1.2 Enterprise, Business and the Economy Flashcards
Define Creative Destruction
the way in which innovation improves quality which leaves old products obsolete
Define Entrepreneur
someone who sets up a business, taking a financial risk
Define Innovation
developing an idea that will generate new or improved products or techniques
What 7 things does an Entrepreneur have full control over?
Purchasing new locations Investing in new equipment Hiring staff Market Research Increasing brand strength Innovation Diversifying the product range
Define Adding Value
creating something of a higher value than the cost of the raw materials
What’s the Formula for Profit?
Profit = Sales revenue – Total Costs
What’s the formula for sales revenue?
Sales Revenue = Price x Quantity
Give 4 non-financial motives
- 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)
Define ‘factors of production’
All inputs needed to make a product or provide a service
Define Physical Capital
Premises and equipment that are repeatedly used in production
Define Financial Capital
The money used to purchase physical capital
Define Enterprise
The people generating the ideas
Define Labour
The work that people do in order to turn raw materials into products
Define division of labour
organising employees so an individual specialises in one part of the production process
Give 5 advantages of the division of labour
- More jobs improves the economy
- Reduces wastage of time and materials
- Capital equipment can be used continuously
- Less training needed
- Higher output = lower costs
Give 3 disadvantages of the division of labour
- More jobs means higher costs for companies
- Higher wages needed to motivate staff
- Lack of innovation
Define specialisation
when an individual, firm, region or country concentrates on the production of a limited range of goods and services
Give 4 advantages of specialisation
- 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
Give 5 disadvantages of specialisation
- 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
Define inflation
a sustained increase in the general price level
Define direct taxation
a tax paid depending upon an individual’s or firm’s income
Define interest rate
the cost of borrowing money
How does an increase in the interest rate effect the exchange rate?
Increase in exchange rate
How does an increase in the exchange rate affect the balance of payments?
Imports down
Exports up
BOP decrease
Define exchange rate
the price of one currency in exchange for another
WHat does SPICED stand for?
Strong Pound Imports Cheaper Exports Dearer
Define unemployment
the number of people willing and able to work but aren’t employed
What industries benefit from a weak pound?
Hotels
Give 5 advantages of unemployment
- 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
Give 4 disadvantages of unemployment
- 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
