Unit 1 Flashcards
What is the purpose of business activity?
- Business activity uses scarce resources to produce goods and services that allows consumers to live a higher standard of living.
- Adding value
Def. Consumer goods
- The physical tangible goods sold to the general public.
- Durable goods: e.g cars or washing machines
- Non durable goods: e.g food, toothpicks
Def. Consumer services
- The non- tangible products sold to the general public
E.g hotel accommodation, insurance services
Def. Capital goods
- Fixed assets = physical goods used by industry for production e.g machinery, vehicles
What are the factors of production? (7)
- Land: site for buildings and natural resources e.g coal
- Labour: manual and skilled labour to make up workforce
- Capital: Finance invested and capital goods
- Enterprise: a managing, decision making and coordinating role.
- Customers
- Suppliers
- Government: for the use of roads/rail/airports, law and order, Schools and college
Def. Creating value
increasing the difference between the cost of purchasing bough-in materials and the price the finished goods are sold for.
Def. Added value
The difference between the cost of purchasing raw materials and the price the finished goods are sold for.
Def. entrepreneur
Someone who takes the financial risk of starting and managing a new venture
What are the characteristics of successful entrepreneurs? (6)
- Innovation: Must be able to carve a new niche in the market to attract consumers
- Commitment and self motivation: the willingness to work hard, keep ambition to succeed, energy and focus
- Multi - skilled: know technical skills, social skills, good at handling money and keeping accounting records
- Leadership skills: have the personality that will encourage people to follow
- Self - confidence and ability to ‘bounce back’: ability to make a come back from any setbacks.
- Risk taking.
What is a business?
Any organisation that uses resources to meet the needs of customers by providing a product or service that they demand.
What are the challenges faced by entrepreneurs? (5)
- Identifying a successful business opportunity.
- Sourcing capital (finance)
- Determining a location
- Competition
- Building a customer base
Why do businesses often fail? (4)
- Lack of record keeping
- Lack of working capital
- Poor management skills
- Changes in the business environment
What is the impact of enterprise on a country’s economy? (6)
- Employment creation: reduces national unemployment level.
- Economic growth: increase in output goods => increase in GDP => increase in living standards and increased tax for the government.
- Innovation and technology change: increase in use of IT firms => helps businesses become more advanced in IT => more competition.
- Exports: increase value of national export => more internationally competitive
- Personal development: becoming an entrepreneur can lead people towards self actualisation (sense of achievement). Also creates example for others to follow.
- Increased social cohesion: giving people jobs boosts their confidence and induces socialising,
Def. Social enterprise
A business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners.
Def. Triple bottom line
The three objectives of social enterprises:
+ Economic: make a profit to reinvest back into the business and provide some returns to the owners.
+ Social: provide jobs and support local communities
+ Environmental: to protect the environment
Difference between charity and social enterprise
- A charity runs on donations while SE make their own income to run
- A charity works within the given structures by the government, a social enterprise creates its own opportunities and operates like any business
- A charity is designed to help immediate suffering, usually quick and short lived. A SE can be both short lived and running for decades as any business
Def. Opportunity cost
The benefit of the next most desired option which is given up.
Def. Primary sector
Firms engaged in farming, fishing, oil extraction and all other industries that extract natural resources so that they can be used and processed by other firms.
Def. Secondary sector
Firms that manufacture and process products from natural resources, including computers, brewing, baking, clothes making and construction.
Def. Tertiary sector
Firms that provide services to consumers and other businesses, such as retailing, transport, insurance, banking…
What are the benefits of industrialisation (growing of secondary from primary)?
- Increase in Gross Domestic Product
- Increasing output of goods can result in lower imports and higher exports pf such products.
- More jobs created -More tax for the government
What are the problems of industrialisation?
- People moving from countries to the towns leads to housing and social problems. - Imports of raw materials increase import costs
Why is there an increase in the importance of tertiary sector in developed economies?
- Rising economies -> higher living standards -> people spend income on services more
Def. Private sector
Comprises businesses owned and controlled by individuals or groups of individuals.
Def. Mixed economy
Economic resources are owned and controlled by both private and public sectors.
Def. Free-market economy
Economic resources owned largely by the private sector with very little state intervention.
Def. Command economy
Economic resources owned, planned and controlled by the state.
Why are certain goods and services are provided by the governmental organisations?
- They may be too significant to be left to private businesses. Examples usually include health, education services, defence and public law and order (police force), or ‘strategic’ industries such public transport. - Public goods are owned by the government because they cannot be charged for for private businesses to make profit. Eg. Street lights.
Local vs National vs International businesses.
- Local businesses: operate in a small part of the country with no objective to expand eg. hairdressing businesses.
- National businesses: have branches or operations across most of the country without expanding internationally. eg. national banking firms.
- International businesses: operate is many countries.
Def. Sole traders
A business in which one person provides the permanent finance and in return has full control of the business.
Advantages of sole traders.
- Easy to set up
- Owner has complete control,
- No disagreements / Conflict
- Owner keeps all profits
Disadvantage of sole traders
-Unlimited liability- all of owner’s assets are potentially at risk -Often faces intense competition form larger firms. -Difficult to raise additional capital -Long hours often necessary to make business pay.
Def. Partnership
A business formed by two or more people to carry on a business together, with shared capital and share responsibilities.
Partnership Advanatges (4)
- Partners may specialise in different areas of business management
- shared decision making, therefor shared less mistakes would be made
- Additional capital invested by each partner
- Losses are shared
Partnership Disadvantages
- Unlimited liability
- Profits are shared
- Many disassgreements may occur which slows down the process of decision making
Def. Limited liability
The only potential loss a shareholder has if the company fails is the amount invested in the company, and it does not spread to the shareholder’s personal assets.
Def. Private limited companies (Ltd.)
To small to medium sized business that is owned by shreholders who are often members of the same family. This company cannot sell shares to the public.
What’s the difference between companies and “unincorporated” businesses? (3)
- Limited liability
- Legal personality: A company is recognised in law as having a legal identity separate from its owners.
- Continuity: If the owner dies, the company is inherited.
Advantages of Ltd.
- Limited liability
- Separate legal personality
- Continuity
- Able to raise capital from sale of shares to family, friends and employees.
- Higher status
Diadvantages from Ltd. (3)
- Legal formalities involved in establishing the business
- Capital cannot be raised by selling shares to the public
- Less secrecy because end of year accounts can be availbale for public inspection
Def. Public Limited Companies (Plc)
A limited company, often a large business, with legal rights to sell shares to the general public - share prices are quoted on the national stock exchange.
