Unit 1 Flashcards
Why do businesses exist?
to satisfy wants and needs
What is a business?
an organisation set up to provide goods and services to customers.
What is a good?
a physical product e.g. food
What is a service?
an intangible item e.g insurance
What are the 3 things a business can be split up into?
B2B - tata steel
B2C - sony
C2C - ebay
What are the 3 types of businesses?
primary
secondary
tertiary
What is the primary sector?
obtains the raw materials
What is the secondary sector?
uses the raw materials to produce something - also known as the manufacturing sector
What is the tertiary sector?
concerned with the supply of services
What is an aim?
a long term plan for the business which its corporate objectives are derived
What is an objective?
sets out what clearly needs to be achieved
What must a objective or aim be ?
SMART
List 3 common business objectives?
- maximise profit
- survival
- growth
Why do businesses set objectives?
- gives workers a goal to work towards
- can provide employees with motivation
- track progress
What is business cost ?
is the expenditure a firm makes as part of its trading e.g labour and raw materials
What are fixed costs?
costs which doesn’t change with output
What are variable costs?
costs which change with output
What are semi-variable costs?
costs which have characteristics which are both fixed and variable e.g. transport
What is the calculation for total costs?
fixed costs + variable costs
What is average cost?
is the cost of producing one unit
How does the business benefit from knowing costs?
helps set prices to maximise the most profit
What is revenue ?
the income the business receives over a long period of time.
What is the calculation for revenue?
quantity sold x average selling price
What is profit?
when a businesses revenue is higher than the costs
What is the calculation for profit?
total revenue - total costs
What does profit depend on?
profit margin
quantity of sales
What is profit margin?
the amount or percentage of the final selling price that is profit
Why are profits important ?
Attracts customers - lead customers to believe that the product is desirable
Persuade individuals and banks to invest in them
Larger businesses may buy
What is the public sector?
is owned and ran by the government
What is the private sector?
is owned and ran by private people
What are the 3 organisations owned by the government?
public corporation
public services
municipal services
What are public corporations?
are enterprises owned by the state but offer products to both public and private sectors e.g. channel 4
What are public services?
provides a service to the nation e.g. NHS
What are municipal services ?
are offered by the local governments and councils e.g leisure
What is privatisation?
when the state (government) sells businesses they owned and sell it to the private sector.
What are 2 reasons why the government privatise?
- raises finances for the government
- privately run businesses are more efficient
What is a sole trader?
business that is owned and managed by one person but may employ other people
What are 2 advantages of a sole trader?
- keep all profits
- easy and cheap to set up
What are 2 disadvantages of a sole trader?
- unlimited liability
- long hours
What is a partnership?
two or more people
What are 2 advantages of a partnership?
- specialist skills
- more ideas
What are 2 disadvantages of a partnership?
- split profit
- more conflict
What are the 3 legal documents a business has to do before setting up?
memorandum of association
articles of association
register with company house
What is a company ?
a business organisation that has its own legal identity and has limited liability
What is a incorporation ?
is the process of establishing a business as a separate legal identity which allows it to benefit from limited liability
What is a shareholder?
is an investor in and one of the owners of the business
What are dividends ?
are a share in the profits of a company that are distributed to the holders of certain types of company shares.
What is unlimited liability ?
means that there is no distinction between the business and the individual. So if the business was declared bankrupt personal belongings can be taken to pay off any debts.
How do we get rid of unlimited liability?
by becoming a company, through the incorporation process
What is limited liability?
means there is a difference between the company and owner personal assets are not at risk just the investment.
What are the 2 types of companies?
private limited companies (Ltd)
public limited companies (PLC)
How can you measure the size of a PLC?
market capitalisation
What is market capitalisation?
the total value of the issued shares of a PLC
What is the calculation for market capitalisation?
share price x number of shares
What is another name for a not-for-profit business?
social enterprise
What are the risks of buying shares?
share prices can fall dramatically no matter how well a business is ran
low profits = low dividends
What can influence share prices?
company’s performance and business environment
What are the assumptions of increased share prices?
well managed
easier to raise capital
Disadvantages of decreased share prices
poor management
difficult to raise capital
vulnerable to takeover
What is the external environment?
external forces that can influence a business activities but the business have no control over
What are 2 positive factors of the external environment?
- products becoming fashionable, raising demand
- major competitor leaves the market
- number of consumers in a country increases
What are negative factors of the external environment?
- consumers demand environmentally friendly products, increasing costs
- new businesses entering the market increasing competition
- market oversupplied with products, depressing prices
What are market conditions ?
features of a market e.g levels of sales
How is income determined?
GDP
What does GDP measure?
the value of a country’s total output of goods and services over a time period
What are real incomes?
incomes that are adjusted for the rate of inflation to show changes to purchasing power
What are nominal incomes?
unadjusted wage e.g without inflation
Out of the 3 types of goods which are elastic and inelastic?
normal elastic
luxury and inferior inelastic
What are interest rates?
price of borrowed money
What happens if interest rates increase?
people save more spend less
What happens if interest rates decrease?
people spend more and save less
What is inflation ?
the changes of a price
What does high inflation mean/ cause?
high interest rates
the £ appreciates
exports more expensive
imports cheaper
What does low inflation mean/ cause?
low interest rates
the £ depreciates
imports are more expensive
exports cheaper
What does appreciation and depreciation do to the pound?
appreciation - makes the pound stronger
depreciation - makes the pound weaker
How do businesses pollute?
emission of gas in the production process
pollution when transporting goods, congestion and noise
dumping
destroying natural environments
What is fair trade?
where a fair price is given for a good/ service
