IGCSE Business: Business activity and Economic sectors (Cambridge 0264) – Revision Notes

These are condensed notes for sections 1.1 (Business activity) and 1.2 (Economic sectors) of the Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029. For full explanations and worked examples, read the study guide. When you are ready to test yourself, use the practice questions. Course pages: the Cambridge IGCSE Business hub and the printable checklist. The free diagnostics show which topics need most work.

Syllabus map

Ref	Content point
1.1.1	Factors of production: land, labour, capital and enterprise
1.1.1	Concept of adding value and how added value can be increased
1.1.1	Concept of opportunity cost
1.2.1	Primary, secondary and tertiary sectors
1.2.1	Private and public sectors

Factors of production

Resources needed to produce goods and services. There are four.

Factor	Definition to learn	Quick example
Land	Natural resources and space used in production	Farmland, a mine, a fishing ground, a factory site
Labour	Human effort, physical or mental, used in production	Machine operators, accountants, drivers
Capital	Man-made resources used to produce other goods and services	Machinery, vehicles, tools, buildings
Enterprise	Willingness to take risks and organise the other factors to produce	The owner who starts and runs the business

Remember:

• Capital as a factor is equipment and buildings, not cash.
• A cost (rent, wages, interest) is not itself a factor. Link it to the factor it pays for.
• Businesses use different mixes. Compare them in answers, such as “more labour than machinery”.

Adding value

Definition: added value is the difference between the selling price of a product and the cost of the bought-in materials or inputs used to make it.

Standard form: added value per unit = selling price per unit - cost of bought-in inputs per unit. Multiply by the number of units for a total.

Added value is not profit, because wages, rent and other costs are still to be paid from it.

Method in steps

1. Find the selling price per unit.
2. Find the cost of bought-in inputs per unit (materials, components, packaging). Leave out wages and rent unless the data says they are part of the bought-in cost.
3. Subtract.
4. Multiply by units sold if a total is asked for.
5. State the unit (per item, per month) and the currency.

Worked reminder

Fordhurst Joinery sells a chopping board for 12.00. Wood, oil and packaging bought in cost 7.50 per board. It sells 250 a month.

Added value per board = 12.00 - 7.50 = 4.50
Monthly added value   = 4.50 x 250 = 1,125
As a percentage of price = 4.50 / 12.00 = 37.5%

The percentage is a standard comparison and the syllabus gives no formula for it, so use it only when useful.

Ways to increase added value

Raise the selling price	Lower bought-in input costs
Stronger brand or better design	Cheaper or bulk suppliers
Higher quality or extra features	Less waste of material
Better service or personalisation	Cheaper but suitable materials
Better packaging or finishing	Better planning of orders

If Fordhurst raises its price to 13.50 with the same inputs, added value becomes 13.50 - 7.50 = 6.00. If instead it cuts input costs to 6.80 at the old price of 12.00, added value becomes 12.00 - 6.80 = 5.20.

Always add the risk: higher prices may cut sales, and cheaper inputs may cut quality. A balanced answer mentions it.

Opportunity cost

Definition: the benefit of the next best alternative that is given up when a choice is made.

Key points:

• Only the next best alternative counts, not every option rejected.
• It can be measured in money, time or output.
• It exists because resources are limited, so choosing one use means not choosing another.

Method in steps

1. List the options and the benefit of each.
2. Identify the option chosen.
3. Rank the rest and take the highest one that is left. That is the opportunity cost.
4. Compare it with the benefit gained and with other factors (risk, time, objectives).

Worked reminder

Fordhurst can spend 9,000 on a new saw (extra profit 2,800 a year), a delivery bike (2,300) or a website upgrade (1,900). If it buys the saw, the opportunity cost is the delivery bike, at 2,300 a year of extra profit.

Economic sectors

By type of activity

Sector	Activity	Examples
Primary	Extracting or growing natural resources	Farming, fishing, forestry, mining
Secondary	Making, processing or building	Manufacturing, food processing, construction
Tertiary	Providing services	Retail, banking, transport, education, tourism

Chain of production example: wheat grown on a farm (primary), flour milled and bread baked (secondary), bread sold in a shop (tertiary). Value is added at each stage.

A business may work in more than one sector. Classify by its main activity, and mention the others if the data shows them.

