Business framework and external environment

Question 1

What are goods

Answer 1

Physical objects that a business sells to its customers

Question 2

What are services

Answer 2

Non-physical products: activities that a business carried out for its customers

Question 3

What are consumer durables

Answer 3

Products which last for several years and used a large number of times

Question 4

What are needs and wants

Answer 4

Needs: essential for survival - water, food and shelter

Wants: not essential for survival - Xbox, TV and PlayStation

Question 5

What is an entrepreneur

Answer 5

Someone who is willing to take the risk of setting up a business

Question 6

What is the difference between the public and private sectors

Answer 6

The public sector is owned by The State and run by the Government. The private sector are organisations that are not owned by The State: sole traders, partnerships

Question 7

What is the chain of production

Answer 7

The stages through which a product passes before being sold to a consumer

Question 8

What are the factors of production

Answer 8

Land, labour, capital and enterprise

Question 9

What is monopoly and oligopoly

Answer 9

Monopoly - A market where there is only one supplier

Oligopoly - A market that is dominated by a small number of large firms

Question 10

What is demand and supply

Answer 10

Demand - the amount of a product that people are willing and able to buy at a particular price

Supply - the amount of a product that businesses are offering to be bought at a particular price

Question 11

What are stakeholders

Answer 11

People and organisations who are affected by the activities of a business

Question 12

List 2 advantages and disadvantages of being a sole trader

Answer 12

Advantages:
• the owner keeps all the profit
• the owner has complete control
• Quick and easy to set up

Disadvantages:
• Unlimited liability
• Long hours of work
• Business can’t open if owner is ill or on holiday

Question 13

List 2 advantages and disadvantages of being in a partnership

Answer 13

Advantages:
• More than one source of capital
• Partners can specialise in different areas
• Workload is shared

Disadvantages:
• Profits have to be shared
• Can be disagreements
• Partners have unlimited liability

Question 14

What is a deed of partnership and what’s included in it

Answer 14

A legal document setting out the terms and conditions under which that particular partnership would operate. It contains:
• Name if partners
• How profits will be shared
• How important decisions are made
• What happens if a partner wants to retire

Question 15

List 2 advantages and disadvantages of being a Private Limited Company (Ltd)

Answer 15

Advantages:
• More capital can be raised by selling shares
• Owners have limited liability

Disadvantages:
• Profits have to be shared between the shareholders
• Slow to set up
• Original owners can lose control if they own less than 50% of the shares

Question 16

List 2 advantages and disadvantages of being a Public Limited Company (plc)

Answer 16

Advantages:
• Large amounts of capital can be raised by selling shares through The Stock Market
• Expanding the company can lead to higher profits

Disadvantages:
• Profits have to be shared between shareholders
• Changing from an Ltd to plc is very expensive
• Original owners will probably lose control

Question 17

List 2 advantages and disadvantages of being a franchisee

Answer 17

Advantages:
• More customers due to its brand name
• Support, training and advice from the franchisor

Disadvantages:
• Additional costs
• Less freedom in how you run the business

Question 18

List 2 advantages and disadvantages of being a franchisor

Answer 18

Advantages:
• Risk-free income from initial fees and royalties
• Can expand without paying to set up new branches
• No liability at all

Disadvantages:
• Whole business could lose popularity
• Only earns the royalties

Question 19

What is the fiscal policy

Answer 19

Government decisions about taxes and public sector spending

Question 20

What are the effects of interest rates on businesses

Answer 20

High rate of interest is BAD for a business:
• Increases the costs of businesses with a bank overdraft or loan
• Decreases demand for their products

Low rate of interest is GOOD for a business:
• Decreases the costs of businesses with a bank overdraft or loan
• Increase demand for their products

Question 21

What is the effect of inflation on businesses

Answer 21

High rate of inflation is BAD for a business:
• Increases the costs of goods
• Causes demand to fall

Low rate of inflation is GOOD for a business:
• Decreases the costs of goods
• Demand rises

Question 22

What are exogenous shocks

Answer 22

These are unexpected events that seriously affect the running of the business