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Economics and Business > Unit 1 > Flashcards

Unit 1 Flashcards

0
Q

Entrepreneur

A

An entrepreneur is a person who has ideas and makes them happen. It is also someone who has the ability to take risks.

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1
Q

Characteristic

A

A characteristic is a personal quality which an entrepreneur possesses.

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2
Q

Profit

A

Profit is the financial reward to the owner of the business. It is the difference between revenue and costs.

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3
Q

Entrepreneurial characteristics

A
  • Initiative: the quality of taking action without needing some is else to tell you to do so or to give you direction
  • Hardworking
  • Resilience: the ability to withstand or recover from difficult situations
  • Creative: having original ideas
  • Self Confidence: believing in yourself
  • Taking Calculated Risks: the entrepreneur has estimated the probability of success or failure
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4
Q

What motivates entrepreneurs?

A
  • Profit
  • Control over working hours or location
  • Continuing a family business
  • Self-fulfilment
  • Control over your work
  • Creativity
  • Making money from a hobby
  • Ethical motives
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5
Q

Motives

A

Motives are the factors that encourage an entrepreneur to go into business and to take particular decisions.

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6
Q

Ethical motives

A

Ethical motives are reason linked to doing ‘something right’. For example, setting up a business or organisation which benefits a section of the community, or which is committed to ethical employment and sourcing activities.

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7
Q

Non-profit motives

A

Non-profit motives are reasons for setting up in business which are not linked to making profit.

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8
Q

Leadership

A

The process of influencing others to work willingly towards an organisation’s goals.

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9
Q

The leader’s role

A
  • to motivate employees to work effectively.

- the leader has to work out where encouragement is needed and where penalties may be required.

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10
Q

Motivation

A

Motivation means using the right strategy to help employees work more effectively. By meeting the needs of the business situation and the employees, leaders can increase commitment and so encourage hard work.

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11
Q

Autocratic/Authoritarian leaders

A

Autocratic leaders impose their decisions of the group. Commands are tightly specified with little or no allowance for discussion or individual choice. There may be little delegation of specific responsibilities. Rewards are unpredictable, and the leader’s place mag remain obscure. Socially they tend to keep their distance from their employees. Their primary concern will be the level of profit that they can make.

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12
Q

Democratic leaders

A

Democratic leaders encourage the group to participate in discussion and to feel that they have contributed to a final decision. The leader mixes informally with the group and is usually well-knows at the personal level. Methods of work are left to individual choice, while rewards are open and fair in their distribution.

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13
Q

Paternalistic leaders

A

Paternalistic leaders will consult employees early on and explain their reasons for their subsequent decisions. They will look for ways to develop employees’ skills and capability through training. They behave how a parent may act when making family decisions.

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14
Q

Theory X managers

A

Theory X managers assume that their employees are lazy and prefer to be given firm direction with strict controls. Managers will adopt a stick and carrot approach to make them work hard. This may involve targets with heavy penalties if they are not met. They are also only motivated by pay.

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15
Q

Theory Y managers

A

Theory Y managers assume that human beings want to work and will commit themselves to work effectively without strict controls. They will engage with the objectives of the organisation, accept responsibility and use their initiative to help solve problems.

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16
Q

Markets

A

Markets exist wherever there are buyers and sellers who can communicate with each other and agree to buy or sell at a price that makes the transactions worthwhile.

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17
Q

Exchange

A

Exchange means selling what we have or can produce using the money to buy what we want for ourselves.

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18
Q

Specialisation

A

Specialisation means concentrating on creating the products we can make and sell most efficiently.

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19
Q

The effects of competition on a business

A

They may:

  • try hard to develop new of innovative products ( like the iPad )
  • improve the design of existing products
  • look for new technologies or better management strategies that will help to cut costs
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20
Q

Competition

A

The process by which businesses strive against one another to attract more customers by keeping prices down and making the product more appealing.

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21
Q

How businesses cover costs

A
  • a retailer may price a popular product below cost, and advertise the fact, just to get a few new customers to come through the door and look around
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22
Q

Costs

A

Costs are all the payments that have to be made in order to get a product into the market place.

