BUSINESS A LEVEL THEME 1

A-level Business EDEXCEL Theme 1: Marketing and people

Entrepreneur

A person who sets up a business, taking on the financial risk. They organise a business venture by combining the other factors of production, such as land, labour and capital

Entrepreneurship

The activity of setting up a business, taking on the risks, normally in hope of making a profit

Resilience

The ability to recover from difficulties and try again

Risk

Something an entrepreneur can essentially plan for. Probabilities of outcomes are known or at least understood or considered

Entrepreneurial characteristics

Qualities or traits demonstrated by an individual starting up or running a business of their own

Skills of an entrepreneur

1. Organisation

2. Financial Management

3. Decision making

4. IT skills

5. Negotiation

6. Good Communication

7. Managing people

5 Characteristics of an entrepreneur

• Risk Taking

• Hard Working

• Organised

• Decision Maker

• Innovative

Advantages of Entrepreneurship

• A flexible schedule

• Personal Autonomy

• Ability to align your core values into your career

• Continued growth and development

• Developing of managerial abilities

• Freedom of choice of who you work with

• Economic development

Barriers to entrepreneurship

• Struggles with ideas 

• Lack of Finance

• Law restrictions

• Opposing Opinions

• Becoming an employer

• Fear of failure

Financial Incentives

• Profit Maximisation

• Profit Satisficing

Non-Financial incentives

• Ethical stance

• Social Enterprise

• Independence

• Homeworking

Entrepreneurial motive

Factors that drive a person to start a business

Intrapreneurship

“intra” - on the inside.

An individual with entrepreneurial skills who works within an organisation

Advantages of Intrapreneurship

• Financially secure environment

• Gain career advancement

• Access to corporate resources

• Lower risk

• Drives innovation

• Fulfils self-actualisation needs

• Skill development and recognition

Ethical stance

In support of a moral belief

Home working

Setting up a business from home

Independance

The desire to be one’s own boss

Profit satisficing

Making enough profit to satisfy the needs of the business

Social entrepreneurship

Setting up a business for the intention of social issues

Business objective

A goal/target set by the business in the short/medium term to help achieve its aim/mission

Cost efficiency

Minimising costs/expenses/waste when producing a product or service

Customer satisfaction

The measure of how satisfied a customer is with their purchase

Employee welfare

Facilities and benefits provided by a business to meet the wellbeing of the employee

Profit maximisation

When the difference between sales revenue and costs is at its greatest

Sales maximisation

An attempt to sell as much as possible in a given time period (or to generate as much sales revenue as possible)

Social objectives

A goal to benefit/improve the community

Survival

A short-term business objective that aims to keep the business running

Franchise

Where a business buys the right to trade using the brand/logo/business model of an existing firm in return for a fee/royalty

Franchising

A type of business where a business operator (franchisor) allows others (franchisees) to trade under its name (for a fee)

Lifestyle business

A business set up with the aim of making no more than a set level of income from which to enjoy a particular lifestyle

Partnership

A type of business ownership/organisation owned by two or more people

Private limited company

A small to medium sized business, usually run by the family that owns it. Shares are sold to friends, family and business associates and it has limited liability

Public Limited Company

A business with limited liability whose shares are publicly traded on the stock market

Social Enterprise

A business which has aims/objectives which benefits society and isn’t for profits, it’s profits are reinvested into the business/community

Sole trader

A business owned by one person who has unlimited liability

Stock market flotation

When a business sells shares publicly on the stock exchange for the first time

Opportunity Cost

The next best alternative forgone when making decisions

Trade off

A situation where having more of one thing leads to less of something else

Leader

A person who inspires and motivates others to meet objectives

Demand

The quantity of goods/services that a customer is willing to buy at a given price and a given time

Complementary goods

Products used/consumed together, so they are purchased together (e.g printer + printer ink)

Consumer income

The money earned/received from work/investment

Demographics

The structure/groups of the population such as age, gender and geographical distribution

External shocks

Factors beyond the control of the business

Seasonality

When demand rises or falls at a particular times of year according to seasonal factors

Subsitutes

Goods that can be bought as an alternative to others, but perform the same function (e.g petrol car + electric car)

Demand curve dynamic

Inverse relationship/negative correlation - As one variable increases the other decreases

