Chapters 1-5 Enterprise

Question 1

SME

Answer 1

Small and medium sized enterprises
Employ less than 250 people
Turnover less than 50M

Question 2

Secondary sector

Answer 2

Secondary industry is the industry that produces finished products from raw materials collected by primary industry. It includes light and heavy industries, such as textiles, steel, food, and chemicals.

Question 2

Primary sector

Answer 2

Includes any industry involved in the extraction and production of raw materials, such as farming, logging, fishing, forestry and mining.

Question 3

Tertiary sector

Answer 3

The tertiary sector is the services sector of an economy, which includes financial institutions, shops, schools, hotels, and restaurants.

Question 4

Entrepreneur

Answer 4

Someone who starts and runs a business.

Question 5

Business plan

Answer 5

A document that contains the objectives of a business and how the business intends to achieve these objectives. It includes an executive summary, a marketing plan, an operations plan, a human resources plan, and a financial plan.

Question 6

Needs

Answer 6

Needs are required by individuals to survive such as: water, shelter, food & clothing.

Question 7

Wants

Answer 7

Wants are items that an individual would like to have but do not require for survival such as: a new phone every year

Question 8

Risk taker

Answer 8

Someone who invests capital and their own time to try and create profits without any guarantee of getting their money back.

Question 9

Monopoly

Answer 9

A pure monopoly has 100% market share. The UK and EU competition authorities regard any business with over 25% market share as having potential monopoly power, and will investigate situations where it believes this power is being abused.

Question 10

Oligopoly

Answer 10

There are many businesses but only a few dominate. Differentiated products with a strong brand identity. Brand loyalty is encouraged by use of heavy advertising and promotion. Short price wars occur. Some barriers to entry exist. E.g. Apple, Samsung, etc.

Question 11

Monopolistic competition

Answer 11

A large number of relatively small businesses. Products are similar, with some differentiation. Brand identity is relatively weak. Businesses have a limited degree of control over prices. Few barriers to entry exist. E.g. Hairdressers and local take-aways.

Question 12

Perfect competition

Answer 12

Large number of businesses of the same size. They are price takers. Goods are homogenous (no branding, no differentiation, no way of telling goods apart E.g. carrots). All businesses have equal technology. All customers have the same information.

Question 13

Barrier to entry

Answer 13

Factors that can prevent or impede new businesses entering a market or industry sector, and so limit competition. These can include high start-up costs, regulatory hurdles, or other obstacles that prevent new competitors from easily entering a business sector.

Question 14

Cartel

Answer 14

When businesses in an oligopolistic market act together (collude), a cartel is formed. Cartels try to keep prices high and share the market between themselves. This has happened in the airline industry and sports clothing industry. It is illegal.

Question 15

Price war

Answer 15

A period of fierce competition in which traders cut prices in an attempt to increase their share of the market.

Question 16

Price maker

Answer 16

A price maker is a firm with the power to set the price it charges for the products it sells without worrying about competitors’ prices.

Question 17

Mass marketing

Answer 17

When a business targets its advertising and promotion at the whole market. It involves marketing of a good or service to all possible consumers in the same way.

Question 18

Niche marketing

Answer 18

Where a business targets a smaller segment of a larger market, where customers have specific needs and wants.

Question 19

B2B & B2C

Answer 19

B2B (Business to business). This is trade marketing where a business focuses on selling to other businesses, such as, distributors, retailers and wholesalers. B2C is where a business focuses on selling to the consumer.

Question 20

Market segmentation

Answer 20

Market segmentation when a business divides a market into sub-groups of a larger market in order to target customers who have common features or similar needs and wants.

Question 21

Critical mass

Answer 21

The market segment must be big enough or produce enough sales to make the production of products or services targeted at the segment worthwhile.

Question 22

Market equilibrium

Answer 22

Where the demand and supply curve intersect; where the quantity that consumers are willing to purchase matches the quantity that suppliers are willing to supply a given price. From the market equilibrium we can derive the market price and market quantity.

Question 23

The law of demand

Answer 23

States that the higher the price, the lower the quantity demanded; and the lower the price, the higher the quantity demanded.

Question 24

Price elasticity of demand
Formula

Answer 24

Measures the responsiveness of demand to a change in price.
PED = % change in Quantity Demanded
% change in Price

Question 25

Income elasticity of demand

Answer 25

Measures the responsiveness of demand to a change in income.
YED = % change in Quantity Demanded
% change in Income

Question 26

Normal goods

Answer 26

Normal goods are consumer products such as food and clothing that demonstrate a direct relationship between demand and income. As a consumer’s income rises, the demand for normal goods also increases. E.g. cars, furniture, etc. YED between 0 and 1.

Question 27

Inferior goods

Answer 27

Goods that have a negative income elasticity of demand – demand rises when incomes fall. E.g. supermarket own label products. YED is less than 0.

Question 28

Luxury goods

Answer 28

Luxury are normal goods but tend to be more sensitive to changes income. If incomes rise demand for gym membership booms; if incomes fall many people quickly cancel their gym membership. YED is greater than 1.

Question 29

Qualitative data

Answer 29

Data based on views and opinions. It is gathered through asking open-questions, and cannot be counted or statistically analysed.

Question 30

Quantitative data

Answer 30

Data that is in answer to closed questions. It can be counted and can be statistically analysed.

Question 31

Primary market research

Answer 31

Also known as field research, primary research gathers first-hand information. The data is new and relevant to the business.

Question 32

Secondary market research

Answer 32

Also known as desk research, secondary research involves the use of previously collected information. The data has not been gathered specifically for the business.

Question 33

Sample

Answer 33

A smaller group of respondents to market research who are selected to be representative of the views of the target market as a whole. The size of the sample used must be large enough to be statistically valid.

Question 34

Consumer protection legislation

Answer 34

Laws created in order to protect customers from poor quality goods, substandard services, misleading information and pressurised selling tactics.

Question 35

The Consumer Rights Act 2015

Answer 35

States that all goods must be 1. satisfactory quality, 2. fit for purpose and 3. match the description. Otherwise; refund, replacement or repair must be given. Services must be; 1. a reasonable price, 2. done with reasonable care and skill, 3. within a reasonable time.

Question 36

The Ombudsman

Answer 36

A free government service to help consumers to resolve a dispute. The ombudsman will investigate the evidence and make a decision. The decision is final and can only be overturned by a court. E.g. Health Service Ombudsman, Energy Ombudsman.

Question 37

The Competition and Markets Authority (CMA)

Answer 37

Set up by the government to make markets work well for consumers by ensuring that businesses do not engage in anti-competitive practices. The CMA investigates collusion, cartels and situations with potential abuse of monopoly power (over 25% market share).