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23
Q

Sales revenue equation

A

Price X quantity sold

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24
Q

Profit equation

A

Sales revenue - cost of production

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25
Q

Investment

A

Investment means spending now in order to generate income in the future

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26
Q

Scarcity

A

Scarcity refers to a situation in which people want to buy more of a product than is current being produced

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27
Q

Incentives

A

Incentives are financial and other rewards that can induce people to behave in a certain way.

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28
Q

Supply

A

Supply is one element in the market system. Market forces create incentives to supply particular types of product that customers want. The more scarce a product is, the higher the price and the profit will be when supplying it.

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29
Q

Demand

A

Demand refers to the other element in the market system, the amount of a product that customers want to buy.

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30
Q

Factors that affect supply

A
  • prices: a good price is an incentive to businesses to supply more.
  • cost of production: the prices may change yo produce the product due to government policies (a change in VAT) or new technologies
  • a change in size of industry
  • imposition of tax: affects the costs of producer
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31
Q

Choice

A

Because resources are scarce, everyone has to choose what they want most, in light of the price they will have to pay for it. Choice will be constrained by the level of income - the amount that the consumer can spend

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32
Q

Factors that affect demand

A

PGTIPED

POPULATION/PRICE OF PRODUCT
GOVERNMENT 
TASTE
INCOME
PRICE OF OTHER PRODUCT
EXPECTED PRICE CHANGE
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33
Q

Substitutes

A

Substitutes are goods that can be consumed in place of another

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34
Q

Complementary goods

A

Complementary are goods that are normally consumed together

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35
Q

Equilibrium point

A

Is when the quality demanded is the same as the quantity supplied

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36
Q

Market Orientation

A

Market orientation is achieved when a business focuses its activities, products and services around the wants and needs of the customer

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37
Q

Benefits of market orientation

A
  • by focusing the wants and needs of the customer the business is much more likely to produce a product or service that the customer wants and will therefore buy.
  • this will give that business a competitive advantage over rival businesses, which may not be so closely focused on the customer
  • if the customer is kept satisfied by the business then brand loyalty may be created and the customer is more likely to recommend the business to friends and family
  • increasing brand loyalty means that it may be easier for the business to charge a higher price for its products and services
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38
Q

Market research

A

Market research is any kind of activity that gives a business information about its product or service, its customers, it competitors or the market it operates in

Business need this to :
- identify what’s happening in the market now
- to predict what might happen in the market in the future
- to explore new possibilities in the market
Market research…
- gives info that can be used to make better informed decisions about the business and its future
- allows businesses to understand customer behaviour, to make decisions that make them more responsive to customer needs and to increase profits
- helps to give a business a competitive advantage by improving its products and/or services and successfully marketing them
- is crucial for any business start up, to reduce the risks involved.

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39
Q

Primary research

A

The gathering of information first hand from an original source

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40
Q

Secondary research

A

Finding and using information that has already been gathered by somebody else. Second hand

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41
Q

Primary research advantages

A
  • can be designed specifically to suit the purpose of the business
  • information will be up to date and directly relevant
  • information gathered is not available to competitors.
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42
Q

Primary research disadvantages

A
  • can be expensive to collect, particularly if employing an agency
  • can take a long time
  • can give misleading information if questions not worded correctly or there are errors in sampling
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43
Q

Secondary research advantages

A
  • can be done very quickly, particularly online

- can be much cheaper than primary research

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44
Q

Secondary research disadvantages

A
  • may not be exactly specific to researcher’s needs
  • can be dated
  • may not be accurate, particularly if an online source
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45
Q

Quantitative research

A

Based on numerical data, measures things and producers statistical information

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46
Q

Qualitative research

A

Based on consumers attitudes and opinions.

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47
Q

Sampling

A

Samples are chosen as representative of the whole

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48
Q

Random sample

A

A group of people selected so as to be red presentation of a population as a whole.

