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Business flashcards > Booklet Two > Flashcards

Booklet Two Flashcards

1
Q

What is price elasticity of demand?

A

Measures the responsiveness of quantity demanded to a change in price

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2
Q

What does price elastic mean?

A

When quantity demanded changes more than proportionately to a change in price
Customers are sensitive to a change in price

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3
Q

What does price inelastic mean?

A

When quantity demanded changes less than proportionately to a change in price
Customers are not sensitive to a change in price

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4
Q

Formula for PED

A

% change in quantity demanded / % change in price

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5
Q

If the PED is >1the product is

A

Elastic

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6
Q

If the PED is <1 the product is

A

Inelastic

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7
Q

What is income elasticity of demand

A

Measure the responsiveness of quantity demanded to a change in income

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8
Q

Formula for YED

A

% change in quantity demanded / % change in income

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9
Q

What type of good has a YED above +1 and is income elastic or inelastic?

A

Luxury good and it’s income elastic

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10
Q

What type of good has a YED between 1-0 and is it income elastic or inelastic?

A

Normal good and it’s income inelastic

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11
Q

What type of good has a YED below 0 (negative number) and is it income inelastic or elastic?

A

Inferior good and it’s income elastic

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12
Q

What is economies of scale?

A

The reduction in unit costs when the output of a business products increases

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13
Q

what is purchasing economies of scale?

A

Buying in greater quantities resulting in lower cost per unit (Bulk-buying)

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14
Q

Types of internal economies of scale (4)

A

Purchasing
Financial
Technical
Marketing

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15
Q

formula for unit costs

A

Total variable costs + fixed costs / Quantity of output

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16
Q

what is marketing economies of scale?

A

the cost per unit of marketing decreases as the scale of marketing activities increases.

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17
Q

3 examples of marketing activities

A

Market research
Research and development
Advertising

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18
Q

Formula for Average Marketing Cost per Unit

A

Total marketing cost / Quantity of output

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19
Q

what are financial economies of scale?

A

As the scale of a business increases the business can manage their finances more efficiently and negotiate better terms with lenders (low interest rates) reducing their fixed cost per unit

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20
Q

Would small scale business have a low or high interest rates?

A

high interest rates as they have less non current assets so they are seen as more of a risk to banks as they have less collateral for loans

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21
Q

Would large scale business have a low or high interest rates?

A

low interest rates as they have more non current assets so they are seen as less of a risk to banks as they have more collateral for loans

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22
Q

What is technical economies of scale?

A

1)as the scale of the business increases they begin to make better use of machinery
2)spreading the fixed cost of production as productivity increases
3)lowering the cost per unit of producing a product

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23
Q

what is distribution?

A

The route a product takes from producer or manufacturer to the end customer

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24
Q

Why might a producer use multi channel distribution?

A

It improves a products accessibility

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25
Q

why might a producer use a single channel distribution?

A

To maintain more control over customer service

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26
Q

What are the parts of a distribution process - the intermediaries (4)

A

1)Factory/ Producer
2)Wholesalers (someone who buys the good in large quantities from the factory and sell them for a higher price)
3)Retailer (makes products and services accessible to the customer)
4)consumer - the people that the product or service was intended for

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27
Q

Two options for multi channel distribution

A

1)producer>wholesaler>retailer>
customer
2)producer>retailer>customer

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28
Q

The option for single channel distribution (direct)

A

Producer>customer
(Through online,stores or mail orders)

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29
Q

what is specialisation?

A

When a business focusses on producing just one products or a narrow range of products

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30
Q

what is porters generic strategies?

A

The different strategies a business may use in order to gain a competitive advantage over their competitors

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31
Q

what are the 2 porters generic strategies?

A

low costs or differentiation which can be applied to mass or niche markets

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32
Q

what is porters generic strategies for mass markets?

A

cost leadership
differentiation

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33
Q

what is cost leadership?

A

To achieve a competitive advantage by pricing goods or services at a lower cost than competitors in a mass market

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34
Q

what is differentiation?

A

A method to gain a competitive advantage by making product or services more unique from competitors allowing them to charge higher prices in a mass market

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35
Q

what is cost focus?

