Unit 1- Business in the Real World

Question 1

What are characteristics of entrepreneurs?

Answer 1

Willingness to take risks
Hardworking and committed; desire to succeed and be resistant.
Innovative; to meet customers needs
Organized

Question 2

List and explain the different business sectors

Answer 2

Primary sector: first stage of production, organizations that extract the Earth’s natural resources, eg: mining.
Secondary sector: organizations that use raw metal to manufacture goods or construct items, eg: car manufacturing.
Tertiary sector: organizations that provide services to consumers or to other organizations, eg: education.

Question 3

What is a PLT?
list the advantages and disadvantages

Answer 3

Private Limited Company
A business owned by shareholders whose shares cannot be freely traded on the Stock Exchange

ADV
- Limited Liability
-Have a separate legal identity
-Able to hire experts and specialist managers to run it.

DIS
-Complex to set up
-Expensive to set up
-Financial information available online, benefits rivals.
-Selling shares to raise money can lead to control loss over the business.

Question 4

What is limited liability?

Answer 4

Exists when a business and its owners are legally separate. The owners personal possessions cannot be sold to pay the business’s debts.

Question 5

What is unlimited liability?

Answer 5

The personal possessions of the owner of the business are at risk if there are any problems. There is no limit to the amount of money the owner might have to pay out.

Question 6

Explain shareholder

Answer 6

A person or organization that owns a part of a company, Each shareholder owns a ‘share’ of the business.

Question 7

Who are stakeholders

Answer 7

Individuals and businesses that are affected by, and affect a business.

Question 8

Name the main stakeholder groups

Answer 8

Owners: individuals to whom a business belongs to, eg: sole traders, partners or shareholders.
Customers: people or businesses who pay for the products produced by a business.
Employee: a person who works for a business.
Local community: the people in the area surrounding a business.
Suppliers: Individuals or businesses that provide goods or services to the business.

Question 9

What are the factors influencing business location?

Answer 9

Proximity to market: how close the business’s location is to its customers.

Availability of raw materials: The easy availability of raw materials for businesses that manufacture products, especially if those raw materials are bulky and expensive to transport.

Suitable supplies of labour: when a business seeks to locate where there are supplies of labour with required skills and low wages.

Competition: when more than one business who both sell the similar products, attempt to attract the same customers.

Costs: the expenditure that is necessary to set up and run a business.

Question 10

What is revenue?

Answer 10

The income that a firm receives from selling its goods and services.

Question 11

What is total cost?

Answer 11

fixed costs + variable costs

Question 12

What is fixed costs?

Answer 12

Those costs that do not change when a business increases its output. (or production)

Question 13

What is a variable cost?

Answer 13

Those costs that vary directly with a business’s level of output.

Question 14

What is profit?

Answer 14

A business makes profit when its revenue is greater than its total costs over a period of time.

Question 15

What is loss?

Answer 15

The amount by which a business’s costs are larger than its revenue from all sales over a period of time.

Question 16

What is the formula for revenue?

Answer 16

Revenue = the number of products sold x their average selling price

Question 17

What is the formula for total costs?

Answer 17

Fixed costs + variable costs

Question 18

What is the formula for profit?

Answer 18

Profit = revenue - total costs

Question 19

What are the methods of business expansion?

Answer 19

Expansion: when a business becomes bigger by increasing its output and sales.

Internal growth: the growth occurs when a business get bigger by selling more of its products.

External growth: the growth occurs when a business gets bigger by joining with, or buying another business.

Question 20

What is franchising?
- type of growth
-advantages and disadvantages

Answer 20

Internal Growth
When a franchisor sells the rights to sell its products to a franchisee; this is usually in return for a fee or percentage of its revenue.

ADV
- Can expand rapidly as it does not need to raise finance to expand. (the franchisee does)
-Selling a franchise provides the franchisor with finance.
-Franchisees are more effective and hardworking than employees as they are managing their own business

DIS
- Franchisee can make errors which could ruin franchisors name and reputation
Most profits go to franchisee rather than the franchisor.

Question 21

What is e-commerce
-type of growth
-advantages and disadvantages

Answer 21

Internal Growth
Act of buying or selling a product using an electronic system eg: internet.

Adv
-Businesses grow quickly with mix of online and in store.
-Avoids the need for shops to sell products
-Fewer employees needed, reducing running cost
-Customers can buy products 24/7, leads to increase in sales.

Dis
- Retailers may suffer from falling sales in their shops.
-Difficult and expensive to distribute goods to customers, especially if bulky or heavy.
-Customers prefer to see products irl.

Question 22

What is outsourcing?
-type of growth
-advantages and disadvantages

Answer 22

Internal Growth
Occurs when a business uses another business to produce for it.

ADV
-Reduce cots as it is not necessary to buy a new factory or hire employees.

DIS
-Risky as business is dependent on other business.
Sales may be lost and reputations damaged if the outsourcing business does not deliver on time or quality is low.

Question 23

What is a merger
-type of growth

Answer 23

External Growth
Occurs when two or more businesses join together to form a new business.

-Merger is not expensive method of growth.
-Merger can lead to the owners of both businesses loosing some control.

Question 24

What is a takeover
-type of growth

Answer 24

External Growth
Occurs when one business buys control of another business,
-Expensive method of growth

Question 25

What is the advantage of business growth (Economies of scale)

Answer 25

Occurs when a business’s unit costs of production falls as its output rises and the business expands.

Question 26

What is purchasing economies?

Answer 26

businesses buying larger quantities of raw materials, giving a lower price per unit.

Question 27

What is technical economies?

Answer 27

When cost per unit falls as a result of a business using expensive machinery in production.

Question 28

What is unit cost?

Answer 28

The cost of purchasing a single unit of production.
unit costs = total costs / number of units of output produced.

Question 29

Disadvantages of growth (diseconomies of scale)

Answer 29

Occurs when the cost per unit increases as a business expands too much/quickly.
-Difficult for employees to communicate, resulting in errors.
-Some employees might feel demotivated in a large business, less efficient.
-Failure to meet customers needs.