igcse business section 1 Flashcards
need
good or service essential for living
want
a good or service not essential for living but people would like to have - they are unlimited
economic problems
there are unlimited wants but limited resources to produce those wants which creates scarcity
factors of production
those resources needed to produce goods and services, 4 factors of production, and in limited supply
scarcity
lack of sufficient resources needed to fulfill the total wants of the population
what are the 4 factors of production
land - natural resources
labor - people available
capital - finance/ machinery / equipment
enterprise - skills and abilities
opportunity cost
the next best alternative given up by choosing another item
specialisation
when people or business concentrate on what they’re best at
why specialisation is very common now
- increase in specialised machinery
- increasing competition meaning needing to keep costs low
-people now recognise that higher living standards result of specialisation
division of labor
when the production process is split up into different tasks and each person does a specific task- form of specialisation
adv of division of labor
-workers are more trained and specialised so efficiency increases
-less time wasted moving from one bench to another
-quicker and cheaper as less skills are needed
business
combine factors of production to make products which satisfy peoples wants
added value
difference between selling price of a product and the cost of brought in materials and components
how to increases added value
-lower costs but keep prices the same
-increases prices and keep costs the same
primary sector
the industry that extracts and uses natural resources of earth and produces raw materials used by other businesses
secondary sector
the industry that manufactures goods using raw materials provided by the primary sector
tertiary sector
industry that provides services to consumers and other sectors of industry
de-industrialization
when there is a decline in the importance of the secondary manufacturing sector of industry in a country
how do the 3 sectors change importance?
- primary products may become depleted
-developed economies are losing competitiveness to newly industrialised countries
-as a country’s wealth increases, so does the living standards, so customers spend on more on services
mixed economy
has both public and private sector
capital
is the money invested into the business by the owners
entreprneur
a person who organises, operated, and takes risk of starting a new business venture
benefits of being an entrepreneur
-independence
-able to put own ideas into practice
-may become famous and successful
-may be more profitable than working as an employee
-able to make use of personal skills and interests
limitations of being an entrepreneur
-risk , if there is poor planning
-capital is needed
-lack of knowledge and experience
-opportunity cost
8 characteristics of a successful entrepreneur
-hard working
-risk taker
-self-confident
-effective communicator
-innovative
-creative
-independent
-optimistic
a business plan
a document containing business objectives and important details abt operations, finance and the owners
contents of a business plan
-desc of the business
-products and services
-the market
-business location and how products will reach customers
-organisation structure and management
-financial info
-business strategy
why governments support business start ups
-to reduce unemployment
-to increases competition
-to increase output
-to benefit society
-can grow further
how governments support business start ups
-business ideas and help: training, advice, and support sessions
-premises
-finance: loans at low-interest rates
-labour: trains employees
-research: facilities and at universities
who would find it useful to compare the size of businesses
-investors
-governments
-competitors
-workers
-banks
capital employed
total value of capital used in the business
how to measure business size
-number of people employed
-value of output
-value of sales
-value of capital employed
limitations of number of people employed
some firms are capital intensive
-“should part-time workers be counted as one employee?”
limitations of value of output
a business might produce few but very expensive products a year
limitations of value of sales
could be misleading as not all businesses sell the same products
limitations of capital employed
business may be labour-intensive, which requires less costs
why owners may want to expand
-higher profits
-more status and prestige
-lower average costs
-large shares of markets
internal growth
when a business expands its existing operation
external growth
when a business takeover or merges with another business (integration)
takeover
when one business buys out the owner of another business, then becomes part of the predator business
merger
owners of 2 businesses agree to join their businesses tgthr to make one business
horizontal integration
when one business merges with or takes over another one in the same industry and same stage of production
vertical integration
when one business merges with or takes over another one in the same industry but diff stage of production, (forward or backward)
conglomerate integration/ diversification
when one business merges with or takes over another one in a completely diff industry
benefits of horizontal integration
-reduces number of competitors in industry
-opportunities for eos
-bigger share of total market
benefits of forward vertical integration
-merger gives an assured outlet for its products
-profit margin is made by the retailer and absorbed by expanded business
-retailer could be prevented from selling competing products
-info abt consumer needs and preferences can be obtained from the manufacturer
benefits of backward vertical integration
-merger gives an assured supply of components
-profit margin of the supplier is absorbed by expanded business
-supplier could be prevented from selling to other manufacturers
-costs of components could be controlled
benefits of conglomerate
- business diversified its activities in more than one industry
-might transfer ideas
problems from expansion
-difficult to control
-poor communication
-short of finance
-can be more difficult than expected
ways to overcome problems from expansion
-operate in small units (decentralisation)
-use IT equipment
-expand more slowly
-ensure long-term finance
-introduce different styles of managements
why businesses may want to remain small
-market size
-owners objective
-type of industry
causes of business failures
-lack of management skills
-change in the business environment
-over expansion
-liquidity problems and poor finance
why new businesses are at greater risks of failing
-lack of finance and resources
-poor planning and research
-lack of experience and decision making skills
sole trader
a business owned by one person
sole traders require some legal requirements to set it up
-the name of the business is significant
-the owner must register and send annual accounts to the government tax office
-health and safety laws, license
adv of being a sole trader
-there are few legal regulations to worry abt
-can choose their own decisions
-close contact with customers
-no need to share profits
-complete secrecy
-he is his own boss
disadv of being a sole trader
- no one to discuss a business matter
-unlimited liability
-sources of finance are limited
-likely to remain small, doesn’t benefit from eos
-if owners ill, no one else to take control
limited liability
liability of shareholders in a company is limited to only the amount they invested
unlimited liability
owners of a business can be held responsible for the debts of the business.
