Topic 1 What is business?

Question 1

Business sectors

Answer 1

Primary- extraction of natural resources
Secondary- production of finished goods
Tertiary- providing services
Quaternary- providing information and ICT

Question 2

Unlimited liability

Answer 2

Business owners have a full legal responsibility, which means they risk losing personal possessions, for all business debts

Question 3

Sole trader advantages

Answer 3

• keep all profit
• full leadership/control
• simple procedure

Question 4

Sole trader disadvantages

Answer 4

• long hours
• low level of capital
• unlimited liability

Question 5

Partnership advantages

Answer 5

• specialised skills

- more capital

Question 6

Partnership disadvantages

Answer 6

• share profit
• disagreements
• unlimited liability

Question 7

Partnership form

Answer 7

Deed of partnership

Question 8

Private limited company advantages

Answer 8

• access to more capital
• separate legal identity to owners
• limited liability

Question 9

Private limited company disadvantages

Answer 9

• paperwork
• AGM
• publish accounts
• dividends

Question 10

Public limited company advantages

Answer 10

• access to large amounts of capital through shareholders

- limited liability

Question 11

Public limited company disadvantages

Answer 11

• paperwork
• expensive
• takeover (51%)
• AGM
• dividends

Question 12

Not for profit organisations

Answer 12

• benefits the community

- sports clubs

Question 13

Co-operative organisations

Answer 13

• owned by customers, community and workers

Question 14

Public vs Private sector

Answer 14

public = government, schools, libraries 
private = shareholders and owners

Question 15

Institutional shareholders

Answer 15

• pools capital

- banks, credit unions

Question 16

Ordinary shareholders

Answer 16

• have vote

- dividends after preference

Question 17

Preference shareholders

Answer 17

• no vote
• dividends before ordinary
• claim assets before liquidation

Question 18

Market capitalisation

Answer 18

share price x number shares sold

Question 19

Privatisation disadvantages to public

Answer 19

• services worsen: profit driven

- prices increase = consumer exploitation

Question 20

Fixed vs Variable interest rate

Answer 20

Fixed = secure and confident 
Variable = changes w base rate by MPC

Question 21

Disposable vs Discretionary income

Answer 21

Disposable = after tax
Discretionary = after bills, food, gas, clothes etc

Question 22

Lower interest rates

Answer 22

• 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

Question 23

How to cope w a dynamic economic climate

Answer 23

• promotions
• loyalty schemes
• differentiation
• value goods
• advertising
• cost-cutting
• diversification
• expand

Question 24

Economy grows =

Answer 24

• consumer confidence/ job security
• higher employment rates
• real incomes rise

Question 25

Economy declines =

Answer 25

• higher unemployment rates
• wage cuts for extra hours
• redundancy

Question 26

Factors affecting market conditions

Answer 26

• consumer tastes/ trends
• disruptive change: radical innovation or technology
• competitive structure: who dominates

Question 27

How to cope w competition

Answer 27

• price cutting
• R&D
• uniqueness/ differentiation

Question 28

Factors affecting real incomes

Answer 28

• wage growth
• employment levels
• interest rates
• government taxation policy