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Business IGCSE > Unit 1 - Business activity > Flashcards

Unit 1 - Business activity Flashcards

1
Q

Business

A

An organization that provides goods and services

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2
Q

Goods

A

Physical products

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3
Q

Services

A

Non-physical products e.g. banking

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4
Q

Consumer goods and services

A

Goods and services sold to ordinary people

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5
Q

Producer goods and services

A

Goods and services produced by one business to another

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6
Q

Needs

A

Basic requirements for human survival

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7
Q

Wants

A

People’s desires for goods and services

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8
Q

Private enterprise

A

Businesses owned privately by individuals or groups

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9
Q

Social enterprise

A

Business that aims to improve human or environmental wellbeing

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10
Q

Public enterprise

A

Goods and services provided by the government

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11
Q

Stakeholder

A

An individual or group with an interest in the operation of a business

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12
Q

Types of stakeholders

A
  • Owners - want the business to do well
  • Customers - want good quality products at fair prices
  • Employees - want good working conditions, fair pay and benefits
  • Managers - solve problems, lead teams, make decisions, settle disputes and motivate workers
  • Financiers - lend money to the business and want it to do well
  • Suppliers - provide raw materials, want prompt payment and regular orders
  • The local community - employs people in the local community
  • The government - wants businesses to generate wealth to generate taxes
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13
Q

Entrepreneur

A

A person who takes risks and sets up a business

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14
Q

Need for objectives in a business

A
  • Employees need to work towards something
  • Owners might not have motivation needed without objectives
  • Objectives help decide where to take a business
  • Easier to assess performance with objectives
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15
Q

Financial objectives

A
  • Survival
  • Profit
  • Sales
  • Increased market share
  • Financial security
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16
Q

Non-financial objectives

A
  • Social objectives - solve problems
  • Personal satisfaction
  • Challenge
  • Independence and control
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17
Q

Reasons for changing objectives in a business

A
  • Market conditions - change with competition or customers
  • Technology - change in technology used
  • Performance - change in performance
  • Legislation - change in law
  • Internal reasons - change in ownership
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18
Q

Unincorporated

A

Business where there is no legal difference between the owner and the business

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19
Q

Incorporated

A

Business that has a separate legal identity from its owners

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20
Q

Sole trader

A

A business owned by a single person

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21
Q

Unlimited liability

A

Owner of a business is personally liable for all the business’ debts

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22
Q

Advantages of a sole trader

A
  • Owner keeps all the profit
  • Are independent - complete control
  • Simple to set up - no legal requirements
  • Flexibility - can adapt to change quickly
  • Can offer a personal service
  • May qualify for government help
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23
Q

Disadvantages of a sole trader

A
  • Unlimited liability
  • Struggle to raise finance - risky to lend
  • Independence may be too much responsibility
  • Long hours of very hard work
  • Usually too small to exploit economies of scale
  • No continuity - business dies with owner
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24
Q

Partnership

A

A business owned by between 2 to 20 people

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25
Q

Deed of partnership

A

Binding legal document that states the formal rights of partners

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26
Q

Advantages of a partnership

A
  • Easy to set up - no legal formalities
  • Partners can specialize in their area of expertise
  • Job of running a business is shared
  • More capital can be raised
  • Financial information is not published
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27
Q

Disadvantages of a partnership

A
  • Unlimited liability
  • Profit is shared
  • Partners may disagree and fall out
  • Any decision Is legally binding on all
  • Tend to be small
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28
Q

Limited liability

A

Business owner is only liable for the original amount of money invested in the business

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29
Q

Limited partnership

A

Partnership where some partners contribute capital and enjoy a share of profit but don’t take part in the running of the business

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30
Q

Franchise

A

Structure in which a business allows another operator to trade under their name

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31
Q

What a franchisor offers a franchisee

A
  • License to trade under brand name
  • Start up package to help
  • Training
  • Material and equipment
  • Marketing support
  • Exclusive geographical area to operate
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32
Q

Fees of the franchisee

A
  • One-off start-up fee
  • Ongoing fee based on sales
  • Contribution to marketing costs
  • Franchisor makes profit off materials, equipment and merchandise
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33
Q

