*BUSINESS STUDIES* (O-Level)

Explain bank loans.

Payable over a fixed period of time.

Business.

combines factors of production to make products which satisfy people's wants.

What is the difference between goods & services?

• Goods can be seen, touch or consumed & are tangible

• Services are performed by people to us & are intangible

What are the four factors of production?

CELL

• Capital

• Enterprise

• Land

• Labour

Define capital.

The equipment, finance & machinery needed to produce goods & services

Define enterprise.

The person skills & risk-taking ability to manage the other factors of production to produce goods & services

Define land.

All natural resources (e.g. forests, oil & mineral resources) to produce goods & services

Define labour.

People needed to produce goods & services

Why does scarcity exist?

Scarcity exist because supply of resources are mostly limited but human wants are unlimited naturally

When scarcity exist, what must be done?

Government, companies & individuals must make a choice on what, how & for whom to produce using limited resources to satisfy the majority human wants

After a choice is made during scarcity, what is the result?

It creates an opportunity cost, sacrificing goods due to limited resources not able to satisfy all our wants

Define opportunity cost. Give an example.

The cost of the next best alternative foregone, the rest is the real opportunity cost

Define needs. List examples of needs.

Goods & services essential for living (e.g. food, shelter, etc)

Define wants. List examples of wants.

Goods & services which would like to be owned but are not essential for living, wants are unlimited (e.g. burger, pizza, etc)

factors of production

are the resources needed to produce goods and services

Define specialisation.

Occurs when people and businesses concentrate on what they are best at

advantage of specialisation

- workers are trained in one task, and specialise in it which therefore increases efficiency and output.

- less time is wasted from one workbench to another

- no mistakes

disadvantage of specialisation

- workers might get bored of doing the same work and thus efficiency might fall.

- if the worker is absent then no one can do the work and production might stop.

why is specialisation common nowadays?

1. specialised technology and machinery are now widely available.

2. increasing competition means that the business have to keep costs low.

3. most people recognise that higher living standard can result from being specialised.

Define division of labour.

is when production is split up into different tasks and each worker performs one of these tasks. It is a form of specialisation.

What is the difference between firm and industry?

• Firms are companies specialised in making a product

• Industries are a group of companies selling related products

What are the benefits of division of labour?

• Increased output of goods & services

• Employment of productive, skilled & knowledgeable specialists

• Use of machinery accelerating production of goods & services

• Repetitive tasks lead to expertise

• Saving workers time, costs & improve productivity

What are the drawbacks of division of labour?

• Boredom due to repetitive tasks thus falling efficiency & productivity

• Lack of sense of contribution as workers only contribute in small part of production of goods

• Retardation of creativity due to unchallenging nature of job & no room for self-expression

• If a worker is absent & no one else can do the job, production might be stopped

Why is business activity needed/importance of business activities to consumer

• It combines scarce factors of production producing goods & services

• Businesses produce goods & services needed to satisfy needs & wants of the population

• Employ people as workers, pays them wages & salaries enabling them to consume products made by other people

Added value

The difference between the selling price of a product and the cost of bought in materials and components.(Added Value = Selling Price - Cost of Materials)

How do businesses increase added value?

a. Increase selling price but keep the cost of material the same.

b. Reduce the cost of materials but keep the price the same for eg use cheaper materials to build a building.

what happens if value is not added to the materials and components that a business buys in then?

1. No profits can be made.

2. Other cost cannot be paid for

How does excellent service quality increase added value?

High quality personalised services will meet customer needs

stages of economic activity

primary, secondary, tertiary

Primary sector

Extracts and uses the natural resources of the earth to produce raw materials used by other businesses

Secondary Sector

Manufactures goods using the raw materials provided by the primary sector

Tertiary Sector

Provides services to consumers and the other sectors of industry

Activities in primary, secondary and tertiary stage

1. primary stage - farming, fishing, forestry, extraction of natural materials such as oil and copper ore.

2. building and construction, aircraft and car manufacturing and so on

3. tertiary stage of production -transport, banking retail, insurance, hotel and hair dressing

The 3 sectors of the economy are compared by

1. percentage of the country's total number of workers employed in each sector

2. value of output of goods and services and the proportion this is of total national output

Which sector of business activity is the most important in developed economy?

