Unit 1 Incorrect Questions Flashcards
Give 3 business objectives
Survival, cash flow, growth
Why do businesses set objectives
Motivational tool, aids in future decision making
Why a business has a mission statement
Established direction of the business, aligns owner and employees for same goal, informs public
Formula for ordinary share capital
Total value of shares when first issued X no. of shares
Formula for market capitalisation
no. shares X current share price
Why might a private limited company might change into a public limited company
Have higher equity, to increase exposure
2 factors that influence costs
Interest rates, legislation
Market conditions
Characteristics of a market a business operates in
Demographic factors
A study of the population
Types of strategic Differentiation
- USP
- Brand
- Quality
- Design
-Convenience - innovation
What markets does innovation work in
Dynamic market not static market
What is a Mission Statement?
A mission statement defines the overall purpose of a business, explaining why it exists and its core values. It provides long-term direction and inspiration.
What is the relationship between mission and objectives?
The mission sets the overarching purpose of the business, while objectives break down the mission into specific, measurable actions. Objectives are the steps that help a business achieve its mission.
Mission guides Objectives: The mission provides the big picture, and objectives set out the tangible milestones to reach that vision.
Objectives help achieve the Mission: Objectives are the actionable goals that drive a business towards its mission.
Long-term vs Short-term: The mission is long-term and overarching, while objectives are short- to medium-term and specific.
What are the key advantages and disadvantages of non-profit organizations?
Advantages: Focus on social goals, tax exemptions, community engagement, and volunteer support.
Disadvantages: Limited revenue generation, dependence on external funding, and high administrative costs.
Specification Link: Stakeholder objectives, sources of finance, and operational efficiency.
Example: Non-profits like Oxfam focus on social impact but must manage limited resources and external funding challenges.
What are the key differences between the public and private sectors?
Public Sector: Owned and controlled by the government, focuses on social welfare, funded by taxation, accountable to the public and government.
Private Sector: Owned by individuals or private companies, focuses on profit generation, funded by sales and investments, accountable to shareholders and owners.
Specification Link: Business ownership, business objectives, and sources of finance.
Examples: NHS (public) vs. Apple Inc. (private).
What are the key differences between limited liability and unlimited liability?
Limited Liability: Owners are only responsible for business debts up to the amount they invested. Their personal assets are protected.
Unlimited Liability: Owners are personally responsible for all business debts, and their personal assets are at risk.
Specification Link: Business ownership and liability – Limited liability is common in companies, while unlimited liability applies to sole traders and partnerships.
Example: Tesco (Ltd) has limited liability, whereas a sole trader or partnership has unlimited liability.
What are the main influences on share prices?
Economic factors (interest rates, inflation, economic growth).
Business performance (profits, revenue growth).
Market sentiment and speculation (investor perception and rumors).
Dividends (higher dividends often increase share price).
External events (political, natural disasters).
Supply and demand (more demand increases price, more supply decreases price).
Investors and institutions (large investors can influence prices).
Government and regulatory changes (tax and policy impacts).
Inflation and interest rates (affect business costs and consumer behavior).
Specification Link: Financial markets – Share prices are influenced by a mix of internal and external factors, including company performance and market conditions.
What are the main influences on market conditions that affect costs and demand?
Economic Factors: Interest rates, inflation, and economic growth influence both business costs and consumer demand. For example, higher interest rates increase borrowing costs, affecting production costs, while inflation reduces consumer spending.
Competition: The level of competition in the market affects prices and demand. More competition usually leads to lower prices and higher demand, while less competition may allow higher prices and reduced demand.
Consumer Preferences: Changes in consumer tastes or trends impact demand for products. If demand increases, businesses may raise prices, leading to higher costs to meet demand.
Government Policies: Taxation, subsidies, and regulations affect business costs (e.g., higher taxes increase costs) and influence demand (e.g., subsidies can make products cheaper for consumers).
Technological Changes: Advancements in technology can reduce production costs, leading to lower prices, while also influencing consumer demand through new, innovative products.
Seasonal Factors: Seasonal changes can increase or decrease demand for certain products (e.g., winter clothing) and influence production costs (e.g., raw materials availability).