Adv: can be effective and accurate
D’adv: - hard to be truly random in practice
- needs large sample sizes to be accurate
- can be expensive

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49
Q

Stratified sampling

A

This involves targeting one particular segment of the market that you want to find out about

Adv: targets market effectively.
D’adv: - difficulty in identifying appropriate strata
- more complex to organise and analyse results

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50
Q

Quote sampling

A

This means segmenting the market in groups that share specific characterisers

Adv: cheap and effective way of sampling
D’adv: need to be careful in drawing up quotas to avoid bias

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51
Q

Market size

A

Is normally measured by the total sales of all the businesses in that market added together

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52
Q

Market share

A

Market share of an individual business can be expressed by total sales as a percentage of the overall market

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53
Q

Market growth

A

Market growth in an increase in demand for a product

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54
Q

Mass market

A

A very large market with a high value of sales by volume

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55
Q

Niche market

A

Is a small party of an overall market that has certain special characteristics, have very little competition and therefore are able to charge a higher price

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56
Q

Market segmentation

A

Dividing the market into groups of consumers with similar characteristics

E.g

  • socio-economic grouping
  • income, age and gender
  • size and composition of customer households
  • geographical location
  • ethnicity and/or religion
  • educational background of customers
  • hobbies and interests
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57
Q

Advantages of segmentation

A
  • the more precisely a segment can be identified and provided for, the more Laila it is that a sale can be made
  • segmenting the market reduces direct competition
  • a premium price may be charged if market segments get exactly what they want
  • encourages the development of brand loyalty
58
Q

Disadvantages of segmentation

A
  • can be expensive to research and identify different segments
  • more costly to develop and market different products for different segments rather than just on standardised product
  • targeting one particular segment may mean ignoring others
  • even if segments are identified, reaching them may be another problem
59
Q

Market positioning

A

Is how individual products or brands are seen in relation to their competition by the consumers

60
Q

Product differentiation

A

Occurs when businesses make their product a little different from competing products

61
Q

Repositioning products

A

This may occurs with long existing products to make them appear more attractive to the consumer

62
Q

Market mapping

A

Market mapping is the use of a grid showing two features of a market.

63
Q

Advantages and disadvantages of market mapping

A

Advantages:
- enables a business to spot gaps in the market
- can help a business to differentiate its product from the competition
Disadvantages:
- can be hard to categorise some products and services
- identifying a gap does not mean there is a need for a product to fill it. More research need to be done

64
Q

Competitive advantage

A

Any feature of a business that enables it to compete effectively with rival products

65
Q

Adding value

A

Altering a product so as to increase its value to be customer

Effects:

  • can potentially increase price
  • sell more
  • brand image increases
66
Q

Product trail or test marketing (&adv+d’adv)

A

Launching a product on a limited scale in a representative segment of the market to measure initial reactions

Adv
- this will show weather the product is viable before putting it into the market
- this avoids the costs of full scale launch as well as providing useful market date which may then be used
D’adv
- it is expensive

67
Q

Opportunity cost

A

Is the cost of the best best alternative that has been sacrificed.

68
Q

Trade off

A

A situation where having more of one thing leads to having less of another

69
Q

Stakeholders

A

Individuals or groups with an interest in the actions of a business.

  • shareholders
  • owners
  • consumers
  • suppliers

Aim is to meet the needs of these people as they ensure the long term success of the business

70
Q

Unemployment

A

Can be defined as the number of people able and willing to work but are not able to find a paying job

71
Q

How is unemployment measures measured?

A
  • the claimant count: the official measure based on the number of people claiming unemployment related benefit
  • the international labour organisation (ILO) measured through the labour force survey and covers those people who are looking for work and are available for workers

The claimant count is significantly lower than ILO

72
Q

Impact of increased unemployment on businesses

A
  • less income which means less disposable income. Demand for luxury or non essential items may fall
  • business that sell substitute products may benefit
  • wages are less likely to increase as there is more competition for the remaining jobs
  • it could be easier to recruit employees as there are more unemployed people to choose from
  • it should be easier to find people with skills that are normally scarce
73
Q

