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Bussiness > Understanding Business Activity > Flashcards

Understanding Business Activity Flashcards

1
Q

What are needs and wants?

A

Needs: goods or services that we need in order to live
Wants: goods or services which people would like to have.

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2
Q

How is scarcity linked to wants?

A

People’s wants are unlimited but the resources available to produce them
are limited which leads to scarcity.

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3
Q

What is scarcity?

A

there are not enough products to fulfill the wants of the population

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4
Q

What is specialization?

A

when people and businesses focus on
what they are best at.

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5
Q

Advantages of specialization?

A

Resources can be focused on their most productive lines.

Focusing on a set task enables an individual to become more productive in that task.

Larger outputs can be produced at lower costs.

Concentration of specialists enables sharing of knowledge and skills between specialists.

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6
Q

What are the disadvantages of specialization?

A

Specialization can lead to over-reliance.

Little opportunity for variety for workers.

Narrow specialism might make it difficult for businesses to respond to change.

Delays or hold-ups can delay the whole proccess.

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7
Q

What is the purpose of business activity?

A

Businesses combine scarce factors of production to produce goods or services to satisfy people’s wants

A business also employs people as worker and pays them wages to allow them to consume products as well

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8
Q

What is added value?

A

Added Value = selling price – total cost

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9
Q

How to increase added value?

A

To increase added value, a business can either:
Increase the selling price of product, while keeping the total cost of material the same
Create a brand image
Improve packaging
Make products more appealing by adding features
Provide higher quality goods and services
Decrease the total cost of materials, while keeping the selling price of the product the same.

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10
Q

What are the three sectors of business?

A

Primary sector – extraction of natural resources.
Secondary sector – manufacturing and production of goods.
Tertiary sector – provides services.

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11
Q

When does deindustrialisation occur?

A

When there is a decline in the importance of the secondary sector

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12
Q

Why does deindustrialisation occur?

A

Depletion of primary resources in home country.
Cheaper goods by developing countries
Ability to spend more income on services

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13
Q

What is a mixed economy?

A

An economy that has both a private sector and a public sector.

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14
Q

What is a public sector?

A

Owned by the government. Government will make decisions on what and how to
produce. The main aim is to provide a service to customers.

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15
Q

What is a private sector?

A

Businesses NOT owned by government, will make own decisions on what and
how to produce. The main aim is to make profits.

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16
Q

What is privatization?

A

Privatization refers to the selling of a public sector business to the private sector.

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17
Q

What is an entrepreneur?

A

An entrepreneur is a person who organizes, operates and takes risk to make the business better

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18
Q

What are the characteristics of entrepreneurs?

A

Hard working
Risk Takers
Creative
Effective Communicators
Optimistic
Self-confident
Innovative
Independent

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19
Q

What are the contents of a business plan?

A

Executive summary
The owner
The business
The market
Advertising and promotion
Premises and equipment
Business organisation
Costings
The finance
Cash flow
Expansion

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20
Q

Why do governments support start up businesses?

A

Governments encourage start-ups because they:

Reduce unemployment, new businesses create jobs

Increase competition, gives consumers more choice

Increase output, economy benefits from increased output of goods and services

Can grow further and become large and important businesses which pay government more taxes

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21
Q

How do governments support start-ups?

A

Governments may give support by:

Business ideas & help, they set up support sessions held by experienced business people

Finance, they may lend loans at low interest rates or grants

Governments provide grants for training employees to make them more efficient and productive

Governments give access to research
facilities in universities

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22
Q

What are the four ways you can measure the size of a business?

A

Number of employees
Percentage of market share
Value of capital employed
Value of output

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23
Q

What are the limitations to measuring the size of a business by the 4 ways?

A

Number of employees
Some businesses employ few people but produce high output values.

Value of output
high level of output does not mean business is big.

Value of capital employed
some companies may use cheap labor giving low output with low-cost equipment.

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24
Q

What are reasons to grow business size?

A

Higher profits
More status for owners and managers
can benefit from Economies of Scale (lower costs)
Larger share of its market, ‘big names’

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25
Q

What are the 2 ways in which a business can grow?

A

Internal growth and external growth.

26
Q

What is internal growth?

A

Internal Growth is when the business expands its existing operations

27
Q

What is external growth?

A

External Growth is when the business takes over or merges with another business.

28
Q

What are the three types of external growth?

A

Horizontal Integration
Vertical Integration
Conglomerate Merger

29
Q

What is horizontal integration?

A

firm taking over/merging with
another firm in the same industry

30
Q

What are the benefits of horizontal integration?

