Unit 1.1: The purpose and nature of business activity
Introduction
This page contains notes and lesson activities to cover unit 1.1, the purpose and nature of business activity and includes activities on the concept of added value and how this can be increased. The key take out from this lesson is that students must recognise that entrepreneurs set up businesses for a number of reasons and that the role of an entrepreneur is to turn factor inputs into outputs by adding value to those inputs.
Teacher only boxTeacher notes
Lesson time: 60 minutes
Lesson objectives:
To understand the reasons why entrepreneurs might start a business and how firms can add value to their business. The temptation is for students to simply answer 'to make money' and while this is an important consideration for any budding entrepreneur there are also other motivations.
1. Beginning activity - Start with a question on the whiteboard 'Why do businesses exist?' Ask a student to volunteer to write the various ideas on the whiteboard so that other students can add those suggestions to their notebooks. This then flows directly into the introductory activity. [5 minutes]
2. Physical process - Distribute the handout and allow students to read the contents and digest the key terms in this lesson. [5 minutes]
3. Video activity - Activity two focusses on value added. How might a business add value to a good or service in order to add value and increase sales revenue. [10 minutes]
4. Factors of production - This activity contains a power point exercise and questions [20 minutes]
5. Assessment - the lesson concludes with an examination style question which can be set either as a class or homework exercise. [20 minutes]
Key terms:
Business activity: an event or events that a corporation might undertake in order to make a profit.
Factors of production: the resources required by organisations to turn inputs into goods and services - land, labour, capital and entrepreneurship.
Value added: the features or economic value that a company can add to its goods and services so they can sell for a higher to its customers.
Introductory activity
Start by watching the following video and then have your students describe the purpose of business activity?
Answers might include:
- Provide products and services to fulfil consumers’ needs and desires
- Generates employment opportunities
- Contributes to economic growth and innovation
- Creates wealth.
Activity 2
Consider the meaning of added value and then use the following short video to answer the questions that follow:
Questions
a. What is added value?
Ways that allow a business to sell their good or service for a higher price than before.
b. Provide five examples from the passage that illustrate how a business can add value to a product:
i. Enhancing a product's convenience, such as pre-sliced watermelon with the rind removed, makes it easier for consumers to enjoy.
ii. A recognisable brand can increase appeal, explaining why customers are willing to pay more for a Nike-branded shirt compared to an unbranded one.
iii. The quality or perceived quality, often derived from a reputation or a guarantee of excellence, as seen with luxury car brands.
iv. Incorporating features that enhance a product's aesthetic appeal.
v. A distinctive USP that sets a product apart from its competitors, such as companies that highlight their ethical practices for differentiation.
c. Why is added value important for a business?
Value addition contributes to a business's profits by enabling the sale of more products or the same quantity of goods and services at a higher price. This is beneficial only if the company can enhance value and boost sales without a corresponding substantial increase in expenses.
Extension question - is a quality product always more expensive to manufacture or buy than a mediocre product?
It's not always the case that luxury products are made with higher craftsmanship and better materials. For example, supermarket own brands are less expensive not because of lower quality but due to the absence of advertising and branding costs. These supermarkets often source their products from the same manufacturers as the more expensive branded items.
In a similar vein, Apple products command a premium price based on the perceived 'build-quality' myth, despite their hardware being designed and manufactured in China by the same teams that produce rival companies' laptops and smartphones.
When Aldi opened a discount store in the UK, some well-informed, affluent shoppers would carry Harrods bags to conceal their Aldi purchases from judgmental friends. Nonetheless, Aldi's products have consistently won awards for their high quality at low prices.
Factors of production
Watch the following power point on the factors of production and then write down the factor(s) of production that is most important to the following organisations? 
Factors of production
- A farm
- Power station
- HSBC bank
- Harrods
- Tesco
- Ford
- Exon
- Hotel.
- A farm - land
- Power station - land
- HSBC bank - capital
- Harrods - land, labour
- Tesco - land, labour
- Ford - capital
- Exon - land
- Facebook - labour (skilled)
- Hotel - land, labour
Extension question
Given that nations are endorsed with different production factors does this mean that nations are likely to specialise in the production of certain goods than others?
Real-world evidence appears to support this notion. For instance, the oil and gas-rich nations of the Middle East host numerous energy companies. Similarly, countries like India, China, and Vietnam, known for their abundant and industrious labor force, have specialised in manufacturing goods. Meanwhile, the land-abundant nations of Canada and Australia are significant exporters of food products. Finally, wealthier Western nations, with their technological edge, are often the base for numerous technology companies.
Link to assessment
(a) Evaluate the view that the most important factor for any manufacturing business to consider when deciding where to locate a new factory is access to labour? [6]
Teacher only boxFactories depend on labour to function, and finding or recruiting skilled labour can be challenging for any business, especially for labour-intensive manufacturing businesses. [k] which could increase recruitment and / or labour costs. [an] Much of any decision will depend on the number of workers and the skill level required. [an]
Indeed, while labour access is a crucial factor, businesses must also evaluate other considerations before determining their location. [an] Other factors that the business might consider equally important include transport links [k] to ensure products arrive / sent when needed [an]; access to market [k] to ensure the product can be sold is another important factor to consider [an]
The type of good produced will also be an important factor in any decision. [k] For example, bulky and / or fragile items may force a business to prioritise a location closer to customers [an]. The business will also need to consider the availability of raw materials / components [k] so production is not delayed [an], while other factors to be considered include the cost of land in any location as well as any access to government grants. [an]
Responses are awarded a maximum of three marks for correctly identifying arguments that justify the statement and up to three marks for counterarguments, each substantiated by evidence from the passage.
The activities and assessment question on this page can be accessed as a PDF file at: 
Activities