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Business Studies > Section 1 - Understanding Business Activity > Flashcards

Section 1 - Understanding Business Activity Flashcards

1
Q

Define Need and Want

A

Need: good/service essential for living
Want: good/service people would like to have, but isn’t essential for living

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2
Q

Factors of production (4)

A

Land: raw materials extracted from earth/sea
Labour: number of people available to work
Capital: machinery, equipment and finance required for production of product
Enterprise: people prepared to take risk of opening new business venture + bring factors of production together, called entrepreneurs

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3
Q

Define Economic Problem

A

unlimited wants & limited resources

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4
Q

Define Scarcity

A

not enough goods/services to meet all wants

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5
Q

Define Opportunity Cost

A

benefit that could’ve been gained from alternative use of same resource

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6
Q

Define Specialization

A

people & business focus on their specialty

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7
Q

Define Division of Labour

A

production process divided into separate tasks and each employee has to complete one

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8
Q

Benefits of Specialization (7)

A 
its machinery is widely available
higher competition = lower costs
leads to higher living standards
less time wasted switching jobs
each employee works on only one task = more efficient = higher output
lower costs of production
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9
Q

Types of goods/services (3)

A

consumer goods: physical/tangible products sold to public (durable/non-durable)
consumer services: virtual/tangible products sold to public
capital goods: products sold to other businesses to help them in their production process

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10
Q

Define Added Value

A

selling a product for more than it cost to produce it

added value = selling price - material costs

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11
Q

How to increase Added Value (8)

A 
branding
excellent service quality
product features
convenience
packaging
decoration
increasing selling price
buy cheaper ingredients/materials (=low quality)
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12
Q

Classification of businesses (3)

A

primary sector: extract natural resources from land/sea
secondary sector: takes resources from primary sector = turns into manufactured finished goods
tertiary sector: providing services to consumers/businesses
chain of production: the production and supply of goods to final consumer, involving activities from 3 sector businesses

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13
Q

Reasons for change in the importance of business classifications (4)

A

industrialisation: more secondary, less primary
deindustrialisation: more tertiary, less secondary
change in consumer behavior:
- higher incomes = demand better quality and wider market
- better education: expect better products and can compare
- more leisure time = more activities
change in business behavior:
- need for finance for expansion
- need communication, internal/external
- need to provide better services for employees

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14
Q

Define Mixed Economy

A

economy where resources are owned/controlled by both private/public sectors

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15
Q

Private Sector

A
  • owned by citizens
  • own decisions, prices & produce
  • aim to make a profit
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16
Q

Public Sector

A
  • owned by state/government
  • some products/services are free
  • money comes from taxes
  • don’t aim for profit, but providing service to community
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17
Q

Define Entrepreneur

A

an individual that organises, manages, operates and takes the financial risk for a new business venture

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18
Q

Characteristics of an entrepreneur (10)

A
  • innovative
  • initiative
  • self motivated, determined & confident
  • multi skilled
  • strong leadership qualities
  • results driven
  • risk taker
  • good at networking/communicating
  • hard working
  • experienced
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19
Q

Define Business Plan

A

detailed written document outlining purpose and aims of business

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20
Q

Advantages of Business Plans (7)

A
  • persuade lenders/investors to provide finance
  • gives sense of purpose & direction
  • financial forecasts help control profits & expenses
  • gives targets for business’s workers to aim at
  • helps allow the business to monitor its progress
  • measure of success
  • helps in decision making / planning / budgeting
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21
Q

Why governments support small businesses (6)

A
  • job creation
  • wider choice in market
  • greater competition = lower prices & better quality
  • produce capital goods
  • if they grow = help economy
  • cheaper prices than large businesses
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22
Q

How governments help small businesses (5)

A
  • grants & low interest or interest free loans
  • lower taxation on profits in early years
  • rent free premises for certain period of time
  • free or subsided training schemes for employees
  • info, advice & support from specialist agencies
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23
Q

Methods of measuring the size of a business (5)

