CAIE IGCSE BUSINESS STUDIES (0450) THEORY - Key Concepts Flashcards

Flashcards covering key concepts from CAIE IGCSE Business Studies topics to aid exam preparation.

What is the difference between needs and wants in Understanding Business Activity?

Needs are goods or services essential for survival, while wants are desires that are not essential; the economic problem arises from unlimited wants and limited resources, creating scarcity.

What is the Economic Problem in business terms?

Unlimited wants but limited resources to satisfy them, leading to scarcity and the need to make choices.

Name the four factors of production and give a brief description.

Land: natural resources; Labour: human effort; Capital: finance and machinery; Enterprise: management and risk-taking.

What is opportunity cost?

The next best alternative forgone when choosing one option over another.

Define Specialisation and Division of Labour.

Specialisation is focusing on what individuals or businesses do best; Division of labour splits production into tasks so workers specialise, increasing efficiency.

How is added value calculated?

Added Value = selling price – cost of bought-in materials (not including production costs like wages, electricity, etc.).

What is the difference between the Primary, Secondary, and Tertiary sectors?

Primary: extracting natural resources; Secondary: manufacturing; Tertiary: providing services.

What is de-industrialisation?

A decline in the importance of the secondary (manufacturing) sector in an economy.

Define a Mixed Economy and Privatisation.

A mixed economy has private and public sectors; privatisation is selling a public sector business to the private sector.

What is an Entrepreneur and what are common traits?

An entrepreneur organises, operates, and takes risks to create a business; traits include hard-working, risk-taking, creative, effective communicators, optimistic, innovative.

List advantages and disadvantages of being an Entrepreneur.

Advantages: independence, potential high profits, apply personal ideas. Disadvantages: high risk, many fail, may require substantial personal capital.

What is a Business Plan and what does it typically include?

A document detailing business objectives, operations, finance, and ownership; contents include product description, market, location, organisation, and financial information.

What is Added Value, and why is it important for a business?

The difference between the selling price and the cost of bought-in materials; it indicates profitability potential from transformation even before other costs.

Explain the Purpose of Specialisation with Division of Labour.

Increase productivity and efficiency by having workers focus on specific tasks; improves output quality but can cause boredom and disruption if a worker is absent.

What is a Primary Sector business?

Extracts and uses the earth’s natural resources to produce raw materials.

What is a Secondary Sector business?

Manufactures goods using raw materials from the primary sector.

What is a Tertiary Sector business?

Provides services to consumers and other sectors.

What is De-industrialisation and why does it occur?

A decline in the importance of the secondary sector, often due to rising costs or competition from other economies.

Define a Mixed Economy with an example of Privatisation.

An economy with both private and public sectors; privatisation is selling a public sector business to private ownership.

What is an Entrepreneur’s role in Growth and Size of a Business?

An entrepreneur organises, operates, and takes risks to expand and innovate, influencing growth through strategy and investment.

What is a Private Limited Company (LTD)?

A company owned by shareholders that cannot sell shares to the public; features include limited liability and separate legal identity.

What is a Public Limited Company (PLC)?

A company whose shares can be sold to the public and traded on a stock exchange; typically has greater ability to raise capital but with higher disclosure.

What is a Franchise and who are the Franchisor and Franchisee?

Franchise is an agreement to use an existing brand; Franchisor licenses the brand, Franchisee pays fees and royalties.

What is a Joint Venture?

Two or more businesses work together on a project while remaining independent, sharing costs, risks, and profits.

What is a Public Corporation?

A government-owned entity that operates in the public sector to deliver essential services.

What are Business Objectives and why are they important?

Aims or targets to guide a business (e.g., profit, survival, growth, market share); they improve motivation, decision-making, and performance measurement.

Why might business objectives change over time?

Changes in profit targets, market share goals, or survival needs due to crises, competition, or shifts in consumer demand.

What are Social Objectives in a Social Enterprise?

Objectives include social outcomes (e.g., employment), environmental protection, and earning profits to reinvest in social work.

Who are Stakeholders and what are Internal vs External Stakeholders?

Internal stakeholders are within the company (owners, managers, workers); External stakeholders are outside (customers, government, banks, suppliers, community). Each group has different objectives.

What motivates employees? List typical motivators.

Motivation is influenced by money, job security, training, promotion, status, responsibilities, work environment, and benefits.

Name the main Motivational Theories covered.

