Component 1 Business Opportunities Key Terms

Question 1

101 Enterprise

Enterprise

Answer 1

Another name for a business.
Having the skill and taking the initiative and the risk to make a business happen.

Question 2

101 Enterprise

SME

Answer 2

A small to medium sized business that usually has fewer than 50 employees but no more than 250.

Question 3

101 Enterprise

Needs

Answer 3

People have a limited number of needs that must be satisfied if they are to survive.
These would include physical needs such as a minimum amount of food, water, shelter and clothing.

Question 4

101 Enterprise

Wants

Answer 4

Wants are unlimited (infinite) people constantly aim for a better quality of life.
For example, better/more food, better housing, longer holidays, better education, entertainment – in effect any example that is not a basic need.

Question 5

101 Enterprise

Entrepreneur

Answer 5

An entrepreneur is someone who starts and runs a business.
Perhaps he or she makes a product and then sells that product, or perhaps they provide a service.
They quite possibly employ people and, of course, try to make a profit.

Question 6

101 Enterprise

Primary Sector

Answer 6

Produces raw materials, e.g. iron ore (that goes into making steel) and oil (that makes petrol, plastics, etc.), as well as producing final products like fish and oranges.

Question 7

101 Enterprise

Secondary Sector

Answer 7

Manufacturing and construction industries make, build and assemble products.

Question 8

101 Enterprise

Tertiary Sector

Answer 8

Services give value to people but are not physical goods. Services are sometimes classified as direct services (to people), e.g. the police, hairdressing, etc. and commercial services (to business), e.g. business insurance, financial services, etc.

Question 9

102 Business Plans

Business Plan

Answer 9

A statement that outlines the way in which a business will attempt to achieve its objectives - giving a clear idea of its operation and direction.

Question 10

102 Business Plans

Executive Summary

Answer 10

This provides an overview of the business’s aims, objectives and strategy, and is evidence that the proposal is viable.
It sets out how the business is going to be run.

Question 11

102 Business Plans

The Marketing Plan

Answer 11

Important part of any business plan based on both field and desk research. Market research carried out needs, if possible, to establish the size of the market, the needs of the customers
and the level of competition.
When market research findings have been examined then the marketing plan can be prepared.

Question 12

102 Business Plans

The Operations Plan

Answer 12

Include details of where the business will
be located, production methods and any
equipment needed. Plus, information on the
costs of production and where the business will
buy supplies may be included.

Question 13

102 Business Plans

The Human Resources Plan

Answer 13

The number of employees and the skills, experience and qualifications they require will be outlined.
Any management team will also be
identified.

Question 14

102 Business Plans

The Financial Plan

Answer 14

A variety of forecasting will be necessary:
* a sales forecast indicating potential revenues * a cash flow forecast for the first 12 months
* a profit and loss and balance forecast for the end of the first year
* a break-even analysis.

In addition, information on where the finance for starting and running the business will come from, indicating the available start-up capital as well as any potential borrowing.

Question 15

103 Markets

Market

Answer 15

A meeting place between buyers and sellers where goods and services are exchanged, usually for money.

Question 16

Competition

Answer 16

Competition refers to the number of businesses in a market

Question 17

103 Markets

Mass Market

Answer 17

Mass marketing involves a business aiming products at a whole market, rather than particular parts of them, for example, tomato ketchup, tea bags, ITV, Vauxhall Astra, washing powder

Question 18

103 Markets

Niche Market

Answer 18

A niche market is a specialized market segment where you cater for the demand for products/services that are not currently being supplied by the main suppliers.

Question 19

103 Markets

Market Size

Answer 19

The total number of sales, by value or volume, in a market as a whole.

Question 20

103 Markets

Market Share + Formula

Answer 20

This measures the sales of a firm
relative to the market size.

It is calculated by:

Sales of a business
Total Sales in a Market x 100

Question 21

103 Markets

Market Segmentation

Answer 21

Market segmentation is breaking down a market into sub-groups that share similar characteristics.
Identifying and targeting of groups of people with similar needs and developing products or services for each of them.

Question 22

103 Markets

Monopoly

Answer 22

A single producer within a market – one business has 100% of the marketplace. This is known as a pure monopoly.

Question 23

103 Markets

Oligopoly

Answer 23

There are many businesses but only a few dominate the market.

Question 24

103 Markets

Monopolistic Competition

Answer 24

The situation in a market in which elements of monopoly allow individual producers or consumers to exercise some control over market prices.

Question 25

# 103 Markets Perfect Competition

Answer 25

A market in which many small firms produce virtually identical products at similar prices. With the ability to enter and leave the market freely. They don’t earn excessive profits.

