The Purpose of Business Activity
Businesses combine the Factors of Production (Land, Labour, Capital, and Enterprise) to produce goods and services that satisfy people's needs (essentials) and wants (luxuries).
Specialization and Division of Labour
In modern business, workers rarely make a whole product. Instead, they specialize in one part of the process. This is called the Division of Labour.
- Advantages: Workers become faster and more skilled; production increases; costs fall.
- Disadvantages: Work can become boring; if one worker is absent, the whole line might stop.
Adding Value
According to the 0450 syllabus, Added Value is the difference between the selling price of a product and the cost of the bought-in materials and components.
Calculation:
Selling Price - Cost of Materials = Added Value
Note: Added Value is NOT the same as Profit. Profit also subtracts costs like labor and rent.
Two Ways to Increase Added Value:
- Increase Selling Price: By creating a luxury image or a strong brand (e.g., iPhone).
- Reduce Cost of Materials: By finding cheaper suppliers without losing quality.
Exam Question Check:
"Identify and explain two reasons why business activity is important to a country."
Clue: Think about employment (jobs) and providing goods that people need!