The purpose of business activity: producing goods and services to meet the needs and wants of customers, the difference between needs and wants, the meaning of adding value, the factors of production, and the primary, secondary and tertiary sectors.

What this dot point is asking

This is the foundation of the whole course. WJEC wants you to understand why business activity exists: businesses produce goods and services to meet the needs and wants of customers. You need the difference between a need and a want, what it means to add value, the four factors of production that every business combines to make a product, and the three sectors of activity (primary, secondary and tertiary). Almost every later topic builds on these ideas, so they must be secure.

Goods and services, needs and wants

The reason customers buy is to satisfy a need or a want, and the distinction is examinable.

Adding value

The central purpose of most business activity is to add value.

A baker who turns 30p of flour, water and yeast into a loaf sold for 1.20 has added 90p of value. Businesses raise the value added in several ways, and naming them is a common short-answer task: branding (a trusted name lets a firm charge more), good design, high quality, convenience (location, speed, packaging) and excellent customer service. The more value a business adds, the larger the gap between price and cost, and so the greater the potential profit.

The factors of production

Every business combines four factors of production to make its goods or services.

A useful memory aid is CELL (Capital, Enterprise, Land, Labour). Enterprise is the special factor that organises and risks the others, which is why it is treated separately and links to the next dot point.

The three sectors of business activity

All business activity falls into one of three sectors, depending on the stage of production.

The chain runs primary to secondary to tertiary: a Welsh farm (primary) grows wheat, a mill and bakery (secondary) turn it into bread, and a supermarket (tertiary) sells it. In a developed economy such as Wales and the rest of the UK, the tertiary sector is by far the largest and employs most people, while the primary and secondary sectors have shrunk over time.

Why this matters

These ideas underpin everything that follows. Adding value reappears in marketing (branding and the marketing mix raise value), in operations (quality and efficiency protect value) and in finance (value added drives revenue and profit). The factors of production return when you study costs and resources, and the sectors frame globalisation and the changing structure of the economy. Get the vocabulary exact, because examiners reward precise definitions of needs, wants, adding value and each factor.

Try this

Q1. State the difference between a need and a want. [2 marks]

• Cue. A need is essential for survival (such as food or shelter); a want is something you would like but could live without (such as a holiday).

Q2. A business buys ingredients for 4 and sells the finished meal for 14. Calculate the value added. [1 mark]

• Cue. $14 - 4 = 10$ of value added.