Chapter 1 The purpose of Business Activity

Transcription

1 Chapter 1 The purpose of Business Activity

2 All of us have wants and needs of our own. The purpose of business activity is to satisfy these wants and needs. Many people believe that the economic problem is due to the shortage of money in the world. Though, actually the economic problem is that there are unlimited wants,but limited resources. In a business we need to have a product to sell which is how the business will earn money. To create a product we need to have all four factors of production. They are :-

3 Land This term is used for all the natural resources found in the Earth, or that are provided by nature like wood, oil, metal, water etc. Labour This is the human work force needed to make a product. Capital This is all the money and equipment the business needs to produce a product. Enterprise This is the skill and the risk taking ability of the person controlling the business to bring all the factors of production in a perfect way to create a product.

4 As I have mentioned before there are limited resources but too many wants. So there has to be a need to choose. We have a choice either buy this or that. So, the next best alternative that we give up becomes our opportunity cost. AS we know that there are limited resources so it obvious that we use them in the most efficient way possible. This is done by using machinery to speed up the process and the workers are specialized in the work that they do to decrease the errors.

5 Specialization is also known 'Division of Labour'. This is when the production process is split up into many tasks and each worker performs one of these tasks. There are many pros and cons of 'Division of Labour'. Advantages - (I) The workers are trained in one task and specialize in that particular task. This will increase the firm's efficiency and output. (II)Less time is wasted in a worker moving from one work bench to another. Disadvantages - (I)The workers can become bored of doing the same over and over again. (II)IF one worker is absent and no one else can take his place then the production process might be stopped.

6 Business It combines the factors of production to make products which satisfy people's wants. A business can be as small as one person or as big as operating with thousands of people in different countries. Without business life would be incomplete, as people would do everything for themselves, they will be self-sufficient. None of the modern appliances would be available in a large scale if their was no business. We would be living in an undeveloped society without business.

7 Business Objectives They are the aims or targets that a business works towards. Some of the business objectives are :- To make profit To increase added value To expand the business To achieve business survival To provide service to the community The objectives of a business changes according to time. For example During inflation the prices of the goods will increase and the objective will be to expand the business, while at recession the main aim of the business will be survival.

8 Profit It is the money earned by a firm when it sells its product. It is the raw capital and nothing is deducted. Value added It is the difference between the selling price of a product and the cost of the materials and components bought in. Some people mistake value added to be the same as profit, while actually they are very different. While profit is just the money earned by the business, value added has the cost of the materials bought in deducted from the profit.

9 Growth The owners of a firm may have various reasons to grow the firm :- To make jobs more secure if the business grows To increase the salaries and status of managers if the business as the business expands. To open up new possibilities and help to spread the risk by moving into new products. To obtain higher market share from growth in sales To obtain 'economies of scale' from business expansion. Some countries have important businesses owned by the government. The main aim of the business is to provide a service to the public.