Term 1 Flashcards
What are entrepreneurs characteristics?
- Risk taker
- Self belief and confidence
- Persistence and drive
- Leadership skills
Ability to work under pressure
In what ways do entrepreneurs access risk?
- Strained relationships
- Time consuming
- Financial loss
- Access competition
- Resources needed
What are the factors of production?
- Land (natural resources available for production) e.g. iron, coal, water, oil
- Labour (educated/skilled) e.g. not just about quantity but quality, human input into production
- Capital (machinery/new technology) e.g. financial resources, leads to efficiency + productivity
- Enterprise e.g. individually willing to take risk, reward for risk is profit
Definition of Opportunity cost?
The cost of the next best alternative forgone
Definition for adding value?
Difference between the price of the finished product/service and the cost of the inputs involved in making it
In what ways would a business add value to a product of service?
Branding
Quality
Material
Warranty
Face to face service
Definition of building a brand?
A reputation for quality, value etc that customers are prepared to pay for
What are the benefits of adding value?
- Higher price
- Point of difference from competition (protecting from competitors)
- USP (unique selling point)
Name the functions of a business?
Accounting and finance
Operations Management
Marketing
Human Resources Management
Customer service
Sales team
What are the constraints of a business?
Competition
Employee skills
Finance available
The economy
Legislation
3 sectors of the economy - define primary sector?
The activities undertaken by directly using natural resources e.g.mining, farming, fishing, forestry
(Only accounts for 1% of the economy)
3 sectors of the economy - define secondary sector?
Involves converting raw material into finished goods e.g. manufacturing/construction, assembly plants, goods can be finished/unfinished
(Accounts for approximately 19% of the economy)
3 sectors of the economy - define tertiary sector?
Provision of services e.g. financial services, leisure services, transport.
(Most important as accounts for 80% of economy)
What are shareholders/owners mainly interested in?
The percentage profit increasing, dividend payments, market growth
What are managers and employees mainly interested in?
Safe working conditions, opportunity for promotion, good pay
What are customers mainly interested in?
Value for money, product quality, good customer service
What is a stakeholder?
Any individual or organisations who have a vested interest in the activities and decision making of a business. (DO NOT CONFUSE WITH SHAREHOLDER)
Private Sector:
Privately owned (individuals/companies)
Generally run to make profit
Act ethically/good customer service
Profit returns to shareholders
Public Sector:
Owned and run on behalf of the public
Funded by government
Not generally run for profit
Public services
Examples of Third Sector Organisations
Voluntary and community group
Charities
Social enterprises
Cooperatives
Value driven (not necessarily motivated by profit but desire to achieve)
Social goals (public welfare)
Define Unincorporated
Unlimited liability, owner is the business, operate as sole traders, owner suffers business losses too
Define incorporated
Limited liability, legal difference between company and owners
Define sole trader
Someone who sets up and owns the business individually
Advantages of sole traders:
Overrule all decisions
Take all profits
Complete control
Easy/quick to set up
Disadvantages of sole traders:
Unlimited liability
Harder to raise finance
Lack of ideas
No continuity
Advantages of the Franchiser:
Firm may not have to spend large amounts of money in order to expand
Products necessary for franchise to operate are under the franchisers control
Applicants can be carefully selected for suitability
Disadvantages for the franchiser:
Control issues
The cost of supporting the Franchisees
Possibility of conflict/ bad reputation
Advantages to the Franchisee:
Lower risk (proven business product)
Support advice and training
Marketing (National)
Maybe easier to obtain finance
Disadvantages to the Franchisee:
Profit is shared
Franchise fees
Suppliers have to be bought from the franchiser
Less control and independence
Business can’t be sold without permission
Franchise maybe for a fixed period
What is a cooperative?
A business that is owned and run by its members (employees and customers), profits are shared between members rather than being distributed to shareholders.
