The Nature of Business Activity (CIE IGCSE Business)

• Businesses thrive when they are able to meet customer needs and wants

  • Needs are considered to be essential e.g. shelter or food
  • Wants are desires which are non essential, even if consumers consider them to be essential e.g Nike trainers
    
    

• Due to the problem of scarcity, choices have to be made by producers, consumers, workers and governments about the best (most efficient) use of these resources. This is known as the economic problem

  • These resources are known as the factors of production and are land, labour, capital and Enterprise
     

• Opportunity cost is the loss of the next best alternative when making a decision
  
  
• There is an opportunity cost in the allocation of resources
  • When a consumer chooses to purchase a new phone, they may be unable to purchase new jeans. The jeans represent the loss of the next best alternative (the opportunity cost)
  • When a producer decides to allocate all of their resources to producing electric vehicles, they may be unable to produce petrol vehicles. The petrol vehicles represent the loss of the next best alternative (the opportunity cost)
  • When a government decides to provide free school meals to all primary students in the country, they may be unable to fund some rural libraries which may have to close. The libraries represent the loss of the next best alternative (the opportunity cost)

• Specialisation occurs when people and workers focus on one particular role or task and thereby gain significant skill in doing it
  
  
• Division of labour is the separation of a work process into a number of tasks that are completed by a separate person or group of persons
  • Specialisation results in higher output per worker which increases productivity
  • Specialisation is now more common due to specialised technology, machinery and increasing global competition 
     

• Specialisation occurs on several different levels
  • On an individual level
  • On a business level e.g. one firm may only specialise in manufacturing drill bits for concrete work
  • On a regional level e.g. Silicon Valley has specialised in the tech industry
  • On a global level as countries seek to trade e.g. Bangladesh specialises in textiles & exports them to the world

• The purpose of business activity can be broadly defined as the activities that businesses engage in to produce goods or services that meet customer needs while adding value
  

Diagram Showing the Purpose of Business Activity

The purpose of business activity is to take inputs, add value to them, and create products which meet customer needs

To produce goods or services

• The primary purpose of business activity is to produce goods or services that satisfy a need or demand in the market
  • Goods are physical products, such as bicycles and T-shirts
  • Services are non-physical items such as hairdressing, tourism and manicures

Meeting customer needs

• The ultimate goal is to create products that meet the needs and preferences of customers and provide value to them
• By meeting customer needs, businesses can build customer loyalty, increase brand awareness, and generate revenue

To add value

• The third purpose of business activity is to add value to products or services 
• Value-added features can differentiate products from competitors, create a unique selling point, and increase customer satisfaction
  • E.g. a product that is easier to use, has a better design, or is of higher quality than competitors can create a competitive advantage for a business