Unit 1 (not on paper 3)

Question 1

what benefits do businesses bring?

Answer 1

• create employment
• create income
• create new products
• enhance a country’s reputation

Question 2

GDP

Answer 2

measures the value of a country’s total output of goods + services over a period of time

Question 3

Mission statement

Answer 3

sets out a business’s overall purpose to direct + stimulate the entire organisation

Question 4

Aims

Answer 4

long term plans of the business from which its corporate objectives are derived

Question 5

Objectives

Answer 5

medium to long term targets established to co-ordinate the business

Question 6

examples of business objectives

Answer 6

• profit maximisation
• growth
• survival
• cash flow
• ethical
• diversification

Question 7

reasons for setting objectives

Answer 7

• managers ensure everyone is working towards the same target
• workers more motivated as they know what business wants them to achieve
• the success of business’s plans can be reviewed

Question 8

profit =

Answer 8

total revenue - total costs

Question 9

stakeholders

Answer 9

individuals or groups who an interest in a business

Question 10

revenues

Answer 10

earnings generated by a business as a result of its trading activities

Question 11

fixed costs

Answer 11

costs that do not change with output

Question 12

variable costs

Answer 12

alter directly with output

Question 13

total costs =

Answer 13

fixed costs + variable costs

Question 14

average costs

Answer 14

total costs / level of production or output

Question 15

what does the businesses profits depend on?

Answer 15

profit margin and quantity of sales

Question 16

sole trader

Answer 16

a business that is owned + managed by one person but may employ other people

+ easy to start up
+ decisions can be made quickly
+ sole traders often have direct contact with market

• sources of finance are limited
• long hours with limited holidays = stress
• unlimited liability

Question 17

shareholder

Answer 17

an investor in and one of the owners of a company

Question 18

limited liability

Answer 18

in the event of financial difficulties, the personal belongings of shareholders are safe
owners aren’t personally responsible for debts
public + private limited companies can only lose money invested into the business

Question 19

dividends

Answer 19

part of a company’s profits that are paid to shareholders in proportion to the no. of shares that they down

Question 20

why may a business decide to remain private?

Answer 20

• retain control over company
• taking decisions in the company’s long term interests
• enjoy the profits generated by the company

Question 21

benefits of trading as a public limited company?

Answer 21

• access to capital
• publicity
• ability to take over companies

Question 22

takeover

Answer 22

when one company acquires control of another by buying 50% of its share capital

Question 23

mutual businesses

Answer 23

run for the benefit of their members whether employees, customers, suppliers or local community

Question 24

what different types of co-operatives exist?

Answer 24

• consumer co-operatives (customers are members)
• worker co-operatives (owned + operated by employees)
• producer co-operatives (group of businesses work together to benefit from factors eg increased bargaining power)

Question 25

reason for buying shares

Answer 25

- may benefit from increase in share price = capital gain - receiving dividends - longer term returns eg investors - want to be involved - believe in objectives

Question 26

risk of buying shares

Answer 26

- price can fall | - companies may make lower profits than expected

Question 27

influence on share prices

Answer 27

- company's performance eg strategic decisions, quality of team - business environment - current share price - interest rates - industry development - potential for takeover

Question 28

benefits of rising share price

Answer 28

if demand for a share > supply = rise in share price - reflects well on management team - easier to raise capital when share prices rising -> more potential shareholders

Question 29

negatives of falling share prices

Answer 29

- may reflect poor performance on management team - may make company vulnerable - may make difficult to raise capital

Question 30

how does rising interest rates impact costs + demand

Answer 30

- costs of servicing existing loans may increase - costs of imported products may fall - demand for products may fall

Question 31

how does falling interest rates impact costs + demand

Answer 31

- cost of servicing existing loas may decrease - costs of imported products may rise - demand for products may rise

Question 32

private limited company

Answer 32

people in the business own all the shares, small family business

Question 33

public limited company

Answer 33

can sell shares to the public, directors are elected to the board by shareholders

Question 34

unlimited liability

Answer 34

sole traders, business debts become personal debts -> huge financial risks

Question 35

public sector

Answer 35

owned + controlled by the govt aim to provide services to the public rather than make a profit eg NHS, police force funded through taxes less accountable to shareholders -> likely to be less efficient, govt are there to bail them out -> Royal Mail so inefficient went private some companies are needed to be owned by the govt eg hospitals

Question 36

private sector

Answer 36

owned + run by private individuals, sole traders to huge organisations eg John Lewis and Asda, most aim to make a profit but non profit organisations are also private likely to be more efficient as don't have govt backing and have pressure from shareholders

Question 37

what does the govt do if demand in economy is too low?

Answer 37

- cut taxes so people have more to spend - central banks decrease interest rates - there is increased disposable income

Question 38

how are a businesses costs effected when unemployment is high?

Answer 38

means good supply of labour, businesses can hire staff easily, won't have to pay high wages = costs low

Question 39

what does govt legislation force. business to do?

Answer 39

deal with issues eg pollution -> may increase costs if use sustainable resources but can help in LT eg Carbon trust have increased competitiveness through changes they made

Question 40

what does fair-trade do for a business?

Answer 40

increases cost but gives USP eg Co-op

Question 41

market capitalisation

Answer 41

value of the business represented by the share price x no. of shares issues

Question 42

profit warning

Answer 42

when a company expects to get lower profits than anticipated