Business Activity
Why businesses exist, what they produce, the resources they use, and the choices they must make — the foundation of everything in IGCSE Business Studies.
Needs, Wants & Scarcity
Why resources run out — and why that means every business and person must make choices.
Things essential for survival — food, water, shelter, clothing, basic healthcare.
Things we desire but can live without — a sports car, holidays, the latest phone. Wants are unlimited.
Unlimited wants + limited resources = the fundamental economic problem. Choices must be made.
A need is something you genuinely cannot survive without. A want is something you would like to have but can live without. The line between them is not always obvious — food is a need, but a five-course restaurant meal is a want. Basic clothing is a need; branded designer trainers are a want.
The critical business insight: wants are unlimited. No matter how wealthy a person becomes, they always want more or something different. This is why scarcity never disappears — not even in the richest economies.
📋 Real-life example
Think about how advertising works. Companies like Apple do not advertise that you need the latest iPhone — they create a want by showing you status, design and new features.
Scarcity means that the resources available — land, workers, machinery, money — are all limited in supply. Yet the list of things people want has no end. This mismatch between unlimited wants and limited resources is called the economic problem.
It forces every individual, business, and government to make choices. Every choice has a cost.
The same item can be a need in one context and a want in another. In a rural area with no transport, a car might be a need to get to work. In a city with excellent public transport, a car is usually a want.
- Drinking water → Need
- Cosmetic surgery → Want
🎯 Quick check — Need or Want?
Click each card to reveal the answer.
📌 Exam tip
Always justify your need/want classification with a reason.
The Factors of Production
Every business needs resources to produce — here are the four types, what they are, and what their owners earn.
The resources businesses combine to produce goods and services.
They are all scarce. This forces businesses to combine them efficiently.
L–L–C–E — Land, Labour, Capital, Enterprise.
🧠 Memory hook — L·L·C·E
Land means all natural resources — not just physical ground, but everything found in, on or from the earth.
💰 Reward paid to Land = Rent
Owners of land earn rent for allowing their natural resource to be used.
Labour is all human effort — both physical and mental — used in production.
💰 Reward paid to Labour = Wages / Salary
Workers earn wages or salaries.
Capital means man-made resources used to produce other goods and services. This is NOT money.
⚠️ Common exam mistake
Capital does NOT mean money. It means ovens, machines, buildings and vehicles.
💰 Reward paid to Capital = Interest
Those who lend money to buy capital equipment earn interest.
Enterprise is the human skill of organising the other three factors and taking the financial risk of starting and running a business.
💰 Reward paid to Enterprise = Profit
Entrepreneurs earn profit as reward for taking the risk.
| Factor | What it includes | Example | Reward |
|---|---|---|---|
| Land | All natural resources | Oil field, farmland, river | Rent |
| Labour | Human physical & mental effort | Factory worker, teacher | Wages / Salary |
| Capital | Man-made production assets | Machinery, buildings | Interest |
| Enterprise | Risk-taking & organising | Starting a business | Profit |
Opportunity Cost
Every choice has a cost — not just in money, but in what you had to give up to make that choice.
The next best alternative forgone when a decision is made.
Because resources are scarce, choosing one use for them means you cannot use them for something else.
Individuals, businesses and governments all face opportunity costs.
Whenever you choose to do or buy something, you automatically cannot do or buy something else with the same resources. Opportunity cost is the value of that second choice you had to sacrifice.
Always name the specific next-best alternative in your answer.
| Decision | Opportunity Cost |
|---|---|
| Buy new machinery | The staff training programme that money could have funded |
| Open a new branch in City A | The branch in City B that was the next-best location choice |
A government has $500 million. It chooses a new hospital. The opportunity cost is the motorway that same money could have built.
🎯 Interactive — what is the opportunity cost?
Scenario: Layla has Saturday free. She can study for exams, earn $60 working a shift, or spend the day with friends. She chooses to study. What is her opportunity cost?
📌 Exam tip — how to structure an opportunity cost answer
“The opportunity cost of [decision] is [specific next best alternative] because [reason it was the next-best option].”
The Purpose of Business Activity
What businesses actually do — combining resources to produce goods and services that create value for people.
Combining factors of production to produce goods or services that satisfy human needs and wants.
The difference between selling price and input costs.
Added Value = Selling Price − Cost of Inputs
Businesses exist to solve a problem: people have needs and wants, but resources are scarce. By combining land, labour, capital and enterprise, businesses produce outputs — goods and services — that people are willing to pay for.
| Goods (tangible) | Services (intangible) | |
|---|---|---|
| What is it? | A physical product you can touch and own | A non-physical activity you experience |
| Can it be stored? | Yes | No |
| Examples | Car, bread, phone | Haircut, banking, education |
Added value is the difference between selling price and the cost of bought-in inputs. Businesses add value through design, branding, convenience, quality and customer service.
📋 Example — added value in action
A bakery buys flour, butter and eggs for $1.20 per loaf and sells the loaf for $3.50. Added value = $2.30.
- Employment: Businesses hire workers
- Choice: Competition gives consumers options
- Innovation: Profit motivates new ideas
- Tax revenue: Businesses fund public services
🎯 Quick check — Good or Service?
Click each card to reveal the answer and why.
📌 Exam tip
Added value is selling price minus cost of bought-in inputs — not profit.
Chapter self-test
11 questions across all four topics — earn XP and get instant feedback on every answer.
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