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Business > Section 1 - Business Activity > Flashcards

Section 1 - Business Activity Flashcards

0
Q

Want

A

A good or service which people like to have, but which is not essential for living

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1
Q

Need

A

A good or service essential for living

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2
Q

Scarcity

A

When there exists more wants than resources to produce the goods or services to satisfy the wants.

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3
Q

Factors of production

A

Resources needed to produce goods or services. Land (natural resources), labour (people), capital (finance, equipment), enterprise (entrepreneur).

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4
Q

Opportunity cost

A

The next best alternative given up by choosing another item

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5
Q

Specialisation

A

Occurs when people and businesses concentrate on what they are best at.

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6
Q

Division of labour

A

When the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialisation.
+increased efficiency +eliminate waste of time -unmotivated employees -all workers must be present

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7
Q

Business

A

Combines factors of production to make goods or services which satisfy people’s wants

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8
Q

Added value

A

The difference between the selling price of a product and the cost of bought in materials and components

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9
Q

Primary sector

A

The primary sector of industry extracts and uses the natural resources of the earth to produce raw materials used by other businesses.

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10
Q

Secondary sector

A

The secondary sector of industry manufactures goods using the raw materials provided by the primary sector

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11
Q

Tertiary sector

A

The tertiary sector of industry provides services to consumers and the other sectors of industry

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12
Q

De-industrialisation

A

Occurs when there is a decline in the importance of the secondary, manufacturing sector of industry

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13
Q

Private sector

A

Businesses not owned by the government

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14
Q

Public sector

A

Government- or state-owned and controlled businesses and organisations

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15
Q

Mixed economy

A

A mixed economy has both a private sector and a public (state) sector

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16
Q

Capital

A

Money invested into the business by the owners

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17
Q

Privatisation

A

When a public sector business is sold by the government to a private sector business

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18
Q

Entrepreneur

A

A person who organises, operates and take the risk for a new business venture.

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19
Q

Advantages of being an entrpreneur

A

Independence, ability to utilise personal skills, fame and success, chance of higher income, ability to carry out ideas

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20
Q

Disadvantages of being an entrepreneur

A

Risk, capital, lack of knowledge, opportunity cost

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21
Q

Why do governments support business start-ups?

A

Reduce unemployment, increase competition, increase output, benefit society, the small businesses may grow into big ones!

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22
Q

Business plan

A

A document containing the business objectives and important details about the operations, finance and owners of the new business.

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23
Q

Capital employed

A

The total value of capital used in the business

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24
Q

Who would find it useful to compare the size of a business?

A

Investors, governments, competitors, competitors, workers, banks

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25
Q

How to measure the size of a business

A

number of employees, value of output, value of sales, value of capital employed.

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26
Q

Advantages and disadvantages of measuring a business with number of employees

A

+easy to calculate -capital intensive production methods may not give an accurate picture -what do part time workers count as? 0.5 employees?

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27
Q

Advantages and disadvantages of measuring a business with value of output

A

+common in similar industries -small companies selling expensive products may appear larger than they are

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28
Q

Advantages and disadvantages of measuring a business with value of sales

A

+used when comparing size of retail businesses -hard to compare businesses selling different products

29
Q

Advantages and disadvantages of measuring a business with value of capital employed

A

-Companies using labour intensive production may appear small

30
Q

Why do businesses want to grow?

A

higher profits, status and prestige, lower average costs, larger share of market

31
Q

Internal growth

A

When a business expands its existing operations

32
Q

External growth

A

When a business takes over or merges with another business

33
Q

Integration

A

when one business integrates with another one

34
Q

Merger

A

when owners of two businesses agree to join their firms together to make one business

35
Q

Takeover

A

when one business buys out the owners of another business which then becomes part of the ‘predator’ business. Also called acquisition.

36
Q

Horizontal integration

A

When one firms merges with or takes over another one in the same industry at the same stage of production.
+merger reduces competition
+economies of scale
+bigger market share

37
Q

Vertical integration

A

when one firm merges with another one in the same industry but at a different stage in production.
Forwards vertical integration: +assured outlet +bigger profit margin +retailer won’t sell competitors products +better information on consumer preferences can be obtained.
Backwards vertical integration: +assured supplier +bigger profit margin
+supplier won’t sell to competitors +controlled costs

38
Q

Conglomerate integration

A

when one firm merges with or takes over a firm in a completely different industry. Also called diversification. +Spread of risk +transfer of ideas

39
Q

What to do if business is too large to control?

A

operate the business in small units, this is called decentralisation

40
Q

What to do if business is too large to communicate effectively?

