Enterprise and adding value
Why businesses exist
- People have needs (food, shelter) and wants (a phone, a holiday).
- A business meets them by making goods and services.
- To produce, it combines four factors of production:
- land (natural resources), labour (work), capital (machines, money), enterprise (the risk-taker who combines them).
- Resources are scarce, so every business must choose how to use them well.
Practice
Which is NOT one of the four factors of production?
The four factors are land, labour, capital and enterprise. Profit is a reward, not a factor.
Practice
The factor of production that combines the others and takes the risk is:
Enterprise is the skill of bringing land, labour and capital together and taking the risk.
Adding value
- Adding value means the selling price is higher than the cost of the bought-in materials.
$$\text{value added} = \text{selling price} - \text{cost of bought-in materials}$$
- A business adds value through branding, quality, design, fast service or convenience.
- More value added can mean more profit — but only if costs stay controlled.
Practice
A product sells for 50 and the bought-in materials cost 18. What is the value added (in dollars)?
Value added = selling price − cost of bought-in materials = 50 − 18 = 32.
You've got it
Key idea
- a business meets needs/wants by combining land, labour, capital, enterprise
- resources are scarce → choices matter
- value added = selling price − cost of bought-in materials (raised by branding, quality, design)