Taylor’s Scientific Management; Maslow’s Hierarchy of Needs; Herzberg’s Two-Factor Theory.

Differentiate Hygiene Factors and Motivators.

Hygiene factors prevent dissatisfaction (e.g., salary, working conditions, supervision); motivators increase job satisfaction (e.g., achievement, recognition, responsibility, advancement).

Give examples of Financial Rewards used to motivate staff.

Time rate, Salary, Piece rate, Commission, Bonus, Fringe benefits, Profit sharing.

Give examples of Non-Financial Motivational Methods.

Job rotation, Job enlargement, Job enrichment, Job redesign, Quality circles, Teamwork, Delegation.

What is Span of Control and how does it relate to Tall vs Flat structures?

Span of Control is the number of subordinates under a manager; tall structures have many levels, flat structures have fewer levels and wider spans.

What is Delayering in organizational structure?

Removing one or more levels of management to flatten the hierarchy and widen the span of control.

Describe the main Leadership Styles and their pros/cons.

Autocratic: quick decisions, little input; Democatic: better decisions but slower; Laissez-Faire: autonomy but can be ineffective in some organizations.

What is the Role of Trade Unions?

Represent workers in negotiations for pay and conditions; provide legal support and services; they can bargaining power through collective action.

What are the HR activities in Recruitment and Selection?

Recruitment and selection, wages and salaries, industrial relations, training, health and safety, redundancy and dismissal.

What is the difference between Internal and External Recruitment?

Internal recruitment fills vacancies with current employees; external recruitment seeks new candidates from outside the firm.

What are the main types of workers: Part-time vs Full-time?

Part-time: under 35 hours/week, flexible hours; Full-time: 35+ hours/week, more consistent schedules and benefits.

Name the three types of Training and their advantages.

Induction training, On-the-job training, Off-the-job training; each has benefits and limitations depending on the context.

What is Workforce Planning and why reduce the workforce might be necessary?

Forecasting the number and skills needed; reductions may be due to automation, falling demand, or restructuring.

What are Internal and External Communication types and methods?

Internal: within the organization; External: with customers, suppliers, authorities; methods include verbal, written, visual; formal and informal.

What are Barriers to Communication and how can they be reduced?

Barriers include sender issues, medium issues, receiver issues, and feedback issues; reduce with clear language, appropriate channels, feedback, and trust-building.

What is the Role of Marketing and its key departments?

Marketing identifies and satisfies customer needs; departments include Sales/Export, Market Research, Promotion, and Distribution.

What drives Market Changes?

Trends, technology advances, unemployment, wages, aging population, and changing consumer preferences.

Differentiate Mass Market and Niche Market.

Mass Market targets a large audience with standardised products; Niche Market targets a small, specialised segment with tailored products.

What is Market Segmentation and its benefits?

Dividing a market into subgroups (demographic, geographic, psychographic); enables targeted marketing and efficient resource use.

What are Primary and Secondary Market Research methods?

Primary research collects new data (surveys, interviews, focus groups); Secondary research uses existing data (reports, stats, online sources).

Explain the Marketing Mix (the 4 Ps).

Product, Price, Place (distribution), Promotion; these are the main elements to plan and execute marketing strategies.

What is Product Life Cycle (PLC) and its stages?

Introduction, Growth, Maturity, Saturation, Decline; stages guide pricing, promotion, and distribution decisions.

Describe pricing strategies: Cost-plus, Competitive, Price Skimming, Penetration, Promotional.

Cost-plus adds markup to cost; Competitive pricing aligns with rivals; Price skimming sets high initial price; Penetration lowers price to enter market; Promotional pricing uses short-term discounts.

What is Place in the Marketing Mix and its channels?

Distribution channels include direct selling, retailers, wholesalers, agents, and e-commerce—each with advantages and limitations.

What is Promotion in marketing and types of media?

Promotion involves informing and persuading customers; media include television, radio, newspapers, magazines, posters, online, and sales promotions.

What is the Marketing Budget and why is it important?

A financial plan for marketing activities; helps assess cost-effectiveness and allocate resources across promotions.

How does technology influence the Marketing Mix?

Internet and social media enable e-commerce, dynamic pricing, online promotion, and global reach; digital channels affect Product, Price, Place, and Promotion.

What is a Marketing Strategy?

A plan to combine the 4 Ps to achieve marketing objectives, considering market size, competitors, budget, and target market.

What are Legal Controls in Marketing (UK examples)?

