GCSE Business section 1 Flashcards
Define a need
A good or service that is essential for living
Define a want
A good or service which people would like, but is not essential for living
Define scarcity
When the demand for a good or service is greater than the availability of the good or service
Define Opportunity cost
The loss of the next best alternative without making a decision
Define and give advantages/disadvantages of Specialisation
People and businesses concentrate on what they are best at
Advantage-
More efficient
Better quality
Reduces average costs
Disadvantage
More things can go wrong and the consequences are greater if one thing goes wrong, 1 mistake breaks all.
What are the 4 factors of production
Capital- Machines for production
Enterprise- Ideas to setup the business
Land- Natural resources
Labour- Number of people available to work
what is the basic economic problem
There are unlimited wants but limited resources. This leads to scarcity.
What is Business activity
The process of producing goods and services to satisfy consumer demmands.
Define Added Value
The difference between the selling price of a product and the cost of bought in materials and components.
How to add value
Reduce Costs
Increase selling price
Define the Primary sector
the economic sector that involves the extraction of raw materials e.g. farming, mining, fishing, forestry
Define the Secondary sector
The economic sector that contains the role of manufacturing the raw materials e.g. steel workers, jewlers, builders, Food production
Tertiary sector
The economic sector that involves the provision of servicesto companies e.g. Pharmacies, healthcare, entertainment, technology, scientists
Define the Public sector
The part of the economy controlled by the government e.g. healthcare, education
Define the Private sector
The part of the economy not controlled by the government.
Define a mixed economy
An economy containing both private and public businesses
Define an Entrepeneur
Someone who has and idea for a business who takes the financial risk of starting and managing a new business
Characteristics of an entrepeneur
Opportunity spotter- Someone who comes up with a new idea with a USP
Risk taker- Invest their own fincance in an attempt to make a profit
Decision maker- Increases efficiency while lowering costs
Creative thinker- Creates a USP which increases sales
Self Motivator- More productive, Lower costs
Strong Communicator- Makes faster decisions
Define a business plan
A business plan is a detailed written doccument outlining the purpose and aims of a business which is often used to persuade lenders or investors to fincance a business proposal
Different parts of a Business plan
The name
The opportunity- The product, market research
The market- Current size, potential for growth and competitors
The objectives of the business- what the business hopes to achieve
Financial forecasts- a cash flow forecasts and projected sales, revenue and profit for at least the first year.
Benefits of a good business plan
Leads to more investors
Provides important information such as objectives to help monitor progress
Shows investors that you have the ability to pay back loans
How can the government help Start up businesses
They can:
Provide advise
Provide loans/ grants
Lower tax rates
Provide training for the workers
Why do the government support Start-up businesses
Creates jobs
Increases out put of goods and services
How can you measure business size
Capital employed- Value of all long term finance invested in a business
Value of output- amount businesses earn from selling their products
Number of employees
Market share- % of sales made by one firm out of the entire industry sales
Limitations of Measuring business size
Number of employees- some businesses use less machinery to produce large amounts of output. Large number of part time staff
Value of output- Some businesses have a high output of low value items
Capital employed- Labour intensive businesses require less machinery, therefore may require less loans. But they might not be small businesses.
Why do business owners want to expand the business.
Increases profit
Increases brand image
Increases Market Share
Economies of scale = increased output = decreased average costs
Explain Horizontal integration
Horizontal integration brings together two firms of the same industry who are in the same sector of business activity, e.g. Both secondary
Explain Vertical integration
Forward Vertical Integration- brings together two firms in the same industry but one is a customer and one is a customer of the other, E.g. manufacturer and retailer
Backward vertical integration- brings togetheer two firms inthe same industry, but one is a supplier to the other. E.g. Manufacturer and Cocoa producer
Explain Conglomerate integration
Bringing together two businesses who are in completely different industries
Problems of Business growth
Workers could get overworked if too much extra work
May be shortage of finance to pay for expansion
Quality of product or service could drop
Why do some businesses choose to stay small
Small market size
Lack of capital
Does not want to take risk
Could lead to poor communication
Explain the causes of Business failure
Fuel Prices- Spends more of the budget on fuel prices so less going into otheer parts of the business
Competition from rivals- Overcrowded market, they werent offering anything new. People prefer larger/ more trusted brands
Lack of Management- Slow decision making
Lack of brand image- Less people will choose to buy from their business
Define and explain advantages and disadvantages of Sole trader business
A business owned and managed by one person
Advantages:
You are your own boss- Faster decision making
Keep all the profit- May improve standard of living
Quick to setup- Few legal requirements
Disadvantages:
Unlimited liability- If unable to repay debt, person assets are at risk
Work longer hours- Make more mistakes/ bad decisions
May not have all the neccessary skills- decrease in productivity
Less finance- Unable to expand
Define and explain advantages and disadvantages of a partnership
A business owned and managed by 2 or more people
Advantages:
More finance- Expand
Increased number of skills- Increased efficiency
Decreased responsibility- reduced workload
Share decision making- better decisions
Disadvantages:
Share profit- Worse living standard
Unlimited liability- Personal assets are at risk
Disagreements- Slower decision making
Define and explain advantages and disadvantages of a private limited company
A business owned by shareholders, with shares sold to friends and family
Advantages:
Limited liability- Personal assets arent at risk if they cannot repay debt
Raise more capital- Expand
Owners have more skills/ Experience- Increased productivity
Disadvantages:
Less finance raised than a public limited company- cannot expand as quickly
Legal formalities- Increased administrative costs
Pay dividens- Decreased retained profit
Define and explain advantages and disadvantages of a Joint venture
Two or more businesses start a new project together, sharing capital, risks and profit.
