IGCSE Business Studies: Chapters 1 & 2
(Pages 2–18)
Chapter 1: Business Activity
1. The Purpose of Business Activity
Business activity exists to produce goods and services that satisfy the needs and wants of a
population.
● Needs: Goods or services essential for living (e.g., water, basic food, shelter, clothing).
● Wants: Goods or services that people would like to have but are not essential for living
(e.g., luxury cars, smartphones).
2. The Economic Problem: Scarcity
The fundamental economic problem is that there are unlimited wants but limited resources to
produce the goods and services to satisfy them.
● Scarcity: The lack of sufficient resources to fulfill the total wants of the population.
● Factors of Production (Resources):
1. Land: Natural resources (e.g., fields, oil, minerals).
2. Labour: The mental and physical effort of people.
3. Capital: Finance, machinery, and equipment needed for production.
4. Enterprise: The skill and risk-taking ability of the entrepreneur to combine the other
three factors.
3. Opportunity Cost
The next best alternative given up by choosing another item.
● Example: If a government spends money on a new school, the opportunity cost might be
the hospital they can no longer afford to build.
4. Specialisation and Division of Labour
● Specialisation: Occurs when people and businesses concentrate on what they are best
at.
● Division of Labour: When a production process is split into different tasks and each
worker performs one of those tasks.
○ Advantages: Increased efficiency, faster production, less time wasted moving
between tasks.
○ Disadvantages: Boredom for workers, if one worker is absent the whole line might
stop.
5. Added Value
Added value is the difference between the selling price of a product and the cost of the
bought-in materials and components.
● Formula: Added Value = Sales Revenue - Cost of Materials
● How to increase Added Value:
○ Increase the selling price (by improving quality or branding).
○ Reduce the cost of materials (by improving efficiency).
Chapter 2: Classification of Businesses
1. Primary, Secondary, and Tertiary Sectors
Business activity is classified by the stage of production:
● Primary Sector: Extracts natural resources (e.g., farming, mining, fishing).
● Secondary Sector: Manufactures and processes raw materials into goods (e.g., car
assembly, construction).
● Tertiary Sector: Provides services to consumers and other businesses (e.g., banking,
retail, insurance).
2. De-industrialisation
The decline in the importance of the secondary (manufacturing) sector in developed countries.
● Causes: Exhaustion of raw materials, rising labor costs compared to developing nations,
and higher consumer income spent on services.
3. The Private and Public Sectors
● Private Sector: Owned and controlled by individuals. Main objective is usually profit.
● Public Sector: Owned and controlled by the government/state. Main objective is to
provide essential services to the public.
Chapter 3: Enterprise and Entrepreneurship (Start of
Chapter)
1. Characteristics of an Entrepreneur
● Innovation: Creating new products or processes.
● Risk-taking: Taking a chance on a new idea with their own capital.
● Hard work: Putting in long hours to get the business started.
● Leadership: Directing employees and making key decisions.
2. Contents of a Business Plan
A business plan is essential for reducing risk and securing finance. It typically includes:
● The product/service description.
● Market research findings.
● Financial forecasts (e.g., projected profit and loss, cash flow).
● A marketing strategy.