understanding business activity Flashcards
business activity def
the process of producing goods and services to satisfy customer demand
need def
a good or service essential to living
want def
a good or service that people would like, but that is not essential to living
needs examples
water, shelter, food
wants examples
phones, cars, holidays
economic problem def
unlimited wants cannot be met because there are limited factors of production. this creates scarcity
factors of production def
the resources needed to produce the goods and services - land, labour, capital and enterprise
land meaning
all natural resources such as minerals, ores, fields, oil and forests.
labour meaning
number of people available to work
capital meaning
machinery, equipment and finance needed for production of goods and services.
enterprise meaning
people prepared to take the risk of setting up a business - entrepreneurs
scarcity def
there are not enough goods and services to meet the wants of the population
opportunity cost def
the benefit that could have been gained from an alternative use of the same resource.
specialization def
people and businessees concentrate on what they are best at
division of labour def
production is divided into separate tasks and each worker does just one of those tasks.
consumer goods def
products which are sold to the final consumer. they can be seen and touched, for example computers and food.
consumer services def
non-tangible products such as insurance services, transport
capital goods def
physical goods, such as machinery and delivery vehicles, used by other businesses to help produce other goods and services
durable consumer goods
reuseable: tv, chairs
non-durable consumer goods
used once: food and drink
how can a brand increase added value
branding, service quality, product features, convenience
primary sector def
firms whose business activity involves the extraction of natural resources
business activites of the primary sector
farming, fishing, forestry, mining
secondary sector def
firms that process and manufacture goods from natural resources
business activities of the secondary sector
refining, manufacturing, construction
examples of the primary sector
rice, fish, wood, coal
examples of the secondary sector
food canning, furniture making, car manufacturing
teritary sector def
firms that supply a service to consumers and other businesses
businesses in the tertiary sector
shops, restaurants, banks
chain of production def
the production and supply of goods to the final consumer involves the activities from primary, secondary and tertiary sector businesses.
what is a LDC
less developed country
what is a MDC
more developed country
industrialisation meaning
the growing importance of secondary sector business activity and the reduced importance of primary sector business activity. the emerging economies of both china and india are good examples.
de-industrialisation meaning
the growing importance of the tertiary sector and the reduced importance of the secondary sector. the uk and the usa are good examples of this type of economic activity
if consumers have a higher income…
they will expect better quality and a wider choice of products
they have a better education and know they can buy goods from suppliers in a differet region or country through e-commerce
have more leisure time - increase in demand for leisure activites
mixed economy def
an economy where the resources are owned and controlled by both the private and public sectors.
private sector def
the part of the economy that is owned and controlled by individuals and companies for profit
public sector def
the part of the economy controlled by the state or government
in what sector do consumer choices play a large part in business decision-making and their choice of product
private
who makes the decision of what, how, and for whom in a public sector business
the government
if some consumers cannot afford products a private sector business will
do nothing
if some consumers cannot afford products a public sector business will
sell them at a lower price or provide them free of charge.
entrepreneur def
an individual who has an idea for a business takes the financial risk of managing a new business.
what ideas for enterprise might an entrepreneur have
new idea for good or service
offering an existing good or service in a way that has not been offered before
ofering an existing good or service in a new location
characteristics of an entrepreneur
innovative self-motivated and determined self-confident multiskilled leaderhsip qualities initiative results driven risk taker good at networking
busienss plabn def
a detailed written document outlining the purpose and aims of a business which is often used to persuade lenders or investors to finance a business proposal.
revenue def
the amount a business earns frim the sale of its products
contents of a business plan
the business (workers,entrepreneur) business opportunity (market research) the market objectives of business financial forecasts
how do business plans assist entrepreneurs
persuade lenders
purpose and direction
objectives and financial forecasts
when a business needs a new business plan for when it wants lenders or investors to provide finance what is it called
a corporate plan
why are governments keen to help start ups
they provide jobs
increase the variety of products available
competition in the market will lead to lower prices and better quality
small busiensses often provide specalist goods and services to consumers and larger firms
some will expand to be the next large firm
smaller businesses often have lower costs
business start up def
a newly formed business. they usually start small but some might grow to become much bigger
most common types of government support for start ups
grants/interest free loans lower taxation rates rent free premises for a period of time free or subsidied training for workers information, advice and support from specalist agencies
capital employed
value of all the long term finance invested into the business. used to buy the things that a business needs before it can produce goods or services, e.g factory/office buildings, machienry and inventory
can you use number of employees to measure business s size
yes but if one business has a lot of automation and fewer workers it will not be reliable.
why would some businesses expand
increased profits larger market share economies of scale greater power to control the market protection from the risk of takeover
internal growth
increasing the number of goods it can produce, eg machinery
developing new products
finding new markets for products
external growth
horizontal integration
forward vertical integration
backward vertical integration
conglomerate integration
what is external growth
when a business merges or takes over another business in another industry. this is known as integration
sole trader def
a business that is owned and controlled by just one person who takes all of the risks and all of the profits
why would someone be a sole trader
make the decisions
decide their hours
have a business about their skills and interests.