Advantages of a franchisee

A
  • Less risk - tries and testes idea
  • Back-up support given
  • Set tip costs are predictable
  • National marketing may be organized
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34
Q

Disadvantages of a franchisee

A
  • Profit is shared with franchisor
  • Strict contracts have to be signed
  • Lack of independence - strict operating rules
  • Can be expensive to start
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35
Q

Advantages of a franchisor

A
  • Fast method of growth
  • Cheaper method of growth
  • Franchisees takes some risk
  • Franchisees more motivated than employees
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36
Q

Disadvantages of a franchisor

A
  • Potential profit shared with franchisee
  • Poor franchisees can damage reputation
  • Franchisees may get merchandise from elsewhere
  • Costs to support franchisees may be high
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37
Q

Cooperative

A

Organization that all people working have an equal share

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38
Q

Consumer cooperative

A

Cooperative owned by the customers

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39
Q

Retail cooperative

A

Cooperative of retail members

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40
Q

Worker cooperative

A

Cooperative owned by employees

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41
Q

Charity

A

Organization that gives money, goods or help to people who are poor, sick or in need

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42
Q

Limited company

A

Organization that has a separate legal identity from the owners

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43
Q

Features of limited companies

A
  • Limited liability
  • Sell shares to raise capital
  • Shareholders elect directors to run the company
  • Corporation tax on profits
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44
Q

Certificate of incorporation

A

Document needed before a new company can start doing business

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45
Q

Memorandum of association

A
  • Name of company
  • Name and address of company’s registered office
  • Objectives of the company and nature of its activities
  • Amount of capital to be raised and number of shares to be issued
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46
Q

Articles of association

A
  • Rights of shareholders depending on type of share held
  • Procedures for appointing directors
  • Length of time directors serve before re-election
  • Timing and frequency of company meetings
  • Arrangements for auditing company accounts
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47
Q

Features of private limited companies

A
  • Business name ends in limited or Ltd.
  • Shares can only be transferred privately and all shareholders must agree on transfer
  • Often family businesses
  • Directors tend to be shareholders and are involved in running the business
48
Q

Advantages of private limited companies

A
  • Shareholders have limited liability
  • More capital can be raised
  • Cannot lose control to outsiders
  • Business continues if shareholder dies
  • Has more status
49
Q

Disadvantages of private limited companies

A
  • Financial information has to be made public
  • Costs money and takes time to set up
  • Profits are shared between more members
  • Takes time to transfer shared to new owners
  • Cannot raise huge amounts of money like PLCs
50
Q

Public limited companies

A

Larger than private limited companies and shares can be bought and solid publicly on the stock market - must have £50,000 to start up

51
Q

Advantages of public limited companies

A
  • Large amounts of capital can be raised
  • Shareholders have limited liability
  • Can exploit economies of scale
  • May be able to dominate the market
  • Shares can be bought and sold very easily
  • May have a very high profile in the market
52
Q

Disadvantages of public limited companies

A
  • Setting up costs are expensive
  • Outsiders can take control by buying shares
  • More financial information has to be made public
  • May be more remote from customers
  • More regulatory control owing to Company Acts
  • Managers may take control rather than owners
53
Q

Multinational company

A

Large business with significant production or service operations in at least two different countries

54
Q

Features of multinationals

A
  • Huge assets
  • Highly qualified and experienced professional executives and managers
  • Powerful advertising and marketing capability
  • Highly advanced and up-to-date technology
  • Highly influential both economically and politically
    -Very efficient due to huge economies of scale
  • Ownership and control is centered in host country
55
Q

Public corporation

A

Business organization owned and controlled by the government

56
Q

Features of public corporations

A
  • State owned - government owns and appoints board of directors
  • Created by law - created by act of parliament that specified powers and duties
  • Incorporation - separate legal identity - can sue and be sued
  • State-funded - government provides capital needed from tax or borrowing or re-using
  • Provide public service - most do not aim for profit but providing a service for all
  • Public accountability - Annual reports have to be submitted for taxpayers to see use of money, profits can be reinvested or handed to the government
57
Q

Reasons for public ownership

A
  • Avoid wasteful duplication - more efficient for industries with a natural monopoly to have one business
  • Maintain control of strategic industries - better for industries to be public for national security and so outsiders don’t exploit a nation
  • Save jobs - save failing private businesses with many employed by going public
  • Fill the gaps left by the private sector - some markets’ needs may not be met
  • Serve unprofitable regions - private sector usually doesn’t serve unprofitable regions
58
Q

