Business Studies chapter 1,2,3

cause of the economic problem

unlimited wants + limited resources = scarcity

opportunity cost

next best alternative forgone

advantages of division of labour

workers are trained in one task and therefore are more skilled, less time is wasted and training is cheaper

disadvantages of division of labour

workers can be bored and lead to drops in productivity, absenteeism can stop production

business activity

combines scarce factors of production, produces goods and services and employs labour

added value

selling price - cost price

how to increase added value

reduce costs or increase price

primary sector

resources

secondary sector

production

tertiary sector

retail

relative importance of economic sectors

percentage of the countries total workers in each sector / value of output of each sector as a percentage of the countries total output

mixed economy

private and public sectors

benefits of being an entrepreneur

larger profits compared to working as an employee, personal fame and recognition, independence and ability to use own skills

disadvantages of being an entrepreneur

risk, lack of capital and knowledge and opportunity cost of being an employee

characteristics of successful entrepreneurs

hard working, risk taking, creative, optimistic, confident, innovative, independent and effective communicator

business plan

a written document that provides a description and overview of your companies future

contents of a business plan

description, what product, the market, location, management, financial information and business strategy

use of a business plan

helps gain capital and reduces risk through careful planning

methods of measuring business size

no of people employed, value of output/sales/capital employed

why business owners may want to expand their business

possibility of higher profits, lower costs, larger market share

different ways of business growth

internal/external

external growth

horizontal merger, vertical integration, conglomerate merger

horizontal integration

one firm mergers with another in the same industry and at the same sector, less competition and more market share

forward vertical integration

one firm mergers with another firm in the same industry but at a further stage, assured outlet, more profit from retailer, information about consumer wants

backward vertical integration

one firm mergers with another firm in the same industry but at a backward stage, assured supply, more profit, less cost

conglomerate integration

one firm mergers with another firm in a completely different industry, diversification, transfer of ideas

problems of business growth

difficult to control, lack of communication, expansion costs, differences in management

why some businesses remain small

type of industry, market size, owners objective

causes of business failure

lack of management, change in environment, liquidity problems and over-expansion