Advantages of Cooperatives:
Legally straightforward to establish (legal documentation is straightforward)
Liability for members is usually limited
A higher quality of service is likely to be provided (as customers likely to be members)
Customers usually loyal and supportive
Disadvantages of cooperatives:
Capital can be limited (limited to what members contribute)
Weak management (those selected may not have grasp of business principle)
Slower decision making (too much involvement of members)
Employees may want more (instead of profit being reinvested to reach the coops aims)
Define market:
Any situation where buyers and sellers are in contact in order to establish price
Advantages of a physical market: (buyer)
Try clothes on before buying
Brands can offer services
Choose correct size
Easier access to products
Disadvantages to a physical market: (buyer)
Takes more time
Wider variety of products online
Advantages of a non-physical market: (buyer)
Quick and easy
Wider variety
Next day delivery
Stocks
Disadvantages of a non-physical market: (buyer)
Size issues
Can’t try product on
Scams
Advantages for a physical market: (seller)
Offer customer service
Face to face selling
Display products
Disadvantages of a physical market: (seller)
Have to pay rent
Pay workers
Cleanliness
Location
Security
Advantages of non-physical market: (seller)
Don’t pay rent
Easy to run
Minimal physical cost e.g. workers
One place -simple
Access
Organisation
Disadvantages of non-physical market: (seller)
Stock issues vs demand
Returns could be high
IT costs
Visibility
Define competition:
Describe as rivalry amongst sellers to gain more market share
Define market share:
The percentage of total sales in an industry generated by a particular company
Define market price:
Price range that customers are prepared to buy within
What is a competitive market?
A market where a large number of firms producing a similar product or service are competing to meet needs of a large number of consumers. Competing mainly on price, therefore difficult to increase it, must sell at going rate.
What is a barrier to entry?
What makes it difficult to enter into a market e.g. cost, regulation, brand loyalty, technology
What is a monoploy?
A market dominated by one seller, any firm with more than 25% of industry’s sales.
A dominant firm has at least 40% of industries sales
What is economies of scale?
The cost per unit of production decreases as volume of product increases
Define fixed costs:
Costs do not vary with the level of output (factory, machines, rent, etc)
Define variable costs:
Costs that change in proportion to the level of goods or services a business produces
What is bulk purchasing?
When companies can buy parts in larger quantities at a discount, reducing the cost of the final product
What is operational efficiency?
with more production, the company can optimise its manufacturing process reducing time and waste per product.
Describe Economies of scale:
Where monopolies can achieve economies of scale, meaning they can produce goods or services at a lower cost per unit due to their large scale of production. This can potentially lead to lower prices for consumers.
What is an oligopoly?
An oligopoly exists where a market is dominated by a few firms
What is collusion?
Collusion takes place when rival companies cooperate for their mutual benefit. When two or more parties act together to influence production and/or price levels, preventing fair competition. Common in an oligopoly/duopoly.
What is anti-competitive behaviour?
Strategies designed to limit the degree of competition inside a market
What is monopolistic competition?
A market structure with many competing firms each of whom supplies a slightly differentiated product e.g. taxi business = late pick up times, disabled access, good customer rapport
What are the characteristics of a Competitive Market?
Large number of firms
no ability to compete on price
no barriers to entry
very little product differentiation
E.g. farm/dairy
Characteristics of a Monopoly:
One firm in the market
Can set price (high)
Barriers to entry are subject to gov regulation
No products that directly compete
E.g. gas (utilities)
Characteristics of a monopolistic competition:
Many sellers
Limited ability to control price
Few barriers to entry
A few differences in products
E.g. retail, fast food, clothing stores
Characteristics of an Oligopoly?
Few large dominant firms
Some ability to control price
Many barriers to entry
Some product differentiation
E.g. mobile phone networks, airlines
What is a mark up?
The difference between the price of a product and how much it cost to produce
What can companies do to increase market share?
Better promotion
Reaching target market
Offer discounts, deals, promotions
Change price strategies
Merge with competitors
Understand customer needs
What is market power?
The ability of a firm to influence or control the terms and conditions on which goods are bought and sold.
Define market dominance:
A measure of market share compared to competitors
Define barrier to exit:
The factors that could prevent a firm from leaving a market even if they wanted too
What is a merger?
Where two companies join together to form a new larger business
What is an acquisition/takeover?
Where control of another company is achieved by buying a majority of its shares
What is meant by a hostile takeover?
Board rejects offer
Goes to shareholders
May still be contested and costly
Board could leave
Define Organic/Internal Growth:
Involves the expansion of a business from within
Examples of organic growth:
Opening new stores
Launching new products
Employing more workers
Increasing product capacity
Investing in new technology
Launching products into new markets
What is the CMA?
Competition and Markets Authority
What does the CMA do?
Takes action against businesses and individuals that take part in cartels or anti-competitive behaviour
What sanctions can the CMA apply?
Fined 10% of Global Turnover
Customers and competitors can sue for damage
Individuals can be disqualified from being a company director
Fine individuals for failure to comply I.e. CMA requests info
What is the demand?
The amount of a good/service that customers are willing and able to buy at any given price
What is the supply?
The amount of a good/service that sellers are willing and able to sell at any given price
What is the equilibrium price?
Situation in a market where demand is equal to supply I.e. both parties are happy. I’m theory customers can buy what the want and shops have no unsold stock
