1 understanding Business Activity Flashcards
1
Q
What is needs?
A
A good or service essential for a living
2
Q
What is wants?
A
A good or service which people would like to have but is not essential for a living. (peoples wants are unlimited)
3
Q
What is scarcity?
A
The lack of products to fulfill the total wants of the population
(unlimited wants + limited resources = scarcity)
4
Q
What is opportunity cost?
A
The next best alternative given up by choosing another item
5
Q
Name the four factors of production, and what are their uses?
A
Land - the nature resources provided by nature. Ex. Forest oil, gas metal.
Labor - the number of people available to make products
Capital - the finance, machinery and equipment needed for the manufacture of goods.
Enterprise - the skill and risk, taking ability of the person who brings the other resources together to produce good or service. Ex. The owner of a business (entrepreneurs).
6
Q
What is the economic problem
A
Unlimited wants but limited resources to produce goods and services to satisfy the wants. This creates scarcity.
7
Q
What is specialization?
A
when people and businesses concentrate on what they are best at.
8
Q
What is the importance of specialization?
A
- increase competition. This means that the businesses have to keep costs low.
- Higher standards
- Increased production levels
- Concentrated on particular activities and products.
9
Q
What are some types of specialization examples?
A
. Specialization by region/country
. Specialization by factors of production (labor, land, capital and enterprise)
. Specialization by businesses
10
Q
Name some advantages and disadvantages of specialization
A
Advantages:
More productive
Efficient
Larger outputs can be produced at lower unit costs
Enables the sharing of knowledge and skill between the specialists
Disadvantages:
over-reliant on the task
might become boring
Lack of flexibility
One area can slow down the whole process
11
Q
What is added value?
A
The difference between the selling price of a product and a cost of bought in materials and components.
12
Q
How can added value be increased?
A
Branding
Adding special features
Excellent service
Conveniency
13
Q
What’s the purpose of business activity?
A
To create products and services
14
Q
The definition of division of labor
A
When the production process is split up into different tasks, and each worker performs one of these tasks
(it’s a form of specialization)
15
Q
Define businesses
A
Combined factors of production to make products (goods and services) which satisfy peoples wants
16
Q
What are the three sectors of business classification?
A
Primary sector: industry extracts and uses the natural resources from earth to produce raw materials used by other businesses
Secondary sector: manufacturing good using the raw materials provided by the primary sector
Territory sector: provides services to customers and other sectors of industry
17
Q
Give some examples of primary sector
A
Wood cutter
Mining
Farming
Oil drilling
18
Q
Give some examples of secondary sector
A
Furniture maker
Baking
Building/construction
19
Q
Give some examples of tertiary sector
A
Banking
Hairdressing
Hotels
Travel agents
Retailer
20
Q
What is mixed economy?
A
A mix of both private sector and public sector
21
Q
What is De-industrialization?
A
When there is a decline in the importance of the secondary manufacturing sector of industry in a country
22
Q
Define private sector
A
Make their own decisions
Aimed to make profit
NOT owned by the government
Involves risk
If the business fails, they will be responsible for the losses (selling personal possessions to meet the business debts)
23
Q
Define public sector
A
Owned and controlled by the government
some goods and services are provided free of charge, because the money comes from the taxpayer
(Provide essential economic service)
24
Q
Define capital
A
The money invested into the business by the owners
25
What are the reasons for changing importance of business classification?
The size of a countrys different sectors of business activity often indicates if it has developing or developed economy
26
Define entrepreneur
A person who organizes, operates and takes the risks for a new business
27
What are the characteristics of a successful entrepreneur?
Hard worker
RiskTaker
Good communicator
Organized
Self-confident
Determined
Motivated
Committed
Leadership qualities
Multiskilled
28
What are some of the advantages and disadvantages of being an entrepreneur?
Advantages:
Able to put own ideas into practice
May become famous and successful
Profitable and the income might be higher than working as an employee
Able to choose how to use money and time
Disadvantages:
Business might fail if there is poor planning
Have to put their own money into the business
Lack of knowledge and experience
Lost income
29
What is a business plan?
A document containing the business objectives and important details about the operations, finance and owners of the new business
30
How business plans assist entrepreneurs
It helps entrepreneurs be organized and more successful
A plan provides the entrepreneurs with a…
description of the business
product and services
the market
business location and how products will reach customers
organization structure and management financial information
Business strategy
31
Why governments support business startups?
