What is the purpose of a business, and what exactly does an entrepreneur do?
The role of business enterprise and the purpose of business activity (to produce goods or services, to meet customer needs, to add value through convenience, branding, quality, design and unique selling points), and the role of the entrepreneur (organising resources, making decisions, taking risks).
A focused answer to Edexcel GCSE Business 1.1.3, covering the purpose of business activity (producing goods and services, meeting customer needs, adding value) and the role of the entrepreneur in organising resources, making decisions and taking risks.
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What this dot point is asking
Edexcel wants you to explain the purpose of business activity (why businesses exist and what they do), how businesses add value, and the role of the entrepreneur who makes it all happen.
The purpose of business activity
Every business exists to produce something, whether a physical good (a sandwich, a phone) or a service (a haircut, a delivery). The point of producing it is to meet a customer need or want: a business only survives if customers are willing to pay for what it offers. The third purpose, adding value, is what turns activity into profit.
Adding value
A business that buys inputs for and sells the finished product for has added of value. Adding value matters because it is the source of profit: the more a business can raise the price above its input costs, the more it earns on each sale. Edexcel lists five ways to add value.
A unique selling point is the feature that makes a product different from and better than the competition, the reason a customer chooses it over a rival. The more value a business adds, the further its price can sit above its costs without losing customers, which is the heart of how businesses become profitable.
The role of the entrepreneur
In economic terms, enterprise is the fourth factor of production: the entrepreneur is the person who brings together land, labour and capital and turns them into a working business. Without that organising role, the other resources sit idle. The entrepreneur also bears the uncertainty: if the venture fails it is their money and time that is lost, which is why the reward of profit is seen as the payment for taking that risk.
Try this
Q1. State two ways a business can add value to a product. [2 marks]
- Cue. Any two of convenience, branding, quality, design, a unique selling point.
Q2. A bakery buys inputs for per loaf and sells each loaf for . Calculate the value added per loaf. [2 marks]
- Cue. .
Exam-style practice questions
Practice questions written in the style of Pearson Edexcel exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.
Edexcel 20192 marksA business buys in ingredients for per sandwich and sells each sandwich for . Calculate the value added per sandwich. (Paper 1, Section A)Show worked answer →
A 2-mark calculate question: method (one mark) and correct answer (one mark).
Added value selling price cost of bought-in inputs .
The value added per sandwich is . Show the subtraction so the method mark is secure even if the arithmetic slips. A common error is to give the selling price () as the answer; added value is the difference, not the price.
Edexcel 20216 marksDiscuss how a small cafe could add value to the drinks it sells. (Paper 1, Section B)Show worked answer →
A 6-mark discuss question rewards two developed ways of adding value, applied to the cafe.
Way one: branding and quality. By using a recognisable brand, good-quality beans and skilled baristas, the cafe can charge more than the cost of the coffee because customers will pay a premium for a trusted, consistent product, which raises the value added per cup.
Way two: convenience and design. Offering quick service, table seating, app ordering or attractive presentation makes the drink more convenient and appealing, so customers accept a higher price than for a supermarket coffee. A strong answer notes that adding value lets the cafe charge more than its bought-in cost, increasing profit per sale, and judges which method fits a small cafe best (branding takes time; convenience can be quick to add). Markers reward developed application, not a list of the methods.
Related dot points
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- Risk and reward: the impact of risk (business failure, financial loss, lack of security) and reward (business success, profit, independence) on business activity and on the decisions an entrepreneur makes.
A focused answer to Edexcel GCSE Business 1.1.2, covering the impact of risk (business failure, financial loss, lack of security) and reward (business success, profit, independence) on business activity and entrepreneurial decisions.
- Identifying and understanding customer needs (price, quality, choice, convenience) and the importance of identifying and understanding customers for generating sales and ensuring business survival.
A focused answer to Edexcel GCSE Business 1.2.1, covering what customer needs are (price, quality, choice, convenience) and why identifying and understanding customers matters for generating sales and business survival.
- What the marketing mix is and the importance of each element (price, product, promotion, place); how the elements work together, including balancing the mix for the competitive environment, the impact of changing consumer needs, and the impact of technology (e-commerce, digital communication).
A focused answer to Edexcel GCSE Business 1.4.3, covering what the marketing mix (product, price, promotion, place) is, the importance of each element, and how they work together, including the effects of competition, changing consumer needs and technology.
- What business aims and objectives are; financial aims and objectives (survival, profit, sales, market share, financial security) and non-financial aims and objectives (social objectives, personal satisfaction, challenge, independence and control) when starting up; and why aims and objectives differ between businesses.
A focused answer to Edexcel GCSE Business 1.3.1, covering what business aims and objectives are, financial aims (survival, profit, sales, market share, security) and non-financial aims (social, personal satisfaction, challenge, independence), and why they differ between businesses.
Sources & how we know this
- Pearson Edexcel GCSE (9-1) Business (1BS0) specification — Pearson Edexcel (2017)