Understanding Business

Question 1

What are the sectors of economy

Answer 1

Primary
Secondary
Tertiary
Quaternary

Question 2

Describe the sectors of industry

Answer 2

Primary- businesses involved in the extraction of raw materials e.g. Oil, farming
Secondary- businesses involved in manufacturing goods, they take raw materials and transform them into tangible products e.g. Ship building, food production
Tertiary- businesses involved in providing a service e.g. A hotel
Quaternary- businesses involved in providing information services, such as computing e.g. ICT, teaching

Question 3

How is wealth created in a business

Answer 3

By a business adding value to their product or service as it goes through the production process
Country’s wealth is measured by how many goods and services the country can produce
The more goods+services a country can produce, the more jobs there is for population, the tax is raised for the government

Question 4

What are the advantages and disadvantages of creating wealth for the UK

Answer 4

ADV-
Jobs created- reduces UK unemployment
Workers may be able to access training and the opportunity to gain new skills
Tax is paid by individuals and businesses when they have a job and this is paid to government who can then invest into government services
DIS-
Businesses can have a large environmental impact on country e.g. Noise pollution
Volume of non-renewable resources can decrease e.g. Oil
To much demand for goods and services can cause INFLATION

Question 5

What are the sectors of economy

Answer 5

Private
Public
Third

Question 6

Describe the sectors of economy

Answer 6

Private- businesses set up and owned by private individuals who have invested their own money into the organisation e.g. Apple
Aim: profit
Public- businesses owned by government, run by paid workers and manager
Aim: to provide a good/service that should improve the quality of life for a member of the public e.g. NHS
Third: non-profit making organisations, financed by fundraising
Aim: to raise money for a good cause to help it e.g. Oxfam

Question 7

Describe the factors of production

Answer 7

CELL
Capital- man made resources used to produce the goods and services e.g. Machinery
Enterprise- entrepreneur brings together all of the factors of production and takes the risk to produce the products/services e.g. Lord sugar
Land- all of the natural resources e.g. Raw materials- wood
Labour- the people involved in the business and their physical and mental effort e.g. Teachers

Question 8

What is a business

Answer 8

An organisation that makes goods and services to satisfy customers needs and wants

Question 9

Describe a private limited company (Ltd)

Answer 9

The capital of an Ltd is divided into shares, which each shareholder receiving.
Must have a minimum of 2 shareholders
They must complete 2 documents- memorandum of association and articles of association

Question 10

What are the main objectives of a private limited company

Answer 10

Profit maximisation
Sales maximisation
Increased market share

Question 11

What are the advantages and disadvantages of operating as a private limited company

Answer 11

ADV:
Shareholders have limited liability-shareholders do not risk personal bankruptcy
Large amounts of finance can be raised by selling shares via the stock exchange- lenders may feel more confident in investing into their company
Control of company cannot be lost to outsiders
DIS:
Financial statements have to be publicised annually- involves money and time
Profit is shared among shareholders
More complicated to set up as it involves a legal process
The company must obey the rules and regulations of the complanies act

Question 12

Describe a public limited company (plc)

Answer 12

Must be registered with the registrar of companies
Owned by at least 2 shareholders who will own the company
Shares of plc can be bought and sold on the stock exchange
Must complete 2 legal documents
Very large
Marks and Spencer’s
Microsoft
Financed by bank loans, selling shares to the public and applying for government funding

Question 13

What are the main objectives of a public limited company

Answer 13

Profit and sales maximisation
Market domination
Environmentally responsible

Question 14

What are the advantages and disadvantages of a public limited company

Answer 14

ADV:
Shareholders have limited liability- means that shareholders are more likely to invest into the business
Large amounts of capital can be raised by spellings shares on the stock market
Take advantage of economics of scale because of their size- means that they can obtain discounts for buying e.g. Bulk buying discounts
DIS:
The business can be taken over if a rival firm is able to acquire enough shares
Must obey to the rules and guidelines provided by the companies act
No control over who purchases shares
Set up costs are high , for example, they might have to produce high quality prospectus

