business knowledge

What are the four factors of production?

Land, labour, capital and enterprise.

What is meant by land as a factor of production?

All natural resources used by a business, such as raw materials, land and minerals.

What is meant by labour as a factor of production?

The physical and mental effort of people used in the production of goods and services.

What is meant by capital as a factor of production?

Man-made resources used to produce goods and services, such as machinery, tools and buildings.

What is meant by enterprise?

The skill and willingness of an entrepreneur to take risks and organise the other factors of production.

What is an entrepreneur?

A person who organises the factors of production and takes risks to start and run a business.

What is meant by adding value?

The difference between the cost of producing or buying a product and the price it is sold for.

What are two ways a business can increase added value?

Increase the selling price or reduce the cost of production.

How can branding increase added value?

A strong brand can make customers willing to pay a higher price for a product.

How can better quality increase added value?

Higher quality can make customers willing to pay more for the product.

What is meant by opportunity cost?

The next best alternative that is given up when a choice is made.

A business has $50,000 and chooses to buy machinery instead of opening another shop. What is the opportunity cost?

The benefit that would have been gained from opening the other shop.

Why is opportunity cost important to a business?

Resources are limited, so choosing one option means giving up the benefits of another option.

What is the primary sector?

The part of the economy involved in extracting or harvesting natural resources.

Give three examples of businesses in the primary sector.

Farming, fishing and mining.

What is the secondary sector?

The part of the economy involved in manufacturing and construction.

Give three examples of businesses in the secondary sector.

Car manufacturing, construction and food manufacturing.

What is the tertiary sector?

The part of the economy that provides services to consumers and other businesses.

Give three examples of businesses in the tertiary sector.

Banks, restaurants and transport companies.

Which economic sector does a fishing company belong to and why?

The primary sector because it extracts a natural resource.

Which economic sector does a car manufacturer belong to and why?

The secondary sector because it manufactures goods.

Which economic sector does a bank belong to and why?

The tertiary sector because it provides a service.

How can a product move through all three economic sectors?

Raw materials are extracted in the primary sector, manufactured in the secondary sector and sold or delivered through services in the tertiary sector.

What is meant by the private sector?

The part of the economy made up of businesses owned by individuals or organisations rather than the government.

What is meant by the public sector?

The part of the economy owned and controlled by the government.

Give two examples of private-sector organisations.

Supermarkets and private banks.

Give two examples of public-sector organisations.

Government schools and public hospitals.

What is the main difference between private- and public-sector objectives?

Private-sector businesses generally aim to make profit, while public-sector organisations aim to provide services and meet government objectives.

Why might a government provide a service through the public sector?

To provide essential services that may not be provided sufficiently or affordably by private businesses.

What are four characteristics of successful entrepreneurs?

Risk-taking, innovation, determination and good decision-making.

Why is risk-taking important to entrepreneurs?

Starting a business involves uncertainty, so entrepreneurs must be willing to take calculated risks.

Why is innovation important to entrepreneurs?

It can help a business create new products or methods and gain a competitive advantage.

Why does an entrepreneur need determination?

Starting and running a business can involve difficulties and setbacks, so the entrepreneur needs to continue working towards their objectives.

Why is good decision-making important to entrepreneurs?

Entrepreneurs must choose how to use limited resources and make decisions that affect the success of the business.

What is a business plan?

A document setting out the business idea, objectives and plans for how the business will operate.

What are the main elements of a business plan?

Overview/summary, objectives, resources, market research, marketing, finance, people and operations.

What should be included in the overview/summary of a business plan?

A brief description of the business idea and its main plans and objectives.

What should be included in a business's objectives?

The goals the business wants to achieve.

What are resources in a business plan?

The factors of production and other resources needed to operate the business.

Why should a business plan include market research?

To understand customers, competitors and the market before making decisions.

What information might a business include about marketing in its business plan?

Details about its target market, marketing methods, pricing, promotion and distribution.

Why should a business plan consider finance?

To identify how much money is needed, where it will come from and how it will be used.

What information about people might be included in a business plan?

The number and type of employees needed and their skills and responsibilities.

What are operations?

The activities involved in producing goods or providing services.

Why is having a business plan important for a start-up?

It helps the entrepreneur plan the business, identify problems, estimate finance needs and set objectives.

How can a business plan help an entrepreneur obtain finance?

It can demonstrate to lenders or investors that the business idea has been researched and planned.

What is one limitation of a business plan?

Plans are based on forecasts and assumptions, which may turn out to be inaccurate.

Why do governments support business start-ups?

To encourage economic growth, create jobs, increase competition and generate tax revenue.

How can successful start-ups benefit the economy?

They can create jobs, increase output, encourage innovation and generate tax revenue.

What is a grant?

Money given to a business, usually by the government or another organisation, that normally does not have to be repaid.