Question 26

# 103 Markets Consumer Protection

Answer 26

The relationship between consumers and producers is not a relationship that is based on a level playing field. The advantage in almost all purchasing and consumption situations lies with big business. Consumers are protected by: Sale and Supply of Goods Act 1994 - Consumer Credit Act 1974 Trade Descriptions Act 1968 and 1972 Distance Selling Regulations ^ You do not need to know all definitions of each of these laws

Question 27

# 103 Markets Supply

Answer 27

The amount of a product that suppliers will offer to the market at a given price.

Question 28

# 103 Markets Demand

Answer 28

The amount of a product that consumers are willing and able to purchase at any given price.

Question 29

# 103 Markets Market Equilibrium

Answer 29

In a free market, demand and supply equal the equilibrium price. This is the price where quantity demanded is equal to quantity supplied.

Question 30

# 103 Markets Price Elasticity of Demand + Formula

Answer 30

Measures the sensitivity of demand to a change in price. Percentage change in quantity demanded/Percentage change in price

Question 31

# 103 Markets Price Elastic

Answer 31

A product where a proportionate increase or decrease in price leads to a proportionately greater increase or decrease in the quantity sold, i.e. its elasticity is greater than one.

Question 32

# 103 Markets Price Inelastic

Answer 32

Where a proportionate change in a products price leads to a proportionately smaller change in the quantity sold, i.e. elasticity is greater than zero but less than one. Such products tend to have high product differentiation, meaning that consumers perceive them as having no acceptable substitutes.

Question 33

# 103 Markets Income Elasticity of Demand + Formula

Answer 33

Measures how sensitive demand is to a change in income. Percentage change in quantity demanded/Percentage change in income

Question 34

# 103 Markets Income Elastic

Answer 34

A product where a proportionate increase or decrease in income leads to proportionately greater increase or decrease in the quantity sold

Question 35

# 103 Markets Inferior Goods

Answer 35

These are cheap substitutes of products people prefer to buy when their income is reduced (such as value line baked beans): negative income elasticity.

Question 36

# 103 Markets Normal Goods

Answer 36

As real incomes increase, the demand for normal goods will also increase: positive income elasticity less than one.

Question 37

# 103 Markets Luxury Goods

Answer 37

The demand for luxury goods will grow at a faster rate than the increase in real income that created the change in demand: positive income elasticity that is greater than one

Question 38

# 104 Market Research Market Research

Answer 38

The process of gathering primary and secondary data on the buying habits, lifestyles, usage and attitudes of actual and potential customers.

Question 39

# 104 Market Research Primary Research

Answer 39

(Field research) – collecting primary data and information that does not already exist. It is collected for a specific purpose. Most primary information is gathered through questionnaires, interviews, surveys, focus groups and consumer panel.

Question 40

# 104 Market Research Secondary Research

Answer 40

Desk research) – identifies, collects and collates information that is already in existence. This can be collected internally or externally. It may be existing business documents, official publications, yellow pages, industry magazines and online desk research.

Question 41

# 104 Market Research Quantitative Data

Answer 41

Involves the collection of data that can be measured. This means the collection of statistical data such as sales figures and market share.

Question 42

# 104 Market Research Qualitative Data

Answer 42

Involves collection of data about attitudes, beliefs, and intentions. Focus groups, participant observation and interviews are common methods used to collect qualitative data.

Question 43

# 104 Market Research Sample

Answer 43

A group of respondents to a market research exercise who are selected to be representative of the views of the target market as a whole.

Question 44

# 104 Market Research Quota Sampling

Answer 44

The population is segmented into a number of groups that share specific characteristics

Question 45

# 104 Market Research Random Sampling

Answer 45

Every member of the population has an equal chance of being interviewed.

Question 46

# 104 Market Research Bias

Answer 46

Something that may cause data within a sample to be weighted towards one side. Such statistical bias occurs when one subgroup outweighs the other in a sample.

Question 47

# 105 Business Structure Private Sector

Answer 47

The private sector includes all these businesses that are set up by individuals or groups of individuals, e.g. sole traders, partnerships, companies, charities and cooperatives.

Question 48

# 105 Business Structure Public Sector

Answer 48

The public sector is essentially business activity that is owned/ run by the government for the benefit of everyone, e.g. army, police force, schools, hospitals.

Question 49

# 105 Business Structure Sole Traders

Answer 49

Owned and run by one individual but they may employ people. They have unlimited liability.

Question 50

# 105 Business Structure Partnerships

Answer 50

Owned and run between 2–20 people. They have unlimited liability.

Question 51

# 105 Business Structure Unlimited Liability

Answer 51

Where the owners become personally liable for the debts of the business. They are at risk of having personal assets (house, car) seized to pay off debts.

