1.2 Enterprise, Business and the Economy
Entrepreneur-Someone who sports a gap in the market and takes a risk to launch a business that may receive profit or end up losing.
CD - When new products replace other due to new technology and innovation
Eg: Floppy Disk → USB
Patent - A legal ownership of an idea which prevents your idea from being copied.
Organise Factors of production to create an enterprise
Develop a business
Add value by selling the output by more than input
Being innovative
Making sure to gain a return on their investment
Profit – the incentive to take risks is for profit and avoiding loss. This is by being innovative and reducing the production costs to maximise profits.
Ethical stance and social entrepreneurship – motivated by the will to make an impact in the world and leave a legacy. This is also to increase are the standard of living.
Independence and working from home – this allows them to have flexibility and independent, living a more consistent home life to work at there will.
Social entrepreneurship – entrepreneurs who set up a business that will address social issues. For example: nonprofit organisations that are run by donations and grants by the government or the private sector. Known for looking for innovative ways of taking social and environmental issues to music and solutions.
Land (natural resources)
Fertile Land, Oil, Timber, Water.
Labour (people)
Physical work + Effort Eg: Jobs.
Capital (money)
Human created resources.
Physical - Eg. Machines (Man made equipment0
Human - Eg. Knowledge
Entrepreneurship (process are running a business)
Launching a business by making investments + Managing other factors of production + Ideas and Risks
Division of Labour - Separation of a work process into a No. of tasks.
ADVANTAGES | DISADVANTAGES | |
|---|---|---|
EMPLOYEES | Workers will improve due to motivationBetter quality productsProductivity IncreasesTime saving | Can get tired/boredLow paymentsPoor working conditions |
EMPLOYERS | Productivity → More profitBetter Quality productsTime saving → Lower costs | Too much relianceEmployees may leave → Reduce quality of products |
Specialisation - Concentrating on a specific process or product (expertise)
ADVANTAGES | DISADVANTAGES |
|---|---|
Quicker productionHigher OutputFirm has lower costs | Dependency - Firms may find that if they specialise in one or two products and demand lowers they may fail. |
Interest Rates - An interest rate is the reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed.
Bank of England - Uses policy interest rates to help regulate the economy by setting a bank rate and lending money to high street banks who hold an account there.
Using Interest Rates to control the economy is called Monetary Policy
→ Currently 3%
Businesses→ Lower Costs as there is less interest to pay so profit is higher→More likely to expand and take new loans→More Business→More Employment
People with Mortgages and Loans→ Higher Disposable Income→ Increased Spending → More Loans
Savers→ Less Savings
Businesses→ Higher Costs as there is more interest to pay so profit is less→Less likely to expand and less likely to take new loans→Less Business→Less Employment
People with Mortgages and Loans→ Lower Disposable Income→ Decreased Spending → Less Loans
Savers→ More Savings
Mortgage→ A loan from a bank to a person/s in order to fund the purchase of a house.
Fixed Rate Mortgage→ Interest Rate is paid fixed for a fixed time.
Collateral→ Something pledged as security for repayment for a loan.
A Variable Rate Mortgage→ Mortgage Repayments rise and falls with the base rate.
→ A persistent rise in the average price level and a corresponding fall in the value of money.
How inflation is measured?
Uses an average of price changes over changes over a range of 600 goods and services → Basket of Goods
The use of the word average is important as some fall and some rise.
CPI→ Consumer Price Index (headline rate but excludes some items)
RPI→ Retail Price Index (Includes more goods)
Hyper-Inflation → Very high, uncontrolled inflation eg: Germany 1923
Deflation→ Falling prices
Effects of Inflation on Businesses:
Menu Costs
Supply prices increases→ Maintain profit margin
Prices Rise
Consumer uncertainty→Cautious behaviour when spending
Business uncertainty→Can’t make accurate cask flow
Employees demand higher wages
Loan Debt worth less
Exports are uncompetitive
Business don’t invest
Who are affected?
Tourists
Businesses who import and export
Why do exchange rates change?
Due to market force (supply and demand)
How are Interest and Exchange Rates linked?
Bank of England Increases Base Rate→Makes Savings more attractive→ Overseas Investors look to save their money in an Economy that pays the highest Interest Rate→Increases the level of demand and so rushes up the price of currency.
Strong Pound Imports, Cheaper Exports Dearer
If the pound’s value increase (appreciates) → Exporting becomes more expensive as more of the other currency has to be paid for the pound → Exporter sells for a high price and so people bare less likely to buy it→Fall in Sales Revenue = Can lower the price
If the pounds’s value decreases (depreciates) → Importing becomes more expensive as more is paid for less→ The fund becomes cheaper for other countries to export from→Rise in Sales Revenue
If the pound’s value increases (appreciates)→ Importing becomes cheaper as less is paid from more→Results in an increase in Demand
If the pound’s value decrease (depreciation)→ Importing becomes more expensive as more is paid fore less→Decrease in demand
Fluctuations in exchange rates causes uncertainty for businesses as they cannot be certain of their revenues for their exports.
The number or people able and willing to work but not able to find a job.
Employment: Means being economically active.
Underemployment: When people who want to work full time can only work part time.
