Business Activity (Chapter 1). Flashcards

This deck consists of : Needs. Wants. The economic problem. Factors of production. Scarcity. Opportunity cost. Specialization Division of labor. Businesses. Added Value.

1
Q

What is a need?

A

A need is a good or service essential for living.

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2
Q

What is a want?

A

A want is a good or service which people would like to have, but which is not essential for living.

People’s wants are unlimited.

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3
Q

What is an economic problem?

A

There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.

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4
Q

The government decides to try to ‘solve’ problems by printing more bank notes, doubling everyone’s incomes. Why is this not good?

A

Printing more money does not produce more goods and services, it will just lead to inflation so more goods cannot be afforded.

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5
Q

Define factors of production.

A

Factors of production are those resources needed to produce goods or services.

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6
Q

There are four factors of production and they are in limited supply: Name them?

A

There are four factors of production and they are in limited supply: Land, labour, capital and enterprise.

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7
Q

There are four factors of production: Define land.

A

This term is used to cover all of the natural resources provided by nature.

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8
Q

Give some examples to natural resources provided by nature?

A

Fields and forests, oil, gas, metals and other mineral resources.

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9
Q

There are four factors of production: Define labour.

A

This is the number of people available to make products.

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10
Q

There are four factors of production: Define capital.

A

This is the finance, machinery and equipment needed for the manufacture of goods.

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11
Q

There are four factors of production: Define enterprise.

A

This is the skill and risk-taking ability of the person who brings the other resources or factors of production together to produce a good or service.

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12
Q

What is an entrepreneur?

A

An entrepreneur is an owner of a business.

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13
Q

State the word diagram for the real cause of the economic problem.

A

Unlimited wants + limited resources = scarcity.

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14
Q

Define opportunity cost.

A

Opportunity cost is the next best alternative given up by choosing another item.

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15
Q

For example, I have to choose between a holiday or a car and I choose the holiday, what is the opportunity cost?

A

If I choose the holiday, the car becomes the opportunity cost.

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16
Q

For example, I have to choose between machine a or a machine b and I choose machine a, what is the opportunity cost?

A

If I choose machine a, machine b becomes the opportunity cost.

17
Q

State the economic problem revision summary equation.

A

Land + Labour + Capital + Enterprise = Limited resources = ECONOMIC PROBLEM = unlimited wants = scarcity = choice is necessary = leads to opportunity cost.

18
Q

Define specialisation.

A

Specialisation occurs when people and businesses concentrate on what they are best at.

19
Q

Specialisation is now very common because:

A

Specialisation is now very common because:

  • Specialised machinery and technologies are now widely available.
  • Increasing competition means that businesses have to keep costs low.
  • Most people recognise that higher living standards can result from being specialised.
20
Q

Define division of labour (it is a form of specialisation).

A

Division of labour is when the production process is split up into different tasks and each worker preforms one of these tasks.

21
Q

List the three advantages of division of labour:

A
  • Increases efficiency and output.
  • Less time is wasted moving from one workbench to another.
  • Quicker and cheaper to train workers.
22
Q

List the two disadvantages of division of labour:

A
  • Workers can become bored doing just one job - efficiency might fall.
  • If one worker is absent and no one else can do the job, production might be stopped.
23
Q

Fill in the missing spaces:
- People have ______ ______.

  • The four factors of production - ___ _________ ______ __ ____ _____ - are in _______ supply.
  • Scarcity results from _______ ________ and _________ _____.
  • ______ is necessary when resources are scarce. This leads to ___________ ____.
  • ______________ improves the _________ use of resources.
A
  • People have unlimited wants.
  • The four factors of production - the resources needed to make goods - are in limited supply.
  • Scarcity results from limited resources and unlimited wants.
  • Choice is necessary when resources are scarce. This leads to opportunity cost.
  • Specialisation improves the efficient use of resources.
24
Q

What is the purpose of businesses?

A

The purpose of all businesses is to combine the factors of production to make products which will satisfy people’s wants.

25
Q

Businesses produce products; these products can either be two things. Name them.

A

These products can either be goods, such as cars and shoes, or they can be services, such as insurance, tourism or banking.

26
Q

Business activity does three things for people lives: Name them.

A
  • Combines scares factors of production to produce goods or services.
  • Produces goods or services which are needed to satisfy the needs and wants.
  • Employs people as workers and pays them wages.
27
Q

What is added value?

A

Added value is the difference between the selling price of a product and the cost of bought in materials and components.

28
Q

Why is added value important?

A

Added value is important because sales revenue is greater than the cost of materials bought in by the business.

29
Q

All businesses attempt to add value. If value is not added to the materials and components that a business buys in, then:

A

All businesses attempt to add value. If value is not added to the materials and components that a business buys in, then:

  • Other costs cannot be paid for.
  • No profit will be made.
30
Q

Added value is important because sales revenue is greater than the cost of materials bought in by the business. This means the business:

A

This means the business:

  • Can pay other costs such as labour costs, management expenses, advertising and power.
  • May be able to make a profit if these other costs come to a total that is less than the added value.
31
Q

How could a business increase added value?

A

a) Increase selling price but keep the costs of materials the same.
b) Reduce the cost of materials but keep the price the same.

32
Q

Increase selling price but keep the costs of materials the same. How can this be possible?

A

This might be possible if the business tries to create a higher-quality image for its product or service.

33
Q

Increase selling price but keep the costs of materials the same. This might be possible if the business tries to create a higher-quality image for its product or service. What happens if consumers are convinced by this?

A

If consumers are convinced by this then they might be prepared to pay higher prices and buy the same quantity as before the price rise.

34
Q

Reduce the cost of materials but keep the price the same. How can a higher added value be possible?

A

If the price charged to customers stays the same but the cost of materials is reduced then a higher added value will be made.