Impact of falling unemployment on the business

A
  • increased disposable income. Luxury products and non essential items will have increased demand
  • businesses that sell substitutes may experience a fall in sales
  • wages are more likely to increase as employers compete to attract the best people available
  • it may be harder to recruit employees as there are fewer unemployed people to choose from
  • it may be harder to find people with the right skills
74
Q

Inflation

A

Is a sustained increase in the average price level of a country; this is a fall in the value of money

75
Q

Measures of inflation

A
  • Consumer price index

- retail price index

76
Q

Impact of increased unemployment on businesses

A
  • less income which means less disposable income. Demand for luxury or non essential items may fall
  • business that sell substitute products may benefit
  • wages are less likely to increase as there is more competition for the remaining jobs
  • it could be easier to recruit employees as there are more unemployed people to choose from
  • it should be easier to find people with skills that are normally scarce
77
Q

Impact of falling unemployment on the business

A
  • increased disposable income. Luxury products and non essential items will have increased demand
  • businesses that sell substitutes may experience a fall in sales
  • wages are more likely to increase as employers compete to attract the best people available
  • it may be harder to recruit employees as there are fewer unemployed people to choose from
  • it may be harder to find people with the right skills
78
Q

Inflation

A

Is a sustained increase in the average price level of a country; this is a fall in the value of money

79
Q

Measures of inflation

A
  • Consumer price index

- retail price index

80
Q

Monetary policy

A

The Bank of England through the monetary policy committee has the responsibility of controlling the rate of inflation.

81
Q

Effect of inflation

A
  • it is hard to plan for the further when there is uncertainty regarding future costs.
  • inflation may mean that the costs of supplies and wages are rising. This can reduce profitability unless the business can put its prices up.
  • consumers of fixed incomes lose out because their real incomes fall.
  • if UK businesses are experiencing a higher rate of inflation than their foreign competitors, it may mean that UK costs are rising faster. In order to maintain profit levels UK firms may put their prices up and lose competitiveness and face falling export sales
82
Q

Interest rate

A

The price of burrowing money

83
Q

Impact of increased interest rate of a business

A
  • They are less likely to burrow money to expand.
  • higher costs of running an overdraft
  • less attractive to invest money into future businesses
  • attracts savings
  • lower demand for loans
  • supplies demand lower price for product
84
Q

Effect of decreased interest rate on businesses

A
  • Investment may increase and existing business may expand.
  • business more likely to start up … Economy grows
  • increase in demand for a loan
85
Q

Exchange rates

A

The price of one currency expressed in terms of another

86
Q

Effect of stronger pound

A

Exports become more expensive as foreign countries have to give up more of their money for the same number of pounds.

Our imports become cheaper as we have to give up fewer pounds to buy the same amount of foreign currency

87
Q

The pound becomes weaker

A
  • exported become cheaper as foreign countries have to give up less of their money for the same number of pounds
  • our imports become more expensive as we have to give up more pounds to buy the same amount of foreign currency
88
Q

SPICED

A

Strong pound imports cheap exports dead

89
Q

Government policy tools

A
  • monetary policy: using interest rate to influence economic changes
  • fiscal policy: using taxation and government spending to achieve government objectives
90
Q

Government spending is used to:

A
  • provide essential public services
  • regulate demand in the economy
  • remove social issues such a poverty
91
Q

Types of taxation

A

Direct - this includes income tax, national insurance and cooperation tax - charged on earnings
Indirect - this includes VAT, car tax, insurance tax and others

92
Q

Affect of tax on businesses

A
  • increase costs

- consumers have less disposable income as products more expensive which would affect demand

93
Q

Start up costs

A

One off costs needed to start a business

94
Q

Running costs

A

Costs needed to keep the business successful and able to function

95
Q

Internal and external costs

A

Internal costs within the business

External costs outside the business

96
Q

Internal and external sources of finance

A

Internal:
Owner equity
Retained profits
Sales of assets

Eternal: 
Trade credit
Overdraft
Hire purchase/ leasing
Loans 
Venture capital 
Share capital 
Debenture
97
Q

Owner’s equity defintion

A

the money that the owners have available to put into the business

98
Q

Retained profit defintion

A

It is all the money that is left after all deductions have been taken away from total sales revenue etc. it can be reinvested into the business

