Business activity

Why is business activity needed?We have identified die following issues.

People have unlimited wants. The four factors of production - the resources

needed to make goods - are in limited supply. Scarcity results from limited resources and

unlimited wants. Choice is necessary when resources are

scarce. This leads to opportunity cost. Specialisation improves the efficiency with

which resources are used.

Factors of production ->products-> people`s wants.

• Businesses combine factors of production to make products which satisfy people’s wants.

Key words

• Set up a business• Run a business• Take a share• Make a profit• Tax – pay a tax

Business activity

Business activity

combines scarce factors of production in order to produce goods and services

produces those goods and services which are needed to satisfy the needs and wants of the population

employs people as workers and pays them wages to allow them to consume products made by other people.

Business objectives

What is an obejective? An objective is an aim or a target to work

towards

The most common business objectives are:to make a profitto enable a business to growto enable a business to surviveto provide a service.

Profit• When a business is owned by private individuals, rather than the

government, it is usually the case that the business is run to make profits. The owners will each take a share of these profits.

• Will a business try to make as much profit as possible? It is often assumed that this will be the case. But there are dangers to this aim. Suppose a firm put up its prices to raise profits. It could find that consumers stop buying their goods. Other people will be encouraged to set up in competition, which will reduce profits in the long term for the original business.

• It is often said that the owners of a business will aim for a satisfactory level of profits which will avoid them having to work too many hours or paying too much in tax to the government. Profits are needed to pay a return to the owners of the business. Without any profit at all, the owners are likely to close the business.

GrowthThe owners and managers of a business may aim for

growth in the size of the business for a number of reasons:

• to make jobs more secure if the business is larger• to increase the salaries and status of managers as the

business expands• to open up new possibilities and help to spread the

risks of the business by moving into new products and new markets

• to obtain a higher market share from growth in sales• to obtain cost advantages, called economics of scale,

from business expansion.

Survival

• In difficult times, for example, when the economy is moving into recession or when interest rates are very high, a business could be more concerned with survival than anything else. New competitors can also make a firm feel less secure. The managers of a business threatened in this way could decide to lower prices in order to survive, even though this would lower the profit on each item sold.

Providing a service

• In some countries, important businesses are owned by the government. The main aim of these businesses could be to provide an essential service to the public, such as water or electricity supply, rather than making as much profit as possible.