advaantage sof being a sole trader
quick and easy
complete control
small amount of start up capital
owner keeps all profit
disadvantages of being a sole trader
risks losing personal wealth (unlimited liability)
often difficult to raise funds
difficult to compete with larhe firms
long hours to make a living
if they die or retire the busienss no longer exists
start up capital def
the finance needed when firstr settign up a business
partnershup def
a business formed by two or more people who will share responsibility for the day to day running of the business. partners usually invest capital into the business and will share profits.
advantages of a partnership
greater access to finance
better dexcision making
management and runnign shared
easy to set up
disadv of a partnership
unlimited liablity
must share profits
business decisions binding to all partners even if they dont agree
partnershuips often fairly small
franchise def
a business system where entrepreneurs buy the right to use the name, logo and prodct of an existing business
adv of franchises
less chance of failure
franchisor often prodes advice and training, and finance promotion, and checking the suppliers are good quality
disadv of franchises (to franchisee)
inital cost is expensive
franchuisor takes % of profits every year
strict controls on what the franchisee can do
franchisee will have to pay for local promotions
joint venture def
two or more businesses agree to wwork together on a project and set up a separate business for this purpose
adv of joint ventures
reduces risk and cuts costs
each busienss brings different expertise
market and product knowledge can be shared
disadv of joint ventures
mistakes damage the reputation of all the firms
clash of different business cultures or styles of leaderhip
what is an unicncorporate dbusienss
one which does not have a seperate legal identity from its owners. owners legally responsible for activities of the business
what is an incorporated business
it has a seperate legal identity form the oweners. owners not legally responsible for the activties of thebuseinss
why would a business chose to change type of business organisation
reduce legal and financial risk
separate legal identity
to raise additional capital
what does choosing the type of business to depend on
number of owners owners role in management of business attitude to financial risk how quickly the owners want to start operating potential size of buisiness
public corporation def
a business organisation that is owned and controlled by the state
objective def
a statement of a specific target to be achieved. they should be smart
what does smart stand for
specific measurable achieveable and agreed realsitic and releveant time sepcifi
different business objectives
survival profit growth market share corporate social responsibility
market share def
the revenue of a business expressed as a percentage of total market revenue
corportate social responsibility def
busiensses taking responsibility for the impact their activities might have on society and the environemnt
pressure group def
organizations of like-minded people who put pressure on businesses and governments to change their policies to reach a predetermined objectives
social enterprise def
a busienss with social objectives that reinvests most of its profits back into the business or benefiting society at large
stake holder def
an individual or gorup which has an interest in a business because they are affected by its decisions
two types of stakeholder
exteral and internal
types of internal stakeholder
owners/shareholders
managers
employees
types of external stakeholder
lenders suppliers customers government local commuinity
objectives of a owner/shareholder as a stakeholder
to get high returns/dividends as a reward for risking investment
to benefit from an increase in share value
objectives of managers as a stakeholder
to have job satisfaction and status
to recieve salary increases and bonuses
objectives of employees as a stakeholder
to have job security
to receive a fair wage that reflects their contribution to society
objectives of lenders as a stkaeholder
to get interest payments hwen due
to have borrwing repaid by the date
objectives of suppliers as a stakeholder
to get prompt payments for goods supplied on credit
to be treated failry and not be forced to reduce their prices
objectives of cusotmers as stakeholders
to get quality goods after sales ervive
to be charged a fair pruce
objectives of governmetn as stakeholders
to be paid the correct amount of taxes on time
minimal spending on unemployment benefits
objectives of local community as stakeholders
to get benefits for local economy such as employment and subsidising community facilities
avoid negative impact of business activities such as pollution
public sector organizations benefits
accessible
affordable
open to all
horizontal integration
two firms in the sam eindustry and same sector of business activity
forward veritcal integration
two firms in the same industry but one is a customer of another
backward vertical integration
two firms in the same industry, but one is a supplierr to the other
conglomerate integration
two buisinesses in completely different businesses.
reasons for business failure
economic influences poor planning poor cash flow management poor management skills lack of objectives failure to invest in new technologies lack of finance poor choice of location poor marketing competition
unincorporated business def
a business that does not have legal identity seperate from its owners. owners have unlimitied liability for business debts
unlimited liability def
if an unincorporated business fails, then the owners might have to use their personal wealth to finance any business debts.
shareholder def
a person or organisaton who owns shares in a limited company
private limited company def
often a small to medium sized company, owned by shareholders who have limited liability. the company cannot sell its shares to the general public
public limited company def
often a large company, owned by shareholders who have limited liability. company can sell shares to general public
ordinary shareholders def
the owners of a limited company
limited liability def
the shareholders in a limited liability company which fails only risk losing the amount they have invested and not any of their personal wealth
dividend def
a payment, out of profits, to shareholders as a reward for their investment
collateral def
non current assests offered as security against borrowing