Question 15

Describe multinational organisations

Answer 15

Businesses that operate in more than one country 
Normally have head quarters based in one country (home country)
Many large plcs operate as this
They want to expand to:
-reduce production costs 
-reduce transport costs
-earn higher after-tax profits
-escape government regulations at home

Question 16

What are the advantages and disadvantages of being a multinational company

Answer 16

ADV:
Economies of scales can be taken advantage of- countries producing such a large scale can spread production costs over larger output so prices decrease
May be able to take advantage of the tax regulations In other countries- increasing profitability
Resources e.g. Labour might be cheaper in other countries - decreasing overall expenses
DIS:
Each countries law needs to be complied with- might mean changes need to be made- expensive
Language barriers may make it more difficult to trade- language interpreters might need to be hired- expensive
Culture may vary from country to country- businesses need to comply with this

Question 17

What is a franchise

Answer 17

A business run by one firm under the name of another

Question 18

Who is the franchisee

Answer 18

Person who starts up the business and provides a product under the franchisers brand name

Question 19

Who is the franchiser

Answer 19

The business which other businesses run by under the name of

Question 20

What are the advantages and disadvantages of becoming a FRANCHISER

Answer 20

ADV:
Income is guaranteed as franchise normally pays a % of profit each year to the franchiser
Quick way to enter into new geographical markets and gain market share
Risks and uncertainties are shared between the franchiser
DIS:
Reputation of whole business is dependent upon the success of individual franchisees
Only a % of revenue is paid to the franchiser and this be lover than what the franchiser could of earned themselves
The franchiser has to devote time and resources to support the franchisee

Question 21

What are the advantages and disadvantages of becoming a FRANCHISEE

Answer 21

ADV:
Set up business using another businesses name that is well established and that people are familiar with- allows them to gain customers and sales quickly+ reduces risk of failure
Advertising costs are already paid for by franchiser
Franchiser Carries out training for the whole business- saves the franchisee time and money
DIS:
Requires a lot of money to set up-might not have this money available
Franchisee has little or no control over the products available, their price or layout of their store - franchisee cannot share any new ideas
Some of profit earned has to be given to franchisee - reduces money franchisee earns

Question 22

What are the public sector organisations (3)

Answer 22

Central gov- e.g. NHS, defence - set up by the government and carry out their policies in these areas. Each year they are given a set amount of money to spend
Local authorities- provide services such as housing, street lighting,education- financed from council tax and grants from central gov
Public corporations- business organisations owned and run by gov e.g. BBC- the gov appoints a chairman and a board of directors to run them

Question 23

What are the organisations in the third sector

Answer 23

Charities- non-profit making organisations and exist to help a charitable cause in some way e.g. OXFAM

Social-enterprises -businesses that trade to tackle social problems, improve communities, peoples lives or the environment e.g. The big issue

Question 24

Name the 9 objectives of a business and describe them

Answer 24

Corporate responsibility(creating a good reputation)- when is firm wants to improve it’s public image
For example- every month waitrose donates £1000 to 3 local causes chosen by their customers
Business can become socially responsible by: recycling, reducing carbon footprint
Satisficing- when a businEss aims for a satisfactory position (private businesses) + making enough profit which is sufficient to keep stakeholders happy
Managerial objectives- when ownership and control are separated, managers will peruse individual aims within an organisation and will vary with each manage
Profit maximisation- making as much money as possible e.g. Lowering costs
Survival- all business want this, smaller companies might get scared they will be taken over by larger companies
Customer satisfaction- all businesses want this, want public and customers to think positively about their business and continue to support it
Increased market share- businesses will be interested in the increasing amount of paying customers that they have , to do this organisations will have to: cut prices
Provision of a service- all businesses want this- Aiming to provide a service in the best way possible
Growth- all business want this