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77 Cards in this Set
- Front
- Back
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Definition of need |
A need is a good or service essential for living. |
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Definition of want |
A want is a good or service which people would like to have, but which is not essential for living. |
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Definition of economic problem |
There are unlimited wants but limited resources. |
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Which are the factors of production? |
Land (natural resources) Labour (people employed in a business) Capital (machinery, factory, finance in order to manufacture goods) Enterprise (the skills required by a man to connect the other resources) |
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Definition of factors of production |
they are those resources needed to produce goods or services. |
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Definition of scarcity |
It is the lack of sufficient products to fulfill the total wants of the population. |
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Definition of Opportunity Cost |
It is the next best alternative given up by choosing another item. |
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Definition of specialisation |
It occurs when people and businesses concentrate on what they are best at. |
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Definition of Division of Labour |
It is when the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialization. |
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Advantages of Division of Labour |
Workers are trained in one task and they specialise in this- this increases efficiency and output. Less time is wasted moving from one workbench to another. |
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Disadvantages of Division of Labour |
Workers can become bored -efficiency might fall If one worker is absent and no one else can do the job then production might be stopped. |
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Definition of business |
Businesses combine factors of production to make products which satisfy people's wants. |
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Definition of added value |
It is the difference between the selling price of a product and the cost of bought in materials and components. |
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How to increase added value |
selling price less cost of bought in materials/ components reduce material costs increase price |
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Definition of Primary Sector |
It extracts and uses the natural resources of the earth to produce raw materials used by other businesses. |
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Definition of Secondary Sector |
It manufactures goods using the raw materials provided by the primary sector. |
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Definition of Tertiary Sector |
It provides services to consumers and the other sectors of industry. |
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What is de-industrialization? |
It occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country. |
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What is a mixed economy? |
It has both a private and public sector. |
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Examples of primary sector |
fishing, farming, extracting raw materials |
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Examples of secondary sector |
processing, manufacturing |
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Examples of tertiary sector |
retailing, banking |
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what is private sector? |
Owned by private individuals |
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What is public sector? |
Owned and control by government or state agencies. |
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Definition of an enterpreneur |
It is a person who organises, operates and takes the risk for a new business venture. |
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Benefits of enterpreneurs |
independence income may become high use own skills/ interests |
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Disadvantages of enterpreneurs |
risk lack of business experience capital needed |
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Common characteristics of enterpreneurs |
self-confident creative innovative independent effective communicator hard worker risk taker optimistic |
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Uses of a business plan |
to help gain finance careful planning reduces risks |
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What is in a business plan? |
which products cash flow business costs location resources required |
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What is a business plan? |
It is a document containing the business objectives and important details about the operations, finance and owners of the new business. |
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Why government support star ups? |
Reduce unemployment Increase competition Increase Output Benefit Society Can grow further |
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Definition of Capital employed |
It is the total value of capital used in the business |
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Why compare business size? |
It is useful to: investors governments banks workers competitors |
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Methods to compare the business size |
By number of workers employed By value of Output By sales By capital employed |
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Internal Growth |
It occurs when a business expands its existing operations |
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External Growth |
It occurs when a business takes over or merges with another business. It is often called integration as one firm is integrated into another. |
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Merger |
A merger is when the owners of two businesses agree to join their firms together to make one business. |
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A takeover or acquisition |
It is when one business buys out the owners of another business which then becomes part of the predator business. |
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Horizontal Intergration |
It is when one firm merges with or takes over another one in the same industry at the same stage of production. |
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Vertical Intergration |
It is when one firm merges with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backward. |
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Conglomerate Integration |
It is when one firm merges with or takes over a firm in a completely different industry. It is also known as diversification. |
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Benefits of Horizontal Intergration |
The merger reduces the number of competitors in the industry There are opportunities for economies of scale The combined business will have a bigger share of the total market than either firm before the integration |
