Unit 1: Business Activity Flashcards
Needs
goods or services that are required in order to live
Wants
goods or services that people would like to have but are not essential for living
Scarcity
Limited resources to meet unlimited wants
opportunity cost
the item we give up by choosing another item
specialisation(definition,2 advantages, 2 disadvantages)
businesses focus on what they are best at
+workers are specialised in certain task
+less time is wasted from one bench to the other
- workers might beome bored
- if worker is absent, no other worker can do their job
factors of production(purpose+factors)
purpose:to combine scarce factors of production to produce goods/services that satisfy people’s wants
land-resourcse provided by nature
labour-number of people that make the products
capital-finance& equipment needed to make products
enterprise-skill of the person that brings together the factors of production to make goods/services
added value(definition and equation)
-how much more a business sells a product for than the total cost of materials
added value=sellling price-total cost
how to increase added value(2)
- Increase selling price but keep the costs the same
- Reduce cost but keep selling price the same
stages of production
primary: natural resources
secondary: converting natural resources into manufactured goods
tertiary: providing services to customer
public sector
- owned by government
- government makes decisions on what and how to produce
private sector
- not owned by government
- makes own decisions on what to produce
entrepreneur
person that operates, organises and takes risks in order to make the business better
entrepreneur’s qualities
- hard working
- effective communicator
- risk taker
- creative
- self confident
- innovative
- independent
- optimistic
entrepreneurship(4 advantages, 4 disadvantages)
+able to choose how to use time and money
+able to put own ideas into practice
+may become profitable
+able to use own interests& skills
- has to put own money into business
- many entrepreneurs fail
- lost income from not being employee
- lack of knowledge/experiejnce in starting a business
business plan
contains business objectives, details about operations, finance and owners
business plan advantages
- helps gain finance-banks ask for it before agreeing to loans
- forces the entrepreneur to plan ahead carefully-reduces risk of failure
WHY-do gov. support start-ups(4)
- reduces unemployment- new bs create jobs
- increases competition-gives customers more choices
- benefits economy-increased output
- can grow further-pays gov. more taxes
HOW-do gov. support start-ups(4)
- set-up support sessions
- lend loans at low interest rates
- offer grants for training employees
- allow entrepreneurs to use research facilities
measuring business size(means and disadvantage)
- by no of employees
- some bs have few employees but high levels of output - value of output
- high level of output doesn’t mean a bs is big - value of sales
- diff types of bs sell diff types of products(expensive vs inexpensive) - by total value of capital invested
- some companies use cheaper labour and low cost equipment
business growth benefits(4)
- higher profits
- more status for owners
- can benefit from economies of scale
- larger share of its market
economies of scale(definition)
-factors that lead to a reduction of average costs as business grows
5 types of economies of scale
PURCHASING- buying in bulk to get cheaper prices
MARKETING-bs can advertise their own products not pay for a diff business to advertise them
FINANCIAL-better interest rates
MANAGERIAL-big businesses can afford specialist managers
TECHNICAL- can afford specialists to do more tasks(less staff)
internal growth
-business expands its own operations
external growth
business expands by taking over or merging with other businesses
horizontal integration
firm merging with a firm in the same industry at the same stage of pruduction
vertical integration(definition and 2 subgroups)
firm merging with a firm in the same industry but at different stages of production
FORWARDS- merging with a firm at a later state of production
BACKWARDS-merging with a firm at an earlier state of production
diseconomies of scale
factors that lead to increase in average cost as business grows above a point
3 types of diseconomies of scale
- poor communication
- lack of morale
- slow decision making
why some businesses stay small (3)
- market size is small
- type of industry
- owners objectives
why some businesses fail(5)
- poor management-> lack of experience
- failure to adapt to change
- poor money management
- over-expansion
- competition
business objectives
aims that a business works towards
6 business objectives
- Increase in Market Share-good publicity
- generating profit-paying return to owners
- service to community-to provide jobs or support disadvantaged groups
- returns to shareholders-discourage them to sell shares
- business survival
- growth of business-benefit from economies of scale
stakeholders
- any person with direct interest in performance of business
- internal(managers)
- external(customers, government)
internal stakeholders objectives
- payments of profit
- business growth
external stakeholders objectives(3 types)
government objectives:
- money from taxes
- increase countries output
customer objectives:
- reliable products
- value for money
- good quality
bank objectives:
-make profit out of loans
Sole-trader (definition, 4 advantages, 4 disadvantages)
-business owned by just one person (can employ other people) ADVANTAGES: \+easy to set up \+they are ther own boss \+doesn't have to share profits \+close relationship to customers
DISADVANTAGES
- hard to get capital to expand
- unlimited liability
- likely to remain small
- unincorporated(dies when owner dies)
Partnership(definition, 4 advantages, 4 disadvantages)
-a business which 2-20 people agree to own
ADVANTAGES:
+easy to set up
+responsabilities are shared
+partners are motivated because any loss is shared
+more capital invested
DISADVANTAGES:
- unincorporated
- unlimited liability
- losses are shared->if 1 is inefficient they all lose money
- capital is provided by partners
contents of partnership agreement
- amount of capital invested
- how long partnership lasts
- arrangement for absences/retirements
- the way profits are shared out
businesses in the public sector
- all bs owned by government
- capital comes from taxes
- most businesses have been nationalised(privqate business bought by gov)
- e.g:schools, hospitals
risk
uncertainty of profits or danger of loss, events that could cause businesses to fail
franchise(definition, cost for franchisee)
- agreement of a business based upon an existing business
- franchisee pays an original amount and a percentage of profit
- franchisor- main business
- franchisee- individual to start-up franchise
Joint Venture(definition,3 advantages, 3 disadvantages)
-2 or more businesses agree to start a prject together sharing risks, capital and profits ADVANTAGES: \+shared costs for expensive products \+shared knowledge \+shared risk
DISADVANTAGES:
- profits are shared
- might have disagreements
- might have different methods of running a business
Public Limited Company(share holders meeting, 2 advantages, 4 disadvantages)
-shareholders attend annual meeting to vote for board directors
ADVANTAGES:
+opportunity to raise high capital sums
+no restrictions of buying/selling shares
DISADVANTAGES:
- difficult to set up
- public accounts
- selling shares in public is expansive
- business can be taken over due to public shares
Private Limited Company(4 advantages, 4 disadvantages)
ADVANTAGES:
+shares can be sold to more people=more capital
+company continues after shareholder dies
+all shareholders have limited liability
+owners are able to keep control of company
DISADVANTAGES:
- difficult to set up
- can’t offer share to the public
- accounts are less secret than in other forms of business
- shares are difficult to transfer
incorporated business
business that has different legal status than business owners
LTD: article of association and memorandum of association
article of association:rules under which the busin ess will be managed
memorandum of association:
-company name and adress
-what the business does
