1.2 Enterprise, Business and the Economy Flashcards
What is dynamic innovation?
New tech New products New jobs Competitor's sales fall Jobs are lost Standards of living rise due to innovation
ST: Negative LT: Positive
What’s creative destruction?
Some businesses innovate in order to produce new, cheaper products with wide market appeal.
What’s an entrepreneur?
Someone who organises a business venture and is responsible for the risks involved.
What’s added value?
The difference between the price of the finished good/service and the cost of the materials needed to make it.
What are the factors of production?
CELL - Capital, enterprise, land and labour
What’s profit?
The difference between sales revenue and costs.
Why do people need profit?
Make money
Improve their lifestyle
Why do people continue in business even when they’re rich?
The need to produce a good/service for others to enjoy
Ethical stance
Social enterprise
Independence - not work for anyone/at home
What’s the division of labour?
Individuals specialising in one area, they’re usually very good at it
Advantages of the division of labour?
Productive
Profitable
Better quality
Disadvantages of the division of labour?
Boring
Low motivation
May lead to a low productivity
What’s specialisation?
The way people and organisation concentrate on a specific field as they have an advantage in that field.
E.g. bananas in Brazil
What’s an interest rate?
The price of borrowed money. They vary depending on the level of risk involved.
What is the interest rate based on and who is it set by?
The base rate, set by the Monetary Policy Committee (MPC)
If the interest rate increases who does it affect and how?
Businesses - Less loans, less investment, fewer start up businesses, falling demand for products
Consumers - Less loans, less credit card spending, less disposable income as more is going on mortgages, lower standards of living
If the interest rate decreases who does it affect and how?
Businesses- More investment, expansion, new businesses, higher demand.
Consumers - Consumer spending increases, more loans/credit cards, more disposable income from lower mortgages, higher standard of living
What’s an exchange rate?
The price of one currency expressed in terms of another
What is an appreciation?
The pound can now buy more ‘dollars’ than it could before.
before: £1 -> $1.75
after: £1 -> $2
What’s a depreciation?
The pound can now buy less ‘dollars’ than it could before.
before: £1 -> $1.75
after: £1 -> $1.20
What do exporting businesses want the pound to do?
Depreciate
Cheaper exports (more competitive)
What do importing businesses want the pound to do?
Appreciate
Imports are cheap
What’s the difference between direct and indirect taxation?
Direct is directly targeted to the consumer through a bill on their earnings such as NI, corporation tax or tax on earnings. Indirect is placed on goods and services such as cars or alcohol.
Why does increased direct, indirect and corporation tax affect businesses negatively?
Direct taxes - reduce their customer’s disposable income so the demand for their product falls
Indirect tax - reduce the demand for their products also as it costs more to the consumer, especially if it’s business that sells alcohol or fuel as they change increases taxes a lot
Corporation tax - taxes the profits of a business. reduces the businesses profits. it may deter foreign companies locating here if too high.
Define unemployment
The number of people willing and able to work but not able to find a paying job
Doesn’t include students, the retired or those ill