99
Q

Sale of assets defintion

A

The business sells assets in order to raise money

100
Q

Trade credit defintion

A

The period of time allowed by a business after supplying another business with goods or services before payment is due

101
Q

Overdraft definition

A

A facility from the bank that allows a business to spend more than it has in its account

102
Q

Leasing definition

A

A long term rental agreement that allows businesses to use assets without having to lag for them

103
Q

Hire purchase defintion

A

Similar to leasing except that at he end of the agreement the asset becomes your own property

104
Q

Loan defintion

A

The use of someone else’s money for a period of time

105
Q

Venture capital defintion

A

Funding provided by specialist firms or individuals in return for a proportion of the company’s shares

106
Q

Share capital definition

A

Finance raised by selling shares in the company

107
Q

Debenture definition

A

A form of external finance for a business that takes the form of a long term loan often secured on the company’s property

108
Q

Owner’s equity adv and d’adv

A

Adv
Does not have to be repaid
No interest

D’adv
Starting a business is risky therefore owner may lose all their savings/wealth

Best for starting a business

109
Q

Retained profit adv and d’adv

A

Adv
Does not have to be repaid
No interest

D’adv
Can be limited, particularly in the early years
Not available for a new business

Best for expansion

110
Q

Sale of assets adv and d’adv

A

Adv
Does not have to be repaid
No interest can be good to dispose of unused assets

D’adv
Once sold assets are gone, they may be useful in the future
Not available for a new business

Useful for raising money quickly

111
Q

Trade credit adv and d’adv

A

Adv
No interest

D’adv
Limited amounts and only a short term solution
If payment delayed for too long supplier may cut it off

Good for short term cash flow problems and buying stock

112
Q

Overdraft adv and d’adv

A

Adv
Flexible - you only pay interest on amount burrowed as long as overdraft is needed

D’adv
Interest charges usually higher than loans
Not suitable for long term or large amounts

Best for short term cash flow problems

113
Q

Leasing adv and d’adv

A

Adv
Assets obtained without large expenditure
Often with maintenance included
New models regularly updated

D’adv
More expensive than buying outright in long term
Asset never yours
Interest paid, regular monthly repayments

Best for items such as vehicles, photocopiers - medium term finance

114
Q

Hire purchase adv and d’adv

A

Adv
Assets obtained without large expenditure
Often with maintenance included
new models regularly updated

D’adv
More expensive than buying outright in long term
Asset never yours
Interest paid, regular monthly repayments

Best for items such as vehicles, machinery - medium term finance

115
Q

Loan adv and d’adv

A

Adv
Fixed sum available
Easy to plan for fixed repayments

D’adv
Interest paid, regular payments must be made regardless of cash flow
Usually need security in case of defaulting on loan

Best for medium term finance and expansion

116
Q

Venture capital adv and d’adv

A

Adv
Immediate cash injection
If given in exchange for share of business this does not need repayment

D’adv
Venture capitalist may want share of the business in return (loss of control for owner) or charge higher interest rates to comped stone for increased risk

Best for businesses deemed too risky for other sources of finance

117
Q

Share capital adv and d’adv

A

Adv
Immediate cash injection
Does not need repayment

D’adv
Loss of control as more people own a share of the business
Need to share profits or make dividends

Best for long term or large expansions

118
Q

Debenture adv and d’adv

A

Adv
Immediate sum available
Repayments spread over a long time
Interest rates can be lower

D’adv
Secured against property
Interest paid
Regular payments must be made regardless of cash flow

119
Q

Liability + definition for sole, partnership and limited companies

A

Means responsibility for the financial debts of the business

Sole traders and partnerships have unlimited liability

Limited companies have limited liability

Sole trader: an individual who runs his or her own business

Partnership: when two or more people start a business together

Limited company: a business has to go through a legal process called incorporation to turn itself into one and has to be registered with companies house

120
Q

Difference between Plc and ltd

A

Private limited Ltd
Can’t sell shares to the public, only family and friends
Shares not listed on the stock exchange
Have to publish accounts and dispose some info

