Section 1 - What is a business?

Question 1

What is meant by the public sector?

Answer 1

governmentally owned organisations that aim to provide services to the public and not make a profit e.g NHS

Question 2

What is meant by the private sector?

Answer 2

privately owned organisations that range from small sole traders to large organisations such as ASDA. Most aim to make profit

• Apart from not for profit organisations such as charities

Question 3

What is a mission statement?

Answer 3

A written description of a businesses purpose or main corporate objectives

Question 4

What does a mission statement include?

Answer 4

Tells u the purpose of the business, its values,standards,statedgy, who the customers are and what makes the business unique

Question 5

What is a corporate objective?

Answer 5

These are the goals the business has as a whole and depend on things such as size

Question 6

What is a functional objective?

Answer 6

• These are objectives of each department, more detailed they are the more specific they are to each department
• When set all managers in the business have to look at how their department can help to achieve the objective

Question 7

What does the phase ‘objectives should be SMART’ mean?

Answer 7

Functional objectives need to be, specific,measurable,agreed,realistic and timely

Question 8

What is revenue and how is it calculated?

Answer 8

Revenue is the money made from sales

= selling price per unit x quantity of units sold

Question 9

What is a fixed cost?

Answer 9

Fixed costs don’t change with output e.g rent, new machinery and managers basic salary

Question 10

What is a variable cost?

Answer 10

These rise and fall as output changes e.g hourly wage, raw materials and packaging costs

Question 11

How do u calculate total variable cost?

Answer 11

Variable cost per unit x number of units sold

Question 12

How do u calculate total costs?

Answer 12

Fixed costs + variable costs

Question 13

Why is profit important?

Answer 13

1) Profit can motivate people e.g some businesses offer profit sharing schemes
2) Good source of finance
3) can be used to attract investors

Question 14

What is a social enterprise?

Answer 14

Normal businesses with social objectives that trades and makes a profit. However this profit is used to pay for social activities

Question 15

What is unlimited liability?

Answer 15

The business and the owner are seen as one under the law, meaning debts become personal debts of owner

• huge financial risk
• Sole traders have this

Question 16

What limited liability?

Answer 16

Means owners aren’t personally responsible for the debts of the business
- The shareholders of both private and public limited companies have limited liability

Question 17

Key features of a sole trader?

Answer 17

• Individuals who are self employed e.g plumbers
• Have full financial responsibility of debts and requirements
• Minimal legal fees

Question 18

Advantages of being a sole trader?

Answer 18

• freedom
• profit
• simplicity (less form filling)
• saving on fees (no legal costs

Question 19

Disadvantages of sole trader?

Answer 19

Risk
Time
Expertise
Finance
vulnerability
unlimited liability

Question 20

What are the two types of limited liability companies?

Who owns them?

Answer 20

Public and private limited companies (both have limited liability)

• owned by shareholders run by directors

Question 21

Key features of a private limited company?

Answer 21

• Cant sell she to the public
• Dont have shares quoted on stock exchange
• Often small family businesses
• End in limited or LTD

Question 22

Key features of public limited company?

Answer 22

• Can sell shares to the public
• share prices are quoted on stock exchange
• Usually begin private and then move public
• Need over £50000 of share capital and if on stock exchange 25% must be publicly available
• End in PLC

Question 23

What two documents must be drawn up before an organisation can begin to trade? Where must they be sent?

Answer 23

1) Memorandum of association
2)Articles of association
Must be sent to companies house where a certificate of incorporation is issued

Question 24

What is ordinary share capital?

Answer 24

money raised through selling shares (usually long term investment)

Question 25

What do shareholders get in return for these shares?

Answer 25

A dividend - proportion of the profits earned

Question 26

What is market capitalisation and how is it calculated?

Answer 26

The total value of all the ordinary shares issued by a company

= number of shares x current share price

Question 27

Why do shareholders invest in a company?

Answer 27

1) In order to achieve a capital gain
2) Shareholders get paid a dividend in return for investment, more shares owned the bigger this is
3) People may want to be involved in running a business
4) May believe in companies aims and objectives
5) Venture capitalists

Question 28

What factors influence demand and supply of share prices?

Answer 28

1) The performance of a company
2) Speculation and rumour of new product launches/cost initiatives may generate investor interest
3) Current share price - if low then investors may think they are getting a bargain
4) Interest Rates - When low the rewards for saving in banks is reduced which can increase the demand for shares bc financial rewards will be greater
5) State of economy

Question 29

What environmental factors affect cost and demand?

Answer 29

1) Political Factors - If demand is low then governments try increase it by cutting taxes so people spend more
2) Labour supply- If unemployment rates are high theres a good supply of labour so they don’t have to increase costs
3) Incomes and economic factors - E.g in recession businesses may need to reduce costs
4) Seasonal demand and supply

Question 30

What is meant by perfect competition?

Answer 30

Where all firms compete on an equal basis, products are pretty much identical and all charge similar price

Question 31

What is meant by Oligopolgy competition ?

Answer 31

When a small number of large firms dominate the market and charge similar prices
- To get ahead a business should focus on marketing and brand image

Question 32

What is meant by monopoly competition?

Answer 32

When a business has complete control over its market

- no competition

Question 33

What is an interest rate?

Answer 33

A fee paid for borrowing

Question 34

How can environmental factors increase business costs?

Answer 34

• Government legislations forces businesses to deal with some environmental issues ,if they don’t put these targets in place they can face large fines
• Business may implement environmental strategies such as using sustained or recycled materials - introduction of this is expensive

-

Question 35

How can a business use technology to increase demand?

Answer 35

• gather information about the lifestyles of their customer and what they are likely to buy, helps target promotions at the right people
• Social networking sites
  e. g youtube nd twitter
• Apps
• Cookies
• new tech can be used to improve production efficiency e.g make things quicker

Question 36

Advantages and disadvantages of being a private limited company?

Answer 36

Advantages - Limited liability,provides more privacy that plc
Disadvantages - Greater admin costs, can’t sell shares to the public