By ownership and control

Sector	Owned and controlled by	Usual aim
Private sector	Individuals or groups of individuals	Mainly profit
Public sector	Government (national or local)	Mainly providing a service to the public

The aims are general tendencies. Private firms can have social aims, and public organisations still need to manage costs.

Must-know distinctions

Idea A	Idea B	The difference
Capital (factor)	Money	Capital is man-made equipment and buildings, money is not a factor
Added value	Profit	Added value is before wages, rent and other costs
Opportunity cost	Cost paid	It is the benefit lost from the next best alternative
Primary/secondary/tertiary	Private/public	One groups by activity, the other by ownership
Secondary	Tertiary	Making goods versus providing services

Combining the two: a state-run railway is tertiary and public. A privately owned quarry is primary and private.

Applying it to a business

The syllabus says candidates apply their understanding to a variety of business situations, so practise turning each idea into a sentence about a named business. Examples of the pattern:

• Factor: “The two ovens are capital because they are man-made equipment used to produce bread.”
• Added value: “Added value per board is 4.50, which is what is left after the wood and packaging bought in.”
• Opportunity cost: “Choosing the saw means giving up the delivery bike, worth 2,300 a year.”
• Sector: “The bakery is secondary because it makes bread, and private because individuals own it.”

How to write answers

• State, identify, define: short and exact. Use the wording above.
• Calculate: show the formula, the numbers and the units.
• Explain, analyse: make a point, then link it to the business in the data. Use “because” and “which means”.
• Evaluate, justify, recommend: give both sides, reach a decision and give the reason that decided it.

Quick self-test

1. List the four factors of production.
2. Which factor is a delivery van?
3. Define added value.
4. A scarf sells at 30.00 and bought-in inputs cost 19.50 per scarf. Calculate added value per scarf.
5. Using Question 4, how much is the added value for 120 scarves?
6. State two ways to increase added value.
7. Define opportunity cost.
8. A business chooses a 5,000 project from options worth 5,000, 4,200 and 3,700. What is the opportunity cost?
9. Classify a coal mine and a hotel by sector.
10. Give one difference between private and public sector organisations.

Answers

1. Land, labour, capital and enterprise.
2. Capital.
3. The difference between the selling price of a product and the cost of the bought-in materials or inputs used to make it.
4. 30.00 - 19.50 = 10.50 per scarf.
5. 10.50 x 120 = 1,260.
6. Any two, for example raise the selling price through a stronger brand or better quality, or lower input costs through cheaper suppliers or less waste.
7. The benefit of the next best alternative that is given up when a choice is made.
8. 4,200, the next best alternative.
9. A coal mine is primary. A hotel is tertiary.
10. Private sector organisations are owned by individuals or groups of individuals and mainly aim to make a profit. Public sector organisations are owned by the government and mainly aim to provide a service.

Where marks are usually lost

• Defining capital as money instead of equipment and buildings.
• Naming a cost, such as wages, when the question asks for a factor.
• Using total cost, not the cost of bought-in inputs, in an added value sum.
• Treating added value as profit.
• Forgetting to multiply by the number of units when a total is asked for.
• Giving the cost of the chosen option, or all alternatives, as the opportunity cost.
• Listing sector names with no link to what the business actually does.
• Describing a way to increase added value without saying what happens to price or input cost.
• Evaluating with one side only. Say what could go wrong with the change, then decide.
• Leaving out units or currency on a calculation.

Frequently asked questions

What are the four factors of production? The four factors are land (natural resources and space), labour (human effort), capital (man-made equipment and buildings) and enterprise (the risk-taking and organizing that brings the others together).

Is capital the same as money in IGCSE Business? No. As a factor of production, capital means man-made equipment and buildings used in production. Money is not a factor, and defining capital as money is a common error.

Is added value the same as profit? No. Added value is the selling price minus the cost of bought-in inputs, before wages, rent and other costs are paid. Profit is what remains after all those costs.

How can a business increase added value? It can raise the selling price, for example through a stronger brand, better design or higher quality, or lower the cost of bought-in inputs, for example through cheaper or bulk suppliers and less waste. Each route has a risk, such as lost sales or lower quality.

Official syllabus

Cambridge IGCSE Business 0264 syllabus for examination in 2027, 2028 and 2029, published by Cambridge University Press & Assessment (Cambridge International Education), sections 1.1 Business activity and 1.2 Economic sectors.