Business activity
What business is for
- A business makes goods (things you touch) or services (useful actions) for customers.
- It uses resources to meet people's needs (must-haves) and wants (nice-to-haves).
- The four factors of production: land, labour, capital, enterprise.
Practice
Which is one of the four factors of production?
The four factors are land, labour, capital and enterprise.
The economic problem & added value
- Wants are unlimited but resources are scarce — the economic problem — so you must choose.
- Opportunity cost = the next best choice you give up.
- Added value = the selling price minus the cost of bought-in materials:
$$\text{added value} = \text{selling price} - \text{cost of bought-in materials}$$
- Raise it by branding, better design, or cheaper materials.
Practice
Opportunity cost is:
Choosing one thing means giving up the next best alternative — the opportunity cost.
Practice
A product sells for 40; the bought-in materials cost 15. What is the added value (in dollars)?
Added value = selling price − materials cost = 40 − 15 = 25.
You've got it
Key idea
- a business meets needs/wants using land, labour, capital, enterprise
- scarcity forces choices → opportunity cost (next best given up)
- added value = selling price − bought-in materials cost