Reasons against public ownership

A
  • Cost to government - many public corporations report losses
  • Inefficiency - many are inefficient due to lack of competition or profit as an objective
  • Political interference - public corporations can be interfered by government or be subject to government changes
  • Difficult to control - Can be very large and employ many across various regions with many assets - hard to control and coordinate
59
Q

Privatization

A

The transition of a public corporation to the private sector

60
Q

Forms of privatization

A
  • Sale of public corporation - shares sold
  • Deregulation - lifting legal restrictions that prevented private competition
  • Contracting out - contractors can bid for services provided by public sector
  • Sale of land and property - public owned land is sold
61
Q

Reasons for privatization

A
  • To generate income - sale of state assets generates income for the government
  • Reduce inefficiency from the public sector - improved services when profit is an objective
  • As a result of deregulation - legal barriers lifted
  • To reduce political interference
62
Q

Factors that affect the appropriateness/form of ownership

A
  • Growth - the bigger the business the easier to find sources of funding
  • Size - small businesses are likely to be sole traders partnerships
  • Need for finance - finance can change the ownership of a business
  • Control - some like complete control
  • Limited liability - owners can protect their finances in limited companies
  • Legal status - personal services are usually sole traders but professional are usually partnerships
63
Q

Interdependence

A

Businesses that rely on each other

64
Q

De-industrialization

A

Decline in manufacturing

65
Q

Factors that affect the location of a business

A
  • Proximity to market - Businesses that make large or heavy products may be located near customers to lower transport costs - Manufacturers locate close to customers - services locate close to markets because they sell directly to customers
  • Proximity to labor - Location can depend on labor/wage costs & can depend on particularly skilled workers and where they are
  • Proximity to materials - Businesses with many raw materials want to be close to source & cheap source - some need large premises and availability e.g. parking lots - may want cheap premise with low tax rates and land allocated for business development e.g. brownfield or Greenfield sites
  • Proximity to competitors - most services want to be away from competitors - some might want opposite and be close to important industries with comparison shopping or to catch excess demand from existing businesses
66
Q

Where a service would locate

A
  • Location with less delays/traffic congestion
  • Locate in specialist shopping areas e.g. retail parks, centers or malls - easy access, large number of outlets, attract many thousands of visitors per day
67
Q

Where office-based business would locate

A
  • Need sufficient facilities e.g. restaurants nearby for employees
  • Usually large popular cities - can also improve image
  • Some might want areas of lower cost
68
Q

Where a manufacturing and processing business would locate

A
  • Labor intensive manufacturers will need to be close to skilled & cheap labor
  • Can be close to sources to reduce transport costs
  • May need cheap, large land
69
Q

Where an agricultural business would locate

A
  • Large areas of land
  • Can be close to source e.g. sea food by the coast
70
Q

Impact of internet on business location

A
  • Flexibility in location
  • Don’t need to have a fixed premises - can be run from anywhere
71
Q

Influence of legal controls on business location

A
  • Governments may want to avoid congestion in areas with too much development to reduce strain on infrastructure
  • Minimize the impact that a business could have on local communities e.g. people objecting
  • Encourage manufacturers to locate where unemployment is high to improve job distribution
  • Use financial incentives to influences business location - can offer low rates, tax breaks and low rents
  • Attract foreign manufacturers into the country
72
Q

Influence of trade blocs on location

A
  • Trade barriers to control level of imports into the country
  • Businesses might want to locate inside a trade bloc to avoid tariffs (import taxes) - group of countries situated in the same region that join together and enjoy trade free of barriers
73
Q

Globalization

A

The growing integration of the world’s economies

74
Q

Key features of globalization

A
  • Goods and services traded freely across international borders
  • People are free to live and work in any country they choose
  • High level of interdependence between nations
  • Capital can flow freely between different countries
  • Free exchange of technology and intellectual property across borders
75
Q

Reasons that made globalization

A
  • Development of technology and the internet
  • Improvement of international transport networks
  • A lot of deregulation alongside removing trade barriers
  • Increase in tourism
  • Many firms want to sell abroad if domestic markets are saturated
76
Q

