1.How to Define Economic Problem, need, want, scarcity, Opportunity Cost, Specialization & Division of Labor, Business Activity & Added Value?

In this post, I am going to teach you the topic of IGCSE/O Level Business Activity and will understand that what is the difference between need & want?

How difference of unlimited wants and scarce resources create imbalance that causes economic problem? How to define economic problem.

How can we define scarcity & opportunity cost?

What is specialization & division of labor & finally business activity & added value?

Difference of need & want

Need is a good or service which is necessary for living or an essential requirement. Without that good or service living is considered simply impossible. Need is a fundamental requirement for survival, well-being, or for a particular goal in which a needed good or service is essential.

Examples of needs are food; shelter, clothing, healthcare, water, education, etc.

Want is something that you prefer or desire to have but it is not necessary for survival. Want is a self-driven desire to have some specific good or service.

For example, someone wants to buy a plane or luxury car but it is not necessary for survival or well-being.

Based on priority, the need has preference over want because without fulfilling a need, life is in misery. On the other hand, want just improve living standards.

How to define Economic Problem & Factors of Production

Economic Problem is a phenomenon in that we have unlimited needs and wants but we have limited resources to produce those goods and services that are necessary to fulfill needs and wants. We have limited resources or factors of production such as:

Land or Natural resources such as land, minerals, forests, water, etc.

Labor or Human resource such as labor or simply a resource in which human activity is involved to produce goods and services.

Capital resources such as plant & machinery, tools, buildings & offices, finance, etc. to produce goods and services.

Enterprise or Organization is a specific skill to utilize resources or specific risk-taking ability in persons who combine all resources in such a way that is effective to produce goods and services. The persons are called entrepreneurs.

All over the world, the above factors of production are scarce, and due to this there is scarcity.

Scarcity, Opportunity Cost

Scarcity is simply an imbalance between available resources and unlimited desires or wants. Scarcity triggers everybody to make decisions and choices to reduce the imbalance between available resources and unlimited wants. It has various challenges as given below:

Allocation of resources: People must think and act practically about how to allocate resources that can be used efficiently through choices that how to produce efficiently, how much to produce, and for whom to produce.

Opportunity cost: when people allocate resources, they have alternative choices. To adopt one choice they have to give up other choice because one time, we can adopt only one choice. More simply, we can say that resources used for one purpose cannot be used for another purpose. So giving up opportunity is simply called opportunity cost. Opportunity cost is the next best alternative given up by choosing another item.

Limited resources generate economic problems that are due to unlimited wants which further discovers scarcity. Due to scarce resources, we allocate choices and prefer one choice to another is called opportunity cost. This relation is diagramed below:

Specialization & Division of Labor

The practice of specialization in business, which is also referred to as division of labor, takes the form of focusing on a specific area or task within the company’s activities or industry. This includes people, departments, or whole organizations that concentrate their efforts on a narrow set of tasks, functions, and products with the aim of developing expertise and effectiveness.

Specialization is a fundamental principle in business management and economics, and it can lead to several advantages & disadvantages:


  1. Increased Efficiency: when people perform the same task repeatedly due to specialization, they become more skilled, and their efficiency increases without committing an error.
  2. Cost Reduction: When companies get specialization, their input cost decreases because of the efficient use of resources. The benefit goes to companies in the sense of lower production costs and to customers for lower prices of the goods and services.
  3. Quality Improvement: Specialized teams or individuals can focus on improving the quality of their products or services since they are not spread too thin across various tasks. This can lead to higher-quality outcomes.
  • Economies of Scale: Specialization can contribute to economies of scale, where the cost per unit of production decreases as output increases. This is particularly important in industries where high volumes of production are necessary.
  • Innovation: When people specialize, they may become more innovative in their specific field as they seek ways to improve processes or products. This can lead to technological advancements and product innovation.
  • Resource Allocation: Specialization helps in efficient resource allocation. Companies can allocate resources to the areas where they are most needed, reducing waste and improving overall performance.
  • Focus on Core Competencies: Specialization allows businesses to concentrate on their core competencies, which are the unique strengths and capabilities that give them a competitive advantage. By outsourcing non-core functions, companies can free up resources to excel in what they do best.
  • Diversification: Specialization can also enable companies to diversify their product or service offerings by partnering with specialized suppliers or subcontractors. This can help businesses expand their product lines without having to develop all components in-house.


  1. Monotony and Boredom

Due to repetitive tasks by the workers, they get bored which can cause monotony or boredom, due to this their satisfaction and motivation are reduced.

  • Narrow Skills

Workers get skills in specific areas but in broader skill sets, they are unable to show performance in other areas of expertise.

  • Dependency

It creates dependency issues in an organization. Companies have to rely on specific workers with their specific skills. When workers are unavailable, companies have no alternative which creates a bottleneck issue.

  • Lack of innovation

Due to minute, repeated tasks performed by the workers, their innovation ability is reduced. Their creativity and imagination are damaged so they become incompatible with the changing market dimensions.

  • Technological Obsolescence

They only stick with specific skills and machinery so when technology is obsolete, their skill is also obsolete too.

  • Interpersonal issues

When workers become highly skilled in a specific job, silos can develop, they don’t coordinate with each other and a communication gap develops which directly affects the productivity of the organization.

I must point out that specialization can also offer drawbacks, although there are some advantages to it. One example is the risk that an undertaking may be affected by changes in market demand or technological evolution due to over-specialization. The main challenge for firms is to strike the right balance of specializations and flexibility so as to retain competitiveness in a constantly evolving market.

Business Activity

Now the background is clear that we have unlimited wants or desires. In order to fulfill these wants, we have limited resources or factors of production such as land, labor, capital, and enterprise so the imbalance occurs which is scarcity. To deal with this imbalance we allocate resources in an efficient way and identify choices and select the choice to mobilize the resources while giving up other choices & doing the business.

So business is an activity to produce goods and services while using resources or factors of production to satisfy human wants.

Added Value

Added value is the difference between the price of goods and services and the cost of those goods or services. When the difference or added value increases, it increases profitability which is the basic aim of the businessmen. It also creates competition.

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