Chapter 1 :The purpose of Business Activity
What is opportunity cost?
The next best alternative given up by choosing another item
Define secondary sector
Industry that converts the raw materials provided by primary industry into commodities and products for the consumer.
Define Enterprise
Enterprise is an idea for a business. It can be a new idea for a good or service or an existing good or service.
What is a sole trader?
a business owned and controlled by one person OR ownership lies in the hand of an individual.
Give any 2 objectives of private sector businesses
Business Survival
Generating profit
Growth of business
Market Share
Social Objective
4 Factors of production
1) Land
2) Labor
3) Capital
4) Enterprise
Define primary sector
Involves extraction/production of raw materials OR use the natural resources of the earth to produce raw materials used by other businesses
List 2 characteristics of a successful entrepreneur
ready to face risks and challenges
Define limited liability
Limited Liability : liability of shareholders is limited to the amount of money they invested
Give 2 reasons why setting objectives is important for a business
Helps measure success
Gives sense of purpose and direction
Provides aim or target to work towards
2 advantages of division of labour/specialisation
Advantages:
Specialized workers are good at one task and increase efficiency and higher output.
Less time is wasted switching jobs by the individual.
Machinery also helps all jobs and can be operated 24/7.
Lower (unit) cost/benefit from economies of scale
Every worker focuses on what they are good at/become expert
Improved quality or accuracy or less wastage
More competitive.
Difference between private and public sector?
Private Sector: Businesses owned by private individual and NOT owned by government, They make own decisions on what and how to produce.
• Public Sector: Owned by the government. Government will make decisions on what and how to produce (i.e. healthcare, education, defense, public transport)
2 reasons why governments support start-ups
Because it benefits the economy
Job Creation
Gives customers choices -
Greater competition
Provide specialist goods and services
1) What is a franchise?
2) Give 1 advantage of a franchise
1)An agreement that allows one business to trade under the name of another business to sell the other company’s products or services
2) Less chance of business failure
Franchisor provides advice and training
Franchisor finances national promotion
Owner keeps
Supplies from central source - so quality maintained
Banks more likely to lend to franchisee as lower risk
Recognition - Brand Image already built - customers already aware
1) Give 1 objective of employees
2) Give 1 objective of the community
1) Higher salaries, safe working conditions, job security, promotions, Job satisfaction
2) Job creation, clean environment
2 disadvantages of Division of Labour/Specialisation
Disadvantage
Boredom from doing the same job lowers motivation and efficiency.
No flexibility because workers can only do one job and cannot do others well if needed.
If one worker is absent and no-one can replace him, the production process stops
Classify business based on activity and ownership
Based on activity :
Primary, secondary, tertiary
Based on Ownership :
Public sector, Private sector
2 ways governments supports start-ups
Labour
Ideas/Advice
Land
Finance
What is a franchisee?
A franchisee is a business based on the use of brand names, promotional logos, and trading methods of an existing company. The franchisee buys the license to operate the business from the franchisor.
Define stakeholders and what are the two types of stakeholders with examples?
Stakeholders are a person or a group which has interest in a business for various reasons and will be directly affected by its decisions.
o Internal Stakeholders are within the company /work in / own the company. Eg-owners, managers, workers
o External Stakeholders are outside of the business. Eg consumers, government, bank, communities, suppliers
1) Define adding value
2) List 2 ways of adding value
3) Explain 2 ways of adding value
1) Difference between price of a finished product and the cost of the inputs involved in making it
2)a)Increase the selling price of product, while keeping the total cost of material the same
b) Decrease the total cost of materials, while keeping the selling price of the product the same.
c) Branding, Promotional activities - make the customer remember them
d) Add Product Features
e) Improve Service Quality
f) Provide Convenience to customers
1) 2 examples Primary Sector
2) 2 examples of Secondary Sector
3) 2 examples of Tertiary sector
Primary : farming, forestry, mining.
Secondary : construction, car manufacturing, baking
Tertiary : banks, transport, insurance
1) List and explain any two ways to measure business size
Capital Employed : The value of all finance invested in a business. This is the finance used to buy machinery, factories, etc. A small business invests much less capital than a larger business.
Value of Output : The amount businesses earn from selling their products is their value of output. A small business has fewer earnings from sales than a large business
Number of employees : Large businesses have many departments and managers. They require much more employees than smaller businesses.
Market Share : The larger the share of the market, the larger the business.
1) Define private and public limited company
2) Give 1 advantage and 1 disadvantage of each
1) a) Private limited company : Shares sold to family and friends, not sold to general public + have limited liability/ separate legal identity from owners.
b)Public Limited Company : A business whose shares can be sold to the general public
1) List 1 objective of the government
2) 1 objective of owner/shareholders
3) 1 objective of customers
4) Explain any 1 conflict of objectives between stakeholders
1) Government:
Money from taxes
Increase employment in the country
Increase country’s output
2) Owner : Owner/Shareholders may choose to sell their shares reducing the market value of the company
3) Customers :
Quality products and services
Fair prices
4)