Opportunities of globalization for businesses

A
  • Access to larger markets - growth opportunities
  • Lower costs - growth leads to economies of scale
  • Access to labor - can recruit from anywhere at a lower cost and can find people with specific skills
  • Reduced taxation - can reduce tax by choosing a cheap location
77
Q

Threats of globalization to businesses

A
  • Competition - increased competition
  • International takeovers - a business in one country can take over another business in another country due to free movement of capital
  • Increased risk of external shocks - Interdependence poses a threat since economies affect each other
78
Q

Benefits of multinationals

A
  • Increase in income and employment
  • Increase in tax revenue - host nation taxes the multinational unless in a tax haven
  • Increase in exports - output of a multination is recorded for the country - increases currency reserves
  • Transfer of technology - Multinationals provide foreign suppliers with technical help & training - can help with resources and modernization
  • Improvement in the quality of human capital - provide training & work experience
  • Enterprise development - multinationals encourage people to set up businesses in less developed countries
79
Q

Drawbacks of multinationals on a country and its economy

A
  • Environmental damage - usually involved in extraction industries
  • Exploitation of less developed countries - some can cause developing countries to rely on producing primary products - risky due to price changes - often pay low wages - employ child labor & bad working conditions - taxes paid are minimal - as little as possible is put back into host nation
  • Repatriation of profits - profits are repatriated/returned to the country where the multinational is based - host country loses out
  • Lack of accountability - Can evade law where government is weak or corrupt and also keen to operate where regulation is insufficient or non-existent
80
Q

Features of international trade

A
  • Allows countries to obtain goods that cannot be produced domestically
  • Allows countries to obtain goods that can be bought more cheaply from overseas
  • Helps to improve consumer choice
  • Provides opportunities for countries to sell off surplus commodities
81
Q

Visible trade

A

Trade in physical goods

82
Q

Invisible trade

A

Trade in services

83
Q

Balance of trade / visible balance

A

Difference between visible exports and visible imports

84
Q

Exchange rate

A

The value of one currency in terms of another

85
Q

Benefits of appreciating currency

A
  • Price of imports decreases for consumers in country - buy more products
86
Q

Drawbacks of appreciating currency

A
  • Exports are more expensive for abroad countries - local/smaller businesses may not be able to compete with cheaper imports
87
Q

Benefits of depreciating currency

A
  • Exports will be cheaper for abroad countries - local businesses will be able to compete better against expensive imports
88
Q

Drawbacks of depreciating currency

A
  • Prices of imports increase for consumers & importing higher prices might cancel out cheap exports
89
Q

Direct tax

A

Tax on income e.g. income tax, corporate tax

90
Q

Indirect tax

A

Tax on spendings e.g. VAT

91
Q

Fiscal policy

A

Using changes in taxation and government expenditure to manage the economy

92
Q

How businesses would react to taxation

A
  • Lower taxes - more spending in economy causes business to increase production and expand
  • Higher taxes - cutting investment or reducing dividends
93
Q

How governments affect businesses

A
  • Infrastructure provision - government is responsible for nation’s infrastructure - jobs are usually carried out by private companies
  • Legislation - provides a legal framework in which businesses can operate to ensure that vulnerable groups are protected
94
Q

Legislation that affects businesses

A
  • Consumer production - prevent exploitation of consumers e.g. overly high prices, price fixing, restricting consumer choice and raising barriers to entry
  • Competition policy - prevents anti-competitive practices & consumer exploitation by encouraging growth of small firms, lowering barriers to entry, introduce anti-competitive legislation
  • Environmental legislation - minimizing damage done by businesses to the environment
  • Trade policy - used to protect jobs if foreign competitors threaten survival of domestic producers, protect infant industries, prevent dumping & raise revenue from tariffs
95
Q

Types of trade barriers

A
  • Tariffs - tax on imports
  • Quotas - physical limits on quantity of imports into a country
  • Subsidy - giving of financial support such as grant or tax breaks to exporters or domestic producers that face competition from imports
  • Administrative barriers - use os strict health and safety or environmental regulations to make importing more awkward
96
Q

