1.2 Business Structure

Question 1

Define primary sector

Answer 1

This is the first stage of the production process involving the growth and extraction of resources such as fishing, mining, oil, agriculture

Question 2

Define secondary sector

Answer 2

This is part of the economy that manufactures and assembles products using raw materials (cars, construction industry building houses)

Question 3

Define tertiary sector

Answer 3

Businesses that provides services that are intangible (retailers, transportation services, insurance services)

Question 4

Define quaternary sector

Answer 4

Represents organizations that are based on the skills and knowledge of the employees (management consultancies, research and development businesses)

Question 5

Define nationalization

Answer 5

This is when the government takes ownership of a private sector business to a public sector

Question 6

Define privatization

Answer 6

This is when the government transfers ownership of a public sector business to a private sector

Question 7

What are the organizations the government is likely to run?

Answer 7

• defense team (police)
• health & education
• essential goods and services
• govt is more concerned with welfare of citizens than profit

Question 8

What are the reasons for less government intervention and a bigger private sector?

Answer 8

• people’s desire to run and own their own business
• individuals gain a great source of financial income from the profits they make
• encourages people to identify the needs and wants of the consumers and to meet these demands in goods/services
• Increases a person’s efficiency and promotes less wastage of resources

Question 9

What are the reasons for more government intervention (a bigger public sector)?

Answer 9

• people may not trust the private sector
• people who want the provision of healthcare and education may not get it because people would have to pay for it in the private sector
• people may want non-profit oriented services like bus or rail links so that public transport can be provided to everyone
• consumers may believe that they are being misled in the private sector as firms may sell goods that aren’t safe for cheaper, while earning a high profit

Question 10

State 2 benefits of the private sector

Answer 10

1. Profit oriented means business wants to focus on what is demanded and provide it with the best quality
2. Profit oriented means business focuses on being more efficient and not waste resources

Question 11

State 2 benefits of the public sector

Answer 11

1. Focuses on what’s beneficial to society and not on profits
2. Doesn’t exploit or mislead consumers

Question 12

Define a sole trader

Answer 12

An individual who runs their own business independently (hairdressers or plumbers)

Question 13

What does it take to be a sole trader?

Answer 13

• You have to be hard working
• You have to have a strong sense of self discipline
• Be organized and manage your time effectively
• Be able to manage stress levels well
• Have confidence, skills and flexibility to serve your customers
• Be able to work on your own

Question 14

What are the advantages of being a sole trader?

Answer 14

• It’s easy to start up your own business
• You are your own boss and have the freedom to make your own decisions
• Your decisions can be made quickly without having to wait or ask permission from another person
• All the rewards gained can be kept for yourself and the profits generated don’t need to be shared with anyone else

Question 15

What are the challenges of being a sole trader?

Answer 15

• Sole trader carries all the responsibility if anything goes wrong
• Can be lonely
• The hours are demanding
• Difficult to cope with the pressure
• Sole traders may not get holiday breaks because they don’t want to risk losing their customers when shutting down their business
• Raising finance to set up and expand the business
• Sole traders usually have to rely on their own money, family/friends, or money from within the business
• They can get bank loans, but banks usually charge high interest rates to small businesses in fear that they will fail so businesses want to cover up these losses

Question 16

Define unlimited liability

Answer 16

It’s when individuals/groups are responsible for all the actions of their business

Question 17

Why is working for others in a large organization easier?

Answer 17

• You receive a more regular income
• You’re able to share your ideas more with other people
• You are able to call on experts to help you solve problems

Question 18

Define partnership

Answer 18

This is when individuals want to join together and start a business

Question 19

What are the advantages of a partnership?

Answer 19

• You have more people to share your ideas with
• You can cover up for your partner if they are sick or on holiday
• You and your partner can share each other specialist skills which can provide more service to customers
• More people to invest and finance in the business

Question 20

What are the disadvantages of a partnership?

Answer 20

• Disagreements between partners on decisions or policies which can cause disputes
• Partners have to share profits
• Partners have unlimited liabilities

Question 21

Define company

Answer 21

It’s a business organization that has a legal identity and limited liabilities

Question 22

Define shareholders

Answer 22

When persons or organizations share part of the business. The more shares a person has, the more the company belongs to them

Question 23

Define limited liabilities

Answer 23

When investors lose the money they’ve invested into the business, but their own possessions are safe

Question 24

What’s the importance of limited liabilities?

Answer 24

• Companies need to raise finance to sell more shares
• Reduced risk than having unlimited liabilities because investors know that they aren’t going to lose out on their possessions, hence, there’s a limit to the loss

Question 25

Define private limited company

Answer 25

A company that is owned by shareholders and the owner can decide who the shares can be sold to in the future

Question 26

Define public limited company

Answer 26

A company that is owned by shareholders and restrictions can’t be places on who the sale of these shares

Question 27

Define franchise

Answer 27

This is when the franchisor sells the right to use and sell a product to a franchisee. Eg: Buying a McDonalds franchise

Question 28

Advantages of buying a franchise

Answer 28

• More bargaining power with other franchisees than you would have on your mown
• Less risk as a franchise than having your own business
• Can get support from the franchisor about things like pricing decisions, planning ahead, choosing suppliers, etc

Question 29

Problems of buying a franchise

Answer 29

• High costs
• Being linked to other franchisees is a problem because if the quality of service drops in those franchisees, this will also damage the reputation of your own franchise and lead to a loss in sales
• Makes franchise more dependent and vulnerable as a result of other franchisees

Question 30

Advantages of being a franchisor

Answer 30

• Franchisors benefit from the income generated from franchisees
• Franchising helps to grow fast
• Motivated managers running their own business

Question 31

Define co-operatives

Answer 31

Co-operatives are businesses that are owned and run by its members (customers, residents, employees, etc)

Question 32

Define joint venture

Answer 32

This is where two or more businesses collaborate on a project but don’t formally join together all their activities

Question 33

Benefits of a joint venture

Answer 33

• Businesses can share their skills/expertise/ideas/resources which benefits both parties
• Businesses can collaborate on a project that mutually benefits them without having to merge their operations (easier to manage, less expensive)

Question 34

Difficulties of a joint venture

Answer 34

• different views on the decisions/priorities to be made
• different views on when the joint venture should end
• difficulty agreeing on dividing profits
• disagreements of the contributions made to the business

Question 35

Define social enterprise

Answer 35

A social enterprise is a business that has social aims and trades in order to benefit the community/society (charities, job creation and training, community service, govt organizations, etc)