Study Notes
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 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