A

This method of gaining a competitive advantage involves targeting a small market segment and focusing on reducing their prices within the niche market

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36
Q

what is differentiation focus?

A

This method of gaining a competitive advantage involves a business choosing to avoid competing in a mass market by targeting a smaller market segment

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37
Q

What is productivity?

A

The output per worker or per machine in a given time period

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38
Q

How to improve workforce productivity? (3)

A

1)improving employee motivation
2)More training to improve employees skills
3)more advanced machinery

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39
Q

What is capacity utilisation?

A

The percentage of total capacity that is actually being achieved in a given period

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40
Q

Formula for capacity utilisation

A

(actual level of output/ maximum possible output) X 100

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41
Q

what is motivation?

A

Factors that stimulate desire and energy in people making them more committed to a job

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42
Q

2 types of motivation methods

A

Financial methods
Non financial methods

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43
Q

Name 6 financial motivation methods:

A

1)salaries
2)Commission
3)Bonus
4)Profit sharing
5)Performance related pay
6)Share option

44
Q

What are salaries?

A

a fixed amount of money paid to an employee for their work over a specific period (usually monthly)

45
Q

what is a bonus?

A

an additional payment or reward given when a certain target has been achieved

46
Q

What is commission?

A

a form of payment that is based on the amount of sales achieved

47
Q

What is profit share?

A

Where a cut of the businesses profits is shared amongst employees

48
Q

what is share options?

A

where employees have the option to buy a share in the business

49
Q

what is fringe benefits?

A

an extra benefit provided to employees in addition to their regular salary (such as staff discount or a company car)

50
Q

Name the non-financial methods of motivation (6)

A

1)empowerment
2)praise
3)promotion
4)job enrichment
5)job enlargement
6)better communication

51
Q

what is empowerment?

A

giving employees the responsibility to make decisions

52
Q

what is praise?

A

recognising and acknowledging employees’ achievements, efforts, and contributions. (verbal praise)

53
Q

what is a promotion?

A

advancing employees to higher positions based on their performance and skills

54
Q

what is job enrichment?

A

A method used by employers to make jobs more interesting for employees by giving them more responsibilities and control over their work

55
Q

What is job enlargement?

A

expanding an employee’s role by adding more tasks giving them more responsibilities

56
Q

what is better communication?

A

Improved communication makes employees happier and more motivated because they know what’s expected of them and understand the company’s goals
(positive work environment)

57
Q

What is Taylors scientific management theory (4)

A

1)Identifying most efficient methods of production
2)Spot the most efficient workers and see why they are so good
3)Train remaining workers to work like the best
4)Pay workers based on productivity (e.g. piece rate)

58
Q

what is efficiency??

A

efficiency can be defined as the ability to achieve an end goal with little to no waste

59
Q

explain Taylor and the division of labour

A

breaking down a production process into parts and allowing workers to specialise in certain areas

60
Q

What did Taylor believe was the main thing that motivated workers to increase productivity?

A

Monetary factors
(e.g. pay related)

61
Q

Maslow’s motivation theory

A

Maslow’s hierarchy of needs:
Five level of human needs which employees need to have fulfilled at work

62
Q

what are the five level of Maslow’s hierarchy of needs?

A

1)Psychological - pay level an working conditions
2)safety - Job security, safe working environment
3)Love/belonging - team working ,communication and social facilities
4)Esteem - status, recognition, power
5)self actualisation - developing new skills and face new challenges - life long goals

63
Q

Criticism of Maslow’s hierarchy of needs

A

1)not everyone has the same needs
2)Not realistic that employees will reach the top of the hierarchy

64
Q

Mayo’s motivational theory - Human relation

A

Mayo believed by having more mangers workers will be supervised more making employees feel valued was an effective motivation factors are as worker produced more when watched (called the Hawthorne effect)

65
Q

What two categories did Herzberg split job factors into?

A

1)Hygiene factors
2)Motivators

66
Q

What are hygiene factors?

A

Factors that dont motivate worker but if the factors are not met then workers will feel demotivated

67
Q

3 examples of hygiene factors

A

Pay
Working environment
Relationship with colleagues

68
Q

why is pay classed as a hygiene factor?

