1. Hoang,Paul,Business and Management,20072. Hall, Jones and Raffo, Business Studies, 3rd Edition, Unit1,

pages 1-8, Causeway Press, 2005.3. Stimpson, AS and A level Business Studies, Unit1pages 1-

7 Cambridge University Press, 2002

On completion of this lesson you should be able to:

1. Explain the nature of business activities2. Define the term factors of production ,specialization3. Identify the functional areas of a business.4. Business activity in different sectors-primary , secondary

and tertiary

Higher Level Extension1. Changes in economic structure and their impact on

business activity.

A business is a decision making organization involved in the process of using inputs to produce goods and/or to provide services .

Inputs are resources such as labour ,raw material, machinery etc.

Processes turns the inputs into provision of goods or the manufacture of goods.

Outputs are the final goods and services.

InputsProcesse

sOutputs

BUSINESS IDENTIFY THE NEEDS OF CUSTOMERS

OR OTHER FIRMS

Resources

Land

Labour

Capital

Enterprise

PURCHASE

PRODUCTION OF GOODS OR SERVICES

Business activity is a continuous process

Market is a place or process whereby buyers(customers)and sellers (businesses)meet to trade. It is a physical outlet such as a shop, restaurant etc.

A market can also exist in non-physical form, such as e-commerce i.e. trading on the internet.

Customers are people or organization that buy a product whereas consumers are the ones that actually use the product.

Consumer Goods: Physical and tangible goods which are sold to the general public.

They are split into consumer durable goods (electronic gadgets, furniture etc.)

And non –durable goods (fresh food,toileteries)

Capital/Producer Goods: These are physical goods that are used by industry to aid in the production of other goods and services.

Examples - computers,machinery,tools etc.

Services are intangible products provided by businesses.

It is not tangible but the results are. Example-doctors ,restaurants, teachers etc. Your Task: Identify examples of the three

types of goods and services presented above.

Added Value-A business adds value to raw materials which it uses in the production process.

Added value is the difference between cost of raw materials and the price of the finished goods.

Can be achieved in various ways through a mix of:

design function Brand image Quality of service/speed Quality of finished product

The best alternative that is forgone when making a decision.

For example-if a student decided to go into higher education, the opportunity cost is the forgone income that could have been earned had the person chosen to work instead of studying.

Profit refers to the positive difference between a firm’s total revenues and its total costs, per period of time.

Revenues are inflows of money, usually from the sale of products.

Costs are outflows of money ,to finance production activities.

Acts as an incentive to produce. Acts as the reward for risk takers engaged

in business activity. Encourages invention and innovation Acts as an indicator of growth (or decline) It is a source of finance and is used to fund

the internal growth of a business.

To produce goods or to provide services, resources must be used. These resources are called factors of production.

This does not just mean the land that the business is built upon!

It also means anything that you get from the ground! Like Fishing, oil, farming, logging, minerals.

Land: In general terms not only include land itself but all the renewable and non-renewable resources of nature, such as coal, crude oil, gold, diamond, timber, etc.

You will need somebody to do the work!

Labour: Manual and skilled labour make up the workforce of a business.

You will also need money to buy all the things the business needs.

Capital: This is not just the finance needed for the business and pay for its continuing operations but also all of the man-made resources used in production. This include computers, machines, factories, offices and vehicles.

Finally, you need somebody to combine the other factors of production. They also need to be prepared to take a risk.

Enterprise/Entrepreneur: This is the driving force, provided by risk taking individuals, that combines the other factors of production into a unit that is capable of producing goods and services. It provides a managing, decision making, coordinating role.

Question: How crucial is the role of the entrepreneur in this age of globalization and advanced technology?

The four factors of production have a financial return for their part in the production process:

Land Labour Capital Enterprise

Rent Wages Interest Profit

Factors of production

When the business concentrates on the production of a particular good or service or a small range of similar products.

Specialization occurs at different levels:1. Individual-For ex-Lawyers , teachers2.Departmental-marketing , finance3.Corporate-dell makes electronic goods4.Regional-Cheddar UK-cheese5.National-Belgian chocolates,german cars

Increased productivityIncreased efficiencyStandardizationHigher profit margins

BoredomInflexibilityLack of autonomyCapital costs

Production-This dept is responsible for converting raw materials into finished goods.Marketing-This dept is responsible for identifying and satisfying consumer wants and needs.Finance-This dept is in charge of managing the organizations money.Human Resource Management –is responsible for managing the personnel of the organization.

Your Task: Identify the functions of each functional area and discuss their interrelations.

Primary, Secondary and Tertiary

Business activities are classified by the type of production that takes place

Primary Sector Business Activities.

Secondary Sector Business Activities

Tertiary Sector Business Activities.

Question: Discuss the changes in business activities within the various sectors. Use appropriate examples within the context of your own country’s economy to strengthen your response to this question.

Farming - the production of food Mining - mining metals and minerals Fishing - catching and gathering food from

seas, rivers and lakes Forestry - growing and managing forests for

wood production Each of these primary industries has

traditionally been labour intensive.

The secondary sector processes the raw materials from the primary sector. This means that they take the raw materials and make them into finished items.

Food and drink - processing raw foodstuffs, such as making wheat into bread.

Manufacturing cars Building

The tertiary sector comprises the service industries.

-Banking -Insurance -Delivery services -Health services-Education -Police

Structural changes refers to a shift in the relative share of national output and employment that is attributed to each business sector .

Structural changes can be observed in an economy overtime.

Business activity produce an output – a good or service.Goods and services are consumed.Resources are used up.A number of business functions are carried out.Businesses can be affected by external factors.

EXTERNAL FACTORS

EXTERNAL FACTORS

Population Trends Government Economic Climate World Affairs Social Factors

Laws and Regulations Pressure Groups Competition Consumers Environmental Factors

Business Activity

Marketing

Finance

AdministrationHuman Resources

R&D

RE

SO

UR

CE

S

OUTPUT

Production

GOODS

OR

SERVICES

WASTE

Land

Labour

Capital

Enterprise

THE NATURE OF BUSINESS ACTIVITY

Hoang,Paul,Business and Management,IBID press ,2007

Jones, Hall, Raffo, Business Studies, 3rd Edition, Causeway Press Ltd, 2005.

Stimpson Peter, AS and A Level Business Studies, Cambridge University Press,2002.

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