Chapter 1

• The purpose of business activity is to satisfy customers using the scarce factors of production.
• A need is a good or service essential for living
• A want is a good or service that people desire, but is not essential for living
• The economic problem results from there being unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.
• Scarcity is the lack of sufficient products to fulfill the total wants of the population

Factors of Production

• Factors of Production are those resources needed to produce goods and services. They are in limited supply.
• Land: covers all the natural resources provided by nature
• Labor: human resource
• Capital: investment in goods that are used to produce other goods in the future e.g. finance, machinery, equipment
• Enterprise: the skill and risk-taking ability of the person who brings all the other factors together to produce a good or service. These people are called entrepreneurs.
• Opportunity cost is the next best alternative given up by choosing another option

Specialization

• Division of Labor/Specialization is when production is split up into different tasks and each worker performs one of these tasks.
• Advantages:
  Increases efficiency and output
  Less time is wasted between tasks

• Disadvantages:
  If workers get bored, efficiency falls
  If one worker is absent, production may be stopped

Business Objectives

• Profit
• Value added:
  the difference between the selling price of a product or a service and the cost of materials and components bought
  by adding features or attractive displays

• Growth:
  Job security
  Increase salaries and status
  Risk taking
  Higher market share
  Economies of scale

• Survival
• Provide a service

Possible Conflicts in Business Objectives

• More profit but more pollution
• Expansion but more dirt and noise
• Profit through capital intensive but unemployment
• Expansion but less profit
• Therefore, managers must compromise during decision making
• Objectives may change overtime

Stakeholders involved in Business Activity

• Stakeholders are the people with a direct interest in the performance and activities of a business