• Created by: najma28
  • Created on: 15-08-14 10:08

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 haveunlimited 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 andservices 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…