The tertiary sector is the most important sector in developed economies because consumers income are rising and they are spending it on services rather than goods. With improvement in literacy rate, developed economies are earning more from tertiary activities.

Which sector of business activity is the most important in least developed economy? (developing countries)

In the least developed economy, the primary sector is the most important as there is limited capital to develop secondary and income are low so demand for services are low.

Reasons for the changes in the relative importance of the 3 sectors over time.

- Sources of some primary products, such as timber, oil and gas, become depleted(diminish) .

- Most developed economies are losing competitiveness in manufacturing to the newly industrialised countries.

- due to increase in income, people invest more in services.

Deindustrialization

occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.

What are mixed economies?

• Economies where resources are owned & controlled by both private & public sectors

• Most countries have mixed economies

Differentiate private & public sector businesses.

• Private sector businesses are owned & controlled by individual & companies for profit

• Public sector businesses are controlled by the state/government

What to produce? (private sector)

Goods & services consumers want, to make profit

How to produce? (private sector)

Best way at lowest cost to produce, to make a profit when products are sold

For whom? (private sector)

For people who have enough money to pay price charged

How to produce? (public sector)

Government departments decide how to produce these goods & services based on providing good quality service to public rather than making profit

What to produce? (public sector)

Goods & services that people need (e.g. electricity, education, etc)

For whom? (public sector)

Some goods & services are free (e.g. education), others are not & if they can't pay, a lower price/free of charge is given

What is the business purpose?

To provide goods or services in order to fulfil stakeholder objectives

Business In public sector

health

education

defence

public transport

water supply

electricity supply

privatisation

The sale of public sector organisations to the private sector

Why does privatisation occur?

- because private sector businesses are more efficient than public sector businesses as their main objective is profit.

- Their owner invest more than the government could ever invest in.

- competition between private sector and public sector help to improve product quality.

Disadvantage of private sector.

- make more workers unemployed in order to cut costs.

- Less likely to focus in social objectives.

Entrepreneur

A person who organizes, manages, and takes on the risks of a business.

Characteristics of successful entrepreneurs?

Hardworking, risk taker, creative, optimistic, self-confident, innovative, independent, effective communicator

What does innovative mean?

Thinking up new ideas for goods & services or new ways of innovating existing goods & services

What does initiative mean?

Able to develop a good plan to achieve the business goals

benefits of being an entrepreneur

-Independence- able to choose how to use time and money

-Able to put ideas into practice

-May become famous and successful if 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 entrepreneurs fail, especially if poor planning

capital - have to use own money or other capital sources

lack of knowledge and experience

opportunity cost - lost income from not being an employee of another business

Why do the government support business start-ups?

• Job creation employ workers

• New businesses bring ideas for goods & services thus increase variety of products available

• Competition thus lower prices & better quality of goods & services

• Start up firms can grow larger & bring economic growth to country in terms of better standard of living

- Benefit Society: Entrepreneurs create social Enterprises offering other benefits than jobs and profit to society.

- By supporting today's new firms the government may be having some firms that grow to become very large and important in the future.

How do the government support business start-ups?

• Grants & interest free or low interest loans

• Lower taxation rates on profit in the early years

• Rent-free premises for a certain period of time

• Free or subsidised training for workers

• Information, advice & support from specialist agents

•Labour- grants to small businesses to train employees and help increase their productivity

What is a business plan?

It is a document containing the business objectives and important details about the operations, finance and owners of the new business

How do business plans help entrepreneurs?

• Info can be used to persuade lenders (e.g. banks & investors) to finance the business

• It provides purpose & direction (e.g. resources required, etc)

• Objectives & financial forecasts enable the business to set targets to aim & monitor progress

What are the methods of measuring the size of a business?

num of employees

value of output

value of sales

value of capital employed

Explain measuring the size of a business by level of output & sales

Higher the output or sales figures, the bigger the business but high sales level does not always mean that the business is large (e.g. a small firm selling only several but expensive products might give high sales figures)

Explain measuring the size of a business by number of employees?

Easy to identify but there are certain big companies who only employ very few people and use high cost equipments to produce output in their automated factories

Explain measuring the size of a business by level of output & sales?

