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46 Cards in this Set
- Front
- Back
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Types of business organizations |
Sole proprietors Partnerships Private companies Public companies Multi-nationals Co-operatives Public corporation |
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Sole proprietor |
Sole proprietor is a business owned and managed by one person. Sole proprietor is often referred to as the sole trader. |
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Sole proprietor advantages |
Easy to set up A very personal business (connection with customers) Full control over business Receives all profits |
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Sole proprietor disadvantages |
Unlimited liability, lose all his or her possessions to pay off ant business debts Full responsibility for managing business Lack capital (banks are unwilling to lend) |
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Partnership |
Partnership is a business owned and managed by at least 2 persons. Owners of partnership are referred to as partners. |
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Partnership advantages |
Easy to set up Specialisation Invest new capital Less working hours Spreads the risk |
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Partnership disadvantages |
Have to share profits Less control Disputes Limited finances Unlimited liability |
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Public limited companies |
Public limited is a business owned and managed by at least 2 persons Public limited companies have plc after their company name PLC companies have limited liability Public limited companies raise large amount of finance by selling shares Can sell shares to general public through stock market |
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Private limited companies |
Private limited is a business owned and managed by at least 2 persons Owners are referred to as shareholders Private companies have limited liability Private companies raise finance by issuing shareCannot sell share without consent of the other shareholders |
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Private limited companies advantages |
Selling shares raise capital Limited liability Shareholders have no management responsibilities Company has separate legal identity from owners (company taken to court, not owners) |
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Private limited companies disadvantages |
Disclose financial information in annual accounts Cannot sell their shares publicly Management diseconomies - becoming to large Vulnerable to takeover |
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Shareholders or owners |
People who buy shares |
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Multi-nationals |
A company which produces or provides services in more than one country The advantages and disadvantages they provide to the country where they operate are: – Advantages: employment, tax revenue, quality products – Disadvantages: harm to domestic industry |
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Multinational advantages |
Reach more consumers and sell far more Avoid trade barriers Minimize transport costs Minimize wage costs Raise significant amounts of capital Economies of scale |
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Multinational economic impacts |
Provide jobs for local workers Direct inward investment (increase investment in new business premises) Bring new knowledge and skills to a country Pay taxes boosting government expenditure |
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Multinational problems |
May exploit workers in low wage economies by paying less Natural resources can be exploited, environment destroyed Profits may be switched between countries to avoid paying taxes May use power to obtain generous subsidies/tax advantages Local competition may be forced out |
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Co-operatives |
Cooperatives are owned and managed by its members persons. Cooperative operate for the welfare of its members. Owners are referred to as the members. Different co-operatives have different objectives .Can sell shares to general public |
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Co-operatives advantages |
Popular with workers because everyone has equal say Workers receive profits they make |
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Co-operatives disadvantages |
May find it difficult to raise money, must rely on borrowing from banks Badly run, no entrepreneurial ability |
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Franchising |
Franchisor - a business who sells the right to another business to operate a franchise. |
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Franchising advantages |
Tried and tested market place Easier to raise money from bank Given right equipment to do well Receives training National advertising paid for Tried and tested business model |
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Franchising disadvantages |
Cost to buy franchise Have to pay a percentage of your revenue to business you have brought Less flexible |
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Public sector organisations |
Publicly owned organisations that provide goods and services to the public at national levels. Owned by government. Provide essential services. |
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Effects of privatization |
When public corporations are sold to the private sector it is called privatisation. – Business efficiency (low cost, high quality) |
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What determines the demand for factors of production |
– Consumer (entrepreneurs produce the products which consumerswant) – Productivity – Cost |
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Costs |
Total costs– Total expense of producing an output or a product (Fixed costs + Variable costs) Average cost– Total cost divided by output |
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Profit Maximisation |
Firms strive to achieve maximum profits.They do this by keeping the difference between total revenue and total cost highest and in a positive figure. |
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Specialisation |
Specialization is when a nation or individual concentrates its productive efforts on producing a limited variety of goods. |
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Industrial sectors |
Primary industries: production or extraction of natural resources Secondary industries: manufacturing natural resources into finished goods Tertiary industries: distributing and selling manufactured goods. |
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Public and Private sectors |
Public sector: goods and services provided by the government Private sector: business activity conducted by an individual |
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Productivity |
Measures the amount of output produced from a given amount of input. |
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Pricing and output policies in perfect competition |
Large number of buyers and sellers The firms charge the same price as the competition does, they do not increase or decrease price They seek to achieve competitive advantage Firms respond quickly to the changes in consumer demands |
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Pricing and output policies in monopoly |
One seller supplying the product Monopoly can charge the price which is acceptable to the consumers It may restrict the supply to increase the demand and earn abnormal profits Monopoly does not respond to the consumers’ demands because it knows it will sell the product anyway |
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Advantages of monopoly |
Lower costs Save money, by not producing wasteful duplication Spend money on research Offer lower price to the consumer |
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Disadvantages of monopoly |
Inefficiency in production Does not cater to the demands of consumersMay exploit the consumers as it is the only business providing the product May charge higher price by decreasing the supply |
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Main reasons for different sizes of firms |
Size of market Capital Organization Barriers to enter |
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Integration |
Integration is when two businesses join each other |
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Types of integration |
Horizontal integration Vertical integration – Backward vertical integration – Forward vertical integration |
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Horizontal integration |
Horizontal integration happens when a business acquires or joins a business which is providing the same product at the same stage of production |
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Vertical Integration |
Backward vertical integration happens when a business acquires or joins one of its suppliers Forward vertical integration happens when a business acquires or joins one of its retailer or distributor |
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Economies of scale |
When long term costs decrease as output increases |
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Internal economies of scale |
Arises from an increase of output from the firm itself |
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External economies of scale |
Occurs within an industry, all competitors benefit |
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Internal economies of scale types |
Managerial - can have specialist managers Technical - bigger factories Buying - buying in bulk is cheaper Marketing - advertise for large amount of units Financial - can borrow money cheaply and easily Networking - more people using something, more efficient |
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Diseconomies of scale |
When long term costs increase as output increase |
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Internal diseconomies of scale |
Managerial - too inefficient Technical - not enough raw material |
