Chapters 6-10 Business Opportunities

Question 1

Public sector

Answer 1

Organisations that are owned and run by the government in order to create a fair and just society.

Question 2

Public goods

Answer 2

Goods that are only provided by the government for the benefit and well-being of the public, because the private sector would not provide them. We all benefit from them but without paying.

Question 3

Non-excludability

Answer 3

Everybody is included. Individuals cannot be prevented from enjoying the benefits of public goods and services. E.g. Street lighting

Question 4

Non-rivalry

Answer 4

One person gaining from consumption of a good or service does not prevent others from also gaining from the good or service.

Question 5

Merit goods

Answer 5

Goods that benefit all of society and are provided by both public and private sectors, but if it were left to just the private sector, they would be underconsumed. E.g. health and education.

Question 6

Positive externalities

Answer 6

The positive effects that occur not just to the people who consume merit goods, but to society in general.

Question 7

Private sector

Answer 7

Businesses owned and operated by shareholders or private individuals whose aim is often to make profits and give a return to the owners.

Question 8

Market share

Answer 8

Market share is the percentage of the total revenue or sales in a market that a company’s business makes up.

Question 9

Shareholder value

Answer 9

The return that a shareholder gets for investing in a business’s shares. It is measured by the dividend paid and the share price.

Question 10

Sole trader

Answer 10

A type of business owned and run by only one person and in which there is no legal distinction between the owner and the business entity. A sole trader does not necessarily work alone and may employ other people. A sole trader has unlimited liability.

Question 11

Partnership

Answer 11

A partnership is a business set up by the deed of partnership document, where the partners share the profits and losses of the business. There is no legal distinction between the owners and the business. Partners have unlimited liability.

Question 12

Limited liability

Answer 12

Shareholders are only liable to lose the amount of money they have invested in the business.

Question 13

Incorporation

Answer 13

The separate legal existence of a company in the eyes of the law, compared to its shareholders. Any legal action is taken against the business and not the shareholders.

Question 14

Partnership agreement

Answer 14

A document that sets out the rules of operations for a partnership, including amounts invested, share of profits, voting shares and the roles and responsibilities of each partner.

Question 15

Not-for-profit organisations

Answer 15

Organisations that do not exist to make or maximise profits, instead their focus is on ethical or social objectives. Includes charities, co-operatives and social enterprises.

Question 16

Cooperatives

Answer 16

An organisation owned by its members. Employees automatically become members after a short probationary period. Members benefit through payment of a dividend in the form of money off vouchers. Members have an equal vote when major decisions are made.

Question 17

Social enterprise

Answer 17

Businesses with clear social objectives, but instead of paying dividends they reinvest towards achieving their social objectives.

Question 18

Stakeholder

Answer 18

Any individual or group which is affected by the business and has an interest in its activities.

Question 19

Footfall

Answer 19

The number of people entering a shop or shopping area in a given time.

Question 20

Infrastructure

Answer 20

Infrastructure used to just mean roads, rail and shipping. However, a more modern definition includes electronic communication systems, training agencies and financial services.

Question 21

Labour

Answer 21

The cost of employees, the availability of employees and the skills of the employees.

Question 22

Economies of concentration or agglomeration

Answer 22

Mutual advantages that occur when a number of businesses in the same, or related industries, locate close together.

Question 23

Footloose

Answer 23

Businesses that move from location to location, basing themselves wherever best suits their needs at a particular point in time due to; changing patterns of trade, improved communications and freer flows of capital.

Question 24

Containerisation

Answer 24

Huge container ships have reduced the cost of international transport through increased efficiency and economies of scale.

Question 25

Transfer costing

Answer 25

When businesses inflate their profits in countries where taxation levels are relatively low, and decrease profits where taxation levels are relatively high.

Question 26

Working capital

Answer 26

Working capital, is the difference between your current assets and your current liabilities. It is the amount of money inside a business that can be used for day-to-day expenses. Without it, a business becomes insolvent and cannot pay its bills.

