What is a business?

Inputs and outputs

In order to create goods and services, a business buys or hires inputs such as raw materials, equipment, buildings and staff. These inputs are transformed into outputs called products. These products are the goods and services used by consumers. Production is the business activity of using resources to make goods and services.

Secondary production

This is the manufacturing and assembly process. It involves converting raw materials into components, for example, making plastics from oil. It also involves assembling the product, eg building houses, bridges and roads.

Adding value

A business adds value when the selling price of an item produced is higher than the cost of all the resources used to make it. Think of a pair of designer sunglasses which sell for £100. If the cost of the materials, employees, marketing and all other inputs used in making one set of sunglasses is just £20, then £80 worth of value has been added by the firm during production.

What is a business?

A business is any organisation that makes goods or provides services. Businesses exist to provide goods or services.

Competition

Businesses are likely to be in competition with other firms offering similar products.

Suppliers, customers and markets

Businesses buy the products they need from suppliers - firms selling products to other businesses - and sell to customers. The individual who uses the product is called a consumer. Sometimes the customer and consumer are different people - for example, parents buy a pen for their child to use at school.

Markets

Businesses sell to customers in markets. A market is any place where buyers and sellers meet to trade products - this can be a high street shop or a website.

Goods

Goods are physical products such as burgers or cars.

Services

Services are non-physical items such as hairdressing.

Primary, secondary and tertiary sectors

There are three main types of industry in which firms operate. These sectors form a chain of production which provides customers with finished goods or services.

Primary production

This involves acquiring raw materials. For example, metals and coal have to be mined, oil drilled from the ground, rubber tapped from trees, foodstuffs farmed and fish trawled. This is sometimes known as extractive production.

Tertiary production

This refers to the commercial services that support the production and distribution process, eg insurance, transport, advertising, warehousing and other services such as teaching and health care.

Customer needs

Customer needs are the wants and desires of buyers.

Business start-up

Nearly half a million businesses start up each year. A business start- up is a new firm operating in a market for the first time.