Question 52

# 105 Business Structure Private Limited Company (Ltd)

Answer 52

Often a small business. Shares do not trade on the stock exchange. They have limited liability.

Question 53

# 105 Business Structure Public Limited Company (PLC)

Answer 53

Is usually a large, well-known business. Shares trade on the stock exchange. They have limited liability.

Question 54

# 105 Business Structure Limited Liability

Answer 54

The investor/owner is seen as separate to the company (incorporated). This means they are only liable to the investment in the business. Personal assets are not at risk to pay debts.

Question 55

# 105 Business Structure Social Enterprises

Answer 55

Social enterprises include for-profit and not-for-profit businesses (e.g. cooperatives) with primarily social objectives, trading for social and environmental purposes.

Question 56

# 105 Business Structure Charities

Answer 56

A non-profit-making organisation established with the aim of collecting money from individuals and spending it on a cause, which is usually specified in its title.

Question 57

# 105 Business Structure Stakeholders

Answer 57

A stakeholder is anyone with an interest in a business. Stakeholders are individuals, groups or organisations that are affected by the activity of the business.

Question 58

# 106 Business Location Location

Answer 58

Location for new and existing businesses is still largely determined by: * access to customers * access to factors of production * minimisation of costs.

Question 59

# 106 Business Location Infrastructure

Answer 59

Infrastructure used to mean roads, rail and shipping. However, a more modern definition includes electronic communication systems, training agencies and financial services.

Question 60

# 107 Business Finance Sale of Assets

Answer 60

Established businesses are able to sell off assets that are no longer required, such as buildings and machinery

Question 61

# 107 Business Finance Debt Factoring

Answer 61

Selling 80-85% of your debt to a third party who then ‘owns your debt’ and chases it up for their own profitable interests.

Question 62

# 107 Business Finance Retained/Re-Invested profit

Answer 62

Where a business used profits made at the end of the financial year and reinvest them back into the business to fund expenses.

Question 63

# 107 Business Finance Share Issue

Answer 63

A share issue is the offering for sale of new shares of ownership in a business.

Question 64

# 107 Business Finance Overdraft

Answer 64

An overdraft is the facility to withdraw more from an account than is in the bank account, resulting in a negative balance

Question 65

# 107 Business Finance Bank Loan

Answer 65

A loan is borrowing a fixed amount, for a fixed period. Payments made up of interest and capital are made monthly.

Question 66

# 107 Business Finance Trade Credit

Answer 66

This is an interest-free way to raise finance. Businesses buy items such as fuel and raw material and pay for them at a later date – possibly 30–90 days later.

Question 67

# 107 Business Finance Leasing Assets

Answer 67

Leasing and hire purchase are methods of gaining the use of capital goods, whilst paying a monthly fee. With a business lease the company gains use of a productive asset, without ever owning it.

Question 68

# 108 Revenue and Costs Revenue

Answer 68

Revenue is the money a business makes from sales. The total amount of money a business receives from its sales is called total revenue. Total revenue = quantity sold x selling price

Question 69

# 108 Revenue and Costs Profit

Answer 69

The amount left after a business subtracts total costs from the revenue they generate from selling products to customers. Calculation: Total Revenue – Total Costs

Question 70

# 108 Revenue and Costs Fixed Costs

Answer 70

Do not vary with output. Fixed costs only change in the long run.

Question 71

# 108 Revenue and Costs Variable Costs

Answer 71

Costs that vary in direct proportion to changes in output.

Question 72

# 108 Revenue and Costs Semi Variable Costs

Answer 72

Costs that contain both fixed and variable elements, such as telephone charges where there is a fixed standing charge plus an extra rate that varies according to the number of calls mad.

Question 73

# 108 Revenue and Costs Direct Costs

Answer 73

Costs that arise specifically from the production of a product or the provision of a service

Question 74

# 108 Revenue and Costs Indirect Costs (Overheads)

Answer 74

Costs not directly related to production.

Question 75

# 108 Revenue and Costs Total Costs

Answer 75

Fixed Costs + Variable Costs + Semi-Variable Costs

Question 76

# 108 Revenue and Costs Contribution

Answer 76

It is the difference between the income generated from sales and the variable costs of producing the goods to generate those sales. Selling price – variable cost per unit This allows an organisation to analyse whether each of its products covers its own variable costs.

Question 77

# 108 Revenue and Costs Breakeven

Answer 77

A diagram that shows the level of output where a business does not make a profit nor a loss. Fixed Costs/Contribution (Selling Price – Variable Cost per unit)

Question 78

# 108 Revenue and Costs Margin of Safety

Answer 78

The margin of safety shows how much a producer can reduce output before the business starts to make a loss. Actual output – Break-even output