unit 1. Flashcards
economic problem
when there is unlimited wants but limited resources to fulfil them, leading to scarcity
scarcity
when there is a lack of products/ services to fulfil the needs of the population
labour
the number of people available to make products/services
capital
the finance, machinery and equipment needed to manufacture the goods/services
enterprise
the skill and risk-taking ability of the managers and owners of the firm
opportunity cost
next best alternative given up by choosing another item
specialisation
when people and businesses concentrate on what they are best at
division of labour
when the production of process is split into different tasks and each worker performs one of the specific task only
advantage of division of labour
workers are trained in one task and specialised in that=increasing efficiency and output
less time wasted from one workbench to the other
disadvantages of division of labour
workers can be bored doing just one job=decrease efficiency
if one worker is absent no one else can do the job=production might be stopped
added value
the difference between selling price and the cost of bought-in materials
helps pay for operating expenses
helps make a profit if other costs are lesser than the added value
how to increase added value
- increasing the selling price=consumer may not want to buy at a higher price
- reducing cost of bought-in materials= consumer may think product is of low quality
classification of business
primary sector
secondary sector
tertiary sector
primary sector
this sector of this industry extracts and uses natural resources of Earth to produce raw materials used by other sectors in the industry
secondary sector
this sector of the industry manufactures goods using raw materials provided by the primary sector
tertiary sector
this sector of the industry provides services to consumers and to the other sectors of the industry
changes in sector importance
happens when primary product source depletes
developed economies are losing competitiveness
when higher disposable income and higher standards of living lead to more spending on services like travelling and fine-dining
private sector
businesses owned by private individuals and not the government
public sector
government of state owned and controlled businesses and organisations
privatisation
when public sector businesses are owned and managed by private sector to offer a more competitive and efficient good/service
private limited companies (LTD)
a business owned by shareholders, but they cannot sell shares to the public, they sell them to family and friends
LTD advantages
can raise more capital from selling share compared to a ST and partnership
all owners have limited liability so less risk
can still maintain control of the business as they approve who they sell shares to
LTD disadvantages
cannot sell shares to public, so limited ability to raise capital compared to PLC
expensive to be an LTD as a lot of legalities and paperwork to be completed
public limited corporations (PLC)
a company owned by shareholders and shares can be sold to the public on the stock exchange
entrepreneur
a person who organises operates and takes the risk of a business venture
benefits of an entrepreneur
independence
able to put own ideas into practice
may be profitable
able to make use of personal interest and skills
disadvantages of an entrepreneur
risk of fail
own capital
lack of knowledge/experience
opportunity cost
characteristics of a successful entrepreneur
risk-taker
visionary
determined
creative
people-orientated
charismatic
passionate
brave
inspirational
ambitious
supportive
social
caring
lively
benefits of PLC
can raise more capital from selling shares to the public compared to an LTD
all owners have limited liability-so less risk
drawbacks of PLC
risk that the original owners loose control of the business when it goes public
need to pay shareholder dividends so less profit for original owner
expensive to be a PLC, lots of legalities and paperwork to complete
unlimited liability
the owners of a business can be held responsible for the debts of a business and so their personal possessions are at risk if the business can’t pay off its debts sole traders, and partnerships have unlimited liability
incorporate business
businesses that have separate legal status from their owners (PLCs and LTD)
unincorporated business
when they do not have a separate legal status from their owners (ST and P)
sole trader
a business owned and operated by one person, they have unlimited liability
benefits of a sole trader
get to keep all the profit
owner is in complete control so can make all decisions
few legal requirements, so therefore easier and cheaper to set up
drawbacks of a sole trade
unlimited liability
limited sources of finance as only has their own savings, no other financial input
partnership
a business in which two or more people agree to jointly open a business
partnership advantages
more finance can be invested into the business from all the partners
less stress as responsibilities of running the business are shared
more ideas from partners
partnership drawbacks
profits have to be shared
disagreements can occur which can distract owners from focusing on quality of products/customer service
unlimited liability
franchise
a business with a strong name and the franchisor sells the rights to use the brand name to a franchisee
benefits to franchisor
- franchisor receives a portion of profits from the branches, know as royalties
- the responsibilities of day-to-day running of franchises is the responsibility of the franchisee, so less stress for the franchisor
drawbacks to franchisor
- bad reputation in one branch can risk ruining the entire brands rep
- they don’t get to keep 100% of the profit
joint venture
where two or more businesses start a new project together, sharing risks and profits
joint venture advantages
- both businesses share the costs of the new project
- risk is shared
-each business may benefit from the expertise of the other
joint venture disadvantages
- profits will have to be shared
- disagreements may occur=impacting improvement of quality
public corporation
a business in the public sector that is owned and controlled by the government
benefits of public corporations
- ensure customers are not taken advantage of
- important for providing non-profitable but important services
drawbacks of public corporations
no huge profit motive as they care more about providing the service=may not be as efficient as a private company
business objectives (SMIG)
- survival
- make profit
- increase market share
- growth
social enterprises
a business who is driven by fulfilling the social needs of its community and not profit maximisation.
stakeholders
- people who have direct interest in the performance and activity of the business
