1.2 Enterprise, Business and the Economy

Question 1

Define Creative Destruction

Answer 1

the way in which innovation improves quality which leaves old products obsolete

Question 2

Define Entrepreneur

Answer 2

someone who sets up a business, taking a financial risk

Question 3

Define Innovation

Answer 3

developing an idea that will generate new or improved products or techniques

Question 4

What 7 things does an Entrepreneur have full control over?

Answer 4

Purchasing new locations
Investing in new equipment
Hiring staff
Market Research
Increasing brand strength
Innovation
Diversifying the product range

Question 5

Define Adding Value

Answer 5

creating something of a higher value than the cost of the raw materials

Question 6

What’s the Formula for Profit?

Answer 6

Profit = Sales revenue – Total Costs

Question 7

What’s the formula for sales revenue?

Answer 7

Sales Revenue = Price x Quantity

Question 8

Give 4 non-financial motives

Answer 8

• Ethics
• Social Entrepreneurship (focusing on their environmental purpose)
• Independence (some people don’t like being told what to do)
• Home Working (work to fit around a family with no congestion)

Question 9

Define ‘factors of production’

Answer 9

All inputs needed to make a product or provide a service

Question 10

Define Physical Capital

Answer 10

Premises and equipment that are repeatedly used in production

Question 11

Define Financial Capital

Answer 11

The money used to purchase physical capital

Question 12

Define Enterprise

Answer 12

The people generating the ideas

Question 13

Define Labour

Answer 13

The work that people do in order to turn raw materials into products

Question 14

Define division of labour

Answer 14

organising employees so an individual specialises in one part of the production process

Question 15

Give 5 advantages of the division of labour

Answer 15

• More jobs improves the economy
• Reduces wastage of time and materials
• Capital equipment can be used continuously
• Less training needed
• Higher output = lower costs

Question 16

Give 3 disadvantages of the division of labour

Answer 16

• More jobs means higher costs for companies
• Higher wages needed to motivate staff
• Lack of innovation

Question 17

Define specialisation

Answer 17

when an individual, firm, region or country concentrates on the production of a limited range of goods and services

Question 18

Give 4 advantages of specialisation

Answer 18

• Allows staff to become highly trained which improves the quality of the product
• Lowers costs of training reduces company costs
• Improves production levels and speed which increases profits
• Increases competitive advantage over rivals

Question 19

Give 5 disadvantages of specialisation

Answer 19

• Repetitive work can be demotivating and cause wastage
• Staff may leave which increases costs through advertising
• Demotivation can lower the quality of the product or service
• Lack of innovation
• Risk isn’t spread

Question 20

Define inflation

Answer 20

a sustained increase in the general price level

Question 21

Define direct taxation

Answer 21

a tax paid depending upon an individual’s or firm’s income

Question 22

Define interest rate

Answer 22

the cost of borrowing money

Question 23

How does an increase in the interest rate effect the exchange rate?

Answer 23

Increase in exchange rate

Question 24

How does an increase in the exchange rate affect the balance of payments?

Answer 24

Imports down
Exports up
BOP decrease

Question 25

Define exchange rate

Answer 25

the price of one currency in exchange for another

Question 26

WHat does SPICED stand for?

Answer 26

Strong
Pound
Imports
Cheaper
Exports
Dearer

Question 27

Define unemployment

Answer 27

the number of people willing and able to work but aren’t employed

Question 28

What industries benefit from a weak pound?

Answer 28

Hotels

Question 29

Give 5 advantages of unemployment

Answer 29

• Gambling and alcohol companies gain sales
• Smaller firms have the ability to employ higher skilled staff
• Can use fear of unemployment to lower wages
• Staff turnover falls so less money is spent on advertising
• Recruitment should be easier because of a larger pool of applicants

Question 30

Give 4 disadvantages of unemployment

Answer 30

• Less people are spending money so there’s less sales due to lower disposable income
• Skill shortages
• Morale could be low
• Firms could be adversely effected by crime in the long term