COMPONENT 1 (Business opportunities) Flashcards
What is a an enterprise?
A formation of a new business or development of a new good or service to be introduced to the market
What is the primary sector?
organisations that are at the first stage of production and use raw materials e.g. farms, oil extrapolation companies and fishing fleets
What is the secondary sector?
Organisations that are at the second stage of the production process and using primary resources and turning these into products e.g. manufacturers and printers
What is the tertiary sector?
Organisations that provide services such as estate agents and delivery services
What are SMEs?
-Small or medium enterprises
-They can be sole traders, partnerships or LTDs
-Turnover of less than 50 million euros
-Small enterprises have less than 50 employees
-Medium enterprises have less than 250 employees
-make up 99.9% of the UKs population
-key driver of economic growth and sustainability
What are the benefits of SMEs to the UK economy?
-SMEs create jobs
-Create demand for products which in turn creates more jobs and other businesses
-Pay tax to the tax government including business and corporation tax
-Introduce new technology and innovation to the market
-Help to create competition which is good for consumer growth
-Encourage exports and investments in the UK
-Stimulate the economy by instilling confidence in people
What are the drawbacks of being an SME?
-Small scale and likely to fail in times of recession and hardship
-Find it harder to raise finance due to their size
-Less recognition as they are not well known and find it harder to complete with larger businesses
- Have smaller budgets so they do not have the funds to compete with larger organisations
- Do not obtain economies of a similar scale to that of a larger business
How do entrepreneurs identify opportunities in the market?
-If they can satisfy needs and wants
-If there is a gap in the market and an SME can fill that gap then a successful SME can be established
-Does the enterprise offer a solution to the problem
What does an entrepreneur do?
-Provides goods or services that customers want or need
- Creates and sets up a business which involves having a business idea and the financial capacity to make this a reality
What is an entrepreneur?
- Someone who starts and runs a business
- Brings new ideas to the market (innovators)
- Brings the development of new technologies
What are the roles of an entrepreneur?
- Setting up and leading the business
- Organisation/managing/planning of their business
- Creating employment
- Acting as innovator
- Securing finance
- Risk taking
- Decision making
- Formulate a business plan
- Undertaking market research
What are the motives of starting a business?
- To earn a profit
-Turn a hobby into a business
-To create employment
-To be their own boss - To take an ethical stance
- Social entrepreneurship
What are key characteristics of an entrepreneur?
- Being a risk taker
- Taking the initiative and being proactive
- Being an effective organiser
- Having creativity and being innovative
- Being hard working
- Being determined and having perseverance
What is the importance of entrepreneurs to the economy?
- Bring new ideas to the market and drive the development of new technology
- Creating new jobs and by providing new products
- Government benefits from taxation
- Provide a better way of doing things
What is a business plan?
A business plan is a document that sets out the nature of a business, information and its various functional areas. Its future objectives, and strategies for achieving its objectives.
What is a marketing plan?
-Information about the target market and the competition
-Market research, marketing decisions regarding the marketing mix, marketing budget and marketing objectives
What is an operations plan?
-Details of where the business will be located, production methods and any equipment required
-Information on the cost of production and where the business will buy supplies
What is a human resources plan?
- Details of the owner and management team will be outlined along with their credentials
- Breakdown of the number of employees and their skills, experience and qualifications will also be outlined
What is a financial plan?
- Various type of financial forecasting will be required, including a sales forecast, profit and loss balance, sheet forecasts and breakeven analysis
- Financial position and requirements of the business will be outlined, including any potential borrowing that is needed
What should entrepreneurs consider when making a business plan?
- If sufficient research has been carried out to inform the plan
- Is the plan realistic
- Are the forecasts realistic
- Does the plan contain sufficient meaningful research and data to inform decisions
- Does the entrepreneur value the plan and will they take it seriously
What are local markets?
Where buyers may be a shorter distance from the sellers
What are national markets?
Where consumers are spread throughout the country or over a large area
What are global markets?
Where goods and services of one country are traded to people of other countries
What are consumer markets?
A market for products and services brought by individuals for personal or family use
What are trade markets?
Involves the sale of goods and services between countries
What are seasonal markets?
When businesses will experience seasonal variations in output and/ or sales
What is a mass market?
The largest part of the market where there are many similar products and consumers are less specific about their need
What is a niche market?
Smaller segment of a larger market where customers are more specific about their wants and needs
What is market size?
This is the information about the total amount of goods sold sold in a particular market or the amount of sales revenue that a particular market generates
What is market share?
This is the proportion of total sales in a market made by one business
What is market share %?
Number of products sold by the business/ total market sales * 100
What are market trends?
These are the changes and developments in the buying and selling of products and services in a market
Why is a high market share important?
