Business Activity

Summary

Business activity involves creating products to meet needs and wants. Need — a good or service essential for living. Example: Food and water. Want — a good or service which people would like to have but is not essential. Example: Video games. Scarcity — lack of sufficient products to fulfill total wants. Example: Limited supply of oil. Factors of production — resources needed to produce goods and services: land, labor, capital, and enterprise. Example: A factory using machines and workers to produce cars. Opportunity cost — the next best alternative given up when making a choice. Example: Choosing to buy a book instead of a movie ticket. Specialization — focusing on what people and firms do best. Example: A bakery specializing in cakes. Division of labor — a form of specialization where each worker performs one task. Example: An assembly line in a car factory. Added value — the difference between the selling price of a product and the cost of production. Example: A smartphone sold for $500 that costs$300 to make.

Exam Tips

Key Definitions to Remember

• Need: a good or service essential for living
• Want: a good or service which people would like to have but is not essential
• Scarcity: lack of sufficient products to fulfill total wants
• Opportunity cost: the next best alternative given up by choosing another item
• Specialization: focusing on what people and firms do best
• Added value: the difference between the selling price of a product and the cost of production

Common Confusions

• Confusing needs with wants
• Misunderstanding opportunity cost as a financial cost

Typical Exam Questions

• What is the basic economic problem? Unlimited wants and limited resources.
• How does specialization benefit businesses? Increases efficiency and output.
• What is added value and why is it important? The difference between selling price and production cost; it's important for profit.

What Examiners Usually Test

• Understanding of the basic economic problem
• Ability to explain the concept of specialization
• Knowledge of how added value can be increased