Business Studies

CHAPTER 1.1 - BUSINESS ACTIVITY

Business

An organization which produces goods or services.

Need

A good or service essential for living.

Want

A good or service which people would like to have, but which is not essential for living. These are unlimited.

Economic problem

There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants, this creates scarcity.

Scarcity

The lack of sufficient products to fulfill the total wants of the population.

Factors of production

Those resources needed to produce goods or services. There are four factors of production and they are in limited supply.

(factor of production) Land

Term used to cover all of the natural resources provided by nature and includes fields, forests, oil, gas, metals and other resources.

(factor of production) Labor

The term used to describe the number of people available to make products.

(factor of production) Capital

The finance, machinery and equipment needed for the manufacture of goods.

(factor of production) Enterprise

The skill, and risk-taking ability of the person who brings the factors of production together to produce a good or a service. For example, the owner of a business. These people are called entrepreneurs.

Opportunity cost

The next best alternative given up by choosing another item.

Specialization

This occurs when people and businesses concentrate on what they are best at.

Why specialization is common

•Specialized machinery and technology are widely available

•Increasing competition means businesses have to have low cost

•Higher living standards can result from being specialized

Division of labor

This is when the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialization.

Advantages of division of labor and job specialization

•Workers are trained in one task and specialize in this-Increases efficiency

•Less time is wasted moving from one workbench to another

•Employment increases

•Lower costs

•Increased production

Disadvantages of division of labor and job specialization

•Workers can become bored doing just one job-efficiency might fall

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

•Products become standardized

•Small businesses can't compete

Added value

The difference between the selling price of a product and the cost of bought in materials and components.

How to increase added value

-Increase selling price but keep the costs the same, to do this you need to have a good image of your product

-Reduce cost but keep selling price the same, this might decrease the quality

CHAPTER 1.2 - CLASSIFICATION OF BUSINESS

Primary sector

The primary sector of industry extracts and uses the natural resources of the earth to produce raw materials used by other businesses

Secondary sector

The secondary sector of industry manufactures goods using raw materials provided by the primary sector.

Tertiary sector

The tertiary sector of industry provides services to consumers and the other sectors of industry.

Industrialization

The growing importance of the secondary sector in developing countries

Advantages of industrialization

•National output increases which increases average living standard

•Increasing output can result in lower imports and higher exports

•Employment increases

•Tax money increases

•Value is added to the country's raw materials

Disadvantages of industrialization

•More people move to the city which causes housing and social problems

•Expansion on manufacturing may make it difficult for businesses to recruit and maintain staff

•Business import costs will increase

•Pollution from factories add to the countries environmental problems

•multinational companies will comparative with the small businesses

De-industrialisation

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

Disadvantages of de-industrialization

•Increase in competition for businesses

•Structural unemployment- some people don't have the skills to work in the tertiary sector so the become unemployed

Advantages of de-industrialization

•Income and living standards of the citizens increase

Why does de-industrialization happen

-Sources of primary products become depleted

-Most developed countries can't compete in manufacturing against newly industrialized countries

-As the country's total wealth increases and living standards rise, more people spend more money on travel and restaurants than on manufactured products

Mixed economy

A mixed economy has both a private sector and a public sector.

Private sector

Businesses not owned by the government. Services are charged and paid for by the customer

Public sector

Government owned and controlled businesses and organisations. Services provided are free and are paid for by taxes.

Privatization

When governments sell public sector businesses to private sector businesses

CHAPTER 1.3 - ENTERPRISE, BUSINESS GROWTH AND SIZE

Entrepreneur

An entrepreneur is a person who organizes, operates and takes the risk for a new business venture.

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-the business might fail

-Capital- have to put own money into business and might have to find other sources of money

-Lack of knowledge and experience in starting and operating a business

-Opportunity cost- lost income from not being employed in another business

Qualities of an entrepreneur

-Hard working- Have to work long hours and have few vacation days

-Risk taker- Making decisions to produce goods or services that people might buy is potentially risky

-Creative- A new business needs new ideas about products , services and ways to attract customers, in order to make it different from other companies

-Optimistic- Looking forward to the future is essential, if you think you will fail you will fail

-Self-confident- Necessary to convince to convince banks, other lenders and customers that your business will be successful

-Innovative- Being able to put new ideas into practice in interesting and different ways is important

- Independent- Will often have to work on their own before they can hire other people, have to be able to be motivated and be able to work by their self

-Effective communicator- Talking clearly and confidently to banks, other lenders, customers and government agencies about the new business will raise the profile of the new business

Why do governments support business startups

-Reduce unemployment- New businesses will often create jobs

-Increase competition- New businesses give customers more choice and compete with already established businesses

-Increase output- The economy benefits from being increased output of goods and products

-Benefit society-Entrepreneurs may create social enterprises

-Can grow further- May help some small firms grow to become very large and important in the future

How do governments help business

-Business idea and help- Governments organize advice and support sessions offered by experienced people

-Finance- Loan money to businesses at small interest rates

-Labour- Gives businesses money to train employees

Research- Encourage universities to make their research facilities available to new businesses

Business plan

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

How does a business plan help an entrepreneur

-Help them stay on strategy

-Objectives will be clear

- Helps have a good idea about cost and revenue

-Helps with keeping track of what customers they are aiming at

-Helps with hiring people and buying machinery

-Encourages banks to give them loans

Ways to measure business size

-Number of employees

-Value of output

-Value of sales

-Value of capital employed

Business size: Number of employees

This method is easy to calculate and compare with other businesses.

Limitations:

-Some firms use productions methods which use very little labour and give a high output, this is true for capital intensive companies which use a lot of machinery.

-Also should 2 part-time employees be considered one employee or two

Value of output

Common way to compare business in the same industry(especially secondary sector)

Limitations: