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Chapter 1
The purpose of Business Activity
The economics problem: needs and wants.
Basically, all humans have needs and wants. Needs are things we can't live without, while wants are simply our desires that
we can live without. We all have unlimited wants, which is true, since all of us want a new PC, a car, new graphics card, etc.
that we actually do not need to live. Businesses produce goods and services to satisfy needs and wants.
Although we have unlimited wants, there are not enough resources for everyone. Resources can be split into 4 factors of
production, which are:
- Land: All natural resources used to make a product or service.
- Labour: The effort of workers required to make a product or service.
- Capital: Finance, machinery and equipment required to make a product or service.
- Enterprise: Skill and risk-taking ability of the entrepreneur.
Entrepreneurs are people who combine these factors of production to make a product.
With these discussed, lets move on to the economic problem. The economic problem results from limited resources and
unlimited wants. This situation causes scarcity, when there are not enough goods to satisfy the wants for everybody.
Because of this, we will have to choose which wants we will satisfy (that will be of more benefit to us) and which we will
not when buying things. For any choice, you will have to would have obtained if you didn't spend that money. For example,
you would have got a book if you didn't buy the pen, or you would have a burger if you didn't buy the chips. Basically, item
that you didn't buy is the opportunity cost. Make sure that the opportunity cost isn't higher than what you bought!
"Opportunity cost: the next best alternative given up by choosing another item."
Here is a diagram showing the whole economic problem:
Division of labour/Specialisation
Because there are limited resources, we need to use them the most efficient way possible. Therefore, we now use
production methods that are as fast as possible and as efficient (costs less, earns more) as possible. The main production
method that we are using nowadays is known as specialization, or division of labour.
"Division of Labour/Specialisation is when the production process is split up into different tasks and each specialized
worker/ machine performs one of these tasks."
1 Sir Muhammad Talha

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Specialized workers are good at one task and increases efficiency and output.
Less time is wasted switching jobs by the individual.
Machinery also helps all jobs and can be operated 24/7.
Boredom from doing the same job lowers efficiency.
No flexibility because workers can only do one job and cannot do others well if needed.
If one worker is absent and no-one can replace him, the production process stops.…read more

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Survival: If a business do not survive, its owners lose everything. Therefore, businesses need to focus on this
objective the most when they are: starting up, competing with other businesses, or in an economic recession.
5. Service to the community: This is the primary goal for most government owned businesses. They plan to produce
essential products to everybody who need them.
These business objectives can conflict because different people in a business want different things at different times.…read more

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Sir Muhammad Talha…read more

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Chapter 2
Types of business activity
Levels of economic activity
In order for products to be made and sold to the people, it must undergo 3 different production processes. Each process is
done by a different business sector and they are:
Primary sector: The natural resources extraction sector. E.g. farming, forestry, mining... (earns the least money)
Secondary sector: The manufacturing sector. E.g. construction, car manufacturing, baking... (earns a medium
amount of money)
Tertiary sector: The service sector. E.g banks, transport, insurance...…read more

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Low incentive for firms (no profit) leads to low efficiency
Mixed economy:
Businesses belong to both the private and public sector. Government controls part of the economy.
Industries under government ownership:
public transport
water & electricity
Privatisation involves the government selling national businesses to the private sector to increase output and efficiency.…read more

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Internal Growth: Organic growth. Growth paid for by owners capital or retained profits.
External Growth: Growth by taking over or merging with another business.
Types of Mergers (and main benefits):
- Horizontal Merger: merging with a business in the same business sector.
Reduces no.…read more

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Sir Muhammad Talha…read more

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Chapter 3
Forms of business organisation
Almost every country consists of two business sectors, the private sector and the public sector. Private sector businesses
are operated and run by individuals, while public sector businesses are operated by the government. The types of
businesses present in a sector can vary, so lets take a look at them.…read more

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A partnership is a group consisting of 2 to 20 people who run and own a business together. They require a Deed of
Partnership or Partnership Agreement, which is a document that states that all partners agree to work with each other,
and issues such as who put the most capital into the business or who is entitled to the most profit. Other legal regulations
are similar to that of a sole trader.
More capital than a sole trader.
Responsibilities are split.…read more


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