A

Operate the business in smaller units. Use the latest IT equipment and telecommunications

41
Q

What to do if expansion is too expensive

A

Expand more slowly. Ensure sufficient long-term finance is available

42
Q

Integrating with another business more difficult than expected

A

Improve communication and be more understanding

43
Q

Why do businesses want to stay small?

A

Type of industry (eg very specialised services), market size (not a lot of customers), owners’ objectives (preference!)

44
Q

Why do businesses fail?

A

Poor management (lack of experience/bad decisions), failure to plan for change (new technology, trends and competitors require constant evolving), poor financial management (lack of liquidity), over expansion (when a business expands too quickly, diseconomies of scale), risks of new business start-ups (inadequate research, poor planning, lack of finance, lack of experience)

45
Q

Sole trader

A

An enterprise made of one person (unlimited liability)
+Easy to start +get to keep all profits +complete control
-long hours -lack of specialisation -unlimited liability

46
Q

Partnership (unlimited liability)

A

An enterprise owned by 2-20 people
+Spread of risk +more skills
-disagreements

47
Q

Limited companies

A

An enterprise owned by shareholders. There are two types: private (ltd) and public (plc)
+Limited liability +easy to raise finance +tend to be large/well recognizes
-More regulations -more tax

48
Q

Franchise

A

a sole trader pays an existing business to use their name and sell their product
+88% of franchises are profitable +support from franchisor +already well known
-you have to pay royalties -high start-up fee -lack of autonomy

49
Q

Cooperatives

A

enterprises owned by the workers
+high employee motivation
-slow decision making -lack of enterprise skills

50
Q

Joint venture

A

Two or more businesses agree to start a project together, sharing risks, capital and profti
+Local knowledge +shared costs +shared risks
-shared profits -disagreements -different business cultures

51
Q

Limited liability

A

the liability of the shareholders is only limited to the amount they invested

52
Q

Unlimited liability

A

owners of business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business

53
Q

Unincorporated business

A

a business that does not have a separate legal identity. eg sole trader or partnership

54
Q

Incorporated business

A

companies hat have separate legal statuses from their owners

55
Q

Annual general meeting

A

A legal requirement for all companies. Shareholders may attend and vote on who they want to be on the Board of Directors for the coming year.

56
Q

Public limited company advantages and disadvantages

A

+limited liability +incorporated business +ability to raise very large capital sums +no restriction on buying/selling/transfer of shares +high status
-lots of legal formalities -many more regulations/controls -selling shares to the public is expensive -original owners may lose control

57
Q

Dividends

A

payments made to the shareholders from the profits (after tax) of a company. They are the return to the shareholders for investing in the business.

58
Q

Advantages and disadvantages to public corporations

A

+Ensures that every receives goods or services +no monopolies +save a failing business/ secure jobs -no profit motivation -managers may be inefficient due to government subsidies -lack of incentive to increase consumer choice -used politically

59
Q

Business objectives

A

Aims or targets that a business works towards

+give employees/managers a clear target +more focused decisions +united business efforts +easy to measure progress

60
Q

profit

A

the total income of a business (sales revenue) minus costs

61
Q

What are some business objectives

A

Survival (for when a business is just set up), profit (owners want money!), returns to shareholders (discourages shareholders from selling their shares), growth (secure jobs, increase salaries, increase oppurtunites, higher market share, economies of scale), market share (good publicity, increased influence over suppliers and customers), provide a service to society (social, environmental, financial)

62
Q

Market share

A

the proportion of total market sales achieved by one business
Market share% =Company sales / Total market sales * 100

63
Q

Social enterprise

A

a social enterprise has social objectives as well as an aim to make a profit and reinvest back into the business

64
Q

Stakeholder

A

any person or group with a direct interest in the performance and activities of a business

65
Q

How are owners affected by business acitivity?

A

They put in capital; take a share of profits; risk taker
>growth of business, increase of value of investment
>share of profits

66
Q

How are workers affected by business acitivity?

A 
employed by business, must follow instruction, on contract, they may have to be made redundant
>regular payment for work
>contract of employment
>job security
>life satisfaction and motivation
67
Q

How are manager affected by business acitivity?

A

employed by business; make important decisions; lots of responsibility
>high salaries
>job security
>growth of business

68
Q

How are customers affected by business acitivity?

A

Important to business; important to do market research
>a good product or service
>a good value

69
Q

How is the government affected by business acitivity?

A

responsible for economy; pass laws
>want businesses to succeed for more jobs and bigger economy
>expect firms to stay within the law

70
Q

How are banks affected by business acitivity?

A

Provide finance

>expect businesses to pay back interest

71
Q

What is conflict of stakeholders’ objectives?

A

When stakeholders of a business all have different objectives which may contradict each other. eg parking lot owner wants to expand business but the local community hates parking lots

Business (7 decks)

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