A

Economies of a scale and higher market share.

31
Q

What are the problems of horizontal integration?

A

Diseconomies of scale and
difficult to control and manage the business

32
Q

What is Vertical integration?

A

firm taking over/merging with another firm in same industry but different stage of
production (there is forwards and backwards)

33
Q

What are the benefits of vertical integration?

A

profits by supplier/retailer are
absorbed and personal attention is given

34
Q

What is Conglomerate Merger?

A

firm merging/taking over another firm in a different industry. (also known as
‘diversification’)

35
Q

Benefits of conglomerate merging?

A

spread of risks and transfer of ideas.

36
Q

Why are small businesses at a greater risk?

A

Established by youngsters who lack managed experience

Borrow money to begin so will have to repay whether or not business is successful

Start-ups have lesser experience and information about the market in order to make informed decisions

New entrepreneurs may not have a realistic picture of the
market

37
Q

Why do businesses fail

A

Poor management
Failure to plan for change
Poor money management
Over-expansion
Competition with other businesses

38
Q

What is a sole trader?

A

A business owned by just one person. It’s the smallest type of business.

39
Q

Advantages of sole trader business?

A

Easy to set up
They are their own boss
Close relationship with customers
Does not have to share profits
Does not have to give information about the business
Lesser legal restrictions

40
Q

Disadvantages of sole trader business?

A

Capital is usually provided by owner, hard to get capital to expand firm
They have unlimited liability
Business is likely to remain small
No one to discuss business matters with
They are unincorporated. So, business
ends when owner dies

41
Q

What is a partnership?

A

A business in which 2 to 20 people agree to own it. Usually small businesses but bigger than sole traders.

42
Q

Advantages of partnership?

A

Easy to set up

More capital invested (more expansion)

Partners are motivated because any losses are shared by the partners

Responsibilities are shared(focused on different parts of business)

43
Q

Disadvantages of partnerships?

A

Capital is usually provided by partners

Partners have unlimited liability

Partners can disagree on decisions. If one of the partners is inefficient, they all
lose money

They are unincorporated. If one of the partner dies, the partnership ends

44
Q

What is the main difference between Public limited companies (PLC) and Private Limited Companies (LTD)

A

LTD shares can only be bought from the company with permission from the board of directors whereas with PLC shares can be bought and sold on a stock exchange.

45
Q

What is a joint venture?

A

A joint venture is when two or more businesses start a project together sharing capital risks, and profits

46
Q

What is a franchise?

A

A franchise is an agreement of a business based upon an existing brand/business

47
Q

What is risk?

A

the uncertainty of profits or danger of loss, events that could cause business to fail

48
Q

What is ownership?

A

who owns the business (partnership =
partners, LTDs and PLCs = the shareholders)

49
Q

What is liability?

A

how much the shareholders of a company are liable for the debts in the business

50
Q

What is limited liability?

A

liability of shareholders is limited to the amount of money they invested (PLC & LTD)

51
Q

What is unlimited liability?

A

owners of business are held responsible for all the debts of the business (not just
their investment) (Sole trader & partnerships)

52
Q

What are business objectives?

A

Aims or targets a business works towards

53
Q

What are benefits of having business objectives?

A

Employees have a clear target to work towards

Decisions made keeping in mind objectives

Clear & measurable objectives will make sure the entire organisation works towards the same goal

Managers will be able to compare performance

A business objective maybe changed if economic conditions change or one objective has already been achieved

54
Q

What are the private sector business objectives?

A

Business Survival
Generating profit
Returns to shareholders
Growth of business
Market Share
Service to community

55
Q

Who is a stakeholder?

A

Any person with a direct interest in the
performance of a business

56
Q

What are the 2 types of stakeholders?

A

Internal Stakeholders work/own the company
(owners, managers, workers)
External Stakeholders are outside of the business
(consumers, government, banks)

57
Q

What are the internal stakeholders objectives?

A

Internal Stakeholder’s objectives are payments or profits, they want business growth, so value of investment
increases or they get higher status/power

58
Q

What are customers objectives?

A

Customers objectives are reliable products, value for money, good quality, good design and good service

59
Q

What are governments objectives?

A

Government objectives include: money from taxes, will employ more people, increase country’s output

60
Q

What are banks objectives?

A

Banks objectives are to make profit out of loans

61
Q

How can different stakeholder objectives cause conflicts

A

Since different stakeholders have different objectives, it may cause conflict, to try to please all the stakeholders.
Therefore, managers have to compromise to decide which objectives are best for the company

Bussiness (3 decks)

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