Public limited Plc 
Can sell shares to the public
Shares listed on the stock exchange 
Shares can be freely bought and sold 
Have to publish and make available all accounts
121
Q

Sole trader adv and d’adv

A

Adv
Total control, keeps all the profit, simple and easy to set up

D’adv
No one to share the work or responsibility
difficult to take holidays or sick leave
High levels of risk due to unlimited liability

122
Q

Partnership adv and d’adv

A

Adv
A partner may bring more start up capital and extra skills and liability share workload
Can take holidays etc

D’adv
A partnership still has unlimited liability and each partner is liable for each other
Disagreements
Profits have to be shared

123
Q

Private limited company adv and d’adv

A

Adv
A company has limited liability and so owners are not personally liable for debts

D’adv
More complex to set up
Limited liability can mean that sources of finance require personal guarantees from the owners so there is still a risk of personal loss
Homes may be used as collateral for bank loans

124
Q

Public limited company adv and d’adv

A

Adv
Limited liability and access to share capital

D'adv 
Most complex of all to set up 
Full accounts must be published
Shareholders will want dividends 
Loss of control for original owners
125
Q

A pricing strategy defintion

A

is way in which a business decides upon the price of its product or service

126
Q

Competitive pricing

A

This means looking at the prices that your competitions are chargin and making yours similar or slightly less than theirs

127
Q

Cost plus pricing

A

This is decided by calculating how much percentage profit the business wants to make. This is then added on to the total costs of that product

128
Q

Penetration pricing

A

A Lower price than the competition is set by a new competitor to persuade customers of other products to give their own product a try

129
Q

Premium pricing

A

A higher price is charged than the competition because the product is seen as being more desirable and/or of better quality

130
Q

Price skimming

A

Skimming the market means charging a very high initial price for the product. This only works for innovative new products

131
Q

Predatory pricing

A

This means setting the price below the cost of production in an attempt to drive rivals out the market. It is illegal

132
Q

Total revenue/turnover

A

Price times quantity

It is the value of the sales of the business

133
Q

Total costs

A

Fixed costs plus variable costs

134
Q

Break even point

A

It is the level of output at which the total revenue is exactly the same as the total costs

Fixed costs devided by contribution (selling price minus variable costs)

135
Q

Margin of safety

A

The margin of safety is the different between the actual level of output and the break even level of output

136
Q

Strengths and weaknesses of break even analysis

A

Strengths
Helps to assess the strength of a business idea and whether it is worthwhile or not
Helps to assess the levels of output that need to be reaches to make a profit
Shows the impact of changes in price and or cots on the bep and any profit levels
Enables the calculation of profit/loss over different levels of output
Helps support an application for finance

Weaknesses
The models assumes that costs rise steadily but they make not; bulk buying can reduce costs for unit
The model assumes that all output is sold, in reality his may not happen
It is only a forecast and estimated of cost and price levels may be wrong or inaccurate
Knowing what the BEP is does not mean that you will actually be able to sell that amount of products
Markers are dynamic- constantly changing sit hat even if your estimates are accurate, things can spoil it eg new competition or economic climate

137
Q

Gross profit

A

Turnover minus variable costs

138
Q

Operating profits

A

Gross profit minus fixed costs

139
Q

Profit margin

A

Profit devided by turnover x 100

A profit margin tells the business just why percentage of its turnover is actually profit

140
Q

Business plan and what it contains

A

It is a documents that sets out what the business is, what it does and what it wants to achieve

Executive summary 
Your business and its products/services 
Yours markets and competitors 
The marketing plan 
Organisational details 
The production plan 
Financial forecasts 
Existing sources of finance

(See book for details)

141
Q

Business plan adv and d’adv

A

Adv
U think carefully when u make it so u can identity the problems
Can be crucial in convicting investors

D’adv
Just because the plan says it will happen does not mean it will
Just a forecast

142
Q

Income statements

A

An income statements is just a record of how much profit or loss a business has made over a period of time

143
Q

Cash flow forecast

A

A cash flow forecast is an attempt to look at the flowed of cash in and out of the business

Economics and Business (2 decks)

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