1.1 Business Activity

2026 Syllabus Objectives

By the end of this topic, you should be able to:

  1. Explain the concepts of needs, wants, scarcity, and opportunity cost
  2. Explain the importance of specialisation
  3. Describe the purpose of business activity
  4. Explain the concept of adding value and how it can be increased

1. Needs, Wants, Scarcity, and Opportunity Cost

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Needs vs. Wants

Every day, people consume goods (physical items you can touch) and services (activities done for you that you cannot touch). These fall into two categories:

  • A need is anything that is essential for survival — something you cannot live without. Examples: food, clean water, shelter, basic clothing.
  • A want is anything that is desired but not essential — you can survive without it. Examples: a smartphone, a car, holidays, designer clothes.

💡 Simple rule: If you would die or be seriously harmed without it, it's a need. If life goes on without it (even if you'd rather have it), it's a want.

One crucial point: human wants are unlimited. No matter how much a person has, they always want more or something new. This is true for everyone, everywhere.

The Economic Problem and Scarcity

Here is the core problem in all of economics:

  • Wants are unlimited — people always desire more goods and services.
  • Resources are limited — there are only so many workers, machines, pieces of land, and raw materials available in the world.

Because resources (called factors of production) are limited, it is impossible to produce enough goods and services to satisfy everyone's unlimited wants. This gap between what people want and what can actually be produced is called scarcity.

Scarcity means there are not enough goods and services to meet all the wants of the population.

The combination of unlimited wants and limited resources creates what economists call the economic problem: resources are too scarce to satisfy all human wants.

Factors of Production

Factors of production are the resources that businesses need in order to produce goods and services. There are four of them:

FactorWhat it meansExamples
LandAll natural resources provided by natureFields for growing crops, forests, coal underground, rivers, fish in the sea
LabourAll human effort — both mental and physicalDoctors, teachers, factory workers, engineers
CapitalMan-made tools, machines, and equipment used in productionFactory machines, computers, delivery vans, buildings
EnterpriseThe willingness to take risks, organise the other three factors, and start or run a businessAn entrepreneur who sets up a bakery and risks losing their money

Each factor earns a reward:

  • Land → Rent
  • Labour → Wages/Salaries
  • Capital → Rent/Interest
  • Enterprise → Profit

⚠️ Watch out: "Capital" in business does NOT just mean money. It means man-made resources used in production — like machines and equipment. Money used in a business can be part of capital, but the term is broader than just cash.

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