Regulations include Weights and Measures, Sale of Goods, Consumer Contracts Regulations, Trade Descriptions, and advertising standards to protect consumers.

How does Globalisation affect business markets and entry strategies?

Opens foreign markets but increases competition; strategies include joint ventures, franchising, licensing, and localising brands.

What is a Distribution Channel and its main types?

Direct from manufacturer to consumer; Manufacturer to Retailer; Manufacturer to Wholesaler to Retailer; Agent; each channel has pros/cons.

What is Lean Production and its Waste types?

Lean aims to cut waste; wastes include Transportation, Overproduction, Over-processing, Waiting, Motion, Inventory, Defects.

Name the Lean Production techniques: Kaizen, JIT, and Cell Production.

Kaizen: continuous improvement; JIT: minimize inventory; Cell Production: small teams for specific products.

Explain the three main Production Methods: Job, Batch, Flow.

Job: customized, one-off; Batch: groups of products; Flow: mass production in continuous flow; each has pros/cons.

What is Automation and CAD/CAM/CIM in production?

Automation uses computers to control processes; CAD designs; CAM controls machines; CIM integrates design with manufacturing.

What are EPOS and EFTPOS and their roles?

EPOS: electronic point of sale; EFTPOS: electronic funds transfer at point of sale; both track sales and payments.

Differentiate Fixed Costs and Variable Costs.

Fixed costs do not change with output; Variable costs vary with output; Total Cost = Fixed + Variable; Average Cost = Total Cost / Output.

What are Economies of Scale and their types?

Cost savings as a business grows; types include Purchasing, Marketing, Financial, Managerial, and Technical economies.

What are Diseconomies of Scale and common causes?

Rising average costs as output grows beyond a point; causes include poor communication and slower decision-making.

What is Break-Even Analysis and its key terms?

Break-even: level of output where total revenue equals total costs; uses include BEP, Contribution per unit, and fixed costs.

What is Quality Management in Production (QC, QA, TQM)?

Quality Control checks finished goods; Quality Assurance sets standards throughout; TQM aims for 100% quality at all stages.

What factors influence Location Decisions (Manufacturing vs Service)?

Manufacturing: cost, proximity to resources; Service: proximity to customers, access to labour, and climate of location.

Why do businesses need Finance?

To start up, expand, and fund day-to-day working capital and capital expenditure.

What are Internal vs External Sources of Finance?

Internal: retained profits, sale of assets/inventories, owner savings; External: shares, bank loans, debentures, grants, crowdfunding.

What is Working Capital and how is it calculated?

Working Capital = Current Assets – Current Liabilities; measures short-term financial health.

What is a Cash-Flow Forecast and why is it important?

An estimate of monthly cash inflows and outflows; helps plan financing and manage liquidity.

Differentiate Income Statement and Balance Sheet (Statement of Financial Position).

Income Statement shows revenue and costs to determine profit; Balance Sheet shows assets, liabilities, and equity at a point in time.

What is ROCE and how is it calculated?

Return on Capital Employed = Profit before tax ÷ Capital Employed × 100; capital employed = non-current liabilities + shareholders’ funds.

Who are the main Users of Accounting Information?

Managers, shareholders, creditors, government, workers/trade unions, customers, and potential investors.

What is GDP and what are the main stages of the Business Cycle?

GDP is total value of goods/services; cycle stages include Growth, Boom, Recession, Slump.

What is Fiscal Policy and Monetary Policy?

Fiscal policy uses taxes and government spending to influence the economy; Monetary policy adjusts interest rates to influence demand.

What are Supply-Side Policies?

Long-term policies to increase competitiveness and supply, such as deregulation, labour reforms, and incentives.

What is Social Responsibility and Externalities in business?

Social responsibility considers stakeholders beyond shareholders; externalities are costs/benefits to society not reflected in market prices.

What is Sustainable Development?

Development that meets present needs without compromising future generations’ ability to meet theirs, through renewable energy, recycling, and efficiency.

What are Pressure Groups and Ethical Considerations in business?

Groups that influence business decisions via advocacy; ethical decisions balance profit with social/environmental impacts.

What are Multinational Companies (MNCs) and their impact on host countries?

MNCs operate in multiple countries; benefits include investment, jobs, and technology transfer, while potential downsides include local competition and resource impact.

How do Exchange Rates affect a business?

Appreciation increases the price of exports and reduces import costs; depreciation lowers export prices and increases import costs, affecting profitability.