A
  1. Number of employees:
    - easy to calculate & compare
    - few employees = high output (automation)
  2. Value of output:
    - value of products produced
    - compare in same industry, esp manufacturing
    - automation - higher output than labor
  3. Value of sales:
    - value of products sold
    - less than value of output
    - misleading in different industries
  4. Value of capital employed:
    - value of all long term finance invested in business
    - cant compare different industries
    - small businesses invest less capital
  5. Market share:
    - percentage of share from business from total market
    - misleading if comparing different markets
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24
Q

Why businesses want to grow (5)

A
  • increase in profits
  • increase in market share
  • economies of scale
  • greater domination over market
  • protection of risk from takeover
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25
Q

Internal Growth (3)

A
  • produce greater number of goods
  • developing new products
  • finding new markets for products
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26
Q

External Growth (4)

A
  • horizontal integration: same sector merge
  • forward vertical integration: manufacturer w retailer
  • backward vertical integration: retailer w producer
  • conglomerate integration: different industries
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27
Q

Problems linked to business growth (5)

A
  • internal growth is slow
  • in integration, workers fear loss of job/status
  • if firm = too large = diseconomies of scale
  • different objectives, pay, etc. = conflict
  • loss of control may occur
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28
Q

Reasons why some businesses remain small (4)

A
  • owner’s choice
  • market size
  • access & availability of capital
  • market domination`
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29
Q

Causes of business failure (9)

A
  • poor planning & lack of objectives
  • liquidity problems
  • poor choice of location
  • poor management
  • failure to invest in new technologies
  • poor marketing
  • lack of finance
  • competition
  • economic influences
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30
Q

Define sole trader

A

business owned/managed by 1 person

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31
Q

Advantages of sole traders (4)

A
  • easy to set up + small start up capital
  • makes all decisions
  • complete control
  • keeps all profit
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32
Q

Disadvantages of sole traders (5)

A
  • unlimited liability
  • difficult to raise funds for expansion
  • may have to work long hours
  • difficult to compete with large firms
  • may not have skills to run business
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33
Q

Advantages of partnerships (4)

A
  • easy to setup deed of partnership
  • greater access to funds = shared investments & expenses
  • shared decision making
  • shared management
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34
Q

Disadvantages of partnerships (5)

A
  • unlimited liability
  • shared profits
  • if one partner leaves = businesses ceases to exist
  • frequent disagreements
  • difficult to raise finance
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35
Q

Define incorporated

A

separate legal identity from owners

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36
Q

Define shareholders

A

people who buy shares of an LLC which represents part ownership of the company

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37
Q

Define dividend

A

amount of profit that each shareholder gets

38
Q

Define private limited companies

A

shares are sold privately to friends & family

39
Q

Advantages of private limited companies (4)

A
  • more capital to expand than partnerships
  • owner keeps control, unless too many shares sold
  • limited liability
  • company continues after shareholder dies
40
Q

Disadvantages of private limited companies (4)

A
  • difficult to setup (legal formalities)
  • all shareholders are required to agree before share is transferred
  • secrecy decreases
  • can’t offer shares to public
41
Q

Define public limited company

A

shares sold to public

42
Q

Advantages of public limited companies (2)

A
  • opportunity to raise high capital funds

- no restriction over buying, selling or transferring shares

43
Q

Disadvantages of public limited companies (3)

A
  • difficult to setup (legal formalities)
  • danger of business due to public shares (risk of takeover)
  • selling shares is expensive
44
Q

Define franchise

A

an agreement of a business based upon an existing brand/business

45
Q

Define franchisor

A

the main (existing) brand/business

46
Q

Define franchisee

A

individual to start up franchise

47
Q

Explain franchise process

A
  • franchisor allows franchisee to trade under its name and sell its products for a fee
  • franchisee pays original fee + % of profits to francisor
48
Q

Advantages for franchisee (4)

A
  • less chance of business failure
  • franchisor provides advice/training to franchisee
  • finance promotion of brand through national advertising
  • franchisee is guaranteed quality supplies
49
Q

Disadvantages for franchisee (4)

A
  • initial cost of franchise is expensive
  • franchisor will take % of profits
  • strict controls over decisions about product & prices
  • franchisee pays for local promoting, if they decide to
50
Q

Advantages for franchisor (4)

