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PURPOSE OF A BUSINESS.
Need This is a good / service essential for living (water, clothing for warmth, protection, food, some
form of housing, shelter etc.)
Want This is a good / service which people want, but it is not essential for living. The fact that
people's wants are unlimited, causes the real economic problem.
A Business Whether it is big or small, privately owned or owned by the state, it combines factors of
production to make products(good and services) which satisfy people's wants, employs people as
workers and pays them wages to allow them to consume products made by other people.
Economic Problem results when there are unlimited wants, but limited resources to produce goods
and services to satisfy those wants. This creates scarcity.
Shortages which cause the economic problem AKA "The factors of production":
Land Natural resources (Coal, land, grass, wind,oil, gas, metals, mineral resources etc)
Labour The efforts of people needed to make products
Capital The finance, machinery, and equipment needed for the manufacture of goods
Enterprise The skill and risk taking ability of a person who brings the other factors together, to
produce a good or service (owners of a business are called enterpreneurs)
These factors of production are limited in supply. There is never enough factors of production to
produce all of needs and unlimited wants of whole population.
Scarcity is the lack of sufficient products to fulfil the total wants of the population(unlimited
As there are limited resources, and many wants, we have to decide which want we will satisfy, and which
we will not. The cost of giving something up is called the opportunity cost.
So for example, I have to decide on going for a holiday or getting a new car. I decide to get a car, so
the holidays become the opportunity cost.
Opportunity cost exists not only for customers but also governments and businesses.
Since resources are limited, is it necessary to use the resources available in the most efficient
ways possible. To do, machinery is used, firms employ workers skilled in particular tasks, and
specialisation is common.
Division of labour / Specialisation Specialisation is when the process of production is split
up into different tasks, and each worker performs one of these tasks. The workers become
trained in their specialised job, and they increase output this way.
Workers are trained in one task, this increases output and efficiency.
Less time is wasted moving around
Workers can become bored of doing just one job (No motivation, efficiency might fall)
If a worker is absent, and no once can do the job, production may be stopped.
All business have objectives(aims or targets that a business works towards)
With every business, objectives differ. However, the most common business objectives are:
To make a profit
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The business run by private owners will often be run so it can make profits. The owners will take a share
of these profits. Although making as much profit as possible is usually the main aim, it can be
dangerous to become huge, because competitors may arise, people may stop buying goods etc.
Without any profit at all, they are likely to close their business.…read more
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Managers also have to be prepared to
change their objectives over time.…read more