Unit 1: Business Activity

Question 1

Land (factor of production)

Answer 1

Anything that comes naturally from the planet. This covers plants grown on land (crops, wood from trees) as well as resources that are extracted from underground (oil and gas) and from the sea (fish).

Question 2

Labour (factor of production)

Answer 2

The manpower needed to produce products and services.

Question 3

Enterprise (factor of production)

Answer 3

The people who come up with business ideas and take risks when putting the other factors of production together. They are known as entrepreneurs.

Question 4

Capital (factor of production)

Answer 4

The financial investment, machines and equipment required to produce products and services.

Question 5

Primary business sector

Answer 5

The removal of natural materials from the land to gather the raw material or food needed for the production process carried out by other businesses.

Question 6

Secondary business sector

Answer 6

The process of combining the raw materials extracted from the primary sector resulting in finished goods.

Question 7

Tertiary business sector

Answer 7

Offers services to other businesses and consumers in the economy.

Question 8

channels of distribution

Answer 8

Paths, or routes, that goods or services take from the producer to the ultimate consumer or industrial user

Question 9

private sector

Answer 9

All business organisations that are owned and operated by individuals or groups, with no government involvement.

Question 10

public sector

Answer 10

All business organisations that are owned and operated by the government.

Question 11

internal business growth

Answer 11

Where businesses expand by increasing their output and sales using their own resources.

Question 12

external business growth

Answer 12

When the business increases its size through integrating with other business, either through mergers or takeovers

Question 13

merger

Answer 13

Where two businesses agree to become one larger business.

Question 14

takeover

Answer 14

Where one business joins with another by buying 51% or more of the business’s shares.

Question 15

horizontal integration

Answer 15

A business joins together with another business in the same industry and at the same stage of production.

Question 16

vertical integration

Answer 16

A business joins together with another business in the same industry, but at different stages of production.

Question 17

conglomerate integration

Answer 17

A business joins together with another business in a different industry.

Question 18

sole trader

Answer 18

A business that is owned and operated by one person.

Question 19

partnership

Answer 19

A business that is owned and operated by two or more people.

Question 20

unlimited liability

Answer 20

Where the owner of the business is responsible for all of the business’s debts.

Question 21

limited liability

Answer 21

Where the owner of the business is not responsible for the debts of the business because the business has a separate legal identity from the owner.

Question 22

private limited company

Answer 22

A private limited company (often abbreviated to Ltd) is a private sector business that breaks its ownership up into shares. These shares are sold to raise finance (capital). Private limited companies can refuse to sell shares.

Question 23

public limited company

Answer 23

A public limited company (often abbreviated to plc) is a private sector business that breaks its ownership up into shares. These shares are sold to raise finance (capital). Public limited companies sell shares through the stock exchange and so must sell shares to whoever wants to buy them.

Question 24

franchise

Answer 24

A form of business where the owner (the franchisor) sells the right to another entrepreneur or business (the franchisee) to sell their products under their brand name.

Question 25

joint venture

Answer 25

A situation where two businesses agree to share resources on a project and form a separate business to do it.

Question 26

opportunity cost

Answer 26

the thing we give up by choosing another item. The next best alternative.

Question 27

scarcity

Answer 27

there are not enough products to fulfil the wants of the population

Question 28

specialisation

Answer 28

when people and businesses focus on what they are best at.

Question 29

added value

Answer 29

Added value is how much more a business sells a product for than the total cost of materials

Added Value = selling price - total cost

It is NOT the profit because added value does not include the price to pay for labour, transport etc.

Question 30

internal stakeholder

Answer 30

individuals who are employed by the firm, such as employees and managers

Question 31

external stakeholder

Answer 31

individuals or groups that have some claim on a firm such as customers, suppliers, and unions