Adding Value, Opportunity Cost

CONCEPT OF ADDING OR CREATING VALUE

·         All business aim to create value

·         From the value created by business other costs have to be paid including wages, overhead expenses etc so value created by a business is not the same as profit

·         If a business can increase in value without increasing the expenses then it tends to make a profit

CREATING VALUE: increasing the difference between the cost of purchasing bough – in material and price of finished goods are sold for

ADDING VALUE: the difference between the cost of purchasing bought – in materials and the price of finished goods are sold for

EXAMPLES OF ADDING VALUE

JEWELERS – well designed shop, attractive shop fittings, well-dressed and knowledgeable staff, beautiful boxes

SWEET MANUFACTURER – extensive advertising of brand, attractive packing

ECONOMIC ACTIVITY AND PROBLEMS OF CHOICE

·         Resources are limited

·         Wants and needs are unlimited

·         So a choice has to be made with limited resources to meet needs and wants

OPPORTUNITY COST: the benefit of the next most desired option which is given up