Business activity

At its core, business activity is about satisfying people's needs and wants. A 'need' is something essential for survival, like food, water, and shelter. A 'want' is something we desire to have but is not essential for survival, like a smartphone or a holiday. The problem is that while our wants are unlimited, the resources available to produce goods and services to satisfy them are limited. This is known as 'scarcity'. Because of scarcity, choices have to be made. This leads to the concept of 'opportunity cost' – the value of the next-best alternative that is given up when making a choice. Businesses use four 'factors of production' to create goods and services: Land (natural resources), Labour (human effort), Capital (man-made resources like machinery and finance), and Enterprise (the skill and risk-taking of the entrepreneur who brings the other three factors together).

Businesses do not just make things; they create 'value'. Value added is the difference between the selling price of a product and the cost of the raw materials and components bought in to make it. For example, a bakery buys flour, sugar, and eggs for $1, and sells the resulting cake for $10. The value added is $9. This added value is crucial because it is used to pay for other costs (like wages, marketing, and energy bills) and, hopefully, leave a profit for the owner. Businesses can increase their value added in two main ways: 1) Increasing the selling price without losing customers, often by building a strong brand image or adding unique features. 2) Reducing the cost of bought-in materials, perhaps by finding a cheaper supplier or using resources more efficiently.

All business activity can be classified into one of three sectors, which form the 'chain of production'. 1) The Primary Sector involves extracting or harvesting raw materials from the earth. This includes farming, mining, fishing, and forestry. 2) The Secondary Sector involves manufacturing and construction. It takes the raw materials from the primary sector and turns them into finished or semi-finished goods. Examples include car manufacturing, food processing, and house building. 3) The Tertiary Sector provides services to consumers and other businesses. This includes retail, banking, tourism, education, and healthcare. In developed economies like the UK, the tertiary sector is the largest and growing, while the primary and secondary sectors have declined in size, a process known as de-industrialisation.

There is no single perfect way to measure the size of a business. Different methods can give different results, so it's often best to use a combination. The main methods are: 1) Number of employees: Simple to calculate, but a firm using lots of machinery (capital-intensive) might be huge but have few employees. 2) Revenue (or Turnover): The total value of sales made over a period. This is a good measure of scale, but doesn't indicate profitability. 3) Capital Employed: The total value of all long-term finance invested in the business. This is useful for comparing firms in the same industry, especially capital-intensive ones. 4) Market Share: The percentage of a total market's sales that one business has. A firm with a high market share is a leader in its market, regardless of its absolute size. For example, a local bakery might have a 90% market share of its village, but its revenue is tiny compared to a national supermarket.

Business organisations can be divided into two main sectors based on their ownership and objectives. The Private Sector consists of businesses owned and controlled by private individuals or groups. Their main objective is usually to make a profit. This sector includes a huge variety of businesses, from small local sole traders to large multinational corporations. The Public Sector consists of organisations owned and controlled by the government (at local or national level). Their main objective is not profit, but to provide essential goods and services to the public that might be underprovided or unaffordable if left to the private sector. Examples include state schools, the National Health Service (in the UK), the police force, and public parks. Some organisations, known as public corporations (e.g., BBC), are owned by the government but are run more like commercial businesses.