Unit 1 Flashcards
(163 cards)
1
Q
What is business activity?
A
The process of producing goods and services to satisfy consumer demand.
2
Q
What is a need?
A
A good or service which is essential to living?
3
Q
What is a want?
A
A good or service which people would like, but it is not essential for living.
4
Q
What is the economic problem?
A
Unlimited wants cannot be met because there are limited factors of production. This creates scarcity.
5
Q
What are the factors of production?
A
The resources needed to produce goods and services - land, labour, capital and enterprise.
6
Q
What is land?
A
It is all natural resources such as minerals, ores, fields, oil and forests.
7
Q
What is labour?
A
It is the number of people available to work.
8
Q
What is capital?
A
It is machinery, equipment and finance needed for production of goods and services.
9
Q
What is enterprise?
A
It is people who are prepared to take the risk of setting up businesses - they are known as entrepreneurs.
10
Q
What is scarcity?
A
There are not enough goods and services to meet the wants of the population.
11
Q
What is opportunity cost?
A
The benefit that could have been gained from an alternative use of the same resource.
12
Q
What is specialisation?
A
It is when people and businesses concentrate on what they are best at.
13
Q
What are some advantages of specialisation?
A
- Leads to increased labour productivity.
- Skill development- workers are trained to do a specific task and master their skills
- Production costs are reduced, which can be reflected at the end price of goods/service.
14
Q
What is division of labour?
A
Production is divided into separate tasks and each employee does just one of those tasks.
15
Q
What are the different types of goods and services that businesses produce?
A
- Consumer goods.
- Consumer services.
- Capital goods.
16
Q
What are consumer goods?
A
Products which are sold to the final consumer. They can be seen and touched, for example computers and food.
17
Q
What are durable consumer goods?
A
Durable consumer goods can be used over and over again, for example televisions, computers, cars, tables and chairs.
18
Q
What are non-durable consumer goods?
A
Non-durable consumer goods can only be used once, for example food and drink.
19
Q
What are consumer services?
A
Non-tangible products such as insurance services, transport.
20
Q
What are capital goods?
A
Physical goods, such as machinery and delivery vehicles, used by other businesses to help produce other goods and services.
21
Q
How can you add value?
A
- Branding.
- Excellent service quality.
- Product features.
- Convenience.
22
Q
How do you add value with branding?
A
Bigger companies are able to charge a higher price than their competitors. Branding increases added value because people want to feel they should buy the item from this particular company.
23
Q
What is an example of an industry that uses branding?
A
Coca-cola.
24
Q
How do you add value with excellent service quality?
A
Providing a high quality personalised experience can be the difference between being able to charge a high price or one which is much lower. The cost of materials used will be very similar, but the personalised service increases the added value.
25
What is an example of an industry with excellent service quality?
Tailors or made-to-measure suit makers.
26
How do you add value with product features?
Products that have more features and functions than similar products on the market will allow the producer to charge a higher price. Although these additional features will increase costs, consumers are prepared to pay a much higher price for an elevated product.
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What is an example of an industry with unique product features?
The mobile phone market.
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How do you add value with convenience?
Many consumers lead busy lives and they're often prepared to pay a higher price for goods and services which they can have immediately or which save them time.
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What is an example of an industry with convenience?
Ready meals.
30
How are businesses classified?
- The primary sector.
- The secondary sector.
- The tertiary sector.
31
What is the primary sector?
A firm whose business activity involves the extraction of natural resources.
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What is an example of a business in the primary sector?
- Farming.
- Fishing.
- Forestry.
- Mining.
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What is the secondary sector?
Firms that process and manufacture goods from natural resources. They usually take the resources produced by the primary sector activity and turn these raw materials into finished goods.
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What is an example of a business in the secondary sector?
- Refining.
- Manufacturing.
- Construction.
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What is the tertiary sector?
Firms that supply a service to consumers and other businesses - to the final consumer.
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What is an example of a business in the tertiary sector?
- Shops.
- Restaurants.
- Banks.
- Cinemas.
- Airlines.
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What is the chain of production?
The production and supply of goods to the final consumer involves activities from primary, secondary and tertiary sector businesses.
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What is an example of the chain of production?
1) Drilling oil (primary).
2) Refining the oil (secondary).
3) Petrol or gas station (tertiary).
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How do we know if a country is a less developed country?
- Small industrial sector.
- Lower standard of living compared to other countries.
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How do we know if a country is a more developed country?
- High levels of industrialisation.
- People have a higher average income and enjoy a higher standard of living compares to less developed country.
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What indicates if a business is developing or developed?