How can grants help a start-up?

They provide finance that can be used for costs such as equipment, premises or marketing.

How can government advice help a start-up?

It can provide guidance on areas such as finance, marketing, regulations and business planning.

What are low-cost loans?

Loans offered at a lower interest rate than normal commercial loans.

How can low-cost loans help entrepreneurs?

They give start-ups access to finance while keeping borrowing costs lower.

How can training schemes help new businesses?

They can improve entrepreneurs' and employees' skills in areas such as management, finance and marketing.

Why might government support for start-ups have a cost?

Government support uses public money that could have been spent on other services.

What are four methods of measuring business size?

Number of employees, value of output or sales, volume of output or sales, and capital employed.

How can number of employees be used to measure business size?

A business with more employees may be considered larger than one with fewer employees.

How can value of sales be used to measure business size?

A business with a higher monetary value of sales may be considered larger.

What is meant by volume of output or sales?

The physical quantity of goods produced or sold.

How can capital employed be used to measure business size?

A business with more capital invested in it may be considered larger.

Why is profit not a method of measuring business size?

Profit measures financial performance rather than the physical or operational size of a business.

Why can number of employees be misleading when measuring business size?

Different industries require different numbers of employees, and automation can reduce the number of employees needed.

Why can value of sales be misleading when comparing business size?

Different products have different prices, so a business may have high sales revenue without producing a large quantity.

Why can volume of sales be misleading?

Different products vary greatly in size, price and value, so physical quantities are not always comparable.

Why can capital employed be misleading?

Different industries require different amounts of capital, so capital employed does not always reflect overall business size.

Why is it difficult to find one accurate measure of business size?

Different measures can give different results depending on the type of business and industry.

How could a business be large according to one measure but small according to another?

It could have many employees but low sales, or high sales with relatively few employees because of automation.

Why might the owners of a business want it to grow?

To increase profit, increase market share, achieve economies of scale, increase sales and improve the business's reputation.

How can growth increase profit?

Higher sales may increase total profit, particularly if costs per unit fall.

Why might a business want to increase its market share?

To become more competitive and gain a larger proportion of total market sales.

How can growth help a business achieve economies of scale?

A larger business can spread some costs over a greater number of products, reducing average cost.

What is meant by internal growth?

Growth achieved by increasing the size of the existing business rather than joining with another business.

Give two examples of internal growth.

Developing new products and developing new markets.

How can developing new products help a business grow?

It can attract new customers and increase sales.

How can developing new markets help a business grow?

It allows the business to sell existing or new products to new groups of customers or in new locations.

What is the difference between developing a new product and developing a new market?

New product development involves creating new products, while new market development involves selling products to new groups of customers or in new locations.

What is one advantage of internal growth?

The business keeps control over its decisions and can grow at a manageable pace.

What is meant by external growth?

Growth achieved by joining with or taking over another business.

What is a merger?

When two businesses agree to join together to form one business.

What is a takeover?

When one business buys control of another business.

What is horizontal integration?

When a business merges with or takes over another business at the same stage of production in the same industry.

What is vertical integration?

When a business merges with or takes over another business at a different stage of the production process.

What is the difference between a merger and a takeover?

A merger is an agreement between businesses to join together, while a takeover occurs when one business gains control of another.

Give an example of horizontal integration.

A supermarket taking over another supermarket.

Give an example of vertical integration.

A clothing manufacturer buying a textile supplier.

What is one advantage of external growth?

The business can grow quickly and gain access to new customers, resources or skills.

What is one disadvantage of external growth?

The businesses may have different cultures or management styles, causing integration problems.

What are three advantages of business growth?

Increased sales, increased market share and economies of scale.

What are three disadvantages of business growth?

Higher financial risk, communication problems and difficulties controlling quality.

How can growth increase market share?

A larger business can attract more customers and increase its proportion of total market sales.

How can growth lead to economies of scale?

Increased output allows some costs to be spread across more units, reducing average cost.

Why might growth increase revenue?

A larger business may sell more products or enter new markets.

Why can rapid growth create problems?

The business may struggle to manage employees, maintain quality, communicate effectively or finance its expansion.

How can communication become more difficult as a business grows?

There are more employees and management levels, making information slower or less accurate to communicate.

Why might a larger business have higher financial risks?

It may require large amounts of finance and have greater costs and debts.

Why might a rapidly growing business struggle to maintain quality?

It may expand faster than its ability to train employees, supervise production and maintain standards.

Why could managing employees become harder as a business grows?

The number of employees increases, making supervision and communication more difficult.

Why could rapid growth create cash-flow problems?

The business may need to pay for expansion before it receives enough additional revenue.

Why might a business grow too quickly?

It may have insufficient finance, management skills, employees or resources to cope with the expansion.