1.

2.

3.

Hoang,Paul,Business and Management,2007

Hall, Jones and Raffo, Business Studies, 3rd Edition, Unit1,
pages 1-8, Causeway Press, 2005.
Stimpson, AS and A level Business Studies, Unit1pages 17 Cambridge University Press, 2002

On completion of this lesson you should be able to:

1.
2.
3.
4.

Explain the nature of business activities

Define the term factors of production ,specialization
Identify the functional areas of a business.
Business activity in different sectors-primary , secondary
and tertiary

Higher Level Extension

1.
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 .
Processe
Outputs
Inputs
s

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.

Resources
Land
BUSINESS IDENTIFY THE
NEEDS OF CUSTOMERS
OR OTHER FIRMS

PURCHASE

Labour
Capital
Enterprise

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 firms 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:
Factors of production

Land

Labour

Rent

Wages

Capital

Interest

Enterprise

Profit

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 , teachers
2. Departmental-marketing , finance
3. Corporate-dell makes electronic goods
4. Regional-Cheddar UK-cheese
5. National-Belgian chocolates,german cars

 Increased

productivity
Increased efficiency
Standardization
Higher profit margins

 Boredom
Inflexibility
Lack

of autonomy
Capital 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 countrys
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.

THE NATURE OF BUSINESS ACTIVITY

EXTERNAL FACTORS
Population Trends

Government

Economic Climate

World Affairs

Social Factors
GOODS

Land

OR

RESOURCES

Production

Labour
R&D

Capital

SERVICES

Marketing

Business Activity
Human Resources

Finance

Administration

WASTE

Enterprise

Laws and Regulations

Pressure Groups

Competition

Consumers

EXTERNAL FACTORS

Environmental Factors

O
U
T
P
U
T

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.

THE END