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Benefits of Vertical Integration (for example a car manufacturer takes over a car retailing business) |
The merger gives an assured outlet for their product The retailer could be prevented from selling competing makes of car |
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Benefits of Vertical Integration (for example a car manufacturer takes over a firm supplying car body panels) |
The merger gives an assured supply of important components The profit margin of the supplier is absorbed by the expanded business |
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Benefits of Conglomerate Integration |
Transfer of ideas between different sectors The business now has activities in more than one industry which leads to more possible success. |
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Possible ways to overcome problems due to over expansion |
Operate the business in smaller units Expand more slowly Introducing a different style of management |
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Why do some businesses stay small? |
they type of industry the business operates in the market size the owners objectives |
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Why do some businesses fail? p.32 |
Poor management Failure to plan for change Poor financial management Over-expansion Risks of new business start-ups |
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What is a sole trader? |
It is a business owned by one person. |
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Definition of limited liability |
It means that the liability of shareholders in a company is only limited to the amount they invested. |
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Definition of unlimited liability |
It means that the owners of a business can be held responsible for the debts of the business they own. |
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What is partnership? |
Partnership is a form of business in which two or more people agree to jointly own a business. |
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What is a partnership agreement? |
It is the written and legal agreement between business partners. |
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What is an unincorporated business? |
It is one that does not have a separate legal identity. Sole traders and partnerships are unincorporated businesses. |
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Benefits of partnerships |
Able to raise capital from all partners Responsibilities shared More ideas from new partner(s) Partners can specialise No limited liability |
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Benefits of Sole Traders |
Owner in complete control No sharing profits Incentive to work hard Easy to set up No limited liability |
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Benefits of Ltd |
Raise Capital from sale of shares Limited liability for shareholders Separate legal identity Continuity |
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Limitations of Ltd |
Cannot sell shares to public Legal formalities Accounts must be available for public to see Not easy to transfer shares |
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What is an Annual General Meeting? |
It is a legal requirement for all companies. |
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Definition of Dividents |
They are payments made to shareholders from the profits of a company. |
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Benefits of Plc |
Can sell shares to public Rapid expansion possible Limited liability Continuity |
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Limitations of Plc |
Legal formalities Disclosure of accounts and other information Divorce between ownership and control Expensive to set up |
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Definition of a Joint Venture |
A joint venture is when two or more businesses agree to start a new project together sharing the capital, the risks and the profits. |
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Advantages of joint ventures |
Sharing costs- very important for expensive projects such as new aircraft Local knowledge- when joint venture company is already based in the country Risks are shared |
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Disadvantages of joint ventures |
If the new project is successful, then the profits have to be shared with the joint venture partner. Disagreements over important decisions might occur. The two joint venture partners might have different ways of running a business- different cultures |
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Definition of franchise |
It is a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. |
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Advantages of a franchisor |
The franchisee buys a license from the franchisor to use the brand name. Expansion of the franchised business is much faster if the franchisor had to finance all new outlets. The management of the outlets is the responsibility of the franchisee. All products sold must be obtained from the franchisor. |
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Disadvantages of franchisor |
Poor management of one franchised outlet could lead to bad reputation for the whole business. The franchisee keeps profits from the outlet. |
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Advantages of franchisee |
The chances of business failure are much reduced because a well-known product is being sold. The franchisor pays for advertising All supplies are obtained from a central source- the franchisor Training for staff and management is provided by the franchisor. |
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Disadvantages of franchisee |
Less independence than with operating a non-franchised business. May be unable to make decisions that would suit the local area. License fee must be paid to the franchisor and possibly a percentage of the annual turnover. |
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what are public corporations? |
These are wholly owned by the state or central government. They are usually businesses which have been nationalised. This means they were once owned by individuals but now belong to the government. |
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Advantages of public corporations |
Some industries are considered to be so important that government ownership is thought to be essential. If industries are controlled by monopolies because it would be wasteful to have competitors. If an important business is failing and likely to collapse, the government can step in to nationalise it. |
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Disadvantages of public corporations |
There are no private shareholders to insist on high profits and efficiency Often there is no close competition to the public corporations Government can use these businesses for political issues. |
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Business Objectives Definition |
They are the aims or targets that a business works towards. |
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What objectives do businesses set? |
Business Survival Profit Returns to shareholders Growth of the business Market Share Service to the Community |
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What is profit? |
Profit is total income of a business (sales revenue) less total costs. |