The size of a countries different sectors of business.
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Why has the importance of business classification changed?
- Industrialisation.
- De-industrialisation.
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What is industrialisation?
The growing importance of secondary sector business activity and the reduced importance of primary sector business activity. The emerging economies of both China and India are good examples.
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What is de-industrialisation?
The growing importance of the tertiary sector and the reduced importance of the secondary sector. The UK and the USA are good examples of this type of economic activity.
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What could the change of business classification also be due to?
- Higher incomes.
- Better education.
- More leisure time.
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How does higher incomes impact this?
Consumers demand better quality and a wider choice of products.
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How does better education impact this?
Consumers expect better products and know that they can buy goods from suppliers in a different region or country through e-commerce.
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How does more leisure time impact this?
Consumers work fewer hours than they used to. The demand for leisure activities, such as cinemas, restaurants and holidays, has increased.
49
What could the change in business behaviour resulting from?
- The need for finance to fund expansion so that businesses can compete in global markets.
- There need to be able to communicate internally and externally quickly and as cheaply as possible to take advantage of the opportunities of wider markets.
- The need to provide better services for employees, for example canteens; this in turn increases business demand for the goods and services of other businesses.
50
What is a mixed economy?
An economy where the resources are owned and controlled by both the private and the public sectors.
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What is the private sector?
The part of the economy that is owned and controlled by individuals and the companies for profit.
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What is the public sector?
The part of the economy that is controlled by the state or government.
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How do private sector businesses decide on what to produce?
Consumer choices help businesses to decide what they produce.
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How do the private sector businesses decide on how to produce?
They want to make profit so they choose the lowest cost so that they can make a profit when the products are sold.
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How do the private sector businesses decide on who to produce for?
Their products will be bought by people who have enough money to pay the price charged. Some consumers will not be able to buy products that they want because they do not have enough money. So it will be based on the consumers' buying power.
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How are the decisions made in the public sector for what, how and for whom to produce their services for?
They are all made by the government.
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What is the main objective of the public sector?
To provide essential public goods and services as well as ensure that everyone has access to these Goods.
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What is an entrepreneur?
A person who has an idea for a new business and takes the financial risks to start it up and manage it.
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What is enterprise?
A project, business or company. A commercial/ private Enterprise is a business run for profit.
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What can entrepreneurship be about?
- A new idea.
- A new way of something already existing.
- Offering something existing in a new location.
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What are characteristics of a successful entrepreneur?
- Strong leadership qualities.
- Innovative.
- Risk-taker.
- Self motivated and determined.
- Initiative.
- Goof at networking.
- Self confident.
- Result driven.
- Multi-skilled.
62
What is a business plan?
A detailed written document outlining the purpose and aims of a business which is often used to persuade lenders or investors to finance a business proposal.
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What does a business plan describe?
- The business.
- The business opportunity.
- The market.
- The objectives of the business.
- Financial forecasts.
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What will the business part include?
This part of the plan includes details of the entrepreneur, the idea for the business and information about the skills and expertise of the managers or employees who need to be recruited.
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What will the business opportunity part include?
Here you will find information about the product and why the entrepreneur believes customers will buy it; this part of the plan includes market research.
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What will the market part include?
The current size, the potential for growth and the products main competitors.
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What will the objectives of the business part include?
This is what the business hopes to achieve.
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What will the financial forecast part include?
A cash flow forecast and projected sales, revenue and profit for at least the first year of trading.
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How do business plans assist entrepreneurs?
- To attract and persuade lenders/investors.
- Give businesses a sense of purpose and Direction and targets to monitor progress.
- Supports the development of existing businesses.
- For expansion and other projects.
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What is revenue?
The amount a business earns from the sale of its products.
71
What kind of benefits do new start-ups bring to the economy?
- Job creation.
- Greater consumer choice.
- Increased competition = lower prices, better quality of goods and services.
- Specialist services = make products useful for the larger businesses.
- Growth of the economy.
- Lower costs.
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How do the government support start-ups?
- Grants interest-free or low-interest loans.
- Lower taxation rates on profits in the early years.
- Rent-free premises for a certain period of time.
- Free or subsided training schemes for employees.
- Information, advice and support from specialist agencies.
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How do you measure business size?
- Capital employed.
- Number of employees.
- Value of output.
- Market share.
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What is capital employed?
This is the value of all long-term invested in a business.
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What are the advantages of measuring a businesses size with capital employed?
A small business will invest less capital than a large business in the same industry.
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What are the disadvantages of measuring a businesses size with capital employed?