A
  • franchisee pays franchisor for a license to use brand name
  • expansion of franchise is much faster, as franchisor doesn’t have to finance a new outlet
  • management is responsibility of franchisee
  • all products sold are obtained from a trusted source , the franchisor
51
Q

Disadvantages for franchisor (2)

A
  • poor management for 1 outlet = damages entire reputation

- franchisee keeps most profit from the outlet

52
Q

Define joint venture

A

when 2 or more businesses work closely together on a business opportunity/project, sharing capital, risks and profits

53
Q

Advantages of joint ventures (3)

A
  • shared costs
  • shared knowledge/expertise
  • shared risks
54
Q

Disadvantages of joint ventures (3)

A
  • any mistake damages reputation of all businesses involved
  • shared profits
  • different cultures, styles of leadership, etc. = conflict
55
Q

S.M.A.R.T objectives

A

specific, measurable, agreed, realistic and time specific

56
Q

Most common business objectives (5)

A
  • profit
  • higher market share
  • expansion & growth
  • survival
  • provide service to community
57
Q

Advantages of growth of a business (5)

A
  • high job security for employees
  • higher salaries/status for managers
  • opens new possibilities in market & spreads risk for owners
  • higher market share & sales for enterprise
  • economies of scale
58
Q

Possible threats to survival of business (3)

A
  • firm recently launching in market (new business)
  • financial issues in economy (recession)
  • competition in market
59
Q

Define Corporate Social Responsibility (CSR)

A

interest in social, ethical and environmental issues & impact of business decisions on stakeholders and environment.
result of: pressure groups, media, trade unions, government & laws they pass

60
Q

Advantages of business objectives (4)

A
  • have an aim/target to work towards
  • provides a sense of direction
  • can measure success & performance of business
  • motivates managers
61
Q

Define stakeholder

A

an individual with interest in business + is affected by its activities & decisions

62
Q

List stakeholders of a business (8)

A
  • owners/shareholders
  • directors/managers
  • staff/employees
  • customers
  • suppliers
  • local community
  • government
  • lenders
63
Q

Owners/shareholders (3)

A
  • profit
  • business growth & success
  • good reputation
64
Q

Directors/managers (4)

A
  • profit
  • good salary & working conditions
  • hard working staff
  • make owner happy
65
Q

Staff/employees (8)

A
  • fair pay/good wages
  • good uniform
  • good staff relations
  • good working conditions
  • job security
  • promotion opportunities
  • benefits from job
  • feels like part of the team
66
Q

Customers (6)

A
  • fair prices
  • good service
  • good quality products
  • honesty & integrity
  • good value
  • special offers
67
Q

Suppliers (3)

A
  • paid on time
  • buy in bulk
  • fair prices
68
Q

Local community (3)

A
  • jobs created
  • no pollution
  • little/no disturbance
69
Q

Government (4)

A
  • jobs created
  • taxes paid
  • exports goods overseas
  • obey the law
70
Q

Lenders (3)

A
  • will interest be paid?
  • will loans be returned?
  • for potential lenders: profitability and debts/loans of business
71
Q

Define social enterprise

A

a business operated by private individuals with social objectives that reinvest most of its profits back into the business or into benefiting society at large

72
Q

Aims of social enterprises (3)

A
  • social: provide jobs & support disadvantaged groups
  • environmental: protect the environment
  • financial: makes profit = invest back into business = expand social work/services
73
Q

Public sector objectives (3)

A
  • provide services to the public
  • increase living standards to the public
  • increase jobs = lower unemployment rate
74
Q

Features of a very competitive market (5)

A
  • Many rival companies
  • Many similar products
  • Marketing is important
  • Innovation
  • Low or similar prices
75
Q

Reasons why staff are paid high wages (6)

A
  • Highly skilled
  • Scarcity value
  • motivation/reward
  • Level of responsibility
  • Retention
  • Business can afford to
76
Q

Problems caused by oftenly updating/redeveloping product (7)

A
  • Capital requirements
  • Time
  • Skilled workers
  • Failure to keep pace with market needs
  • Cost of research/promotion
  • Errors in the program/quality issues
  • retention/motivation of workers
77
Q

Ways of measuring SUCCESS of business (9)

