physical item
shareholder
business activity ,
self-sufficient
basic existence
traded those goods for others
businesses .
At the previous lessons we have discussed the following issues:
- People have unlimited wants.
- The four factors of production the resources needed to make goods are in limited supply.
- Scarcityresults from limited resources and unlimited wants.
- Choice is necessary when resources are scarce. This leads to opportunity cost.
- Specialization improves the efficiency with which resources are used.
So far, we have hardly mentioned businesses. Where does business activity fit into the ideas we have already looked at?
The aim of all business is to combine the factors of production to make products which will satisfy peoples wants. These products can either be goods physical items such as cars and shoes which we can touch and see or they can be services, such as insurance, tourism or banking.
Businesses can be small just one person, for example or large. Some businesses employ thousands of people with operations in many different countries. Businesses can be privately-owned or owned by the state. They can be owned by one person or by thousands of shareholders. Whatever their size and whoever owns them, all businesses have one thing in common they combine factors of production to make products which satisfy peoples wants.
What would life be without business activity? In simple, undeveloped societies, businesses do not exist. Everybody attempts to do everything for themselves they are self-sufficient. With their own plot of land and by their own efforts, such as hunting, they attempt to survive and produce enough for their own needs. This is a very basic existence. By a gradual process of specialization, people began to concentrate on what they were best at. They then traded those goods for others made by people who had skilled in other areas. In this way, businesses began to be formed, and trade and exchange of goods expanded. In todays world, most people work in one job for a weekly wage. With this money, they are able to purchase a wide range of goods and services produced by many different businesses.
Business activity therefore:
- combines scarce factors of production in order to produce goods and services
- produces those goods and services which are needed to satisfy the needs and wants of the population
- employs people as workers and pays them wages to allow them to consume products made by other people.