Some Industries, such as car manufacturing, need a very large capital investment in factories and machinery. Others, such as computer software design, do not.
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What is the number of employees?
Larger businesses need to produce a much greater output or provide their services to a much larger market than smaller businesses they also have more departments and managers.
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What are the advantages of measuring a businesses size with the number of employees?
Larger businesses usually employ many more employees and smaller businesses in the same industry.
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What are the disadvantages of measuring a businesses size with the number of employees?
If one business uses more Machinery than the other one then they are likely to have far fewer employees, even if the business is bigger.
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What is the value of output?
Revenue earned from sales by a business.
81
What are the advantages of measuring a businesses size with the value of output?
A small business will have much lower Revenue - earnings from sales - than a larger business. A small general store will have fewer customers than a large supermarket and, therefore, much lower sales and revenue.
82
What are the disadvantages of measuring a businesses size with the value of output?
It is not a good measure when comparing businesses in different Industries.
83
What is market share?
The percentage of the total Market that the business's product has, when compared to its competitors product.
84
What are the disadvantages of measuring a businesses size with its market share?
The market share percentage of a business might be significantly lower than its total market value - this makes judging a business solely off its market share percentage misleading.
85
Why do some businesses want to expand their business?
- Increase in profits, led by an increase in revenues.
- Increases market share versus competition, meaning that more consumers will select this product.
- Economies of scale, leading to lower average costs.
- Greater power to control the market, it can create trends and influence.
- There is protection from the risk of take over.
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What are the different ways that a business can grow?
- Internal growth.
- External growth.
87
How does internal growth occur?
When a business expands by:
- Increasing the number of goods it can produce, for example by buying more better machinery.
- Developing new products.
- Finding new markets for its products.
88
What is external growth?
When a business merges with or takes over another business in the same or different industry.
89
How does external growth occur?
- Horizontal integration.
- Forward vertical integration.
- Backward vertical integration.
- Conglomerate integration.
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What is horizontal integration?
It brings together two firms in the same industry who are also in the same sector of business activity.
- Two wheat farmers (primary sector).
- Two chocolate manufacturers (secondary sector).
- Two banks (tertiary sector).
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What is forward vertical integration?
Brings together two firms in the same industry, but one is a customer of the other.
- Shoe manufacturer.
- Shoe retailer.
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What is backward vertical integration?
Brings together two firms in the same industry, but one is a supplier to the other.
- Chocolate manufacturer and a cocoa producer.
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What is conglomerate integration?
The bringing together of two businesses who are in completely different Industries.
- Cosmetic manufacturer and a soft drinks manufacturer.
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What are some problems linked to business growth?
- Internal growth can be too slow.
- Company mergers can lead to management issues as people have new or often extended roles and fear job change/loss. Especially when one business is much larger than the other.
- Diseconomies of scale.
- Conflict arises.
- A loss of control for original owner or owners.
95
Why do some businesses remain small?
- Owners choice = They may not want the extra workload, for the responsibility, they may want to maintain a close relationship with customers and provide a personal service, and want to keep control.
- Market size = some businesses that serve a local market may not want to offer their services beyond the local neighbourhood. They know that consumers and other neighbourhoods will not want to travel to their businesses when there are similar businesses close to where they live.
- Access and availability of capital = difficulty in attracting funding.
- Market domination = certain large companies may make it very difficult for smaller companies to enter the market.
96
When do businesses usually fail?
Within their first one - or two years.
97
Why do new businesses fail?
- Poor planning and lack of objectives.
- Liquidity issues due to poor cash management; not enough money to pay the bills.
- Poor choice of location; need to be where customer demand is.
- Poor management: No efficiency.
- Failure to invest in Technologies (during the pandemic this was crucial).
- Poor marketing (very little advertising and market research).
- Competition.
- Economic influences (unemployment, high interest rates and taxation may reduce the amount of money consumers have to spend on goods and services produced by businesses).
98
What are the forms of business organisations?
- Private sector businesses.
- Sole traders.
- Partnerships.
- Limited companies.
- Private limited companies.
- Public limited companies.
- Franchise.
- Joint venture.
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What is a sole trader?
A business that is owned and controlled by just one person who takes all of the risks and receives all of the profits.
100
Why would people want to become sole traders?
- They can be their own boss and make their own decisions.
- They can decide when and how many hours to work.
- They can have a business that uses their skills and interests
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What are some advantages of being a sole trader?
- Easy to set up a business.
- The owner makes all of the decisions.
- The owner has complete control over business activity.
- The owner keeps all of the profit.
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What are some disadvantages of being a sole trader?
