BUSINESS IN THE REAL WORLD

Question 1

What are goods?

Answer 1

physical items to be sold

Question 2

What is a service?

Answer 2

actions done by the business to aid the customer

Question 3

Why are businesses set up?

Answer 3

to benefit others
fill a gap in the market
to make a profit
to be your own boss

Question 4

What are the three sectors of the economy?

Answer 4

primary
secondary
tertiary

Question 5

What is the primary sector?

Answer 5

where raw materials are extracted by mining, growing or collected (fishing)

Question 6

What is the secondary sector?

Answer 6

where the goods are manufactured - building and construction

Question 7

What is the tertiary sector?

Answer 7

where the service is provided

Question 8

What is enterprise?

Answer 8

the process of identifying new business opportunities and taking advantage of them

Question 9

What are some qualities of an entrepreneur?

Answer 9

innovative - new ideas and solutions
hardworking
organised
prepared to take risks

Question 10

What are the factors of production?

Answer 10

Capital - equipment, factories etc that help the production of goods
Enterprise - the people that create things and take risks
Land - all the earth’s natural resources
Labour - the work done

Question 11

What is opportunity cost?

Answer 11

the benefit that is given up in order to do something else -> puts a value on the product/business

Question 12

What is a sole trader?

Answer 12

a company with only one owner

Question 13

Advantages of a sole trader?

Answer 13

easy to set up - good start up business
be your own boss
decide what happens to profit
make your own decisions

Question 14

Disadvantages of a sole trader?

Answer 14

work long hours
not many holidays
unlimited liability - liable for paying back a debt
unincorporated - the business doesn’t have its own legal identity -> if the business is sued, you’ll be sued personally

Question 15

What is a partnership?

Answer 15

a company with 2-20 partners

Question 16

Advantages of a partnership?

Answer 16

more owners -> more ideas and larger range of skills
work can be shared
more capital (money) is put into the business -> grow faster

Question 17

Disadvantages of a partnership?

Answer 17

each partner is legally responsible
unlimited liability
more owners -> more disagreements
profit is shared

Question 18

What are the two types of limited companies?

Answer 18

private and public

Question 19

What is a limited company?

Answer 19

a company owned by shareholders
more shares -> more control

Question 20

What is the difference between a public and private limited company?

Answer 20

public (PLC)- shares are sold on the stock exchange by anyone
private (LTD) - shares are only sold is all shareholders agree

Question 21

Advantages of a ltd?

Answer 21

limited liability - you can’t lose more than what you invest
incorporated - continue trading after a shareholder dies
easier to get a loan/morgage
owners get control over decisions

Question 22

Disadvantages of a ltd?

Answer 22

expensive to set up - lots of legal paperwork
legally obliged to publish its accounts

Question 23

Advantages of a plc?

Answer 23

more capital -> help expand
limited liability
incorporated

Question 24

Disadvantages of a plc?

Answer 24

hard to come to agreements
easy for someone to buy enough shares to take over
accounts have to be publicised - people can see if they’re struggling
more people wanting a share

Question 25

What is a not-for-profit business?

Answer 25

a business that doesn't try to make a profit

Question 26

What are the type of legal structures (limited/unlimited) a not-for-profit business can have?

Answer 26

unincorporated association - easy to set up, unlimited liability incorporated - are 'limited by guarantee' (each member pays a fixed amount if it goes bust)

Question 27

What are the disadvantages of a not-for-profit business?

Answer 27

hard to manage/set up - rules to follow, apply for certain grants uncertainty about finance unreliable - no permanent staff mainly funded by grants - not stable income

Question 28

What is another type of not for profit business?

Answer 28

social enterprises

Question 29

What is a business aim?

Answer 29

overall goals they want achieve

Question 30

What are some types of aims?

Answer 30

survival maximise profit growth increase market share, shareholder value achieve customer satisfaction

Question 31

What is a business objective?

Answer 31

helps business achieve their aim

Question 32

What should objectives be? (smart)

Answer 32

Specific Measurable Achievable Realistic Time

Question 33

What factors affect business objectives (pestle)

Answer 33

Politics Economy Social Technology Laws Environmental expectations

Question 34

What is a stakeholder?

Answer 34

anyone who's affected by a business e.g manager, customer, employees, supplier, owner

Question 35

What is revenue?

Answer 35

income earned =sales x price

Question 36

What is a fixed cost?

Answer 36

a cost that don't vary with output e.g rent, insurance

Question 37

What is a variable cost?

Answer 37

costs that increase as the firm expands output e.g raw materials, machinery

Question 38

Total costs =

Answer 38

variable + fixed

Question 39

Average unit cost =

Answer 39

total cost / output

Question 40

What does the average unit cost show?

Answer 40

how much each product costs to make - for a profit to be made, they must charge more than this

Question 41

Profit =

Answer 41

revenue - costs

Question 42

What is a business plan?

Answer 42

outline of what the business will do and how it plans to

Question 43

Why is a business plan useful?

Answer 43

makes the owner plan carefully shows what resources are needed calculate how much money is needed plan objectives

Question 44

What is part of a business plan?

Answer 44

personal details mission statement - describes aims objectives product description production details staff requirements finance

Question 45

What are the disadvantages of a business plan?

Answer 45

take lots of time and money some may be too optimistic stick too tightly - if something unexpected happens and the manager doesn't want to change the plan

Question 46

What influences the location of a business?

Answer 46

access to raw materials competition cost transport location of the market

Question 47

The average unit cost is lower when the business is? What is this called?

Answer 47

larger - economies of scale

Question 48

Why does economies of scale happen?

Answer 48

purchasing economies of scale - large firm buys in bulk -> cheaper unit price technical economies of scale - large firms can afford to buy/operate more advanced machinery than small firms

Question 49

What is diseconomies of scale?

Answer 49

when growth leads to increased average unit cost as it is more expensive to manage

Question 50

What are the disadvantages of diseconomies of scale?

Answer 50

more people -> hard to communicate demotivated workers -> less productivity production process becomes complex -> hard to coordinate

Question 51

How can businesses expand internally?

Answer 51

outsourcing - pay another firm to carry out tasks for it -> quicker, possible higher standard, loss of control over its operations, bad rep if done badly open new stores -> low risk but extra costs eccomerce - selling on internet -> cheaper (no rent, no costs that opening a new store would have), regularly updated technology, technical problems

Question 52

What is franchising?

Answer 52

expansion by giving other firms the right to sell its products (in return for a fee)

Question 53

What are the advantages of franchising?

Answer 53

increases the franchisors income, market share, brand awareness no risks for franchisor

Question 54

How can businesses expand externally?

Answer 54

merging - two firms join to create a larger firm takeovers - when a firm buys over half of the shares in another firm

Question 55

Why is external expansion better than internal?

Answer 55

the business grows much faster

Question 56

How can a business merge/takeover?

Answer 56

with a supplier, competitor, customer, unrelated firm

Question 57

Why is external expansion not always successful?

Answer 57

less than half of them are successful -> hard to make 2 different businesses work as 1