Section 1: Understanding Business Activity Flashcards
What is a bisuness?
This is a combination of all factors of production to create goods and services to satisfy customer wants&needs
What is the difference between a need and a want?
A need is a necessity for life while a want is not a necessity for life
What is the economic problem?
Unlimited wants but limited resources
Describe what is meant by limited wants
This is having limited resources and so many wants therefore needing us to make a choice on which want to satisfy and which not to
Describe what ismeant by scarcity
This is the lack of sufficient goods and services to meet the unlimited wants of all customers
What are opportunity costs?
These are the next best option given up when a choice is made of the best alternate
List and explain the factors of production
Land: all resources provided by nature and its reward is RENT
Labour: number ofpeople available to do work, reward is WAGES
Capital: thefinance, machinery needed to manufacture goods and services, reward is INTEREST
Enterprise: the risk taking ability of bringing together factors of production to produce goods and services, rewarded by PROFIT
Define specialization
This is when an employee or business focuses on a task that they are best at
Define division of labor
This is when production is split into different tasks for each worker to do
Advantages of division of labor
- increased output as workers are trained to perform that specific task
-workers don’t have to waste time by shifting from bench to bench - it is quicker and cheaper to train workers on one or fewer skills
Disadvantages of division of labor
- workers may get bored of doing the same task
-if a worker is absent all production stops
-loss of workmanship
Purpose of business activity
-add value
-make profits
-satisfy customer needs and wants
-to employ people as workers to pay wages and salaries
Define what is meant by added value
This is the difference between the selling price and the cost of bought in materials
How to increase added value
Increase selling price but keep the costs of materials the same works if the business enhances its products or services it maybe perceived as a high quality shop that produces high quality products without reducing the amount of products/ quantity. E.g a jewelry store upgrades everything and has skilled employees with high quality packaging
Reducing material costs while keeping the selling price the same e.g in a construction firm, it will be cheaper to use cheap materials like wood or bricks for projects and if the price to consumers remains the same value is added. However, cheaper quality could lower product quality, which may make customers question of they’d want to still pay the same price.
Classification of business
List the stages of economic activity
Primary(extraction of natural resources), secondary (processing or manufacturing), tertiary(retail or online shopping)
List the activities in each sector
Primary- farming, fishing, forestry, mining
Secondary- car or aircraft manufacturing, baking, construction, food processing
Tertiary- insurance, banking, health, transportation, retail
How can businesses be classified?
Classification of business can be achieved according to Which stage of production they are involved in
What is the important of economic sectors
The importance of the sectors of industries usually compared by percentage of the countries total number of workers employed in each sector
The value of output of goods and services and the proportion of the two total national output
List changes in sector importance
- depletion of primary sector products e.g timber and oil
- industrialization in certain countries therefore making economies in the manufacturing industry lose competitiveness
-as countries develop and grow, living standards increase causing consumers to spend more money on services such as travel n restaurants instead of primary sector products
Define what is meant by a mixed economy
Combination of the public and private sector
Differences between the private and public sectors
Private sectors are made up of businesses that are owned by an individual and nit the government, therefore they can make their own decisions about the business
Public sector is owned by the government or is state controlled therefore they make all decisions about what to produce and how much to charge customers. They also make some goods and services free e.g education. They get this money via taxation
Differences between privatization and nationalization
Privatization is when the government sells some of its public sector businesses to a private sector business while nationalization is when the government takes over private businesses due to mismanagement/security reasons/politics/lack of finance
Why does the government own and control businesses or industries?
-prevents monopolies of businesses
-for equal provision of services such as health and education
-secure employment
-state security reasons
List and explain advantages of being an entrepreneur
-independence as they can choose what to do they’re time and money
-if business grows it leads to success
-own decision making
-become very profitable
-make use of they’re own skills and interests
List and explain disadvantages of being an entrepreneur
Lack of knowledge or experience- may lead to failure
Capital-using your own money
Risk-poor planning may lead to failure
Opportunity cost- losing income due to not being an employee
Characteristics of an entrepreneur
Risk taker- making decisions to produce goods and services that people may/may not buy
Creative- new business owners need to make new ideas too easy up with products and ways to attract customers
Leadership skills- must have good communication skills, the ability to motivate others and making good decisions
Hardworking - working long hours with ahorter holidays to make their businesses successful
Optimistic- looking forward to a better future
What is a business plan?
A written document that describes the business, its objectives, its strategies, the market and its financial forecasts
Purpose of business plan
It is used to convince lenders, banks and investors that your business is viable and it is used to find financial support for the business
Also a detailed guide to ensure the success of the business
Components of a business plan
-Description of the business provides a brief history and summary of the business and the objectives of the business
-product and services describe what’s the business cells or delivers and strategies for continuing or developing products and services in the future to remain competitive
-the market describes the current size potential growth and the products main competition
-location of the business this indicates whether business will be located the businesses objectives this is what the business hopes to achieve
-financial forecasts contains information on the cash flow forecasts (profit, revenue, sales) at least in the first year of trading.
Why does the government support business start ups
-create employment
-increase competition
-Benefits society
-Economy growth
-Political advantages
How does the government support business start up
- grants and interest free loans
- low taxation rates
-rent free premises of a certain period
-free training for workers
