1. Understanding Business Activity

Question 1

Need

Answer 1

a good or service essential for living

Question 2

Want

Answer 2

a good or service which people would like to have, but which is not essential for living. People’s wants are unlimited

Question 3

Economic problem

Answer 3

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

Question 4

Factors of production

Answer 4

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

Question 5

Scarcity

Answer 5

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

Question 6

Opportunity cost

Answer 6

the next best alternative given up by choosing another item

Question 7

Specialization

Answer 7

when people and businesses concentrate on what they are best at

Question 8

Division of labour

Answer 8

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

Question 9

Businesses

Answer 9

combine the factors of production to make goods and services which satisfy people’s wants

Question 10

Added value

Answer 10

the difference between the selling price and the cost of bought-in materials and components

Question 11

Primary sector

Answer 11

extracts and uses the natural resources of Earth to produce raw materials used by other businesses

Question 12

Secondary sector

Answer 12

manufactures goods using the raw materials provided by the primary sector

Question 13

Tertiary sector

Answer 13

provides services to consumers and other sectors of industry

Question 14

De-industrialisation

Answer 14

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

Question 15

Mixed economy

Answer 15

has both a private sector and a public (state) sector

Question 16

Capital

Answer 16

the money invested into the business by the owners

Question 17

Entrepreneur

Answer 17

a person who organises, operates and takes the risk for a new business venture

Question 18

Capital employed

Answer 18

the total value of capital used in the business

Question 19

Internal growth

Answer 19

when a business expands its existing operations

Question 20

External Growth

Answer 20

when a business takes over or merges with another business. It is often called integration as one business is integrated into another one

Question 21

Takeover/Acquisition

Answer 21

when one business buys out the owners of another business, which then becomes part of the ‘predator’ business [the business which has taken it over]

Question 22

Merger

Answer 22

when the owners of two businesses agree to join their businesses together to make one business

Question 23

Horizontal integration

Answer 23

when one business merges with or takes over another one in the same industry at the same stage of production

Question 24

Vertical integration

Answer 24

when one business merges with or takes over another one in the same industry but at a different stage of production (can be forward or backward)

Question 25

Conglomerate integration

Answer 25

when one business merges with or takes over a business in a completely different industry (also known as diversification)

Question 26

Sole trader

Answer 26

a business owned by one person

Question 27

Limited liability

Answer 27

the liability of shareholders in a company is limited to only the amount they invested

Question 28

Unlimited liability

Answer 28

the owners of a business can be held responsible for the debts of the business they own (liability is not limited to the investment they made in the business)

Question 29

Partnership

Answer 29

a form of business in which two or more people agree to jointly own a business

Question 30

Shareholders

Answer 30

the owners of a limited company, they buy shares which represent part-ownership of the company

Question 31

Private limited company

Answer 31

businesses owned by shareholders but they cannot sell shares to the public

Question 32

Public limited company

Answer 32

businesses owned by shareholders but they can sell shares to the public and their shares are tradable on the Stock Exchange

Question 33

Dividend

Answer 33

payments made to shareholders from the profits [after tax] of a company, they are the returns to shareholders for investing in the company

Question 34

Franchise

Answer 34

a business based upon the use of the brand names, promotional logos, and trading methods of an existing successful business. The franchisee buys the license to operate this business from the franchisor

Question 35

Joint venture

Answer 35

where two or more businesses start a new project together, sharing capital, risks and profits

Question 36

Public corporation

Answer 36

a business in the public sector that is owned and controlled by the state [government]

Question 37

Business objective

Answer 37

the aims or targets that a business works towards

Question 38

Market share

Answer 38

the percentage of total market sales held by one brand or business

Question 39

Social Enterprise

Answer 39

Has social objectives as well as an aim to make a profit to reinvest back into the business

Question 40

Stakeholder

Answer 40

any person or group with direct interest in the performance and activities of a business