A
  • Increase in market share
  • Sales value
  • Greater profit margin
  • Market leader
  • Meet objectives of owners
  • Good reputation
  • Growth
  • High share price
  • Survival
78
Q

Problems of selling products in foreign markets (6)

A
  • Lack of knowledge about customer needs = produce wrong product
  • Competition = customers more loyal to other brand
  • Lack of distribution channels = can’t supply customers on time
  • Language barriers/difference = wrong order
  • Legal restrictions = can’t sell certain products in certain countries
  • Problems of entry, e.g. quotas = restrict number of products that can be sold
79
Q

Aims of public sector enterprises (6)

A
  • Free access for all OR provided irrespective of ability to pay OR affordable for all
  • Minimum standard of provision
  • Provide (essential) services
  • Strategic – control production of certain goods
  • Meet (profit/quality) target set by government
  • Protect or create employment in certain areas
80
Q

Importance of profits to private sector businesses (6)

A
  • Source of finance = to help fund future activities/expansion
  • Inexpensive source of funds as no need to pay interest
  • Needed for long term survival as have funds to help if business makes a loss
  • Represent a return on owners’ capital as otherwise would invest elsewhere
  • Pay dividends/employee bonuses to help attract/retain shareholders/employees
  • Measure of success (large profits would indicate image of good years trading)
81
Q

WHEN DESCRIBING CHANGES IN GRAPHS: (4)

A
  • Describe the line and if it is rising or falling (increase/decrease)
  • Use numbers
  • Then compare with other data
  • May need to analyse why that happened or effects
82
Q

Effect of large decrease in number of employees in public sector on ALL workers (6)

A
  • Possible increase in unemployment = less disposable income = lower sales for private sector businesses
  • Rates of pay [on average] will be higher in private sector + hours of work will be lower = better standard of living
  • Private sector businesses expand = make up for loss of services in public sector = more job opportunities
  • Workers who stay in public sector businesses the hours might have to increase = demotivation
  • Increase in competition for private sector jobs = lower wages
  • Might lead to lower tax rates as fewer wages to be paid in public sector
83
Q

Features of partnerships (6)

A
  • Legal agreement between 2 or more people
  • Owned and financed by partners
  • Profits shared
  • Unlimited liability
  • Unincorporated
  • Share risk of failure
84
Q

Reasons for difficulty in competing against large businesses (5)

A
  • Lack of economies of scale = higher prices charged by small businesses
  • Lack of capital to be able to market/advertise effectively
  • Less stock held = less consumer choice
  • Sales volume is low= need higher profit margins
  • Vulnerable to price wars because of lower retained profit
85
Q

Advantages of unlimited to limited liability business (4)

A
  • Access to more capital (able to sell shares) = allows them to expand
  • Lenders more likely to agree loans for LTD’s, as seen as lower risk
  • Limited liability for owners, therefore private assets are secure
  • Continuity of existence, owners can retire knowing that the business will continue
86
Q

Disadvantages of unlimited to limited liability business (3)

A
  • Extra costs as more legal requirements
  • Financial results are available = competitors can see how well you are doing
  • Potential decrease in control of existing partners = ownership may be shared between more people
87
Q

Ways to increase profits (8)

A
  • Target new markets / segments
  • Develop new products to attract new customers
  • Increase sales revenue by advertising / attract more customers
  • Change price
  • Improve Efficiency methods so cutting waste
  • Automation increases output & lowers wage cost (less labor)
  • Cheaper supplier = lower cost of sales
  • Merger / takeover = buy supplier = cheaper materials = lower cost of sales
88
Q

Benefits of websites (6)

A
  • Improved communication as email/phones means employees are in contact = respond to customer requests quickly
  • Increases public awareness/advertise
  • Reinforces image, customers will expect business to have website these days
  • Increased sales potential as allows customers to easily view options before sale
  • Lower marketing costs, advertises latest products without reprinting brochures
  • Can sell/advertise to people around the world = increases potential market
89
Q

Benefits of new businesses (3)

A
  • Job creation
  • Improved infrastructure
  • Economic growth due to related jobs also being created
90
Q

Limitations of new businesses (3)

A
  • Pollution
  • Loss of natural resources
  • If loud, lower rent of houses in area

Business Studies (5 decks)

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