Golspie High School. Business Management National 4/5. Understanding Business 1 Role of business in society Pupil Notes

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Cecil Bridges
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1 Golspie High School Business Management National 4/5 Understanding Business 1 Role of business in society Pupil Notes

Understanding Business Role of business in society National 5 how businesses satisfy human needs and wants how business activity create wealth reasons for setting up in business how businesses

Everyone in our society has wants some are for things like food, clothing or shelter, others are for entertainment, leisure, travel etc.

Therefore, a definition of business activity is any activity that provides us with goods and services to satisfy our wants.

2 Understanding Business Role of business in society National 5 how businesses satisfy human needs and wants how business activity create wealth reasons for setting up in business how businesses operate in different sectors of industry primary, secondary, tertiary the different sectors of the economy private, public, third What is Business Activity? Everyone in our society has wants some are for things like food, clothing or shelter, others are for entertainment, leisure, travel etc. In order to satisfy these wants we have to consume (make use of) goods and services. It is through business activity that goods and services are provided. Therefore, a definition of business activity is any activity that provides us with goods and services to satisfy our wants. Needs and Wants As consumers, we buy the goods offered and the services provided by a range of organisations/ businesses. As consumers, we buy these goods and services to satisfy our needs and wants. NEEDS are things that everyone has. They are the essentials for survival food, water, warmth, shelter and clothing. WANTS are things that make our lives better, nicer, easier. After our basic needs are satisfied, people often want more. Eg a holiday in the Bahamas, new clothes, a new mobile phone, etc. These items give consumer satisfaction. There is no limit to what we want! The more we have, generally, the more we want. National 4/5 Business Management Page 2 18 May 2015

3 Goods and Services Any business is involved in doing one of two things. These are: making goods providing services A good is an item that you can see and touch (tangible) such as a CD or a bar of chocolate. Goods sold to the general public are often referred to as consumer goods. A service is something that can t be touched (intangible) such a haircut, car insurance, visiting a doctor, etc. Goods can be further divided into 2 groups: Durable can be used regularly over and over again eg cars, washing machines, laptops, etc Non-durable can only be used once eg sweets, a can of juice, newspapers, etc Wealth Creation Goods and services can be described as the outputs of business activity. Business activity creates wealth the more goods that are produced, the greater the amount of wealth. At every stage in business activity value is added to a product. If you consider, for example the basic part of a house bricks: Extraction industry Quarry Manufacturer Bricks Wholesaler Builders merchant sells bricks Building company Builds brick house on site Estate agent Sells house which has been built The above example can be displayed as follows: Input Output Value Added Quarry 0 100, ,000 Brickwork 100, , ,000 Builders Merchant 500,000 1,000, ,000 Builder 1,000,000 2,000,000 1,000,000 In this example it can be seen that each stage in the process adds value to the previous stage. All businesses from the quarry company to the estate agency attempt to satisfy needs and wants and aim to make a profit. National 4/5 Business Management Page 3 18 May 2015

4 It is also worth noting that along each stage from primary, through secondary and into tertiary people own firms, have invested in firms and are employed by firms. Each of these groups requires money in return for their investment or labour and in turn save/spend their money on goods and services provided by other firms operating in the country. Wealth is NOT money!!! It can end up that way, but money is obtained from creating wealth. Wealth includes property, shares, antiques, etc., any items of value. At each stage in the production chain, value is added to the cost (price). The wealth of a country is measured by how many goods and services the country can produce. In order to produce these outputs, business makes use of resources, also called factors of production. The Business Cycle All businesses provide us with goods or services or sometimes both. For example, Greggs the Bakers will sell us a sausage roll (providing a good) but if we ask for it, they will heat it up (providing a service). Everyone buys and consumes goods and services in order to survive, for example, food, but people naturally want more than this the things people want are unlimited. However, most people can t have everything they want, they have to make choices about what they buy. In order to make a profit and survive, a business has to produce what people want. This creates the cycle of business. Consumers have needs and wants (UNLIMITED) Consumers buy these goods and services and consume them Business identify these wants by doing research Business produces goods and services to satisfy these needs and wants National 4/5 Business Management Page 4 18 May 2015

Factors of Production Factors of Production Land this refers to all natural resources o This includes farmland, water and coal o The reward for land is rent Labour this is the workforce (employees) o

5 Factors of Production Factors of Production Land this refers to all natural resources o This includes farmland, water and coal o The reward for land is rent Labour this is the workforce (employees) o The reward for labour is wages Capital these are man-made resources o This includes premises, equipment, machinery o The money invested in the organisation o The reward for capital is interest Enterprise the idea for the business o The person who brings together the other 3 factors of production o The reward for enterprise is profit National 4/5 Business Management Page 5 18 May 2015

Sectors of Industry There are 3 sectors of industry divide according to the type of product or service produced: Primary Sector Businesses that are involved in taking

Secondary Sector Businesses that are involved in manufacturing and construction.

Tertiary Sector Businesses that are involved in providing services rather than goods, such as hairdressing, hotel and catering, education, banking, leisure, etc.

All countries start out by being heavily involved in the primary sector, and as their economies grow they move through each of the sectors.

6 Sectors of Industry There are 3 sectors of industry divide according to the type of product or service produced: Primary Sector Businesses that are involved in taking natural resources (raw materials) from the land by exploiting or extracting them (eg farming, fishing, forestry, extraction oil exploration, coal mining, quarrying, etc). Secondary Sector Businesses that are involved in manufacturing and construction. They take the natural resources produced in the primary sector and change them into things we can use (eg car manufacture, ship building, wine production, engineering, etc). Tertiary Sector Businesses that are involved in providing services rather than goods, such as hairdressing, hotel and catering, education, banking, leisure, etc. A service is performed for a customer, but no goods change hands. All countries start out by being heavily involved in the primary sector, and as their economies grow they move through each of the sectors. In the UK, we have gone through what is called de-industrialisation during the last thirty years. Many of our manufacturing industries like ship building, steel-making and car manufacture have been greatly reduced in size, and service industries are much more important to our economy. eg there has been significant growth in employment in call-centre and E-commerce firms. National 4/5 Business Management Page 6 18 May 2015

7 Sectors of the Economy These divisions are made according to ownership (private or public money) and motive (profit-making or non-profit making). Private Private Sector Organisations owned and controlled by private individuals and investors (shareholders). Their aims are to survive, maximise profits, maximise sales, gain market share, be socially responsible, etc. Third ECONOMY Public Public Sector Organisations owned and controlled by the government on behalf of the taxpayers. Controlled by Managers or Board of Directors. Their aims are to provide a service, use taxpayers money carefully, etc. Third (Voluntary) Sector Organisations set up to raise money for good causes or to provide facilities for their members. They are owned by the members of the organisation. They are controlled by Committees or paid professionals who act as Managers and Directors. Their aims are to survive, increase awareness, raise funds, provide assistance to those in need, fund research, be socially responsible, etc. National 4/5 Business Management Page 7 18 May 2015

Golspie High School. Business Management National 5/Higher. Understanding Business. 1 Role of business in society

Golspie High School. Business Management National 5/Higher. Understanding Business. 1 Role of business in society Golspie High School Business Management National 5/Higher 1 Role of business in society Role of business in society National 5 how businesses satisfy human needs and wants how business activity create