Higher the output or sales figures, the bigger the business but high sales level does not always mean that the business is large (e.g. a small firm selling only several but expensive products might give high sales figures)

limitations of measuring by value of sales

Limitation: it could be misleading to use this measure when comparing the size of businesses that sell very different products.

Explain measuring the size of a business by capital employed?

Total amount of capital invested into a business to purchase things needed may not be accurate because certain companies use labour-intensive methods of production & use only little capital equipment

Why do owners want to expand their business?

• Increased profits

•More status and prestige for the owners and managers.

• Increased market share

• Lower average costs

• Greater power to control the market

• Protection from risk of takeover

Explain increased market share relating to business expansion.

Increased sales over total sales in the industry as the business grow

Explain greater power to control the market relating to business expansion.

• Greater control over prices can set price for all other firms to follow

• Influence government policy to owner's advantage (E.g. cheaper company tax rate request) if government don't accept, relocate company thus bad effects (e.g. loss of jobs)

Explain protection from the risk of takeover relating to business expansion.

• Unwanted takeover especially for PLC can happen (e.g. buying 51% shares of company)

• Larger the firm, more difficult & expensive to takeover as great number of shares must be bought

Define business objectives.

Goals/targets set by a business or its stakeholders which are achieved through business activities

What are stakeholders?

Individuals & groups that show interest in a business because they are affected by its activities & decisions

Who are the stakeholders?

OME

• Owners

• Managers

• Employees

LL CSG

• Lenders

• Local community

• Customers/consumers

• Suppliers

• Government

What do owners show an interest in?

Success of the business & the profit business made

How can owners influence a business?

They have the final power to make business activity decisions

What do managers show an interest in?

Success of the business, power & payment for themselves

How can managers influence a business?

They are responsible for planning, organising & implementing/running business activities

What do employees show an interest in?

Working conditions & pay

How can employees influence a business?

They can influence by their productivity or efficiency, but can also produce poor work, go on a strike or quit to find jobs elsewhere

What do lenders show an interest in?

How secure the money owners/shareholders have invested in or loaned to other businesses & the return they are receiving

How can lenders influence a business?

They can withdraw their financial support thus reduce business activities or can make the business close down

What do the local community show an interest in?

Social & environmental matters (e.g. pollution & destruction of environment)

How can the local community influence a business?

They can organise pressure groups to lobby the business & the stakeholders or write letters to the government

What do consumers/customers show an interest in?

Quality of product & value for money

How can consumers/customers influence a business?

They can switch to other businesses when making purchases

What do suppliers show an interest in?

Want the business to buy their product

How can suppliers influence a business?

They can raise prices, have discounts or have orders arrive not on time unintentionally

What do the government show an interest in?

Well being of the entire society in all sections

How can the government influence a business?

• Pass laws & restrict business activities to behave in certain ways

• Support a business or industry through grants & subsidies to compete against foreign firms or industries

• Promote exports abroad & restrict imports through quotas & tariffs

What are the types of businesses?

• Private enterprise

• Non-profit making organisations

• Public enterprise

(enterprise/firms/companies/organisations/businesses is synonyms to each others)

What are the objectives of private enterprise?

GGIIMPS

• Gaining & enlarging market share

• Growth

• Increasing added value

• Increase sales revenue

• Making a profit

• Provide employment

• Survival

What does gaining and enlarging market share mean?

• Markets can be regional, national or international

• Every market for a product has total value of sales usually in percentage

• Larger market share is better for a business as it means more sales & greater profit

What does growth mean?

• As businesses grows bigger, it is able to produce goods or services for a lower average cost thus greater profit

De-industrialisation

Occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.

reasons for changes in relative importance of the three sectors over time.

- most developed economies are losing competitiveness in manufacturing to newly industrialized countries.

- sources of some primary products, such as timer, oil, and gas, become depleted.

mixed economy

• Economies where resources are owned & controlled by both private & public sectors

in the private sector of mixed economy

- business not owned by the government

- make their own decision what to produce, how it should be produced, and what price should be charged for it.

- aim to run profitable businesses.

in the public sector of mixed economy

- the government or stateowned and controlled businesses and organizations.

- makes decision about what to produce and how much to charge consumers.

- goods and services are produced free of charge to the consumer, such as health and education services.

business usually in public sector

health

education

defense

public transport

water supply

electricity supply