Unit 1 - Understanding Business

Question 1

What is a Need?

Answer 1

A need is a basic necessity to live e.g. water, food, clothing.

Question 2

What is a Want?

Answer 2

A want is something someone desires once all their basic needs are met.

Question 3

What is a Good?

Answer 3

Goods are tangible items which can be seen and touched such as cars and washing machines.

Question 4

What is a Service?

Answer 4

Services are intangible which means they cannot be seen and/or touched such as a train journey or a trip to the dentist.

Question 5

What are Durable Goods?

Answer 5

Durable goods will last a long time such as televisions, fridges, tables and chairs.

Question 6

What are Non-Durable Goods?

Answer 6

Non-Durable Goods will ,last, or be used, for only a short period of time such as food, newspapers and magazines.

Question 7

What are Capital Goods?

Answer 7

Capital Goods are goods used by businesses to produce consumer goods. For example machinery and equipment.

Question 8

What are the four Factors of Production?

Answer 8

Land - Natural Resources
Labour - Human Resources
Capital - Man-made Resources
Enterprise - Organising the other factors of production and taking the risk of producing goods or services in advance of them being sold.

Question 9

What is the Cycle of Business?

Answer 9

Businesses produce goods and services to meet customers wants -> Customers buy goods and services to satisfy their wants -> Wealth is created for businesses and their employees and shareholders -> Customers have money to spend from their wagers and want other goods and services.

Question 10

What are the four Sectors of Industry?

Answer 10

Primary (extractive sector
Secondary (manufacturing) sector
Tertiary (service) sector
Quaternary (information) sector

Question 11

What is the Primary (extractive) Sector?

Answer 11

Businesses which are based around the extraction and exploitation of natural resources (raw materials) including farming, fishing and oil drilling.

Question 12

What is the Secondary (manufacturing) Sector ?

Answer 12

Businesses which take the raw materials produced in the primary sector and makes them into goods for the consumer to purchase. Examples include oil refining and food production.

Question 13

What is the Tertiary (service) Sector?

Answer 13

Businesses which
do not provide goods but provide services
and skills to the consumer, including education,
banking, retail and tourism.

Question 14

What is the Quaternary (information) Sector ?

Answer 14

This is a relatively new sector of industry and includes businesses which provide information services. Examples include information and communication technology (ICT), research and development (R&D) and consultancy.

Question 15

What are the three Sectors of the Economy?

Answer 15

Private Sector
Public Sector
Third Sector

Question 16

What is the Private Sector?

Answer 16

Organisations owned and controlled by private individuals and investors. Their main aim is to make a profit.

Question 17

What is the Public Sector?

Answer 17

Organisations owned and controlled by the government on behalf of the population of the country. Their main aim is to provide essential services to the general public.

Question 18

What is the Third Sector?

Answer 18

Organisations set up by people with similar beliefs or concerns and run by elected committee members. Their main aim is to help certain causes or to provide facilities for their members.

Question 19

What are the type of Business Organisations?

Answer 19

Private Sector organisation
Public Sector organisation
Third sector organisation

Question 20

What types of Business organisations are in the Private Sector?

Answer 20

Franchises
Public limited companies
Multinational organisations

Question 21

What is a Franchise?

Answer 21

A franchise is a business run by one firm under the name of another.Organisations such as McDonald’s operate some branches directly and others as franchises.

Question 22

Advantages of Franchises?

Answer 22

The business can begin trading on the established reputation of the franchiser immediately

The franchise has the advantage of a well-known brand name and back up service

All franchises can benefit from ideas generated by each of them

Quick way for the franchiser to enter new geographical markets and become better known

Question 23

Disadvantages of Franchises?

Answer 23

A percentage of the profits has to be paid of the franchiser.

The franchiser may impose strict rules on the franchisees and restrict their ability to operate on their own initiative.

The franchisee’s reputation and profitability depend on part on that of the franchiser and the performance of the other franchises .
Franchisers are reliant on franchisees to maintain the image and “good name” of the business.

Question 24

What is a Private Limited Company (Ltd)?

Answer 24

Owned by its shareholders and must have a minimum of 2 stakeholders. One of the shareholders if usually the director of the company. Shares are not sold on the stock exchange.

It is managed/controlled by a Board of directors who make decisions.

Question 25

What are the advantages of a LTD company?

Answer 25

Shareholders have limited liability - their liability is limited to the amount of capital they invest.

Larger amount of finance can be raised.

Control of the company is not lost to people outside the company.

Set up costs have decreased and the legal process is now much simpler.

Question 26

What are the disadvantages of a LTD company?

Answer 26

Part of the profits are shared among shareholders.

More complicated than a sole trader or partnership to set up.

More difficult to raise large amounts of finance as shares can only be sold to people known to the company.

Private limited companies in Scotland must provide a copy of their bank accounts to Companies hOuse