Protectionism

A

The use of trade barriers to protect domestic producers

97
Q

Infant industries

A

Industries yet to be established

98
Q

Dumping

A

When foreign producers sell goods below cost in a domestic market

99
Q

Benefits of trade blocs

A
  • Opportunity to specialize in production of goods and services which can be produced more expertly or at lower cost
  • Access to wider markets
  • Lower costs - economies of scale can be exploited when sales & output rise
  • Protection from large predatory multinationals from outside the bloc
100
Q

Monetary policy

A

Using changes in interest rates and the money supply to manage the economy

101
Q

Interest

A

Price of borrowed money

102
Q

How high interest rates negatively affect businesses

A
  • Cost increases for any business that has already taken out a loan - reduces profits - reduces growth and funds for new investments
  • Purchase of capital goods funded by borrowing is discouraged - reluctant to invest
  • Demand in the economy will fall - consumers are less willing to borrow money to fund spending
103
Q

Effects of high interest rates on consumer spending

A
  • Mortgage payments will rise - less disposable income
  • Demand for goods bought with borrowed money will fall
  • Savings will earn less interest - consumers rely on income
104
Q

Four categories of external factors

A
  • Social
  • Technology
  • Environment
  • Political
105
Q

Social external factors

A
  • Increased consumer awareness - higher expectations
  • Changing demand patterns - change in society changes demand for products
  • Increased numbers of women at work - increased supply of labor & businesses
  • More part-time workers - helps improve flexibility in businesses
  • Urbanization - more labor and additional markets
106
Q

Technological external factors

A
  • Lowered cost in agriculture due to machines + better crop yields
  • Robots on production lines reduces cost in secondary sector - automation
  • Reduces cost in service industries
  • IT reduces administration and communication costs in business
107
Q

Opportunities for businesses with technology

A
  • Shorten time products can be marketed for
  • Can replace labor with capital - lowers unit costs
  • Improved communications between businesses and customers via social media
108
Q

Environmental external factors

A
  • Global warming
  • Habitat destruction
  • Resource depletion - loss of non-renewable resources, falling fish stock, loss in fertile soil
  • Sustainable development -
109
Q

How businesses can react to environmental issues

A
  • Design reusable or recyclable packaging
  • Use more energy-efficient equipment or renewable energy sources
  • Explore ways of selling waste to other businesses as a by-product
  • Reduce business travel & use video conferencing
110
Q

Political external factors

A
  • Issue of national security - e.g. restriction on movement of goods, people and capital
  • New government elected - could be pro-business or anti-business
111
Q

Measures of success in a business

A
  • Revenue - amount of money generated
  • Market share - Can dominate and charge higher prices
  • Customer satisfaction - How well the wants and needs of customers are met
  • Profit - profit is a large aim
  • Growth - Size of a business can be measured e.g. employees, revenue, market share or capital employed
  • Owner/shareholder satisfaction - how shareholders judge the success of the business
  • Employee satisfaction - Wants and needs of employees
112
Q

Reasons for business failure

A
  • Cash flow problems
  • Not being competitive
  • Lack of finance
  • Failure to innovate
113
Q

Cash flow problems - business failure

A
  • Overtrading - funding a large volume of production with insufficient cash
  • Investing too much in fixed assets - spending large amounts initially quickly uses up resources
  • Allowing too much credit - goods are sold and customers pay at a later date
  • Over-borrowing - loans taken out to finance growth - interest costs rise
  • Seasonal factors - trades can vary by season
  • Unexpected expenditure - e.g. equipment breakdown, tax demands
  • External factors - e.g. change in consumer taste - outside of control of business
  • Poor financial management - inexperience in managing cash
114
Q

Lack of finance - business failure

A

Businesses that don’t have enough money/ are undercapitalized are more likely to fail

115
Q

Not competitive - business failure

A
  • New entrants - new rival can enter and take away their trade
  • Ineffective cost control - if cost cannot be reduced prices have to rise - loss of customers to competitors
  • Ineffective marketing - businesses may struggle if their marketing is weak
  • Lack of business skills - owners are not sufficiently skilled - business falls
  • Poor leadership - senior managers 7 business leaders bring down business
116
Q

Failure to innovate - business failure

A

Businesses fail by not adapting to changes with time and lose to rivals who innovate

Business IGCSE (4 decks)

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