To create more job opportunities, and reduce unemployment
To increase competition
Increase output of goods and services for the country
Benefit society
32
Methods of measuring business size
Number of people employed
Value of output
Value of sales
Value of capital employed
33
Define capital employed
The total value of cup to used in the business
34
Limitations of methods of measuring business size
Many methods are not straightforward, this is because the methods can produce different results, so more than one method should be used in measuring the size of the business
35
limitations of the number of people employed and value of capital employed?
A business could have few people but produce high output levels.
A company employing many workers may use labor-intensive methods of production; these give low output levels and use little capital equipment
36
limitations of value of output?
A high level of output does not mean that the business is large
37
Limitation of value of sales
Could be misleading to use this measure, when comparing the size of business that sell very different products
38
Why would owners want to expand their business?
Higher profits
Higher salaries
Lower average cost (economies of scale)
Larger share of its market
39
Different ways in which businesses can grow
Internal growth
External growth
Take over
Merge
Horizontal integration
Vertical integration
Conglomerate integration
40
Define internal growth
When a business expands its existing operations
41
Define external growth
When a business takes over, or merges with another business
(often called integration, as one business is integrated into another business)
42
Define takeover
When one business buys out the owners of another business
43
Define merger
When the owners of two businesses agreed to join their businesses together to make one business
44
Define Horizontal integration
When one business takes over another business in the same industry at the same stage of production
45
Define vertical integration
When one business takes over another business in the same industry, but at a different stage of production (can be forward or backward)
46
Define conglomerate integration
When one business takes over a business in a completely different industry (also known as diversification)
47
What are some of the problems with business growth?
More difficult to control staff and communicate
Lack of expertise
Lack of funds
Diseconomies of scale
48
Why do some businesses remain small
More flexible
Easier and quicker for decision making
Understand the market more fully
Reduced level of stress
Direct communication with customers
More control
49
What are the causes of business failure
Lack of management
Skills
Changes in the business environment
Overexpansion
Poor financial management
Liquidity problems
50
Why are new business is at greater risk of failing
Not a lot of experience
New to the market
Not a lot of capital to support the business
Not a lot of sales
51
Name some features of business organizations: private sector
Soul traders
Partnerships
Private limited company’s
Public limited company’s
Franchises
Joint ventures
52
Define sole trader
A business owned by one person
53
Define limited and unlimited liability
Limited means that the liability of shareholders in a company is limited to only the amount they invested
Unlimited means that the owners of a business can be held responsible for the depths of the business they own. Their liability is not limited to the investment they make into the business.
54
Define partnership
A form of business which is owned by 2 or more (20) people.
55
Define partnership agreement
A written and legal agreement between business partners.
(not essential but is always recommended)
56
Name some advantages and disadvantages of a sole trader
Advantages:
Quick and easy to set up
Makes all decisions
Complete control
Keep the profit
Disadvantages:
Unlimited liability
Long working hours
May not be skilled enough
57
Name some advantages and disadvantages of a partnership
Advantages:
Easy to set up
Partners invest in the business
Shared decisions
Shared management and workload
Disadvantages :
Unlimited liability
Profit is divided
May disagree on decisions
58
Define unincorporated businesses
Doesn’t have a separate legal identity
Ex. Sole trader, partnership.
59
What are private limited company’s
Businesses owned by shareholders, but cannot sell shares to the public
60
Define Incorporated businesses
Companies that have separate legal status from their owners
61
Define shareholders
Owners of a limited company that buy shares which present part ownership of the company
62
Features of private limited company’s
Can only be sold private
Limited liability
Profit belongs to shareholders
Legal documents must be a complete
Continues even if one or more shareholders die
63
Define public limited company’s
Businesses owned by shareholders and they can sell their shares to the public. In addition their shares are tradable on the stock exchange
64
What are the features of public limited company’s
Large number of shareholders
Shares can be offered to the public
Setting up is very costly
At risk of takeovers
Often successful
Rising capital
65
Define annual general meeting
A legal requirement for all companies
Shareholders may vote on who they want to be on the board of directors
66
Define dividends
Payments made to shareholders from the profit (after tax) of a company.
