Theme 1 section 2 Flashcards
What is an entrepreneur
a person who spots an opportunity and shows initiative and willingness to take risks in order to benefit from potential award
co-ordinates the other three factors of production
entrepreneurs benefit from creating an idea for a business by…
brainstorming
personal experience
business experience
market research
what steps does creating a business require
asking if the idea can add value
conducting market research
drawing a business plan
deciding on legal structure
raising finance
What is a business plan
a business plan is an important part of setting up a business
used both internally by the entrepreneur and externally by banks, external advisors or those willing to provide grants
What does a business plan include
the executive summary- a synopsis of the entire plan looking at most important points
- the business and products or services
- The market e.g size, share, competitors
- The marketing strategy
-The skills of the entrepreneur and other key employees
-operations
- financial forecast
what does being an entrepreneur involve
managing resources inc stocks, personnel and finances
managing marketing decisions about the marketing mix such as price to charge and promotion
dealing with customers
maintaining financial records
as it grows:
employing staff
use the service of experts e.g accountants
delegate responsibility to others
make other key decisions
moving to bigger premises
changing suppliers
expand product range
what is added value
added value is the ability to ensure that the value of the output is higher than the value of the sum of all of the inputs
it is important an entrepreneur can add value in order to make profit and survive
How is value added
value is added by
manufacturing process to combine inputs
marketing to increase actual or perceived value e.g branding or emotional advertising
Having a USP or product differentiation
Enhancing the customer service
What is creative destruction
creative destruction is a term made by Joseph Schumpeter in the 1940s
the process of industrial mutation that incessantly revolutionise the economic structure from within, incessantly destroying the old one, incessantly creating a new one
creative destruction describes a situation when something new kills something old
What are the characteristics of an entrepreneur
opportunity spotters
show initiative
positive thinker
creative
risk taker
hard working
decision maker
enthusiastic
persistent
What are entrepreneurial motives
entrepreneurial motives are:
fulfilling a dream
making money
being your own boss
supporting a community
proving you can
work-life balance
what are financial motives
profit maximising
profit satisficing
What is profit maximisation
profit maximisation is when the aim is to make as much profit as possible
profit = sales revenue - total costs
What is profit satisficing
profit satisficing is when they make enough profit to be satisified but are not purley motivated by profit
may profit satisfice to maintain work life balance
what are examples of non financial motives
ethical stance : behaving in a way that is morally correct e.g no animal testing
social entrepreneurship: motivated by supporting a cause instead of for profit
indepence: being your own boss
homeworking: matching family commitments and work life balance
what is ethical stance
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what is enterprise
enterprise takes land, labour and capital and organises them to produce products
profit is the reward
What is capital
capital as a factor of production refers to machinery man made resources which help produce the good
interest is the reward of capital
what is land
land is all of the natural resources used e.g oil
raw materials used to generate goods
rent is the reward of land
what is labour
labour includes all of the workforce
the value of the worker is human capital
wages are the reward for labour
what is specialisation
specialisation is when economic units e,g individuals and firms, regions or countries focus on producing specific goods or services. Specialised use of workers is called division of labour
specialisation leads to increased output per worker (productivity)
addresses the problem of scarcity
What are positives with division of labour
constantly doing the same job improves workforce and leads to improved efficiency
cuts down production costs and improves efficiency
creates competitive advantage
what are negatives from division of labour
problems occur especially in low skilled jobs- the work can become monotonous
leads to high absenteeism and labour turnover
uk wages and high and tend to be undercut by foreign competition
uk businesses often operate with highly differentiated products where there is higher quality with higher price
what are the advantages of specialisation
specialisation increases output as economic outputs become more efficient and effective
- greater understanding in what is required for output
- each economic output can specialise in what they are best at
-efficient use of time because there are no switching tasks
-technical economies of scale
- the increased output can be switched for other goods that they aren’t as good at producing
- allows further exchange between the economic units
- reduced unit cost through bulk buying
-improved quality through better training and skills
- use machines to increase speed and accuracy e.g production lines
- create a unique selling point
- Able to trade in different fields
What are the disadvantage of specialisation
-work can become monotonous, which effects quality and productivity which can increase absenteeism
- limited by the size of the market, small firms cannot introduce specialisation
- threat of structural unemployment if industry goes into decline
- Economic agents that specialise are at risk of losing
- in a competitive global market the uk can easily lose market share , must continuously strive to improve the production process
- develops new industries but loses old ones e.g textiles
what are interest rates
the price of money i.e the cost of borrowing or the reward for saving
when a firm borrows a loan or goes into their overdraft this is a cost on the business
what happens if interest rates are high
when interest rates are high then borrowing is less attractive
and people will begin to save
people have less disposable income
when mortgage payments are higher therefore there is a fall for demand in other products
When interest rates are higher foreign investors will invest in uk banks to see higher return this therefore increases demand for £ which means the value will depreciate which means that the exports are therefore dearer
what is the exchange rate
the price of one currency in terms of another
what is an increase in value of a currency called
increase in value is called appreciation
what is the effect on businesses
Strong
Pound
Imports
Cheaper
Exports
Dearer
Weak
Pound
Imports
Dearer
Exports
Cheaper
what is the decrease in value for a currency called
a decrease in value is called depreciation