-Helps a business to meet business objectives
-Increases a business’ overall profitability
-Helps a business to benefit from economies of scale
-Can lead to a competitive advantage
-Can help attract new shareholders
What is market segmentation?
This is the process of splitting a large market into different sub groups on the basis of them having similar characteristics or traits
What are the benefits of market segmentation on a business?
-Enables businesses to understand and meet the needs of their customers more effectively
-Increased brand loyalty and repeat custom
-Reduces price sensitivity around the brand helping to improve revenue and profitability
What are the drawbacks of market segmentation on a business?
-Increased costs linked to research and product development
-Potential for the brand to lose its identity and less able to exploit economies of scale
-Additional marketing activities required as the business targets more sectors
What are the benefits of market segmentation on customers?
-Allows customers to access high quality goods and ensures that they are getting value for their money
-Customers will receive a product that is closer to their expectations
-Segmentation can fit better with a customers budget and lifestyle
-Can help customers to stick to their desired products
What are the drawbacks of market segmentation on customers?
-Some customers are often excluded
-Costs incurred by a business may increase when setting different ranges of products and trying to meet the needs of different market segments
What is perfect competition?
-Large number of businesses competing
-They are ‘price takers’ (no power to influence prices)
-The goods sold in this type of market are homogenous
-There are no barriers to exit or enter
-Customers have full market information
-Businesses have equal access to technology
What is monopolistic competition?
-Large number of relatively small businesses in competition with each other
-Few barriers to entry or exit
-Products are similar but differentiated from eachother
-Brand identity is relatively weak
-Not price takers
What is an oligopoly?
-Many businesses but only a few dominate the market
-Similar brand identity
-Brand loyalty
-Short price wars
-Some barriers to entry
What is a monopoly?
-A single producer within a market
-Barriers to entry to prevent new businesses from entering the market
-Significant influence on price (price makers)
-Benefit from economies of scale
-Profit maximisation is assumed
What is demand and supply?
Demand and supply examines how the interaction between buyers and sellers determines the price and the quantity of the product
What is the income effect of a price change?
-A fall in price increases the real purchasing power of consumers
-This allows people to buy more with a given budget
-For normal goods demand rises with an increase in real income
What is the substitution effect of a price change?
-A fall in the price of good x makes it relatively cheaper compared to substitutes
-Some consumers will switch to good x leading to higher demand
-Much depends whether products are close substitutes
What is market equilibrium?
Where the demand curve and the supply curve intersect. This means that at a given price, the demand for a product equalled the supply
How do interest rates cause a shift in the demand curve?
If increased the demand curve will shift to the left and if decreased the demand curve will shift to the right
How does income cause a shift in the demand curve?
If increased the demand curve will shift to the right and if decreased the demand curve will shift to the left
How does advertising cause a shift in the demand curve?
If increased the demand curve will shift to the right and if decreased the demand curve will shift to the left
How does fashion and taste cause a shift in the demand curve?
If goods become more fashionable the demand curve will shift to the right and if goods go out of fashion the demand curve will shift to the left
How do substitute goods cause a shift in the demand curve?
E.g. if the price of rail fares increases, customers may substitute this for buses so the demand for trains will shift to the left and the demand for buses will shift to the right
How do complements cause a shift in the demand curve?
If demand for holidays increase, the demand for sun lotion/ luggage will also increase, so the demand curve will shift right for these products. Vise versa
How does cost of production cause a shift in the supply curve?
If the price of raw materials increase or the cost of labour increases, supply will decrease so supply will shift to the left. Vise versa
How do exchange rates cause a shift in the supply curve?
A fall in exchange rates (weak pound) will cause an increase in the price of imported materials which will lead to a decrease in supply, so supply will shift to the left. Vise versa
How will the introduction of new technology cause a shift in the supply curve?
The development of new production technology is likely to lead to an increase in productivity so the supply curve will shift outwards
How will weather and climate cause a shift in the supply curve?
Good weather will result in a good harvest, so the supply curve which shift to the right. Vise versa
How will legislation cause a shift in the supply curve?
Businesses might find their costs are rising because they have to comply with new anti-pollution legislation which can cause the supply curve to shift to the left
How will the amount of competition cause a shift in the supply curve?
If the amount of competition increases, the supply will increase so the supply curve will shift to the right which may cause the price of goods to fall
What is price elasticity of demand?
Price elasticity of demand is the responsiveness of quantity demanded for a product to change its own price
What is price elastic?
A change in price will cause a more than proportional change in the quantity demanded e.g. if price increases by 5% demand will fall by 15%
What is price inelastic ?
A change in price causes a less than proportional change in the quantity demanded e.g. if price decreases by 5% demand will increase by 3%
When will a business have inelastic demand for goods and services?
-The levels of competition are too low
-There are few substitutes
-The goods are necessities