Supply

The amount that producers are willing and able to produce at a given price/over a given period of time

Equilibrium

The price where supply and demand are equal. Also known as market clearing price

Non-Price Factors

Factors other than the price. E.g Change in consumer incomes, advertising and seasonality

Shortage in markets

Where demand exceeds supply

Luxury

Goods that consumers like to buy if they can afford them. E.g Fashion items

Necessity

Basic good that consumers need to buy e.g. food, electricity and water

Price Elastic

• Quantity demanded is responsive to change in price

• There is a greater change in demand than the change in price

Price Inelastic

• Quantity demanded for the product is less responsive proportionately to a change in price

• There is a greater change in price than the change in demand

Price Elasticity of demand (PED) 

Measures the responsiveness of quantity demanded to a change in price

Law of demand

There is an inverse relationship between price and quantity demanded (e.g price increases, quantity demand decrease)

Ceteris Paribus

The assumption that all other factors remain unchanged

Factors of demand

• Change in price

• Change in price of substitutes

• Change in price of complementary goods

• Change in consumer income

• Changes in social trends

• Advertising Campaigns

• Competition

• Economic climate

• Social and environmental factors

• Seasonality

Movements along a demand/supply curve

Occurs when the quantity demanded/supplied changes due to a change in the price of a good/service meanwhile other factors will remain constant

Shifts of a demand/curve

Occur when factors other than change in price of a good/service will impact the quantity demanded/supplied at every price level

Factors which may cause a shift in the demand curve

• Consumer Preferences

• Prices of related goods

• Tastes and preferences

• Expectations

• Income

• Population and demographics

Factors which may cause a shift in the supply curve

• Government policies + regulations

• Technological Advancement

• Production Costs

• Natural resource availability

• Government intervention in international trade

• Changes in Expectations 

• Natural Disasters + weather conditions

Government Subsidy

A grant given to producers by the government, usually to encourage production of a certain good

Excess in demand

If the price of a product is below the equilibrium price, it will cause an excess in demand (more demand than the amount being supplied)

Excess in Supply

If the price of a product in the market is above the equilibrium price, it will cause an excess in supply (more supply than demand)

Unitary Price Elasticity

Measures the price elasticity on a scale, anything between 0 and 1 is price inelastic while any number one and beyond is price elastic

Price Elasticity of Demand (formula)

Percentage change in quantity demanded / Percentage change in price (negative number results are ignored and treated as positives)

Factors Influencing Price Elasticity of Demand

• Time

• Necessity of product

• Competition with alternative products

• Proportion of income

• Brand Loyalty

Time - Factors affecting PED

A longer period of time will cause PED to rise due to consumers and businesses are likely to turn to substitutes for long term use

Scale of Necessity - Factors affecting PED

Depending on how necessary the product is for daily life the demand may or may not be influenced. Products which are known to have high necessity will not have their demand impacted if the prices changes

Competition of alternative products - Factors affecting PED

Alternative products/Competitors entering the market may increase the elasticity of Demand this is due to it being easier for consumers to switch products if prices are changed

Proportion of Income - Factors affecting PED

Things such as income level, the proportion of income spent on the specific product and the type of product consumers are willing to spend on will effect this

Brand Loyalty - Factors affecting PED

In order to gain brand loyalty with their consumers, businesses may differentiate their products in order to maintain individuality and keep up loyalty from consumers if things like price increases

SPLAT

Determinants of Elasticity

• Substitutes

• Proportion of Income

• Luxuries of Necessities

• Addictive or not

• Time to respond

Income Elasticity of Demand (yed)

Measures the responsiveness of demand to a change in  income

Income Elastic

When a change in demand is proportionately larger than the change in income

Income Inelastic

When change in demand is proportionately lesser than the change in income

Formula for Income Elasticity of Demand (YED)

Percentage change in Quantity Demanded / Percentage Change in income

Positive correlation in YED 

• 0-1 = Normal Goods

• 1+ = Luxury Goods

Negative Correlation

Less than 0 = Inferior Good

Factor influencing YED

The main factor is the scale of necessity for a product. Whether it is a necessity or luxury.

Rule of YED

The price of a product is relative to income. Cheap = Inelastic Expensive = Elastic