A

If workers are being underpaid they will feel demotivation but increasing pay will not increase productivity (according to Herzberg)

69
Q

4 motivational factors (Herzberg)

A

1)opportunities for promotion
2)Job enlargement
3)Job enrichment
4)Empowerment

70
Q

what are the 4 types of leadership?

A

1)Autocratic
2)Paternalistic
3)Democratic
4)Laissez-Faire

71
Q

what is an autocratic leader?

A

A leader that makes all the decisions without caring about anyone else’s opinions

72
Q

what is a paternalistic leader?

A

A leader that considers employees welfare when making decisions

73
Q

What is a democratic leader?

A

Where employees in the business take part in the decision making process

74
Q

What is a laissez-faire leader?

A

A leader that allows employees to make their own decisions and manage their tasks independently.

75
Q

What is organisational culture?

A

The values and behaviours shared by people in the organisation

76
Q

Charles handy observed 4 different classifications of culture - What where they?

A

1)Power
2)Role
3)Task
4)Person

77
Q

what is power culture?

A

a type of organisational culture where power is centralized within a few key individuals

78
Q

what is role culture?

A

In a role culture, individuals within the organization are assigned specific tasks and duties based on their position or role within the hierarchy.

79
Q

what is task culture?

A

where teams are formed around specific projects or tasks to improve creativity

80
Q

what is person culture?

A

Workers have freedom to act independently (for high skilled workers only

81
Q

what is an income statement?

A

Shows the profit or loss made by the business in a year

82
Q

Income statement order (10)

A

1)Sales revenue
2)Cost of sales
3)Gross profit
4)Expenses
5)Operating profit
6)Exceptional items
7)Tax (interest)
8)Net profit
9)Retained profit
10)Dividends

83
Q

What is a balance sheet?

A

A financial statement that reports a company’s assets, liabilities and shareholders equity at a specific point in time.

84
Q

What are non current assets?

A

Long term assets that a business expects to keep for more than 12 months

85
Q

What are current assets?

A

Assets that a business expect to convert into cash within a year

86
Q

Formula for total assets?

A

Total current assets +Total non current assets

87
Q

what are current liabilities?

A

Money that the business owes that must be paid within 12 months

88
Q

what are non current liabilities?

A

long term debts that do not need to be repaid for at least 12 months

89
Q

Formula for total liabilities?

A

current liabilities + non current liabilities

90
Q

Formula for net assets?

A

total assets - total liabilities

91
Q

what is working capital?

A

amount of cash and assets that can be quickly be turned to cash (available to pay day to day bills)

92
Q

How to calculate working capital?

A

Current Assets - Current Liabilities

93
Q

What is total equity?

A

The net worth of the business including retained profit

94
Q

Balance sheet payments (11)

A

1)non-current assets
2)current assets
3)total assets
4)current liabilities
5)non-current liabilities
6)total liabilities
7)working capital
8)Net assets
9)shareholder equity
10)retained profit
11)total equity

95
Q

What is liquidity?

A

A businesses ability to pay short term debts / CL using cash

96
Q

What is the equation for current ratio?

A

current assets / current liabilities

97
Q

How is current ratio expressed?

A

expressed as a ratio (- : 1)

98
Q

What does it mean if the current ratio is below 1?

A

The business current liabilities is greater than current assets
The business is unable to pay day to day bills

99
Q

What does it mean if the current ratio is above 3?

A

The Current assets it much higher than current liabilities (This is bad because the business can invest the cash into non current assets)

100
Q

What is total equity equal to?

A

Total equity = Net assets

101
Q

What is the equation for acid test ratio?

A

(Current assets - inventories) / current liability
(Expressed as a ratio _:1)

102
Q

What is the acid test ratio?

A

Measures a businesses ability to pay of its current liabilities using its current assets without including inventory

103
Q

What number show that the acid test ratio is bad?

A

Below 0.75

104
Q

What number show that the acid test ratio is good?

A

Above 1

105
Q

What number show that the acid test ratio is too much?

A

Above 2

Business flashcards (4 decks)

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