Understanding Business Flashcards
What is a want?
A want is something that we would like to have which is not essential to survival.
What is a need?
A need is something essential for survival e.g food, water, shelter
What is a good?
Something that is tangible, you can see and touch it.
What is a service?
In tangible, things done for us
What is wealth creation?
Wealth is created by adding value to something. This is known as adding value and this is how businesses make money/profit.
What are the factors of production?
Land: natural resources of the air things that come from nature and are unchanged by humans e.g. land itself, seeds etc.
Labour: human effort and skills e.g. employees
Capital: includes money and human made goods e.g. premises machinery vehicles and equipment etc.
Enterprise: The person who comes up with the idea and makes it happen they organised the other three factors of production.
What are the sectors of industry?
Primary: businesses in this sector take natural resources from the land e.g. farming
Secondary: businesses in this sector make products from raw materials e.g.car manufacturing
Tertiary: businesses in this sector serve people e.g. hospitals
What is the role of an entrepreneur?
An entrepreneur is someone who has a good business idea and is prepared to take the risk of investing their own money to develop the idea.
What are skills and qualities required by an entrepreneur?
Good organisational skills – Making sure all resources are available when required
Good communication skills – enabling them to communicate with staff suppliers customers
Risk taker – risking losing their own money if the idea fails.
Determined – doesn’t give up easily Looks for better ways of doing things.
What are the sectors of the economy?
Private, Public and Third sector.
What is the private sector?
Private sector includes sole trader, partnership, private limited companies ltd, public limited companies plc, franchises.
What is the sole trader?
A sole trader is an individual who may or may not employ other people but who owns and operates the business and who has unlimited liability.
What are advantages of sole traders?
easy to set up – a person can set up a business immediately they have few forms to fill in
Control – Easier to run than any other type of business, the owner is Edensor charge, easier in terms of decision-making
Profits – All the profits are kept by the owner
What are the disadvantages of sole traders?
They have unlimited liability – if the business does very badly and has lots of debts. As a sole trader you must pay off debt even if it means selling all your possessions e.g. car, house
Responsibility – no one to share the workload and responsibilities/problems that come with running a business.
Illness – the business may stop if the sole trader is ill. They would have to close the shop and consequently could lose income and profit.
What is a partnership?
A business owned by two to twenty who own and control the business together. Each partner brings a share of capital to the business when starting up. A partnership agreement is drawn up stating each partners rights and responsibilities.
What are the advantages of partnership?
Control - Each partner brings own expertise and experience to business. Workload and decision making can be shared.
Capital - Easier to raise finance - seen as less risky by lenders compared to sole traders. Additional capital can be secured by bringing in new partners.
What are disadvantages of Partnership?
Profits have to be shared between partners.
Responsibility - disagreements may occur that delays decision making. A new partnership agreement has to be agreed if a partner leaves.