to who is sole trader recommended
-people setting up a new business
-those who do not need much capital
-will be dealing mainly with the public
partnership
2 or more people agree to jointly own a business
partnership agreement
written and legal agreement between business partners, not essential but is always recommended
what does the partnership agreement contain
-amount of capital by each partner
-tasks of each partner
-how profit is shared
-how long it will last
-arrangements for absence, retirement and new partners
adv of partnership
-more capital
-shared responsibilities
-both partners are motivated as they both will gain profit
disadv of partnership
-unlimited liab
-unincorporated business
-can disagree
-one partner could be inefficient or dishonest
-limited number of 20 partners
partnership is suitable for..
-business without legal complications
-some professions only allow to form partnerships not companies
-simple mean of running a business
incorporated business
companies that have separate legal status from their owners
shareholders
owners of limited companies. they buy shares which represent part ownership of the companies
private limited company
businesses owned by shareholders but cannot sell shares to the public
adv of private limited companies
-shares can be sold to a large number of people
-limited liab
-company kept in control if they dont sell too many shares
disadv of private limited companies
-there are significant legal matters to be dealt with
-the shares cannot be sold to anyone without teh agreement of every shareholders
-accounts are less secret than sole trader and partnership
-cannot offer shares to public
public limited companies
businesses owned by shareholders but can sell shares to the public, their shares are tradeable on stock exchange
adv of public limited companies
-limited liab
-incorporated business
-raises large capital sums
-no restriction on buying , selling or transferring shares
-having high status makes it easier to attract suppliers and banks
disadv of public limited companies
-complicated and time consuming legal formalities
-more regulations and control
-selling shares is expensive
-may lose control
annual general meeting
-legal requirements for all companies. shareholders may attend and vote on who they want to be on the board of directors for the coming year
dividends
payments made to shareholders from the profit, after tax, of a company. they are the return to shareholders for investing in the company
franchise
business based upon the use of brand names, promotional logos, and trading methods of an already existing successful business. franchisee buys a licence from franchisor
adv to franchisor
-franchisee buys a license from the franchisor to use the brand name
-expansion is much faster
-responsibility of the franchisee
-all products are obtained from the franchisor
disadv of franchisor
-poor management could lead to bad reputation
-franchisee keeps profit of the firm
adv of franchisee
-less chance of failure, as products are already well known
-franchisor pays for advertising
-all supplies obtained from the franchisor
-fewer decisions to make
-training is provided by franchisor
-banks are more willing as there is less risk
disadv of franchisee
-less independence
-may be unable to make decisions that suit the local area
-license fee and a part of the annual turnover must be paid to the franchisor
joint venture
where 2 or more businesses start a new project tgthr, sharing capital risks and profits
adv of joint venture
-sharing costs
-have local knowledge
-sharing risks
disadv of joint venture
-profits shared
-disagreements may occur
-may have culture differences
public corporation
-business in the public sector that is owned and controlled by state
adv of public coporation
-some industries require government ownership
-if the industry is controlled by monopolies, then its wasteful to have competitors
-governments can nationalise any failing business
-important, nonprofitable programs
disadv of public corporation
-no private shareholders to insist on high profits and efficiency
-subsidies may lead to inefficiency as managers think that government will always help
-no close competition, so lack in incentive
-governments can use these businesses for political reasons
business objectives
aims and targets that a business works toward
benefits of setting a target
-a clear target will motivate people
-decisions will be focused on “will this help achieve our objectives?”
-united the whole business
-can compare the objectives, see if they’re successful or not
different business objectives
1.survival
2.profit
3.return to shareholders
4.growth
5.market share
6.service to the community
profit
total income of a business less total costs
profit as objective
-pay rent
-provide finance
return to shareholders as objective
-increasing this will discourage shareholders from selling their shares
-it can be increased by increasing share prices
growth as objective
-more secure jobs
-increases salary and status
-open new possibilities and spreads risks
-higher market share
-economies of scale
market share
the percentage of the total market sales held by one brand or business
company sales/total market sales *100
why increase market share?
-good publicity
-increases influence over suppliers
-increases influence over customers
social enterprise
has social objectives as well as an aim to make profit to reinvest back into the business
social enterprise objectives
- social: provide jobs and support society
- environment: to protect it
- financial: make a profit
why business objectives could change
-has survived for years and now aims toward higher profits
-a business might be in a country facing recession so now has short-term survival objectives
-has achieved market share and now has objectives of increasing returns for shareholders
stakeholder
a person or group of people who have direct interest in the performance and activities of a business
internal stakeholder groups
-owners: profits/ return on capital
-workers: income/ security/ satisfaction
-managers: salaries/ status/ control
external stakeholder groups
-customers: goods and services/ quality/ good -value
-governments: employment/ tax/ national output
-the community: jobs/ environment/ safe products
-banks
objectives of public sector business
-financial: to reinvest back into the business
-service
-social: increase employments
