Unit 1- Business in the real world

What is a business?

It is an individual or organisation that produces goods or services.

What are the reasons for starting a business?

Take advantage of business opportunities.

An entrepreneur can earn more money if the business is a success and makes a profit.

Some people may want to fill a gap in the market- think of a useful good or service no one else is providing.

Independence- be their own boss. Get to decide what to do each day. Have more flexible work hours. This makes it easier to fir work around other commitments.

They may want to follow an interest and this gives them job satisfaction.

Some are dissatisfied with their current job. Setting up a new business can make them feel more motivated and happy to go to work.

Goods

A physical product

Services

An intangible product like a bus journey.

Needs

Things that you can’t live without like food and water.

Wants

Things you would like to have, but can live without.

Primary sector

Produces raw materials and any natural resources which are used to produce goods or services.

They can be extracted from the ground. Mining industry provides coal, oil, gas and metals like iron.

They can be grown. E.g., farming.

They can be collected. E.g., fishing.

Secondary sector

Manufactures goods. They turn raw materials into finished goods.

E.g., a chocolate factory turns raw materials like cocoa and milk into chocolate.

The building and construction industries are also in the secondary sector.

Tertiary Sector

Provides services. E.g., Uber eats.

Some firms provide services for other businesses- like warehousing and advertising.

Some firms provide services for consumers- like shops and restaurants.

Financial services like banking and insurance are used by both businesses and consumers.

What are the Factors of production? (4)

Land- All the Earth’s natural resources non- renewable(oil, natural gas, coal) and renewable resources(wind, tidal power, wood). Material excreted by mining(e.g. diamonds and gold). Water. Animals found in an area.

Labour- The work done by the people who contribute to the production process. Different people have different levels of education, experience or training and this can make some people more valuable than others.

Capital- The equipment, factories and schools that help produce goods and services. Different from land because capital has to be made first.

Enterprise- The people(entrepreneurs) who take risks and create things from other three factors of production.

Opportunity Cost

The benefit that’s given up in order to do something else.

Idea that money or time spent doing one thing is likely to mean missing out on doing something else.

So it puts value on the product or business decision in terms of what the business had to give up to make it.

Businesses must choose where to use their limited resources.

Managers compare opportunity costs when making decisions.

Enterprise

Either a business or organisation or the personal qualities that mean you can see and take an advantage of new business opportunities. There’s always a risk of failure , but the reward for successful enterprise activity is usually profit.

Entrepreneur

Someone who takes on risks of enterprise activity

Characteristics of an entrepreneur (4)

Hardworking- Takes hard work to put ideas into practice. They often work long hours. They may may be working on their own to begin with, taking on all tasks involved in running a business.

Organised- Need to have this skill to keep on all the day to day tasks of running the business as well as planning for the future.

Innovative- Come up with new ideas and think of solutions to problems that may come up.

A willingness to take a calculated risk- There are a lot of unknowns running a business. An entrepreneur could lose the money they invest in a business if it fails. They can Write a business plan to work out if the business is a good idea but they can’t know exactly what’s going to happen before they start.

What are the objectives of an entrepreneur? (6)

Take advantage of business opportunities.

An entrepreneur can earn more money if the business is a success and makes a profit.

Some people may want to fill a gap in the market- think of a useful good or service no one else is providing.

Independence- be their own boss. Get to decide what to do each day. Have more flexible work hours. This makes it easier to fir work around other commitments.

They may want to follow an interest and this gives them job satisfaction.

Some are dissatisfied with their current job. Setting up a new business can make them feel more motivated and happy to go to work.

Explain the changing business environment.

Technological change- Businesses need to keep up with the rapid changes with technology. This includes advertising methods, production, e-commerce and m-commerce.

Economic change-Economic factors can have a big impact on the success of a business. These include interest rates, inflation, and Gros domestic product (GDP).

Legal change- Businesses will be affected by new legalisation. Changes to law like minimum wage may increase the costs of the business or affect the demand for the product as workers have more disposable income.

Environmental expectations-Businesses have to be aware about how strongly their customers feel about the environmental and other ethical issues. This will affect how they produce, package and transport their products as well as the resources they use.