The Purpose of Business Activity

What does this tell us about the basic economic problem?

A need is something we have to have in order to live - such as food, shelter, clothing

A want is something we desire but don’t necessarily have to have - such as....

Factors of production

• Land - all natural resources, e.g. ...
• Labour - the efforts and skills of people, e.g. ...
• Capital - man-made goods used to produce other goods/services, e.g. ...
• Enterprise - the skill and risk-taking ability of the person who brings together the resources to produce a good / service… organises the other resources e.g. ...

The economic problem

• Wants are unlimited. However, resources are limited. This creates scarcity.
• Because of scarcity we have to make choices.
• When making a choice, the next best alternative we had to give up is called the opportunity cost. e.g. what is the opportunity cost of coming to school each day?

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Making the best use of limited resources: specialisation

• It is important to use the resources we have in the most efficient ways.
• Specialisation is when we concentrate on a product or task.
• Specialisation happens at all levels: ----Within businesses and organisations In a country – Saudi Arabia specialises in oil In a region of a country – certain areas in Hungary specialise in wine production

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• Within a firm, dividing up of the production process into different tasks is called division of labour.
• Specialisation and the division of labour increase efficiency and output.
• Can you think of any possible problems with dividing up the production process in this way? What evidence of specialisation exists here at AISB?

Why is business activity needed?

• The aim of all business is to combine the factors of production to make products (goods or services… what is the difference between goods and services?) which will satisfy people’s wants.
• Businesses add value to the factors of production. What is "added value"?
• Businesses employ workers and pay them wages, this allows them to consume products made by other people.

Business objectives

• To make a profit
• To increase added value
• To grow
• To survive
• To provide a service
• ... and there are numerous other objectives

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Stakeholders

• Owners
• Workers
• Managers
• Customers
• Government
• The community as a whole
• Special interest groups

Stakeholders

Stakeholders

• Stakeholders can be seen as being either internal (work directly within the business) or external (are not directly working within the business but are affected in some way from the decisions of the business) to the organization.
• Identify the main stakeholders at AISB. List these under either INTERNAL or EXTERNAL stakeholders.

Stakeholder conflict

• Each stakeholder group has its own interest in the business.
• The objectives of each group often conflict with one another.
• Example: Management may want to increase profits by using cheap production methods. This will increase pollution which conflicts with the community’s objective of a clean environment.