Unit 1

Question 1

Define Public Services

Answer 1

They are provided by the government or local authority, for example the NHS, police force, fire service and rubbish collection.

Question 2

What are the reasons for setting up a business

3 points

Answer 2

To provide:
goods and services (including public services )
money for owners (profit)
help and support for others (charitable organisations)

Question 3

Define Mission statement
provide an example

Answer 3

Provides the big picture of the business and represents its vision, core purpose and values.
Tesco’s mission statement is: ‘We make what matters better, together’,

Question 4

define Objective

Answer 4

They are more specific. They are targets or goals that will enable an organisation to achieve its overall mission.

As well as overall business objectives, each functional area of a business has its own set of objectives enabling it to contribute to the overall business objectives and mission.

Question 5

What must all objectives be

Answer 5

S - pecific
M - easurable
A - achievable
R - ealistic
T - ime bound

Question 6

Define Profit

Answer 6

Profit The reward the owners of a business receive for taking on the risk of starting a business.

Question 7

Define CSR

Answer 7

Corporate social responsibility (CSR) is a company’s sense of responsibility towards the community and the environment in which it operates.

Question 8

Name 5 common business objectives

Answer 8

profit — vital for the long-term health and security of a business

growth — in terms of market share or sales turnover

survival — important for many businesses in times of economic uncertainty and for all businesses when first starting out

cash flow — for many smaller businesses, cash flow may be more important than profit

customer service — to gain loyal customers in a competitive marketplace

Question 9

3 reasons why businesses set objectives

Answer 9

Objectives give meaning to planning and enable the business to remain focused.

The business can measure and review performance. As a result, its objectives may be revised or corrective action may be taken, depending on the circumstances.

Objectives provide a motivation for those responsible for implementing plans.

Question 10

Define Privatisation

Answer 10

The process of transferring ownership of governmentowned and controlled industries or businesses to the private sector.

Question 11

define Unincorporated businesses
how does this affect liability

Answer 11

Those where there is no distinction in law between the individual owner and the business itself.small shopkeepers electricians

unlimited liability

Question 12

describe the difference between public and private sector businesses

Answer 12

The private sector is that part of the economy where a business is owned and controlled by an individual or a group of individuals. eg: sole traders, partnerships, private limited companies, public limited companies, charities and mutuals.

The public sector is that part of the economy that is owned and controlled by the government or local authorities.Eg in the Uk: the police force, fire service, the BBC and the NHS, as well as local council run services such as refuse collection. The public sector used to include a number of key nationalised industries and utilities such as coal, steel, water and telephone, but these have largely been sold off to the private sector through privatisation

Question 13

advantages of an unincorporated business
(sole trader partnerships)

4 points

Answer 13

They are easy to set up with few legal formalities.

The owner takes all the profit.

They have financial privacy as their financial affairs do not have to be published.

They have greater independence than other legal structures and as a result may be more responsive to changes in circumstance.

Question 14

disadvantages of an unincorporated business
(sole trader partnerships)
3 points

Answer 14

They have unlimited liability so the owner’s personal assets may be used in the event of failure.

They have limited capital and access to capital (loans) for expansion.

Their business skills may be limited.

Question 15

Advantages of a private limited company

4 advantages

Answer 15

The owners have limited liability.

They have access to a greater amount of capital than unincorporated businesses.

They have greater privacy than public limited companies.

They have less pressure from outside investors and greater flexibility.

Question 16

Disadvantages of a private limited company
3 points

Answer 16

They are more difficult to set up than unincorporated businesses.

Although they have access to a greater amount of capital than unincorporated businesses, they have access to less capital than public limited companies.

Financial information is accessible to outsiders.

Question 17

Is a private limited company
incorporated or unincorporated?

Answer 17

incorporated business

Question 18

advantages of a public limited company
3 points

Answer 18

The shareholders have limited liability.

They have access to greater amounts of capital.

They have greater power over suppliers regarding credit terms.

Question 19

disadvantages of a public limited company

3 poitns

Answer 19

They have to publish greater amounts of financial detail leading to more scrutiny of their affairs.

The original owners are likely to lose control of the business.

Pressure from investors may result in greater emphasis on short-term profit rather than long-term performance.

