Section 1: Understanding Business Activity

Question 1

What is a bisuness?

Answer 1

This is a combination of all factors of production to create goods and services to satisfy customer wants&needs

Question 2

What is the difference between a need and a want?

Answer 2

A need is a necessity for life while a want is not a necessity for life

Question 3

What is the economic problem?

Answer 3

Unlimited wants but limited resources

Question 4

Describe what is meant by limited wants

Answer 4

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

Question 5

Describe what ismeant by scarcity

Answer 5

This is the lack of sufficient goods and services to meet the unlimited wants of all customers

Question 6

What are opportunity costs?

Answer 6

These are the next best option given up when a choice is made of the best alternate

Question 7

List and explain the factors of production

Answer 7

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

Question 8

Define specialization

Answer 8

This is when an employee or business focuses on a task that they are best at

Question 9

Define division of labor

Answer 9

This is when production is split into different tasks for each worker to do

Question 10

Advantages of division of labor

Answer 10

• 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

Question 11

Disadvantages of division of labor

Answer 11

• workers may get bored of doing the same task
  -if a worker is absent all production stops
  -loss of workmanship

Question 12

Purpose of business activity

Answer 12

-add value
-make profits
-satisfy customer needs and wants
-to employ people as workers to pay wages and salaries

Question 13

Define what is meant by added value

Answer 13

This is the difference between the selling price and the cost of bought in materials

Question 14

How to increase added value

Answer 14

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.

Question 15

Classification of business

List the stages of economic activity

Answer 15

Primary(extraction of natural resources), secondary (processing or manufacturing), tertiary(retail or online shopping)

Question 16

List the activities in each sector

Answer 16

Primary- farming, fishing, forestry, mining
Secondary- car or aircraft manufacturing, baking, construction, food processing
Tertiary- insurance, banking, health, transportation, retail

Question 17

How can businesses be classified?

Answer 17

Classification of business can be achieved according to Which stage of production they are involved in

Question 18

What is the important of economic sectors

Answer 18

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

Question 19

List changes in sector importance

Answer 19

• 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

Question 20

Define what is meant by a mixed economy

Answer 20

Combination of the public and private sector

Question 21

Differences between the private and public sectors

Answer 21

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

Question 22

Differences between privatization and nationalization

Answer 22

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

Question 23

Why does the government own and control businesses or industries?

Answer 23

-prevents monopolies of businesses
-for equal provision of services such as health and education
-secure employment
-state security reasons

Question 24

List and explain advantages of being an entrepreneur

Answer 24

-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

Question 25

List and explain disadvantages of being an entrepreneur

Answer 25

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

Question 26

Characteristics of an entrepreneur

Answer 26

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

Question 27

What is a business plan?

Answer 27

A written document that describes the business, its objectives, its strategies, the market and its financial forecasts

Question 28

Purpose of business plan

Answer 28

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

Question 29

Components of a business plan

Answer 29

-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.

Question 30

Why does the government support business start ups

Answer 30

-create employment
-increase competition
-Benefits society
-Economy growth
-Political advantages

Question 31

How does the government support business start up

Answer 31

• grants and interest free loans
• low taxation rates
  -rent free premises of a certain period
  -free training for workers