Studied by 67 people
a need
a good or service which people would like to have, but which is not essential for living.
a want
a good or service which people would like to have but are not essential for living.
economic problem
there exists unlimited wants but limited resources to produce the goods and services to satisfy those wants, this creates scarcity.
cause of the economic problem
there are not enough factors of production to make all the goods and services that the population needs and wants.
factors of production
the resources needed to produce goods or services, there are four factors of production and they are in limited supply.
four factors of production
land
labour
capital
enterprise
land
this term is used to cover all of the natural resources provided by nature and includes fields and forests, oil, gas, metals and other mineral resources.
labour
this is the number of people available to make products.
capital
this is the finance, machinery and equipment needed for the manufacture of goods
enterprise
this is the skill and risk-taking ability of the person who the other resources or factors of production together to produce a good or service.
opportunity cost
the next best alternative given up by choosing another item
specialisation
this is when people and business concentrate on what they are best at
division of labour
this is when the production process is split up into different tasks and each worker preforms one of these tasks. it is a form of specialisation
advantages of division labour
workers are trained in one task and specialise in this - this increases efficiency and output
less time is wasted moving from one workbench to another
quicker and cheaper to train workers as few skills as they need to be taught
disadvantages of division labour
workers can become bored of doing just one job - efficiency might fail
if one worker is absent and no one else can do the job, production might be stopped
business
a combination of the factors of production to make goods and services which satisfy people’s wants.
added value
this is the difference between the selling price of a product and the cost of bought-in materials and components
what happens when value is not added
other costs cannot be paid for
no other profit will be made
importance of added cost
can pay other costs such as labour costs, management expenses and costs including advertising and power
may be able to make profit if these other costs come to a total that is less than the added value
ways a business can add value
increase selling price but keep the cost of materials the same
this might be possible if the business tries to create a higher quality image for its product or service. if the consumers are convinced by this then they might be prepared to pay higher prices and buy the same quantity as before the price rise.
reduce cost of materials but keep the price the same
if the price charged to customers stays the same then a higher added value will be made
examples of adding value
selling price less cost of bought-in material/components
increase price
reduce material cost
stages of economic activity
primary
secondary
tertiary
primary sector
it is the sector that extracts and uses the natural resources of earth to produce raw materials used by other businesses.
secondary sector
it manufactures goods using the raw materials provided by the primary sect
tertiary secondary
it provides services to consumers and the other sectors of industry.
de-indutrialisation
a decline in the importance of the secondary, manufacturing sector of industry in a country.
reasons for changes in the relative importance of the three sectors over time
sources of some primary products become depleted.
most developed economies are losing competitiveness in manufacturing to newly industrialised countries.
as a country’s total wealth increases and living standards rise, consumers tend to spend a higher portion of their income on services such as travel rather than on manufactured products produced from primary products.
mixed economy
an economy with both a private sector and a public sector.
private sector
business that are not owned by the government, these businesses will make their own decisions about what to produce, how it should be produced and what price should be charged for it.
public sector
government owned and controlled businesses and organisations.
examples of business activity in the public sector
health
education
defence
public transport
electricity supply
capital
the money invested into a business by the owners
advantages of private sector businesses
they are more efficient than public sector businesses
they might invest more capital in the business than the government can afford.
competition between private sector businesses can help improve product quality.
disadvantages of private sector businesses
make more workers unemployed than a public sector business in order to cut costs.
less likely to focus on social objectives.
advantages of public sector businesses
less like to make many workers unemployed in order to cut costs
more likely to focus on social objective.
disadvantages of public sector businesses
they are less efficient.
might invest less capital because they cannot afford to do so.
there is no competition between public sector businesses so there is no motivation to improve product quality.
privatisation
when governments have sold off businesses they previously owned to new owners in the private sector
entrepreneur
a person who organises, operates and takes the risk for a new business venture
advantages of being an entrepreneur
independence - able to choose how to use time and money.
able to put own ideas into practice.
may become famous if the business grows
may be profitable and the income might be higher than working as an employee for another business
able to make use of personal interests and skills
disadvantages of being an entrepreneur
risk - many new entrepreneurs’ businesses fail especially when there is poor planning.
capital - entrepreneurs have to put their own money into businesses and, possibly, find other sources of capital.
lack of knowledge and experience in starting and operating a business
opportunity cost - lost income from not being an employee of another business.
characteristics of successful entrepreneurs
hard working
risk taker
creative
optimistic
self-confident
innovative
independent
effective communicator
business plan
a document containing the business objectives and important details about operations, finance and owners of the new business
contents of a business plan
description of the business
products and services
the market
business location and how products will reach customers
organisation structure and management
financial information
business strategy
description of the business
provides a brief history and summary of the business, and the objectives of the business.
products and services in the business plan
describes what the business sells or delivers and strategy for continuing or developing products/services in the future to remain competitive and and grow the business.
the market section of the business plan
describes the market the business is targeting, the description should include:
total market size
predicted market growth
target market
analysis of competitors
predicted changes in the market in the future
forecast sales revenue from the product
business location and how products will reach customers
describes the physical location if applicable, the internet sales or mail order. Also describes how the firm delivers products and services to customers.
organisation structure and management in business plan
describes the organisational structure, management and details of employees required. It usually includes the number and level of skills required for the employees.
financial information for business plan
includes:
projected future financial accounting statements for the several years or more into the future; these should include income statements and statements of financial position.
sources of capital
predicted costs
forecast cash flow and working capital
projections of profitability and liquidity ratios
business strategy
explains how the business intends to satisfy customer needs and gain brand loyalty. A summary should be included to bring together all the points from above that should demonstrate the business will be succesful.
why governments support business start-ups
to reduce unemployment
to increase competition
to benefit society
can grow further
how governments supporting businesses reduces unemployment
new businesses will often create jobs to help reduce unemployment
how governments supporting businesses increases competition
new businesses give consumers more choice and compete with already established businesses
how governments supporting businesses increases output
the economy benefits from increased output of goods and services
how governments supporting businesses benefits society
entrepreneurs may create social enterprises which offer benefits to society other than jobs and profit.
how businesses being able to grow further from support of the government
all large businesses were small once, by supporting today’s new firms the government may be helping some firms that grow to become very large and important in the future
how governments support business start-ups
business idea and help
premises
finance
labour
research
reasons to compare the size of businesses
investors - before deciding which business to put their savings into
governments - often there are different tax rates for small and large businesses.
competitors - to compare their size and importance with other firms
workers - to have some idea of how many people they might be working with
banks - to see how important a loan to the business is compared to its overall size.
ways businesses
number of people employed
value of output
value of sales
value of capital employed
capital employed
the total value of capital used in the business
disadvantages of using people employed for measuring business size
some firms use production methods which employ very few people
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