Section 1 -- Understanding business activity Flashcards

Business activity, classification of businesses, Enterprise business growth and size, types of business organisation, business objectives and stakeholder objectives

1
Q

Define ‘need’

A

A good or service essential for living

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2
Q

define ‘want’

A

A good or service which people would like to have, but which is not essential for living. Peoples wants are unlimited.

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3
Q

define ‘economic problem’

A

There exist unlimited wants but limited resources to produce the goods and services to satsify those wants. This creates scarcity

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4
Q

define ‘factors of production’

A

the resources needed to produce goods and services. There are 4 factors of production and they are in limited supply

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5
Q

define ‘scarcity’

A

The lack of sufficient products to fulfil the total wants of the population

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6
Q

Describe the 4 factors of production

A
  1. LAND – all the natural resources provided by nature and includes fields and forests, oil, gas, metals and other mineral resources
  2. LABOUR – number of people available to make productions
  3. CAPITAL – Finance, machinery and equipment needed for the manufacture of goods
  4. ENTERPRISE – person who brings the other 3 factors of production together to produce a good or service
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7
Q

define ‘opportunity cost’

A

the next best alternative given up by choosing another item

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8
Q

define ‘specialisation’

A

when people and businesses concentrate on what they are best at

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9
Q

list 3 reasons why specialisation is very common

A
  1. specialised machinery and technology widely available
  2. increasing competition means businesses have to keep their costs low
  3. most people recognise that higher living standards can result from being specialised
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10
Q

define ‘division of labour’

A

when the production process is split up into different tasks and each worker performs one of these tasks. This is a form of specialisation

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11
Q

List 2 advantages and disadvantages of division of work

A

Advantages:
1. workers are trained in one task and specialise in this leading to increased efficiency and output
2. less time is wasted moving from one workbench to another

disadvantages:
1. workers can become bored doing just one task, leading to efficiency falling
2. If one worker is absent no one else can do the job, production might be stopped

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12
Q

define ‘businesses’

A

the combining factors of production to make goods and services which satisfy peoples wants

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13
Q

define ‘added value’

A

the difference between the selling price and the cost of bought in materials and components

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14
Q

explain why added value is important

A

added value is important because sales revenue is greater than the cost of materials bought in by the business. This means the business;
- can pay other costs
- able to make profit

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15
Q

define ‘primary sector’

A

industry extracts and uses the natural resources to produce raw materials used by other businesses

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16
Q

list the 3 stages in production

A
  1. primary sector – industry gathering raw materials for business to use
  2. secondary sector– taking the raw materials and resources provided by primary sector and converting them into manufactured or processed goods.
  3. Tertiary sector – providing services to both consumers and other businesses
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17
Q

define ‘secondary sector’

A

industry manufactures goods using the raw materials provided by the primary sector

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18
Q

define ‘tertiary sector’

A

industry provides services to consumers and the other sectors of industry

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19
Q

define ‘de-industrialisation’

A

when there is a decline in the important of a secondary, manufacturing sector of industry in a country

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20
Q

define ‘mixed economy’

A

both private sector and public sector

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21
Q

describe private sector

A

businesses not owned by the government. These businesses make their own decisions of what to produce, how, and what price it will be charged for

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22
Q

describe public sector

A

businesses owned by the government or state, do not make decisions of the production process, or what price it is sold as. Often free of charge to consumer

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23
Q

define ‘capital’

A

the money invested into a business by the owners

24
Q

define ‘entrepreneur’

A

a person who organises, operates and takes the risk for a new business venture

25
Q

describe 3 characteristics of successful entrepreneurs

A
  1. hard working – long hours and short holidays to make their business successful
  2. risk taker – making decisions to produce goods or services that people might buy is potentially risky
  3. innovative – being able to put new ideas into practise in interesting and different ways is also important
26
Q

list the benefits and disadvantages of being an entrepreneur

A

advantages:
1. independence to choose how to use time and money
2. able to put down own ideas into practice
3. may become famous and successful as the business grows
4. may be profitable and income might be higher compared to working as an employee
5. able to make use of personal interests and skills

disadvantages:
1. risk of failure
2. have to invest own capital
3. lack of knowledge and experience in starting and operating a business
4. opportunity cost leading to loss of income from not being an employee of another business

27
Q

define ‘business plan’

A

document containing the business objectives and important details about the operations, finance and owners of the new business

28
Q

list 4 things an entrepreneur need to consider before starting-up a business

A
  1. what products or services they intend to provide and market
  2. what will be their main costs and will enough products be sold to meet it?
  3. where will the firm be located?
  4. what machinery and how many people will be required in the business
29
Q

define ‘capital employed’

A

the total value of capital used in the business

30
Q

like 5 groups of stakeholders who would find it useful to compare sizes of businesses

A
  1. investors – before deciding which to put their savings into
  2. Governments – decide tax rates
  3. competitors – compare size and importance of each firm
  4. workers – to have some idea how many people they’ll be working with
  5. banks – see how important a loan to the business is compared to overall size
31
Q

list 4 ways to calculate a value of a business

A
  1. number of employees
  2. value of output
  3. value of sales
  4. value of capital employed
32
Q

define ‘internal growth’

A

when a business expands its existing operations

33
Q

define ‘external growth’

A

when a business takes over or merges with another business (integration)

34
Q

define ‘integration’

A

one firm is integrated into another one

35
Q

define ‘merger’

A

when the owners of 2 businesses agree to join their firms together to make 1 business

35
Q

define ‘takeover’ or ‘acquisition’

A

when 1 business buys out the owners of another business which then becomes part of the ‘predator’ business

35
Q

define ‘horizontal integration’

A

when one firm merges with or takes over another one in the same industry at the same stage of production

35
Q

define ‘sole trader’

A

business owned by one person

35
Q

define ‘vertical integration’

A

when one firm merges with or takes over another one in the same industry but at a different stage of production

35
Q

define ‘conglomerate integration’ or ‘diversification’

A

when one firm merges with or takes over a firm in a completely different industry

35
Q

define ‘limited liability’

A

the liability of shareholders in a company is only limited to the amount they invested

35
Q

define ‘unlimited liability’

A

the owners of a business can be held responsible for the debts of the business they own

35
Q

define ‘joint venture’

A

when 2 or more businesses start a new project together sharing capital, risks and profits

36
Q

define ‘annual general meeting’

A

legal requirement for all companies to have shareholders attend and vote on who they want to be on the board of directors for coming year

36
Q

define ‘incorporated businesses

A

companies that have separate legal status from their owners

36
Q

define ‘partnership’

A

form of business in which 2 or more people agree to jointly own a business

36
Q

define ‘partnership agreement’

A

written legal agreement between business partners. it is no essential for partners to have but recommended

36
Q

define ‘shareholders’

A

owners of a limited company that buy shares which represent part of ownership of a company

36
Q

define ‘unincorporated business’

A

one that does not have a separate legal identity. sole traders and partners are unincorporated businesses

36
Q

define ‘franchise’

A

business based upon the use of brand names, promotional logos and trading methods of an existing successful business. buys licsence to operate

36
Q

define ‘business objectives’

A

aims or targets that a business works towards

36
Q

define ‘dividends’

A

payments made to shareholders from the profits of a company.

36
Q

define ‘profit’

A

total income of a business less total costs

37
Q

define ‘market share’

A

proportion of market sales achieved by 1 business

38
Q

define ‘social enterprise’

A

social objectives as well as an aim to make a profit to reinvest back into the business

39
Q

define ‘stakeholder’

A

any person or group with direct interest in a the performance and activities of a business