1.1 Business activity (Knowledge)

Question 1

How many factors of production are there and what are they ?

Answer 1

• There are 4 factors of production:
  1. Land: natural resources provided by nature
  2. Labour: the number of people available to make products, reward is wage/salary
  3. Capital: finance, machinery/equipment needed to produce goods, reward is interest received on the capital
  4. Enterprise: skill & risk-taking ability of the person combine factors of production to produce good/service, reward is profit

Question 2

What specialisation is now become very common ?

Answer 2

• Specialised machinery & technologies are now widely available
• Increasing competition => businesses have to keep costs low
• Most people recognise that higher living standards result from being specialised

Question 3

Advantages and disadvantages of division of labour (a form of specialisation)

Answer 3

+ Workers are trained in 1 task & specialise in this => increase efficiency & output
+ Less time wasted moving from one workbench to another
+ Quicker & cheaper to train workers as fewer skills need to be taught
- Workers can be bored doing just 1 job & efficiency might fall
- Over-dependency, if 1 worker is absent & no one else can do the job => production might be stopped
- Workers demanding high salaries due to their importance in production (high labour turnover)

Question 4

What is the purpose of business activity ?

Answer 4

Purpose of all businesses is to combine factors of production to make products which satisfy people’s wants
+ Products can be goods/services
+ Businesses can be small/large, privately owned/by government, owned by one person/thousands of shareholders

Question 5

What do business do (its activity) ?

Answer 5

• Combine scarce factors of production to produce goods &services
• Produces goods & services which are needed to satisfy needs & wants of population
• Employ people as workers & pay them wages => they can consume products made by other people

Question 6

The main ways in which added value can be increased ?

Answer 6

• Reducing the cost of materials while keeping the same price
• Increase the selling price but keep cost of materials the same

Question 7

What are the new ways to increase added value ?

Answer 7

• Branding
• Adding special features
• Provide premium services

Question 8

Why is added value important to businesses ?

Answer 8

• Can pay for other costs e.g labour costs, management expenses & costs including advertising and power
• Able to make profit if these other costs come to a total that is less than added value