unit 1.

Question 1

economic problem

Answer 1

when there is unlimited wants but limited resources to fulfil them, leading to scarcity

Question 2

scarcity

Answer 2

when there is a lack of products/ services to fulfil the needs of the population

Question 3

labour

Answer 3

the number of people available to make products/services

Question 4

capital

Answer 4

the finance, machinery and equipment needed to manufacture the goods/services

Question 5

enterprise

Answer 5

the skill and risk-taking ability of the managers and owners of the firm

Question 6

opportunity cost

Answer 6

next best alternative given up by choosing another item

Question 7

specialisation

Answer 7

when people and businesses concentrate on what they are best at

Question 8

division of labour

Answer 8

when the production of process is split into different tasks and each worker performs one of the specific task only

Question 9

advantage of division of labour

Answer 9

workers are trained in one task and specialised in that=increasing efficiency and output
less time wasted from one workbench to the other

Question 10

disadvantages of division of labour

Answer 10

workers can be bored doing just one job=decrease efficiency
if one worker is absent no one else can do the job=production might be stopped

Question 11

added value

Answer 11

the difference between selling price and the cost of bought-in materials
helps pay for operating expenses
helps make a profit if other costs are lesser than the added value

Question 12

how to increase added value

Answer 12

1. increasing the selling price=consumer may not want to buy at a higher price
2. reducing cost of bought-in materials= consumer may think product is of low quality

Question 13

classification of business

Answer 13

primary sector
secondary sector
tertiary sector

Question 14

primary sector

Answer 14

this sector of this industry extracts and uses natural resources of Earth to produce raw materials used by other sectors in the industry

Question 15

secondary sector

Answer 15

this sector of the industry manufactures goods using raw materials provided by the primary sector

Question 16

tertiary sector

Answer 16

this sector of the industry provides services to consumers and to the other sectors of the industry

Question 17

changes in sector importance

Answer 17

happens when primary product source depletes
developed economies are losing competitiveness
when higher disposable income and higher standards of living lead to more spending on services like travelling and fine-dining

Question 18

private sector

Answer 18

businesses owned by private individuals and not the government

Question 19

public sector

Answer 19

government of state owned and controlled businesses and organisations

Question 20

privatisation

Answer 20

when public sector businesses are owned and managed by private sector to offer a more competitive and efficient good/service

Question 21

private limited companies (LTD)

Answer 21

a business owned by shareholders, but they cannot sell shares to the public, they sell them to family and friends

Question 22

LTD advantages

Answer 22

can raise more capital from selling share compared to a ST and partnership
all owners have limited liability so less risk
can still maintain control of the business as they approve who they sell shares to

Question 23

LTD disadvantages

Answer 23

cannot sell shares to public, so limited ability to raise capital compared to PLC
expensive to be an LTD as a lot of legalities and paperwork to be completed

Question 24

public limited corporations (PLC)

Answer 24

a company owned by shareholders and shares can be sold to the public on the stock exchange

Question 25

entrepreneur

Answer 25

a person who organises operates and takes the risk of a business venture

Question 26

benefits of an entrepreneur

Answer 26

independence able to put own ideas into practice may be profitable able to make use of personal interest and skills

Question 27

disadvantages of an entrepreneur

Answer 27

risk of fail own capital lack of knowledge/experience opportunity cost

Question 28

characteristics of a successful entrepreneur

Answer 28

risk-taker visionary determined creative people-orientated charismatic passionate brave inspirational ambitious supportive social caring lively

Question 29

benefits of PLC

Answer 29

can raise more capital from selling shares to the public compared to an LTD all owners have limited liability-so less risk

Question 30

drawbacks of PLC

Answer 30

risk that the original owners loose control of the business when it goes public need to pay shareholder dividends so less profit for original owner expensive to be a PLC, lots of legalities and paperwork to complete

Question 31

unlimited liability

Answer 31

the owners of a business can be held responsible for the debts of a business and so their personal possessions are at risk if the business can't pay off its debts sole traders, and partnerships have unlimited liability

Question 32

incorporate business

Answer 32

businesses that have separate legal status from their owners (PLCs and LTD)

Question 33

unincorporated business

Answer 33

when they do not have a separate legal status from their owners (ST and P)

Question 34

sole trader

Answer 34

a business owned and operated by one person, they have unlimited liability

Question 35

benefits of a sole trader

Answer 35

get to keep all the profit owner is in complete control so can make all decisions few legal requirements, so therefore easier and cheaper to set up

Question 36

drawbacks of a sole trade

Answer 36

unlimited liability limited sources of finance as only has their own savings, no other financial input

Question 37

partnership

Answer 37

a business in which two or more people agree to jointly open a business

Question 38

partnership advantages

Answer 38

more finance can be invested into the business from all the partners less stress as responsibilities of running the business are shared more ideas from partners

Question 39

partnership drawbacks

Answer 39

profits have to be shared disagreements can occur which can distract owners from focusing on quality of products/customer service unlimited liability

Question 40

franchise

Answer 40

a business with a strong name and the franchisor sells the rights to use the brand name to a franchisee

Question 41

benefits to franchisor

Answer 41

- franchisor receives a portion of profits from the branches, know as royalties - the responsibilities of day-to-day running of franchises is the responsibility of the franchisee, so less stress for the franchisor

Question 42

drawbacks to franchisor

Answer 42

- bad reputation in one branch can risk ruining the entire brands rep - they don't get to keep 100% of the profit

Question 43

joint venture

Answer 43

where two or more businesses start a new project together, sharing risks and profits

Question 44

joint venture advantages

Answer 44

- both businesses share the costs of the new project - risk is shared -each business may benefit from the expertise of the other

Question 45

joint venture disadvantages

Answer 45

- profits will have to be shared - disagreements may occur=impacting improvement of quality

Question 46

public corporation

Answer 46

a business in the public sector that is owned and controlled by the government

Question 47

benefits of public corporations

Answer 47

- ensure customers are not taken advantage of - important for providing non-profitable but important services

Question 48

drawbacks of public corporations

Answer 48

no huge profit motive as they care more about providing the service=may not be as efficient as a private company

Question 49

business objectives (SMIG)

Answer 49

- survival - make profit - increase market share - growth

Question 50

social enterprises

Answer 50

a business who is driven by fulfilling the social needs of its community and not profit maximisation.

Question 51

stakeholders

Answer 51

- people who have direct interest in the performance and activity of the business