the-nature-of-business-activity

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The purpose of business activity

The purpose of business activity can be broadly defined as the organisation of human, physical and financial resources to produce goods or services that meet customer needs while adding value

Purpose	Explanation
Produce goods or services	The primary purpose of business activity is to produce goods or services that satisfy a need or demand in the market Goods are tangible physical items capable of being stored, such as cars or games consoles Services such as insurance or hairdressing are intangible, cannot be stored and are provided to customers when they are needed
Meet customer needs	The ultimate goal is to create products that meet the needs and preferences of customers and provide value to them By meeting customer needs, businesses can build customer loyalty, increase brand awareness, and generate revenue
Add value	The third purpose of business activity is to add value to products or services Value-added features can differentiate products from competitors, create a unique selling proposition, and increase customer satisfaction E.g. a product that is easier to use, has a better design, or is of higher quality than competitors can create a competitive advantage for a business

Factors of production are the resources used to produce goods and services
- They are capital, enterprise, land and labour

The production of any good or service requires the use of a combination of all four factors of production
- Goods are tangible objects, e.g. mobile phone
- Services are intangible actions or activities that one person performs for another, e.g manicure, car wash

Land	Capital
Non man-made natural resources available for production Some countries have a vast amount of a particular natural resource & so are able to specialise in its production E.g. Kuwait specialises in the product of oil which accounts for 95% of its exports	Capital is any man-made resource that is used to produce goods or services Examples include tools, buildings, machines and computers
Labour	Enterprise
The human input into the production process, labour involves mental or physical effort Not all labour is of the same quality It can be skilled or unskilled Some workers are more productive than others because of their education, training and experience	Enterprise involves taking risks in setting up or running a firm An entrepreneur decides on the combination of the factors of production necessary to produce goods/services with the aim of generating profit

Adding value is the process of taking raw materials and using them in such a way that the end product created is worth more than the cost of the raw materials used to create it
The added value is the difference between the price that is charged to the customer and the cost of inputs required to create the product or service
- E.g. Customers will pay more for potatoes when they are packaged as oven chips than they would for a bag of potatoes
The greater the added value, the more successful the business is likely to be and the higher their profits
- If value is not added to the materials and components that a business buys, fixed costs cannot be covered and no profit will be made

Apple has built a brand that many customers believe is superior to other brands
They have achieved this through the use of quality materials, innovative design and good marketing
This branding allows the firm to charge a higher price for its products, thus increasing the added value

Persil initially provided a bottle of dishwashing liquid for dishwashing machine use
This resulted in spillage as customers added the liquid to their machines, so Persil then created tablets
The tablets offered a much more convenient option and Persil was able to charge a higher selling price for them

Chanel perfume products are well known for their beautiful packaging, which creates an exciting opening experience for the customer
This allows the firm to charge a higher price for its products, thus increasing the added value

MoonPig birthday cards can be completely customised (size, colour, design etc.) and the level of customisation has helped them gain a competitive advantage
This customisation allows the firm to charge a higher price for its cards, thus increasing the added value

Samsung Galaxy Watch 5 has robust health tracking tools built into it, along with an amazing screen, which has helped it gain a competitive advantage
These features allow the firm to charge a higher price for its products, thus increasing the added value

Scarcity means resources (e.g. money, time, land) are limited while our wants are unlimited
- As a result, there is a basic economic problem
  - Choices have to be made by producers, consumers, workers and governments, about the most efficient use of resources
- Opportunity cost is the next‑best option given up when a choice is made
  - Every decision forces a choice and an opportunity cost
    - The NHS must allocate a fixed budget: spending £1 billion on new cancer drugs leaves less for mental‑health nurses, so health leaders weigh which benefits patients more
    - A farmer near Warsaw can lease land for a solar farm or keep growing wheat; high energy prices push many toward panels, cutting local grain supply
    - A student with £50 can buy a gig ticket or new textbooks; whichever they skip is their opportunity cost