Question 27

Retained profit

Answer 27

Retained profit is profit that has been made by the business in previous years that is then reinvested back into the company.

Question 28

Assets

Answer 28

A business asset is a piece of property or equipment owned by a company for business use. Business assets can be physical, tangible or intangible.

Question 29

Overdraft

Answer 29

The facility to withdraw more from an account than is in the bank account, resulting in a negative balance on which a bank will charge interest.

Question 30

Trade credit

Answer 30

Buy now – pay later. When a business allows another business a delayed payment period of 30-90 days after the purchase before the goods have to be paid for.

Question 31

Factoring

Answer 31

When a business sells its unpaid invoices to a finance company for immediate cash. Banks and other financial institutions pay a proportion of the value of an invoice (85%). The balance, minus a fee, is paid to the business when the invoice is paid to the bank.

Question 32

Leasing

Answer 32

A business pays monthly for the use of an asset but will never own it. This spreads out the cost of an asset, however, in the long run, it may cost a lot more than purchasing the asset outright.

Question 33

Hire purchase

Answer 33

A business pays monthly for the use of an asset, but at the end of the period the asset belongs to the business that hires it.

Question 34

Sale and leaseback

Answer 34

This involves selling the business assets (e.g. buildings) to a finance company and then leasing them back. This means the business gets a lump sum of money from the sale, which can be used to grow the business, while at the same time they pay monthly rent to stay in the building which they no longer own.

Question 35

Commercial mortgage

Answer 35

A bank loan to buy a business property, for which the property is used as security against the loan. This results in a lower interest rate because the lender has less risk. The lender can sell the property to pay off the debt if the borrower is unable to repay it.

Question 36

Share capital

Answer 36

Selling a business’s shares to investors (shareholders). The shareholders become owners and are entitled to vote on big decisions and to receive dividends (a share of the profits).

Question 37

Venture capital

Answer 37

Money invested by professional investors who buy business’s shares and who expect to be involved in the running of the business.

Question 38

Crowd funding

Answer 38

The practice of funding a project or venture by raising money from a large number of people who each contribute a relatively small amount, typically via an online platform.

Question 39

Government grant

Answer 39

Money given to a business by the government to assist start-up businesses, job creation, export businesses or other investment in areas of high unemployment.

Question 40

Revenue

Answer 40

The money a business makes from sales. It is the value of sales. Also known as turnover. Quantity sold x selling price.

Question 41

Variable costs

Answer 41

Costs that vary in direct proportion to output. As output increases variable costs increase.

Question 42

Fixed Costs

Answer 42

Costs that do not vary with output.

Question 43

Total costs equation

Answer 43

Fixed costs + total variable costs.

Question 44

Direct costs

Answer 44

Costs that arise specifically from the production of a product or provision of a service

Question 45

Overheads

Answer 45

Also known as indirect costs, overheads are costs not directly linked to production.

Question 46

Semi variable costs

Answer 46

A semi-variable cost is an expense which contains both a fixed-cost component and a variable-cost component

Question 47

Profit definition

Answer 47

The reward or return for taking risks & making investments. It is the money a business keeps after all costs are paid.

Question 48

Profit equation

Answer 48

Total revenue – total costs

Question 49

Break-even point

Answer 49

The number of units a business must sell in order for Total Revenue to be the same as Total Costs, so neither profit or loss are made.

Question 50

Break-even

Answer 50

The number of units a business must sell in order for Total Revenue to be the same as Total Costs, so neither profit or loss are made.

Question 51

Break-even formula

Answer 51

Fixed cost
Divided by
Selling price per unit – variable cost per unit

Question 52

Margin of safety

Answer 52

The difference between output level and break-even output.
Current or Maximum units – Break-even units.

Question 53

Contribution Formula

Answer 53

Selling price per unit – variable cost per unit