scarce resources available this way.
- Employees may lose motivation because their tasks become repetitive

Question 14

What is the difference between public and private enterprises?

Answer 14

• Private enterprise is a firm owned by a private individual, who pays for the components of the business.
• Public enterprise is a firm which is at least partially owned/controlled by the government. They are widely accessible to the public. E.g. services like public transport improve infrastructure & mobility, public hospitals improve health of citizens, public schools to improve literacy & education, etc.

Question 15

What is nationalization?

Answer 15

The transfer of ownership of an industry/business from the private sector to public sector.