Advantages:
Enter new markets- Increased customers- Increased revenue
Develop new products- Increased sales
Different expertise- Increased efficiency/ quality
Decreased costs- Decreased cash outflow
Disadvantages:
Disagreements- Slower decision making
Shared profit- Decreased retained profit
Different cultures- Decreased productivity
Define and explain advantages and disadvantages of a public limited company
A business owned by shareholders with shares sold to the public
Advantages:
Large amount of share capital raised- Expand
Limited liability- Personal assets are not at risk
Disadvantages:
Expensive to float on the stock exchange- Increased cash outflow
Loss of control- Chage in business operations
Risk of takeover
Define and explain advantages and disadvantages of a Franchisor
Sells the rights to their business so that other businesses can use their name #
Advantages:
Franchisee has to buy licencse from franchisor- Increased cash inflow
Faster and cheaper growth- Increased market share= Decreased cash outflows
Not responsible for day to day running- can focus on more important tasks
Increased brand awareness- Increased customers, Increased sales
Disadvantages:
Poor management of one outlet can damage brand image- decreased customers, decreased sales
Pay for training and adverts- increased cash outflow
Define and explain advantages and disadvantages of a Franchisee
Buys the rights to operate a business, using the brand name
Advantages:
Gain recognised brand- increased customers = increased sales
Dont need to pay for adverts and training- Decreased costs
Disadvantages:
Pay franchisee fee- increased cash outflow
Royalty Payments- decreased retained profit
Define Public Corperation
Businesses owned by the government
Difference between Unincorperated and limited companies
In Unincorperated companies owners do not have a seperate legal identity from the business and in Limited companies the owners have a seperate legal identity than the business.
Advantages of an entrepeneur
independence
able to choose how to use time and money
Ability to put own ideas into practice
May become famous and succesfull if the business grows
Maybe profitable if the business is successful
Disadvantages of an entrepeneur
Risk- may fail
Capital- entrepeneurs have to put their own money into the business
lack of experience in starting a business
What is internal growth
Occurs when a business expands its existing operations
E.g. restaurant owner opens another restaurant in another town
What is external growth
Involving a takeover or merger with another business
What is a takeover
When one business buys out the owners of another business
What is a merger
When 2 businesses agree to join their businesses together
Advantages of Horizontal integration
Reduces numbers of competitors in the industry
opportunities of industries of scale
combined businesses have a larger market share
Advantages of forward verticle integration
Gives an assured outlet for the product
Retailer is prevented from selling competitors products
Advantages of backwards verticle intergration
Gives an assured supply of componentions/ materials
Supplier could be prevented from supplying competitiors
Cost of materials/supplies can be controlled
Advantages of Conglomerate integration
Spreads the risks
Transfer of ideas between the different sections of the business
Define Business objectives
Aims or targets that a business works towards
Benefits for business objectives
Motivates employees
Decisions are focused on whether they help achieve the objectives
Unite the business
Managers can compare how the business has performed to the objectives to measure success
Different business objectives
Survival- When it has been recently setup or the economy is in recession the business wil be more focused on survival
Profit- Profits are needed to pay a return for owners and provide finance for future investments in the business
Return to shareholders- shareholders own limited companies and managers will often set the objective of increasing returns to shareholders
Define profit
Total income of a business (revenue) minus the total costs
Define market share
Company sales / total market sales x100
Market share is the percentage of total market sales held by one brand or business
Define social enterprise
Has social objectives as well as making profit to put back into the business
Main objectives of social enterprises
Social- to price jobs and support for disadvantaged groups
Enviromental- to protect the environment
Financial- to make a profit to invest back into the social enterprise
What is a stakeholder
Any person or group with a direct interest in the performance and activities of a business
Who are the internal stakeholders and their objectives
Owners- profit and growth of the business
Workers - Regular payment for the work, job satisfaction, job security
Managers- High salaries, job security, growth of the business
Who are the external stakeholders and their objectives
Customers- Safe and reliable products, value for money, good quality products
Government- Succesful business will employ workers increase taxes and increase countries output
the whole community- Jobs for the population, doesnt damage environment.
banks- interest and repay capital rent
Explain the objectives of public sector enterprise
Financial- Meet profit targets met by the government
Service- Provide a service to the public and meet quality targets set by the government
Social- protect or create emploment in certain areas
