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1.1 Nature of Business Activity
Transcript of 1.1 Nature of Business Activity
Topic 1: Business Organization
and Environment What is a business? A market is simply a place or process whereby buyers (customers) and sellers (businesses) meet to trade.
Goods are physical products, such as cars, computers, books and food.
A product can refer to both goods and services.
Services are intangible products such as a haircut, a bus ride or a visit to the cinema.
Needs: The basic necessities that a person must have in order to survive.
Wants: The desires that people have, i.e. things that they would like to have.
Customers are the people or organizations that buy a product whereas consumers are the ones that actually use the product.
Adding Value Value added is the difference between the value of inputs (the cost of production) and the value of outputs (goods and services sold).
Value added allows a business to sell its products for more than its production costs, thereby earning the business a profit.
How to add value? Speed and/or quality of service
Prestige associated with the purchase
Perceived value for money
Quality of the finished product
Brand image and/or brand loyalty
Taste or design
Inability to obtain such products cheaper
Activity Opportunity cost is defined as the best alternative that is forgone when making a decision. Due to limited resources, such as time and money, businesses are confronted with choices People are rational decision-makers, i.e. they choose the option that gives them the most benefit.
The Role of Profit in Business Activity Profit refers to the positive difference
between a firm’s total revenues and
its total costs per period of time.
PROFIT Profit acts as an incentive to produce.
It acts as the reward for risk takers.
It encourages invention and innovation.
It acts as an indicator of growth (or decline).
It is a source of finance.