Question 20

What is one other type of organisation than ST, Ltd and PLC’s

Answer 20

Non-Profit like charities and mutuals (insurance companies)

Question 21

Define Dividend

Answer 21

A share of the after-tax profit of a company distributed to its shareholders according to the number of shares held.

Question 22

Define Market capitalisation

Answer 22

This is equal to the share price multiplied by the number of shares issued.

Question 23

What is the role of shareholders in a business

3 points

Answer 23

Approve Major decisions .

Ensure the directors do not go beyond their powers.

They can also remove directors and/or change the name of a company.

The biggest shareholders in public limited companies are usually financial institutions, pension funds, insurance companies, etc.

Question 24

Why do shareholders invest in a business

2 points

Answer 24

People invest in shares primarily for two reasons:

Income . Shareholders are entitled to a share of company profits known as a dividend .

Capital growth . Shareholders hope that the value of their shares will increase over time.

Question 25

What are the Influences on share price

4 points

Answer 25

performance — better or worse than expected profits

expectation — of better or worse profit performance

changes — within the market or competitive environment

world uncertainty — such as conflict in the Middle East

Question 26

What is the significance of shareprice
what might a falling share price suggest

Answer 26

It gives a valuation of the company — its net worth. A falling share price might provide an opportunity for investment or takeover, or it might be an indication of a business in decline.

Question 27

describe the effects of ownership on mission, objectives, decisions and performance of each type of business

Answer 27

PLCs are owned by shareholders who are driven by profit, which can lead to short-termism. Decision-making may be more on the basis of maximising profit and the philosophy outlined in the mission statement may be less important.
Eg: Tesco in 2014 when it was shown to have made mistakes in reporting profits higher than they actually were. Leading to a big fall in Tesco’s share price.

Sole traders and private limited companies are less affected by this need to achieve profits and may be able to keep a closer focus on their mission statement and objectives as long as they break even.

Question 28

How does an external factor like Competition affect the costs and demands of the business

Answer 28

If an individual business differentiates its product from that of its competitors with a unique selling point (USP), it might be able to increase demand. Alternatively, if its competitor releases a new, more technologically advanced product or additional facilities, demand could fall. If the products are relatively the same, such as in the grocery market, there will be pressure to reduce price and lower costs in order to maintain profitability.

Question 29

What are Market conditions
and how does an external factor like this affect the costs and demands of the business

Answer 29

they are the characteristics of a market into which a business is entering or into which a new product is being introduced. Such characteristics might be the number of competitors, the intensity of competitiveness and the market’s growth rate.
A market with high growth and a low intensity of competitiveness is likely to present greater opportunities for higher demand than one where the opposite conditions prevail.

Question 30

How does an economic factor like intrest rates affect the costs and demands of the business name 3 other economic factors.

Answer 30

Interest rates have a direct impact on the cost of borrowed money: it is cheaper to borrow at times of low-interest rates. The interest rates can affect demand: rising interest rates could mean lower demand as consumers who have borrowed money are likely to face higher interest payments and have less disposable income as a result. Other consumers might also be encouraged to save more because of rising interest rates. Falling interest rates are likely to have the opposite effect.
If a business has large cash reserves it could benefit from rising interest rates because of the higher interest received.

economic cycle, interest rates, inflation and exchange rates

Question 31

Name 4 demographic factors
and how does an external factor like this affect the costs and demands of the business
describe how furniture company may use this data.

Answer 31

age, sex, income and occupation, birth and death rates, the level of public health and immigration
Demographic factors refer to the socio-economic characteristics of the population by which a business might segment the market . All of these factors may have an influence on the level of demand for a business and the type of products and services on offer.
for example, an aging population in the UK may mean a furniture business may focus on orthopaedic comfy chairs instead of artistic design.

Question 32

How does enviromental issues affect the costs and demands of the business

Answer 32

Due to communication becoming easier and further reaching No longer can a business carry out production without regard for its local environment. Any hint of pollution in the UK can be quickly brought to public attention through social media. The concern for the environment is at an all time high. so a business is likely to implement Fairtrade and sustainable development into its products and process this is likely to mean higher costs for a business, but it could lead to greater demand and a better reputation, as well as acting as a unique selling point.