1.5.5 Business choices

Question 1

what resources are typically scarce in a business

Answer 1

• finance (particularly cash)
• time
• capacity
• skills and capabilities

if resources are scarce, then choices need to be made about how they are used

Question 2

define opportunity cost

Answer 2

measures the cost of a choice made in terms of the next best alternative foregone or sacrificed

Question 3

define trade off

Answer 3

arises where having more of one thing results in having less of another

Question 4

give examples of trade offs n=in business

Answer 4

choice= less market research (lower costs)
trade off= less successful new product launch (lower sales)

choice= higher quality standards to build reputation
trade off= more quality control and assurance costs

choice= higher advertising online
trade off= reduced advertising on TV

choice= lower risk investment
trade off= gain lower rewards.

Question 5

what are the most important resources for a new business

Answer 5

• sufficient capital for covering start up costs
• skilled and motivated employees
• equipment and inventory
• market research and understanding target market
• networking and relationships with suppliers, customers, investors

Question 6

what are personal opportunity costs for an entrepreneur

Answer 6

• If an entrepreneur leaves a stable job to start their own business, the salary and benefits they give up represent a significant opportunity cost.
• investing personal savings into the business means forgoing potential interest or returns from those savings if they were kept in a bank or invested elsewhere.
• The demands of starting a business can lead to a loss of work-life balance, impacting personal relationships and leisure time.
• The stress and long hours associated with entrepreneurship can lead to neglecting personal health, which could have long-term consequences.