Cambridge IGCSE
Business Studies
1.1 Business Activity
NEEDS
WANTS
LAND
LABOUR
CAPITAL
ENTERPRISE
SCARCITY
OPPORTUNITY COST
SPECIALISATION
DIVISION OF LABOUR
BUSINESSES
GOODS
SERVICES
PROFIT
ADDED VALUE
GROWTH
SURVIVAL
DEFINITIONS FOR 1.1 BUSINESS ACTIVITY
Needs are essential goods or services for living. They
satisfy the basic requirements for life.
Wants are non-essential goods and services that people
would like to have. They are part of a person’s interests
and tastes.
Land is all the natural resources provided by nature.
Labour is all people’s efforts to make products.
Capital is all finance, machinery and equipment in
manufacturing products.
Enterprise is all people that have skills & risk-taking ability
who bring resources of factors of production together to
produce a good or service.
Land is all the natural resources provided by nature.
Labour is all people’s efforts to make products.
Capital is all finance, machinery and equipment in
manufacturing products.
Enterprise is all people that have skills & risk-taking ability
who bring resources of factors of production together to
produce a good or service.
Specialisation occurs when people and businesses
concentrate on what they are best at.
Division of Labour is when the production process is split
up into different tasks and each worker performs one of
these tasks. This is a form of specialisation too.
Businesses combine factors of production to produce
products (Goods and Services) which satisfy people’s
wants.
Goods are physical items that are tangible, that you can
touch and see.
Services are not physical items that are intangible items,
that you cannot touch or see.
Profit is the total income of a business (sales revenue) less
the total costs.
Added Value is the difference between the selling price of
a product and the cost of bought in materials and
components.
Growth is when there is an improvement in some measure
of business’s success (larger business, secure jobs, new
products or new markets, higher market shares, cut costs)
Survival is the primary concern of businesses, especially
during recession or when new competitors emerge.
EXAM-STYLE QUESTIONS – Paper 1
Gowri plans to start up her own business using her own savings. She
wants to produce fashion clothes for women. She is a very good clothes
designer but does not like stitching clothes together. Two friends have
offered to help Gowri. Abha is an experienced material cutter – she can
cut lengths of material for clothes with very little wastage. Aditi is quick at
sewing.
1(a) What is meant by ‘business’? [2]
Business is combining factors of production to make products,
either goods or services, which satisfy people’s wants. A business
can be small, just one person, or large, employing many people
across many countries.
1(b) Identify two factors of production that Gowri will need for her new
business. [2]
Labour is one the first factor of production Gowri will need, meaning
the number of people available to make her clothes. Capital is
another factor of production Gowri requires, meaning all the
business finance, machinery and equipment needed for the
manufacture of her clothes.
1(c) Identify and explain two possible opportunity costs that Gowri may
have from her decision to start her own business. [4]
Gowri will have to choose between stitching her designs herself or
using Aditi to increase her business efficiency, so Aditi becomes the
first opportunity cost. This means that Gowri’s sewing her clothes
herself is the next best alternative to employing Aditi as the sewer.
Similarly, Gowri has to make a decision between employing just her
2 friends (Abha & Aditi) and employing even more people, so the
extra employees become an opportunity cost. Gowri could continue
operating without the extra employees as the next best alternative to
extra labour in her operation.
1(d) Identify and explain one advantage and one disadvantage to Gowri’s
business of using division of labour in making clothes. [6]
One advantage of using division of labour in making Gowri’s clothes
would be specialization to increase efficiency. Abha’s expertise at
cutting out the clothes and Aditi’s speed at sewing would mean
increased output for Gowri’s business to make more profit.
One disadvantage, however, would be decreased efficiency if Abha
or Aditi got ill and their expertise was unable to be used. If Gowri
had to cut out and sew her clothes all on her own, her output would
be far less than it had been and her business would be less
profitable.
1(e) Do you think that Gowri’s business will be able to sell all of the
clothes that it makes? Justify your answer. [6]
Gowri will only be able to sell all her clothes if she offers customers
a made-to-measure service, thereby ensuring that every order
results in a sale. This would not give her a sale stock, however, for
customers to look through and try on so Gowri risks not making
larger profits through a lack of volume.
Gowri may not be able to sell all of the clothes she makes if she
makes the price of each garment too high. If she made stock in
volume, to give customers a variety and opportunity to buy more
than one item, pricing items too highly could result in selling none of
her clothes at all.
The trouble with Gowri’s fashion business is the market is already
saturated with competitors for custom. Unless Gowri has a unique
selling point (USP) for her clothes, then, the likelihood of her
business surviving could be quite slim. Other retailers will have
lower prices due to surplus stock, whereas Gowri may struggle to
produce sufficient stock to make her prices competitive and her
business may fail.