Global Factors: Global events such as economic downturns, pandemics, or natural disasters can increase costs (e.g., supply chain disruptions) and impact demand (e.g., reduced spending).
Specification Link: Market conditions, costs, and demand are influenced by internal and external factors that businesses must understand to make effective decisions.
How does income influence costs and demand?
Consumer Income and Demand: As consumer income increases, demand for goods and services typically rises because people have more money to spend. Conversely, a decrease in income can lead to lower demand for non-essential goods and services.
Income Elasticity of Demand (YED): This measures how demand for a product changes with a change in consumer income. Products with positive YED (normal goods) see an increase in demand when income rises, while products with negative YED (inferior goods) see a decrease in demand as income rises.
Income and Costs for Businesses: Businesses may face higher costs if wages increase due to rising income levels, particularly in labor-intensive industries. Additionally, higher income levels can lead to higher operating costs as businesses may need to improve employee benefits or wages to attract skilled labor.
Luxury Goods and Income: Luxury goods often experience an increase in demand as incomes rise. These goods are income elastic, meaning they have a high income elasticity of demand (YED), and consumers tend to buy more of them when they have more disposable income.
Impact on Pricing Strategies: Businesses may adjust their pricing strategies depending on the income levels of their target market. For example, in high-income areas, businesses may charge higher prices for goods and services compared to low-income areas.
Specification Link: Income influences both demand for products and services and costs faced by businesses, making it a key factor in pricing and market segmentation.
How do interest rates affect costs and demand
Interest Rates and Business Costs: Higher interest rates increase the cost of borrowing for businesses. This raises finance costs (e.g., loans and credit) and may discourage investment in new projects or expansion. Lower interest rates reduce these costs, making it easier for businesses to invest and grow.
Interest Rates and Consumer Demand: Higher interest rates make borrowing more expensive for consumers, reducing consumer spending on credit (e.g., mortgages, loans, and credit cards). This decreases demand for certain goods and services, especially for big-ticket items like houses or cars. Lower interest rates encourage borrowing and can increase demand for such products.
Cost of Production: If businesses rely on loans for working capital or expansion, an increase in interest rates will raise their overall costs of production. This can lead to higher prices for consumers and reduced demand.
Impact on Demand for Luxury Goods: High interest rates can particularly affect demand for luxury goods, as consumers may cut back on discretionary spending when financing is more expensive.
Interest Rates and Business Investment: Low interest rates tend to encourage businesses to borrow and invest in expansion, potentially increasing demand for goods and services. On the other hand, high interest rates may cause businesses to delay or reduce investment, which could lower demand in the market.
Specification Link: Interest rates directly affect both costs (through borrowing and finance costs) and demand (through consumer and business spending behavior), making them a crucial economic factor for businesses to consider in their decision-making.
How do demographic factors affect costs and demand?
Age Structure
Income Levels and Demographics
Geographic Distribution
Family Size and Composition
Cultural and Ethnic Factors
Migration and Population Growth
Gender Demographics
Education Levels
Health and Life Expectancy
Costs Associated with Demographic Changes
Specification Link: Demographic factors, such as age, family structure, education, and migration, directly influence both demand for products and services and costs (due to necessary adaptations in business strategy and product offerings).
How do environmental issues and fair trade affect costs and demand?
Environmental Issues and Demand: Increased consumer preference for eco-friendly and sustainable products.
Environmental Costs: Higher costs due to investment in green technologies and sustainable practices.
Regulatory Compliance: Costs related to meeting environmental regulations (e.g., emissions, waste management).
Fair Trade and Demand: Growing consumer preference for ethically sourced products (e.g., fair wages, good working conditions).
Fair Trade Costs: Higher sourcing costs from fair trade-certified suppliers and ensuring fair wages.
Differentiation: Environmental and fair trade practices can differentiate products and increase demand.
Supply Chain Impacts: Higher operational costs due to eco-friendly and fair trade supply chains.
Reputation and Brand Value: Positive brand image due to environmental and ethical practices can increase demand.
Specification Link: Environmental and fair trade issues impact both demand and costs, as businesses face pressures to adopt sustainable practices while meeting the expectations of ethically-minded consumers.