- Unlimited liability so the owner is responsible for business debts, this means that they risk losing their personal wealth to pay for debts.
- The owner may not be able to raise funds to expand the business.
- The owner may have to work long hours.
- It is difficult to compete with larger rival firms.
- The owner might not have business skills to run a business.
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What is a partnership?
A business formed by two or more people who will usually share responsibility for the day-to-day running of the business. Partners usually invest capital in the business and will share profits.
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What are some advantages of a partnership?
- Easy to set up a deed of partnership.
- Partners invest in the business so they have greater access to funds.
- They have shared decision making.
- They have shared management and workload making things overall much easier.
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What are some disadvantages of a partnership?
- They have unlimited liability so may risk their personal wealth to pay their debts.
- They have to share their profits.
- If one of the partners leaves then the business doesn't exist anymore and will need to be reformed if the other partners want to continue Trading.
- Business decisions are binding on all partners, even if they don't agree to them.
- It is difficult to raise Finance for expansion as Partnerships are often fairly small businesses.
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What is an unincorporated business?
A business that does not have legal identity separate from its owners. The owners have unlimited liability for business debts.
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What is unlimited liability?
If an unincorporated business fails, then the owners might have to use their personal wealth to find out any business debts.
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What is a shareholder?
A person or organisation who owns shares in a limited company.
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What are the two main types of limited company?
- Private limited companies.
- Public limited companies.
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What are private limited companies?
Often small to medium-sized company; owned by shareholders who have limited liability. The company cannot sell its shares to the General Public.
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What are public limited companies?
Often a large company; owned by shareholders who have limited liability. The company can sell it shares to the general public.
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What is limited liability?
The shareholders in a limited liability company which fails only risk losing the amount they have invested in the company and not any of their personal wealth.
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What is a dividend?
A payment, out of profits, to shareholders as a reward for their investment.
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What features do private limited and public limited companies share?
- Legal documents must be completed when setting up the business.
- Shareholders investor Capital by purchasing shares in the company.
- Ordinary shareholders are the owners of the company.
- Shareholders have limited liability.
- The business continues even if one or more shareholders die.
- The company can raise Finance by selling shares.
- Profit belongs to the ordinary shareholders.
- Profit is shared between the shareholders to the payment of dividends.
- Shareholders vote on major decisions taken by the company.
- End of year financial statements must be produced and submitted to the correct authorities. The company's Financial accounts are available for the public to look at.
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What are some advantages of private limited companies?
- Limited liability of shareholders.
- Business continuity - the business can continue to trade if a shareholder dies.
- Able to raise more Finance than a smaller business.
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What are some disadvantages of private limited companies?
- Legal agreement is required.
- It is expensive to set up.
- It is not easy to raise Finance because they can't sell shares on the stock exchange.
- Might have difficulty raising Finance.
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What are some advantages of public limited companies?
- Limited liability of shareholders.
- Business continuity.
- Better access to Capital as it can raise Finance through shares and borrowing from lenders.
- They are usually established and well-known.
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What are some disadvantages of public limited companies?
- They're required to disclose financial information. Accounts and reports must be published to be visible to others.
- Investigations must take place before it can be listed on the stock exchange and is expensive.
- Annual General meetings can be very expensive to set up.
- Managerial problems.
- There is a divorce of ownership and control
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What is collateral?
Non-current assets offered as security against borrowing.
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What is a franchise?
A business system where entrepreneurs by the right to use the name, logo and product of an existing business.
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What is a franchisor?
It is the key firm with the successful product or service.
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What is a franchisee?
Is the new business set up within the franchisor guidelines.
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What are some advantages of franchising?
- There is less chance of business failure because the product and brand are already well established.
- The franchisor often provides advice and training to the franchisee is part of the franchise agreement.
- The franchisor will finance the promotion of the brand through National advertising.
- The franchisor will already have check the quality of suppliers, so the franchisee is guaranteed quality supplies.
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What are some disadvantages of franchising?
- The initial cost of buying into a franchise can be very expensive.
- The franchisor will take a percentage of the revenue or profits made by the franchisee each year.
- There are very strict controls over what the franchise is allowed to do with the product, pricing and store layout.
- The franchisee will still have to pay for any local promotions that they decide to do.
125
What is a joint venture?
Two or more businesses agree to work together on a project and set up a separate business for this purpose.
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What are some advantages of joint ventures?
- It reduces the risk of each business and cuts costs.
- Each business brings different expertise to the joint venture.
- Market and product knowledge can be shared to the benefit of the business in the joint venture.
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What are some disadvantages of joint ventures?
