Suppliers, customers and markets

Potatoes are inputs supplied to production, chips are outputs. Value increases over production, customers consume outputs

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.

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.

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

Adding value

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.

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.