IGCSE BUSINESS STUDIES

1. UNDERSTANDING BUSINESS ACTIVITY

The Nature of Business Activity
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
Needs, wants, scarcity and opportunity cost
Opportunity cost
• 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)
Opportunity cost
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 or when people and businesses concentrate on what they are best at.
• 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
Specialisation
Specialisation
Specialisation
Specialisation
Specialisation and division of labour
Purpose of business activity
• The purpose of business activity is to produce goods or services that meet customer needs while adding value

The purpose of all businesses is to combine the factors of production to make products which will
satisfy people’s wants. These products can either be goods – physical items such as cars and shoes
which we can touch and see – or they can be services, such as insurance, tourism or banking.
Purpose of business activity
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
Purpose of business activity

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
The Process of Adding Value

•Adding value is the process of taking raw materials and using them in such a way that the end product
created is worth more than the cost of the raw materials used to create it - value has been added

•The added value is the difference between the price that is charged to the customer and the cost of
inputs required to create the product or service
• E.g. Customers are prepared to pay more for potatoes when they are packaged as oven chips than
they would be willing to pay for a bag of potatoes
• If value is not added to the materials and components that a business buys then fixed costs cannot
be paid and no profit will be made

•The greater the added value, the more successful the business is likely to be and the higher their profits
The Process of Adding Value
The Process of Adding Value
The Process of Adding Value
Flashcard Questions
1. What is a need? 4. What isScarcity
3. Define opportunity cost?

A need is something essential for survival, such Opportunity cost is the next best alternative
as food, water, and shelter. foregone when a choice is made.

2. What is a want? 5. Why does scarcity lead to business activity?

A want is something that is desired but not Because resources are limited, businesses exist
essential for survival, like a smartphone or to produce goods and services to satisfy needs
holiday. and wants efficiently

3. Define Scarcity 6. What is specialisation?

Scarcity means that resources are limited and Specialisation is when individuals or businesses
cannot satisfy all human wants and needs. focus on producing a limited range of goods or
services to increase efficiency.
Flashcard Questions
7. Why is specialisation important in business? 10. How can businesses add value?

It improves productivity and quality by allowing By improving quality, branding, convenience,

workers or businesses to become skilled in design, or customer service.
specific tasks

8. What is the primary purpose of business 11. Give an example of adding value through
activity? branding.
To combine resources to produce goods or
A company charging more for a branded product
services that satisfy customer needs and wants.
than a generic one due to perceived quality.

9. What does adding value mean in business? 12. How does specialisation contribute to adding
value?
Adding value means increasing the worth of a
By increasing efficiency and quality, specialised
product or service beyond the cost of inputs.
workers can produce better products faster.
Flashcard Questions
13. What are the four factors of production? 16. What is the difference between needs and
wants?
Land, labour, capital, and enterprise
Needs are essential for survival; wants are
additional desires beyond basic needs.
14. What role does enterprise play in business
activity?activity?

Enterprise involves organising the other factors of 17. Why do businesses exist?

production and taking risks to create goods and To satisfy the needs and wants of consumers by
services. producing goods and services

15. How does opportunity cost affect business 18. What is an example of scarcity in business?
decisions?
Businesses must choose how to allocate scarce Limited raw materials forcing a company to
resources, considering what they give up by decide which products to produce.
choosing one option over another
Flashcard Questions
19. How can added value be increased through 22. What is the purpose of adding value in
convenience? business?
By making products easier to buy or use, such as To create a product that customers are willing to
online shopping or home delivery pay more for than the cost of inputs, generating
profit
20. What is the relationship between scarcity and
opportunity cost?
Scarcity forces choices, and opportunity cost 23. How can design add value to a product?

measures the value of the next best alternative By making it more attractive or functional,
given up increasing customer appeal.

21. How does specialisation affect production 24. What is meant by the term ‘business
costs? activity’?

It usually lowers production costs by improving The process of producing goods and services to
efficiency. satisfy people’s needs and wants.
Flashcard Questions
25. Why is opportunity cost important for 28. How can customer service add value?
consumers?
By enhancing the buying experience and building
It helps consumers make choices about how to
customer loyalty.
spend limited resources

26. How does specialisation benefit workers? 29. Why is it important for businesses to
understand needs and wants?
Workers become more skilled and productive in
To produce goods and services that customers
their specific tasks
actually demand, ensuring sales and profit

27. What is an example of opportunity cost in 30. How does adding value relate to profit?
business?
The greater the added value, the higher the
Choosing to invest in new machinery instead of
potential profit for the business.
expanding marketing activities