Business Activity and added value
Without business activity, life would be very hard. In early, simple economies, there were no businesses. People tried to do everything by themselves. They grew food, hunted, and made things on their own. This life was basic and living standards were low.
As time passed, people started specialising. They focused on what they were good at and traded their goods with others. Slowly, businesses were formed, and trade increased. Today, people work in specific jobs, earn money, and buy many goods made by different businesses.
Business activity does three main things:
Combines scarce resources to make goods and services
Produces things to satisfy needs and wants
Employs workers and pays them wages
Added Value – Simple Explanation
Added value = selling price – cost of materials
Example:
Selling price of a house → $100 000
Cost of materials → $15 000
Added value = $85 000 (not all profit, bro — wages and other costs also come from this)
Why added value is important?
Helps the business pay other costs (wages, power, advertising, etc.)
If costs are less than added value → business makes profit
How to increase added value?
1. Increase selling price (keep material cost same)
Improve quality image
Better shop design, packaging
Skilled workers(But other costs may increase)
2. Reduce material cost (keep price same)
Use cheaper materials(But quality may fall, customers may not like it)