Understanding Business Activity

Question 1

Define ‘specialisation’.

Answer 1

Occurs when people and businesses concentrate on what they are best at.

Question 2

Define ‘opportunity cost’.

Answer 2

The next best alternative is given up by choosing another item.

Question 3

Ways to increase added value.

Answer 3

~ High quality of materials
~ Innovation
~ Higher technology
~ Customisation/Niche-market
~ Added features

Question 4

Reasons why profit is important.

Answer 4

~ To impress investors
~ For rainy days, when you need money for emergencies.
~ To expand business
~ Builds working capital
~ Better cash flow

Question 5

Define ‘profit’.

Answer 5

When the total costs exceed the sales revenue, then a loss is made.
Profit = Sales Revenue – Total cost

Question 6

Define ‘primary sector’.

Answer 6

Extracts and uses the natural resources of the earth to produce raw materials used by other businesses.
E.g. Mining, farming, etc.

Question 7

Define ‘secondary sector’.

Answer 7

Manufactures goods using the raw materials provided by the primary sector.
E.g. Construction, manufacturing, etc.

Question 8

Features of a private sector business.

Answer 8

~ Private ownership & control
~ Profit motive
~ Skilled labour force
~ Source of finance
~ Source of revenue
~ Competition
~ Job security

Question 9

Other classifications of business sector activity.

Answer 9

~ Primary sector
~ Secondary sector
~ Tertiary sector
~ Operating
~ Investing
~ Financing

Question 10

2 limitations of using the number of employees to measure the size of the business.

Answer 10

1. Capital-intensive
2. Labour-intensive

Question 11

4 reasons why a new business might be at greater risk of failure than an established business.

Answer 11

1. Cash flow problems
2. Not satisfy a need
3. Bad business plan
4. Expanding rapidly

Question 12

Define ‘entrepreneur’.

Answer 12

A person who organizes, operates, and takes the risk for a new business venture.

Question 13

2 possible remains why an owner might want their business to remain small.

Answer 13

1. Keep control of the business
2. More profits as less competition

Question 14

2 reasons why business needs objectives.

Answer 14

1. A sense of purpose and direction
2. Motivates employees

Question 15

Explain 2 ways of having a business plan to help a business.

Answer 15

1. Help to get a bank loan: for her bookshop as the lender can see that the business can repay.
2. Provide a target: for her new business so can see what she needs to do to achieve her aims.

Question 16

Define ‘total cost’

Answer 16

Fixed costs + (total) variable cost

Question 17

Identify 2 ways a government can support new business start-ups.

Answer 17

1. Provide loans at low-interest rates
2. Reduce tax payments