Y11 Term 1 Eco Study Notes

Topic 1 - Nature of Business

Goods - Items that are tangible (seen and touched)
Services - Services are things done for you by others

Part 1 - Role of Business

The nature of a business

Producing Goods + Services

The core functions of a business is to produce a product (good or service or both) which it then sells for a profit
The products provided by successful businesses solve problems and help consumers

Key Roles of Business

Role	Explanation
Profit	Revenue - cost and expense Profit is used for returns for owners or investment
Employment	Businesses offer employment to workers where workers can develop their skills
Incomes	Businesses provide income to employees, other businesses they might use, and owners
Choice	Businesses offer choice to consumers through a wide range of products
Innovation and Invention	Businesses are trying to innovate to solve problems for consumers They also innovate to improve production Invention the creation of something new
Entrepreneurship and risk	Businesses have no guarantee of profit so they take risks with their own money to improve
Wealth Creation	Businesses create wealth for their shareholders providing dividends and profits As businesses increase in value, shareholders can make profits on share prices Business can also specialise in wealth creation
Improvement on quality of life	Businesses provide products to improve the quality of life of consumers

Part 2 - Types of Business

Classification of businesses

Size

when classifying businesses by size, the following characteristics are used:

Number of employees (Size)
Legal structure
Market shares -> what % of the market they cater to
Sales

Sizes

Micro - up to 5 employees
Small - 5 - 20 employees
Medium - 20 - 199 employees
Large - 200+

Geographical Spread

The presence of a business and the range of its products across a suburb, city, state, country or globe

Local

very restricted geographical spread
Tend to be small to medium in size

National

A business that operates in just one country
Has a range of products and serves a much larger population

Global or Transnational Corporations (TNC’s)

A large business with a home base in one country that operations partially or wholly owned businesses in other countries
Finance, tech, employees and information flow freely between each country

Reasons for Expansion

To increase sales
To increase profits
To expand market shares
To find global consumers

Industry Sector

An industry consists of businesses that are involved in similar types of production

Five main industry sectors

Primary Sector

Businesses whose production is primarily involved with natural resources
E.g farming

Secondary Sector

Businesses who manufacture finished/semi finished products using raw materials
E.g furniture production

Tertiary Sector

Businesses that provide a service associated with a goof
E.g restaurants/ retail stores

Quaternary Sector

Businesses that provide serviced based on information
E.g education

Quinary Sector

Businesses that perform services replacing tasks traditionally completed in the home
E.g childcare

Legal Structure

Incorporated vs Unincorporated

Incorporated - the business and the owner are separate legal entities meaning that the owner does not have unlimited liability of over the business

The ownership is separate from the owners (shareholders)
The business can sue, be sued, lease, sell or own property nad will continue when ownership changes

Unincorporated - the business and the owner are the same legal entity meaning that the owner has unlimited liability for the business

If the business was in debt, the owner could have to sell their own assets

Sole Trader

A business that is owned and operated by only one person

Unlimited liability - when the business owner is personally responsible for all the businesses debt

Advantages	Disadvantages
No partner disputes	Burden of management
Owner gets to keep all the profits	Lots of jobs to do
Less gov regulation	Personal liability (unlimited liability)
Low cost to setup

Partnership

A legal business structure that is owned and operated by 2-20 people with the aim of making a profit

Accounting firms and medical practices are exceptions

Advantages	Disadvantages
Low start-up costs	Possibility of disputes
Shared responsibility and workload	Liability for all debts including debts pervious to the formation of the partnership
NO taxes on business profits, only personal income	Divided loyalty and authority
Less costly to operate than a company	Shared profits

Companies

All companies have limited liability and have ‘Ltd’ in the name

A feature of corporate ownership which limits each owner’s financial responsibility to the amount of the business they own

Advantages	Disadvantages
Easier to attract public finance	COst of formation
Limited liabilty	Double taxation - tax on business profits and personal income
Can transfer ownership easily	Public disclosue
Experienced management - board of directors	As you grow bigger, you can lose control
Greater spread of risk

Private (proprietary) Company

The most common type of business structure in Australia and usually has 2 - 50 private shareholders

Private name - Sanders florist Pty Ltd

Public company

The shares for public companies are listed on the Aus security exchange and the public can buy them
Usually public companies are very large in size
Public company name - Sanders florist Ltd

A public company has

At least 1 shareholder
Limited/Ltd in the name

Government Enterprise

A government-owned and operated business

Perform community services like aus post
GBE —> Public company

Privatisation

For a government business enterprise to become a public company, they have to go through privatisation

Part 3 - Influences in the Business Environment

Business Environment

Refers to the surrounding conditions in which a business operates
It is divided into 2 categories: internal and external

External Environment

Includes those factors of which the business have very little control

Internal Environment

Includes those factors where a business has high amounts of control

Influences on the Business Environment

External Influences	Internal Influences
Economic	Products
Financial	Location
Geographical	Resources
Social	Management
Legal	Business Culture

External Influences

Economic Influences

Economic cycles (booms or troughs) impact supply and demand
Inflation raises costs for business reducing profit margins
Increased u/e rates lowers demand for g+s
Changes to the interest rates influence investment decisions
Gov policies can support or hinder business growth
Global economic conditions affect business stability and market opportunities

Financial Influences

Interest rate fluctuations affect the cost of borrowing and expansion
Exchange rates impact competitiveness of imports and exports
Deregulation increase competition
- Deregulation is the removal of gov regulation from industry with the aim of improving efficiency and improving competitions
Access to global financial markets enable international investments
Stock market trends influence business decisions
Economic downturn can limit business activity

Geographical Influences

Proximity to trade routes and major markets
Natural disasters can disrupt supply chains
Climate change can impacts industries like tourism and agriculture
Population changes can change markets
Urbanisation drives demand for infrastructure
Australia's location offer opportunities and challenges

Social Influences

Changing consumer preferences causes business to adapt
Growing awareness of environmental issues encourages businesses to change
Workforce expectations (work-life balance)
Increasing cultural diversity leads to new opportunities
Aging population increases the need for healthcare, aged care and financial services
Ethical considerations influence consumer decision making