A consumer is an individual who purchases goods
and services for personal use
Classification of goods and services
– consumer goods are the physical and tangible goods sold to
the general public that are not intended for resale
– they include non-durable consumer goods e.g. food and
drinks, that can be used only once and durable consumer
goods e.g. cars and washing machines that can be used
several times
– consumer services are non-tangible products sold to the
general public that are not intended for resale e.g. hotel
accommodation, insurance etc
– capital goods are physical goods used by industry to aid in
the production of other goods and services e.g. machines,
Factors of production
*are the resources needed by business to produce
goods or services
*they are:
• land refers to land and all renewable and non-renewable
resources of nature e.g. coal, timber etc (return for land is rent)
• labour refers to the manual and skilled labour making up the
workforce of a business (return for labour is salary or
wages)
• capital refers to finance needed to set up a business and pay
for its continuous operations, and other man-made
resources used in production (return for capital is interest)
• enterprise (or entrepreneurship) provides the managing,
decision-making and coordinating role (return for enterprise
The concept of adding value
Added value is the difference between the cost of purchasing
bought-in inputs (materials) and the selling price of the
finished goods.
Adding value is increasing the difference between the cost of
purchasing bought-in inputs (materials) and the selling price of
the finished goods.
NB*If a customer is prepared to pay a price that is greater than
the cost of materials used to produce a good or service, then
the business has been successful in adding value.
Examples of adding value include:
– attractive packaging
– branding
– attractive shop fittings or luxurious retail environment
– well-dressed and knowledgeable shop assistants etc
Summary of what businesses need
before businesses can successfully produce the goods
and services demanded by customers, they have
many other needs which are:
land – raw materials and site for buildings
labour – skilled, unskilled, temporary and permanent
capital – finance, machines and factories/offices
enterprise – risk takers, decision makers and
coordinators
government – for law and order, schools/colleges and
roads/rail/airports
suppliers – for inputs/components/finished goods
customers – for buying what the businesses provide
Economic activity and the problem of choice
generally, we live in a world of great wealth and great scarcity
– scarcity occurs as there are limited resources and unlimited
wants
thus, both rich and poor people have many unsatisfied needs
and wants since there are insufficient goods to satisfy all of
their needs and wants at one time – this is termed “the
economic problem”
because of shortage of products, people are compelled to
make choices and come up with what needs to be satisfied
now and what will be foregone
as such, careful and rational people will choose those things
that give them the greatest benefit, leaving out those things
of less value to them
this need to choose also applies to governments, businesses,
Opportunity cost
– is the benefit of the next most desired option
which is given up or foregone
– in deciding to buy or obtain one item, people
must give up other goods as they cannot all be
bought
– thus, the next most desired product foregone
is the ‘lost opportunity’ or opportunity cost
The dynamic business environment
because the business environment is dynamic or constantly
changing, setting up a new business can be risky
this risk of change can make the original business idea less
successful
the problem can be worse if the business plan is too
inflexible to deal with changes
Changes in the business environment include:
1. economic changes that leave customers with less money
to spend
2. legal changes e.g. limits on who can buy the product
3. technological changes that make the products or
processes of the new business outdated
4. new competitors entering the market
Reasons why some businesses succeed
1. appropriate and sufficient sources of finance –
prevents cash shortages and allows for expansion
2. good understanding of customer needs – leads to
sales targets being met
3. flexible decision-making to adapt to new situations –
allows investment in new business opportunities
4. efficient management of operations – keeps costs
under control
Reasons why some businesses fail
1. poor or lack of record keeping e.g. failure to know
when he next delivery is due, thereby losing
customers
2. lack of cash and working capital
*working capital is needed for the day-to-day running of
the business
*to avoid working capital shortage:
(a) make a cash flow forecast
(b) inject more capital into the business
(c) establish good relations with bank
(d) use effective credit control with customers
3. poor management skills
*essential skills to avoid management problems include:
– leadership skills
– cash handling and cash management skills
– planning and coordinating skills
– decision-making skills
– communication skills
4. changes in the business environment
*a few changes include:
– new competitors
– legal changes
– economic changes
– technological change
Why may businesses fail in early stages?
Internal problems
– weak business idea
– lack of managerial skills
– lack of suitable employees
– lack of sufficient finance
– lack of entrepreneurial skills
– poor initial research
– over ambitious ideas
– poor decisions
Enternal problems
– anticipated customers did not materialise
– changes in business environment affected
customers’ spending patterns
– unexpected competition
Entrepreneurs and intrapreneurs
An entrepreneur is someone who takes the financial risk of
starting and managing a new venture.