Entrepreneur-Someone who sports a gap in the market and takes a risk to launch a business that may receive profit or end up losing.
CD - When new products replace other due to new technology and innovation
Eg: Floppy Disk → USB
Patent - A legal ownership of an idea which prevents your idea from being copied.
Organise Factors of production to create an enterprise
Develop a business
Add value by selling the output by more than input
Being innovative
Making sure to gain a return on their investment
Profit – the incentive to take risks is for profit and avoiding loss. This is by being innovative and reducing the production costs to maximise profits.
Ethical stance and social entrepreneurship – motivated by the will to make an impact in the world and leave a legacy. This is also to increase are the standard of living.
Independence and working from home – this allows them to have flexibility and independent, living a more consistent home life to work at there will.
Social entrepreneurship – entrepreneurs who set up a business that will address social issues. For example: nonprofit organisations that are run by donations and grants by the government or the private sector. Known for looking for innovative ways of taking social and environmental issues to music and solutions.
Land (natural resources)
Fertile Land, Oil, Timber, Water.
Labour (people)
Physical work + Effort Eg: Jobs.
Capital (money)
Human created resources.
Physical - Eg. Machines (Man made equipment0
Human - Eg. Knowledge
Entrepreneurship (process are running a business)
Launching a business by making investments + Managing other factors of production + Ideas and Risks
Division of Labour - Separation of a work process into a No. of tasks.
ADVANTAGES | DISADVANTAGES | |
|---|---|---|
EMPLOYEES | Workers will improve due to motivationBetter quality productsProductivity IncreasesTime saving | Can get tired/boredLow paymentsPoor working conditions |
EMPLOYERS | Productivity → More profitBetter Quality productsTime saving → Lower costs | Too much relianceEmployees may leave → Reduce quality of products |
Specialisation - Concentrating on a specific process or product (expertise)
ADVANTAGES | DISADVANTAGES |
|---|---|
Quicker productionHigher OutputFirm has lower costs | Dependency - Firms may find that if they specialise in one or two products and demand lowers they may fail. |
Interest Rates - An interest rate is the reward for saving and the cost of borrowing expressed as a percentage of the money saved or borrowed.
Bank of England - Uses policy interest rates to help regulate the economy by setting a bank rate and lending money to high street banks who hold an account there.
Using Interest Rates to control the economy is called Monetary Policy
→ Currently 3%
Businesses→ Lower Costs as there is less interest to pay so profit is higher→More likely to expand and take new loans→More Business→More Employment
People with Mortgages and Loans→ Higher Disposable Income→ Increased Spending → More Loans
Savers→ Less Savings
Businesses→ Higher Costs as there is more interest to pay so profit is less→Less likely to expand and less likely to take new loans→Less Business→Less Employment
People with Mortgages and Loans→ Lower Disposable Income→ Decreased Spending → Less Loans
Savers→ More Savings
Mortgage→ A loan from a bank to a person/s in order to fund the purchase of a house.
Fixed Rate Mortgage→ Interest Rate is paid fixed for a fixed time.
Collateral→ Something pledged as security for repayment for a loan.
A Variable Rate Mortgage→ Mortgage Repayments rise and falls with the base rate.
→ A persistent rise in the average price level and a corresponding fall in the value of money.
How inflation is measured?
Uses an average of price changes over changes over a range of 600 goods and services → Basket of Goods
The use of the word average is important as some fall and some rise.
CPI→ Consumer Price Index (headline rate but excludes some items)
RPI→ Retail Price Index (Includes more goods)
Hyper-Inflation → Very high, uncontrolled inflation eg: Germany 1923
Deflation→ Falling prices
Effects of Inflation on Businesses:
Menu Costs
Supply prices increases→ Maintain profit margin
Prices Rise
Consumer uncertainty→Cautious behaviour when spending
Business uncertainty→Can’t make accurate cask flow
Employees demand higher wages
Loan Debt worth less
Exports are uncompetitive
Business don’t invest
Who are affected?
Tourists
Businesses who import and export
Why do exchange rates change?
Due to market force (supply and demand)
How are Interest and Exchange Rates linked?
Bank of England Increases Base Rate→Makes Savings more attractive→ Overseas Investors look to save their money in an Economy that pays the highest Interest Rate→Increases the level of demand and so rushes up the price of currency.
Strong Pound Imports, Cheaper Exports Dearer
If the pound’s value increase (appreciates) → Exporting becomes more expensive as more of the other currency has to be paid for the pound → Exporter sells for a high price and so people bare less likely to buy it→Fall in Sales Revenue = Can lower the price
If the pounds’s value decreases (depreciates) → Importing becomes more expensive as more is paid for less→ The fund becomes cheaper for other countries to export from→Rise in Sales Revenue
If the pound’s value increases (appreciates)→ Importing becomes cheaper as less is paid from more→Results in an increase in Demand
If the pound’s value decrease (depreciation)→ Importing becomes more expensive as more is paid fore less→Decrease in demand
Fluctuations in exchange rates causes uncertainty for businesses as they cannot be certain of their revenues for their exports.
The number or people able and willing to work but not able to find a job.
Employment: Means being economically active.
Underemployment: When people who want to work full time can only work part time.
