3.1.1 Understanding the nature and purpose of business

Understanding the nature and purpose of business

Factors of production

The resources used in the production process:

·       Land – natural resources produced by the earth

·       Labour – worker’s physical environment and mental effort that goes into the production process

·       Capital – the buildings, machinery and equipment used to produce goods and services i.e. computers, vehicles etc.

·       Enterprise – the bringing together of the other factors of production to produce goods and services. This is the role of the entrepreneurs

The transformation of inputs into outputs

Adding value

This transformation process should be transforming inputs into a more valuable output which could be a product or service. This is called adding value which means creating a finished product that is worth more to the customer than the sum of the parts. For example, cleaning your bike before selling it adds value.

Types of business

Businesses can be categorised in different ways. One way to do this is according to the sector of the economy it is in. The three sectors are:

·       Primary sector – businesses involved in extracting raw…