Topic 1 What is business? Flashcards
Business sectors
Primary- extraction of natural resources
Secondary- production of finished goods
Tertiary- providing services
Quaternary- providing information and ICT
Unlimited liability
Business owners have a full legal responsibility, which means they risk losing personal possessions, for all business debts
Sole trader advantages
- keep all profit
- full leadership/control
- simple procedure
Sole trader disadvantages
- long hours
- low level of capital
- unlimited liability
Partnership advantages
- specialised skills
- more capital
Partnership disadvantages
- share profit
- disagreements
- unlimited liability
Partnership form
Deed of partnership
Private limited company advantages
- access to more capital
- separate legal identity to owners
- limited liability
Private limited company disadvantages
- paperwork
- AGM
- publish accounts
- dividends
Public limited company advantages
- access to large amounts of capital through shareholders
- limited liability
Public limited company disadvantages
- paperwork
- expensive
- takeover (51%)
- AGM
- dividends
Not for profit organisations
- benefits the community
- sports clubs
Co-operative organisations
- owned by customers, community and workers
Public vs Private sector
public = government, schools, libraries private = shareholders and owners
Institutional shareholders
- pools capital
- banks, credit unions
Ordinary shareholders
- have vote
- dividends after preference
Preference shareholders
- no vote
- dividends before ordinary
- claim assets before liquidation
Market capitalisation
share price x number shares sold
Privatisation disadvantages to public
- services worsen: profit driven
- prices increase = consumer exploitation
Fixed vs Variable interest rate
Fixed = secure and confident Variable = changes w base rate by MPC
Disposable vs Discretionary income
Disposable = after tax Discretionary = after bills, food, gas, clothes etc
Lower interest rates
- more goods bought on credit
- higher discretionary income
- less incentive to save
- firms invest more
- higher sales in luxury and non-essential goods: normal goods
- inferior goods decrease sales: non-branded
How to cope w a dynamic economic climate
- promotions
- loyalty schemes
- differentiation
- value goods
- advertising
- cost-cutting
- diversification
- expand
Economy grows =
- consumer confidence/ job security
- higher employment rates
- real incomes rise
Economy declines =
- higher unemployment rates
- wage cuts for extra hours
- redundancy
Factors affecting market conditions
- consumer tastes/ trends
- disruptive change: radical innovation or technology
- competitive structure: who dominates
How to cope w competition
- price cutting
- R&D
- uniqueness/ differentiation
Factors affecting real incomes
- wage growth
- employment levels
- interest rates
- government taxation policy
