The Purpose of Business
Why does every shop, farm and factory exist? Meet the purpose of business, the difference between goods and services, the factors a business needs to produce, and the choices it must make.
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Free interactive practice at using the material, which is what the marks are for.
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Why businesses exist
Every shop, factory, farm and app started because someone spotted something people need or want. That is business activity: providing goods and services that meet those needs. This module is about why businesses exist, what they use to produce, and the choices they must make along the way.
Goods against services
Four ideas run through this module:
Goods or services
Businesses provide two broad things.
Match each factor
- Land
- Labour
- Capital
- Enterprise
- The natural resources a business uses, such as land and raw materials
- The workers and their effort and skills
- The tools, machines and money used to produce
- The person who brings the others together and takes the risk
Every choice has a cost
Businesses have limited money, time and resources, so every choice means giving something up. The opportunity cost is the next best thing you give up when you choose one option. Spend on new machines and you cannot also spend that money on advertising, so the advertising is the opportunity cost.
Good or service?
A hairdresser cuts hair for a customer. Is that mainly a good or a service?
- A service, because it is an action done for the customer
- A good, because hair is a physical thing
- Neither a good nor a service
- It is a factor of production
Why start a business?
Select the TWO reasons a person might start a business.
- To fill a gap in the market with a good or service
- To provide something that benefits other people
- To deliberately lose as much money as possible
- To make sure nothing ever changes
Match each sector
- Primary
- Secondary
- Tertiary
- Extracts raw materials, such as farming, fishing or mining
- Makes or builds products, such as a factory or a bakery
- Provides services, such as a shop, a bank or a hospital
From tree to shop
A wooden chair reaches a shop. Put the stages of its journey into a sensible order.
- A forestry firm grows and fells the trees
- A sawmill cuts the logs into planks
- A factory builds the planks into chairs
- A lorry delivers the chairs to a shop
- The shop sells a chair to a customer
What was given up?
A cafe owner can buy either a new coffee machine or new tables, but not both. She buys the coffee machine. What is the opportunity cost?
- The new tables she did not buy
- The coffee machine she bought
- The money she has left over
- Both the machine and the tables
Purpose in words
A _____ is a physical product, while a _____ is an action done for a customer. The four factors of production are land, labour, capital and _____. The next best choice given up when you decide is the _____ cost. A farm that grows crops is in the _____ sector.
Goods, services and enterprise
Tap the TWO statements that are TRUE.
- A haircut is a service, because it is an action done for a customer.
- Enterprise is the factor that takes the risk and brings the others together.
- A need is something you would like but could easily live without.
- A farm growing wheat is in the tertiary sector.
- Opportunity cost means the option you actually chose.
Which sector?
Decide which sector each business is in. Choose each time.
- A coal mine digs coal out of the ground. Which sector is it in?
- A bakery turns flour into bread. Which sector is it in?
- A bank helps customers look after their money. Which sector is it in?
Starting a business
A student wants to start a business selling smoothies. Explain what factors of production she would need, and explain one opportunity cost she might face when starting up.
- Name two factors of production the smoothie business would need
- Explain what each of those factors is
- Describe one choice she must make when starting up
- Explain the opportunity cost of that choice