67
What is a franchisee
A franchisee buys the license to operate a business from a franchisor
(Usually a successful business based upon brand names, promotional logos, and trading methods)
68
What are some advantages and disadvantages of franchisee
Advantage:
The franchisor pays for advertising
All supplies are given from the franchisor
Fewer decisions are made
Training and management is provided
Banks are often willing to lend franchisees money due to the low risk of failure
Disadvantages:
Less independent
Unable to make decisions
License fee must be paid to the franchisor
69
Define joint venture
Where two or more businesses start a new project together sharing capital, risk and profits
70
Define public corporation
A business in the public sector that is owned and controlled by the government
71
What are some advantages and disadvantages of a franchisor
Advantages:
More business awareness
Expansion of business if franchise
More control and management of outlets
All products sold must be obtained by the franchisor
Disadvantages:
Poor management of the franchisee
Could get a bad reputation
The franchisee Keeps profit
72
Advantages and disadvantages of joint ventures
Advantages:
Sharing cost
Local knowledge
Risk is shared
Disadvantages:
Could have Disagreements
Might have different ways of running a business
Might have different cultures
73
Advantages of sales promotion
It can be promoted
Encourages
74
Define a developing country’s
A less developed country that has a lower gross domestic product (GDP) then developed countries with a less advanced economy
75
Define a developed country
An industrialized country that has an advanced economy. (GDP)
76
How does the government support start-up enterprises?
By providing support with the startup
process
By providing direct financial (grants and loans) and other forms of help (research and product development centres)
Removing obstacles (lower taxes, simplification of laws to increase the ease of doing business)
Provide free or subsidised training for workers
77
Why is business growth beneficial?
Able to cut costs and win a greater share of the market
Develop new products
Sell to new markets (can be internal or external)
78
What are some methods of business growth?
Internal growth: investing in new products or selling more of existing products.
External growth: involves the takeover of another business or merger with another business
79
Define acquisition
when one business gains control of part of another business
80
Advantages and disadvantages of public limited company’s
Advantages:
Cancel shares to the public
Limited liability
Community
Rapid expansion possible
Disadvantages:
Disclosure of accounts and other information
Divorce between ownership and control
Expensive to go public
Legal formalities
81
Advantages and disadvantages of public cooperations
…
82
Define a business objective
An aim or target that a business works towards
83
Why are business objectives important?
set out what the business wants to achieve
Gives an idea to the employees, potential investors, stakeholders, etc.
More successful to gain peoples trust
84
What are some different business objectives
Survival
Profit
Growth
Marketshare
85
Define profit
Total income of a business (revenue) less total cost
86
Define marketshare
The percentage of the total market sales held by one brand or business
87
Define social enterprise
Has social objectives as well as an aim to make a profit to reinvest back into the business
88
What’s the formula for marketshare?
Marketshare % = company sales/total market sales x 100
89
What is the different risks and ownership between types of business organizations
Unincorporated businesses have a greater legal and financial risk than incorporated businesses because:
Owners and the businesses have the same legal identity
How old is have unlimited liability for business debts
90
What is the difference between unincorporated businesses and limited company’s?
Unincorporated businesses does not have a separate legal identity from its owners, whereas Incorporated business does
91
What are the types of organizations in the public sector?
Hospitals
Schools
Fire service
Government departments
92
Name some advantages and disadvantages of a public corporation
Advantage:
if an important business is failing, the government can step into nationalize it it will keep the business open and secure jobs.
Public services such as TV, radio broadcasting, etc. are often Non-profitable.
Disadvantages:
There are no private shareholders to insist on high, profits and efficiency. This can lead to efficiency, as managers will always think that the government will help them if the business makes a loss.
Often there is no close competition to the public corporation. therefore the business could lack efficiency to increase Choice and improve Service.
93
What are some objectives of social enterprise?
Help people who are in need
Help the underprivileged
Help the economy
Help the government
Help decrease unemployment rates
Increase GDP
94
Name some internal stakeholders of a business and the role in a business
Owners: interested in the performance of the business and profits
Shareholders: interested in the amount of dividends they would receive
Managers: responsible for the performance of the business. If they do well they mean gain bonus, or promotions.
Employees: interested in the performance of the business so they can earn good play and get better job security.
95
Name the external stakeholders of a business and their role in a business
Lenders: they are interested in the capital of the business to repay loans, and if they can’t get any interest from the loans they give
Suppliers: they are interested in the amount of cash. The business has to be able to pay the suppliers as required dates, and if they can get success from supplying the business.
Customers: they have an interest in the activities of the business, because they want to be sure that the business is going to continue to exist in the future, and that they are charged fair prices for the products.
Government: interested in the capability of the business running high profits so they can receive more tax for spending on things, such as education and health, etc.
Local community: interested in what the business office to the local people in terms of employment whether or not the business will have a negative impact on the business, etc.
96
What are the main objectives of a private sector?
Earn profit
Survive
Increase market share
Growth
Economies of scale
97
What are the main objectives of the public sector?
Increase GDP
Decrease employment rates
Provide a better standard of living
Help the economy
98
Why business objectives could change
A business could have “higher market”share and the objective of the business could be to earn “higher returns for shareholders”
A business set up has “survived” and the owner is aiming towards a “higher profit”
