The Purpose and Nature of the Business Activity


Business Studies - 7115

The Purpose and Nature of the Business Activity

The Purpose and Nature of the Business Activity

Concepts of Needs, wants, scarcity

and opportunity cost


There are some things or items which are essential for living a life. These things or items may include food to eat, cloth to wear and shelter, etc. As per the definition of Need, it can be anything (good, product or service) which is considered essential for living the life of a person.


If you are hungry you need food but if you need a burger or pizza of a specific brand, it will be want. These are the things or items which people like to have but these are not essential to live a life. You can also live without having them. 
A want can be defined as a good, product or service which is required by people but not considered necessary to live life. 


It should also be kept in mind that the wants of the people are unlimited. And when there are more needs and wants of people who can’t be fulfilled in a country, there is a problem of scarcity occurs. So in that way, the lack of goods or services in fulfilling the wants of people of a country can be defined as scarcity.

Opportunity Cost

Making choices is a routine activity in everyday life. Sometimes we have to decide blue or white shirts because due to the lack of money we can’t buy both of them. Sometimes we have to decide between black or brown shoes. We take these decisions to satisfy our wants. But in these decisions, we must have to give up something. This is the process that leads us towards opportunity cost. 

The Opportunity Cost can be defined as the best alternative given up by choosing another item. 

Factors of Production

None of the countries can produce anything without using factors of production. Factors of production are essentially required to produce goods and services in any country. There are four factors of production.

1. Land - Land is referred to all the natural resources available for production

2. Labor - Labor is referred to the workforce or people available to do work

3. Capital - Capital is referred to money or finances, machinery, and equipment available to use in production  

4. Enterprise - Enterprise is a firm that uses all the above resources and takes the risk to produce some goods or services.

Importance of Specialization

There isn’t even a single country in the whole world which can resolve all of its economic problems. The factors of production are always limited everywhere. It is important to use these factors of production effectively. 

The concept of specialization can be defined as the concentration of people or workforce in the area of their choice where they can perform at their level best. This concept is applicable in business as well.  

Purpose of Business Activity

It is business that leads us towards developed societies and modern lifestyle. Business can be run by an individual or by a few people. Most of the businesses are privately owned but some state-owned businesses do also exist. The purpose of business activity is to use the factors of production to make products (goods and services) which satisfy the wants of the people.  

Concept of Adding Value and How It Can Be Increased

Value addition is an important concept in business as most of the profit in any business is based upon value addition. It is very difficult for a business to recover its cost without adding value to it. 

Adding value can be defined as the difference between the selling price of a product and the cost of bought-in materials and components. 

Question is that how someone can add value in his business? If you increase the selling price of your products or services while the price of bought-in material remains the same, you may increase the price after adding value. You may add value to your business by creating an excellent image of it.

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