The Nature of Business Activity (Cambridge (CIE) O Level Business Studies)

Needs, Wants, Scarcity and Opportunity cost

• 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 not essential, even if consumers consider them to be essential, e.g Nike trainers

• Due to the problem of scarcity, there is a basic economic problem

  • Choices have to be made by producers, consumers, workers and governments, about the most efficient use of resources

  • Resources, known as the factors of production, 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)

The Importance of Specialisation

• Specialisation occurs when workers focus on one particular role or task and thereby gain significant skill in doing it

  • It is now more common due to specialised technology and increasing global competition 

• Specialisation occurs on several different levels

  • On an individual level, through the division of labour

    • Division of labour is the separation of work processes into tasks that are completed by separate people or groups of people

  • 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

• It results in higher output per worker, which increases productivity

The Purpose of Business Activity

• The purpose of business activity is to produce goods or services that meet customer needs while adding value

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