- Any mistakes made me damage the reputation of all firms in the joint venture, even if they were not the cause of the mistake.
- The businesses may have different business cultures or styles of leadership, making decision-making difficult.
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Why do some businesses decide to incorporate?
- To reduce the legal and financial risks to owners. It provides the owners with limited liability.
- Separately go identities also has the benefit of business continuity. If one or more owners leave, then the business is still able to continue.
- The business may want to raise additional capital to invest in growth plans. This may be easier to achieve by becoming a limited company and selling shares in the business.
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What factors influence the choice of business organisation?
- The number of owners.
- The owners role in the management of the business.
- The attitude towards Financial Risk.
- How quickly the owners want to start operating the business.
- The potential size of the business.
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What is a public corporation?
A business organisation that is owned and controlled by the state
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What are the main features of public corporations?
- They are owned and controlled by the state.
- They are financed mainly through taxation.
- In many countries they have social objectives rather than profit objectives.
- The services of public corporations are often provided to the population for free or at a low price.
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What is an objective?
A statement of a specific target to be achieved. It should be SMART.
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What does SMART stand for?
Specific.
Measurable.
Achievable and Agreed.
Realistic and Relevant.
Time-specific.
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What are most business objectives concerning?
- Survival.
- Profit.
- Growth.
- Market share.
- Corporate social responsibility.
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What is the survival part of the business objective?
Survival is very important for small businesses. Once they are established they can focus on long-term objectives such as profit and growth,
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What is the profit part of the business objective?
They aim to produce and sell the level of output where there is the greatest difference between revenue and total costs
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What is the growth part of the business objective?
A business that decides to expand the size of the business in order to increase output May benefit from economies of scale reducing the cost of producing each item and helping to increase the firm's competitiveness, revenue and profits.
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What is the matket share part of the business objective?
As a business grows, it may achieve a larger share of the market. Having high market share helps develop a strong brand image for the business which makes it easier to sell the products to Consumers.
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What is the corporate social responsibility part of the business objective?
Businesses that ignore their social responsibility from the risk of bad publicity and possible legal action. Both can affect the reputation, sales, revenue and profits of a business.
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What is market share?
The revenue of a business expressed as a percentage of total market revenue.
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What is Corporate social responsibility?
Businesses taking responsibility for the impact their activities might have on society and the environment
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Why has corporate social responsibility become an objective for businesses:
- The activity of pressure groups.
- The media, which is created a greater awareness of social, ethical and environmental issues among consumers.
- The role of trade unions and other employee representative groups.
- The role of government and the laws they pass at local, national and international levels.
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What is a pressure group?
A group of like-minded people that puts pressure on businesses and government to change their policies to reach a predetermined objective.
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What is a social enterprise?
A business with social objectives that reinvests most of its profits back into the business or into benefiting society at large.
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What are the objectives of social enterprises?
- Their activities relate to the needs of the community and the environment.
- One of their objectives is profit but this profit is reinvested in the business so they can expand their activities or benefit the local community, rather than earning High profits for owners or shareholders.
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What is a stakeholder?
An individual or group which has an interest in a business because they are affected by its activities and decisions.
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What are the two types of stakeholders?
- Internal stakeholders.
- External stakeholders.
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What is an internal stakeholder?
Those within a company whose interest stems from direct employment, ownership or investment.
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What are examples of internal stakeholders?
- Managers.
- Employees.
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What are the objectives of managers?
- To have job satisfaction and status.
- To receive salary increases and bonuses.
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What are the objectives of employees?
- To have job security.
- To receive a fair wage that reflects their contribution to the businesses success.
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What is an external stakeholder?
Those who do not directly work with a company but are affected somehow by the actions and outcomes of the business.
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What are examples of external stakeholders?
- Lenders.
- Suppliers.
- Customers.
- Government.
- Local community.
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What are the objectives of lenders?
- To receive interest payments when due.
- To have borrowing repaid by the due date.
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What are the objectives of suppliers?
- To receive prompt payment for goods supplied on credit.
- To be treated fairly and not be forced to reduce their prices by businesses with strong buying power.
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What are the objectives of customers?
- To receive quality goods and after-sales service.
- To be charged a fair price which gives value for money.
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What are the objectives of government?
- To be paid the correct amount of taxes on time.
- To have minimal spending on unemployment benefits.
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What are the objectives of the local community?
- To receive benefits for the local economy such as employment and subsidising of community facilities.
- To avoid the negative impact of business activities such as noise, air and traffic pollution.
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What do the services that public sector organisations provide be?
- Accessible.
- Affordable.
- Open to all.
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