Business Studies Unit 1 notes for IGCSEi

Business Studies

1. IGCSE Business Studies 0450

2. Syllabus content

3. Papers

4. Assessment objectives

5. Section 1 Unit 1: Business Activity

6. Learning outcomes

7. Definition of ‘scarcity’ The basic economic problem that arises because people have unlimited wants but resources are limited. Because of scarcity, various economic decisions must be made to allocate resources efficiently.

8. What is enterprise? What is your understanding on entrepreneurs?

9. What is enterprise? The term “ enterprise ” has two common meanings. Firstly, an enterprise is simply another name for a business.  You will often come across the use of the word when reading about start-ups and other businesses…“Simon Cowell’s enterprise” or “Michelle set up her successful enterprise after leaving teaching”. Secondly, and perhaps more importantly, the word enterprise describes the actions of someone who shows some initiative by taking a risk by setting up, investing in and running a business.   

10. Business Activity Businesses produce goods and services. These are the products of the business. Which are goods and which are services?

11. Business Activity

12. Business Activity Goods are things you can touch Services are things that other people do for you

13. Business activity and the factors of production Business activity involves the use of resources known as factors of production. These are: Land Labour Capital Enterprise

14. Factors of production: land Land includes all resources that occur naturally. Can you think of any?

15. Factors of production: labour Labour is the effort of work provided by people. Labour -intensive production can often be found in many developing countries. Labour -intensive production means labour is plentiful and relatively cheap compared with the technology available to do the job.

16. Factors of production: capital Capital includes items used in the production of goods and services made by people. These include: Buildings Machinery Equipment Finance required to purchase these items

17. Factors of production: enterprise Enterprise is the ability, skill and enthusiasm to take risks involved in developing a business idea and gathering appropriate resources. All businesses combine factors of production to produce goods and services that people want to buy.

18. Cost and opportunity cost There is also an opportunity cost – the possibility of buying and enjoying the use of the other item. If you buy the iPod, the opportunity cost of the iPod is the shoes If you buy the shoes, the opportunity cost of the shoes is the iPod

19. Needs and wants What we need and what we want can sometimes be confusing. Often you say you need a new iPod/mobile device when in fact you want it rather than need it. Which items do you think people need and which items do you think people want?

20. Needs and wants Needs Clothing Shelter Food

21. Needs and wants Wants Clothing Jeans Party Dress Shelter House Apartment Food Burger Pizza

22. Specialisation

23. Advantages of specialisation

24. Disadvantages of specialisation

25. The purpose of business activity

26. The purpose of business activity List down what do you think the purpose of business activity.

27. The purpose of business activity

28. Business in context Kuwait Petroleum Corporation (KPC) is one of the world’s largest oil companies. The company makes products such as petrol and diesel from crude oil. Crude oil is oil in it’s raw or natural state. It occurs naturally in deposits within the earth. To produce the petrol that people buy from garages, KPC must first extract the crude oil from the earth. The company does this by drilling oil wells, many of which are under the sea. KPC then transports the crude oil to oil refineries where it is turned into petrol or other oil products customers want. Individually answer the following questions: What does KPC produce? Does KPC produce goods or services? Where can you buy KPC’s product? What is KPC’s product made from? Why do you think KPC produces petrol and diesel?

29. Business in context KPC produces oil products such as petrol and diesel. KPC produces goods (products). KPC’s product can be purchased at garages and gas or petrol stations. KPC’s product is made from raw or crude oil. Student’s own answer. Points to consider could include: KPC has the necessary raw materials in its country. KPC has developed the skills to extract and produce petrol and diesel. This means it could seek new locations to find oil. There is a market for the product.

30. 1.1 Activity Think carefully about the following products and answer the questions. A loaf of bread (b) An oak coffee table (c) a book What are the raw materials that each product is made of? Where do these raw materials come from? If society keeps using these raw materials, will they run out? Explain your answer. Definition ‘raw materials’ A material or substance used in the primary production or manufacturing of a good.

31. 1.1 Answers Bread is made from flour; an oak coffee table is made of wood; the book is made of paper. Flour is made from wheat that is grown on farms; wood comes from trees that grow on the land; paper is made from wood and other fibres. Wheat and trees are both renewable. This means that as they are used to make products, new wheat and trees can be grown. However, while a new crop of wheat can be grown every year, it takes many years for trees to grow. If these resources are used to make products faster than they can be replaced, supplies will run out.

32. Adding Value Added value = the difference between the price of the finished product/service and the cost of the inputs involved in making it.

33. Adding value Why would people pay a bit more money for a loaf of bread than make it at home?

34. Key terms Added value Effective demand Factors of production Goods Needs Opportunity cost Private sector Profit Public sector Resources Services Wants

35. Key terms Added value – the difference between the selling price of a product and the cost of raw materials used to make it Effective demand – demand for a product that is backed up by the ability and willingness to pay for it Factors of production – the four categories of resources that are used to produce goods and services: land, labour , capital, enterprise Goods - tangible products that can be touched and consumed Needs – things necessary to sustain life Opportunity cost – the cost of something in terms of the next best thing Private sector – the sector of business consisting of businesses owned by private individuals or groups Profit – the profit a business makes is the amount by which its income from selling the goods and services it produces exceeds the costs of producing those goods and services Public sector – the sector of business consisting of businesses owned by the state Resources – items of limited availability that can be used in human activity Services – things other people or businesses do for you Wants – things chosen to satisfy a need or to make life more enjoyable

36. Practices