Unit 1 - Understanding business activity

Question 1

Need

Answer 1

is a good or service essential for living

Question 2

Want

Answer 2

is a good or service which people would like to
have, but which is not essential for living. People’s
wants are unlimited

Question 3

Economic Problem

Answer 3

There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity

Question 4

Factors of production

Answer 4

those resources needed to
produce goods and services. There are four factors of production and they are in limited supply

Question 5

Scarcity

Answer 5

the lack of su ficient products to fulfil l the total wants of the population

Question 6

Opportunity cost

Answer 6

the next best alternative given up by choosing another item

Question 7

Specialization

Answer 7

occurs when people and businesses concentrate on what they are best at

Question 8

Division of labour

Answer 8

when the production process is split up into di fferent tasks and each worker performs one of those tasks. It is a form of specialization

Question 9

Added value

Answer 9

di fference between the selling price and the cost of bought-in materials and
components

Question 10

The primary sector

Answer 10

extracts and uses the
natural resources of Earth to produce raw materials
used by other businesses

Question 11

The secondary sector

Answer 11

manufactures goods
using the raw materials provided by the primary
sector

Question 12

The tertiary sector

Answer 12

provides services to
consumers and other sectors of industry

Question 13

De -industrialisation

Answer 13

occurs when there is a decline in the importance of the secondary, manufacturing
sector of industry in a country

Question 14

Mixed economy

Answer 14

has both a private sector and a public (state) sector

Question 15

Capital

Answer 15

the money invested into the business by the owners

Question 16

Entrepreneur

Answer 16

a person who organises, operates and takes the risk for a new business venture

Question 17

Capital employed

Answer 17

is the total value of capital used in the business

Question 18

Internal Growth

Answer 18

occurs when a business expands its existing operations

Question 19

External Growth

Answer 19

is when a business takes over or merges with another business. It is often called integration as one business is integrated into another one

Question 20

A takeover or acquisition

Answer 20

when one business buys out the owners of another business, which then becomes part of the ‘predator’ business [the business which has taken it over]

Question 21

A merger

Answer 21

is when the owners of two businesses agree
to join their businesses together to make one business

Question 22

Horizontal integration

Answer 22

when one business merges
with or takes over another one in the same industry at
the same stage of production

Question 23

Vertical integration

Answer 23

when one business merges with or takes over another one in the same industry but at a di fferent stage of production. Vertical integration can be forward or backward.

Question 24

Conglomerate integration

Answer 24

is when one business merges with or takes over a business in a completely di erent industry. This is also known as diversi cation.

Question 25

Sole trader

Answer 25

a business owned by one person

Question 26

Limited liability

Answer 26

means that the liability of shareholders in a company is limited to only the amount they invested

Question 27

Unlimited liability

Answer 27

means that the owners of a business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business

Question 28

Partnership

Answer 28

is a form of business in which two or more people agree to jointly own a business

Question 29

Unincorporated business

Answer 29

is one that does not have a separate legal identity. Sole traders and partnerships are unincorporated businesses

Question 30

incorporated businesses

Answer 30

are companies that have separate legal status from their owners

Question 31

Shareholders

Answer 31

are the owners of a limited company. They buy shares which represent part-ownership of the company.

Question 32

Private limited companies

Answer 32

are businesses owned by shareholders but they cannot sell shares to the public

Question 33

Public limited companies

Answer 33

are businesses owned by shareholders but they can sell shares to the public and their shares are tradable on the Stock Exchange

Question 34

Dividends

Answer 34

are payments made to shareholders from the pro ts [after tax] of a company. They are the returns to shareholders for investing in the company.

Question 35

A franchise

Answer 35

is a business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the license to operate this business from the franchisor

Question 36

A joint venture

Answer 36

is where two or more businesses start a new project together, sharing capital, risks and profi ts

Question 37

A public corporation

Answer 37

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

Question 38

Business objectives

Answer 38

are the aims or targets that a business works towards

Question 39

Pro fit

Answer 39

total income of a business [revenue] minus total costs

Question 40

Market share

Answer 40

is the percentage of total market sales held by one brand or business

Question 41

A social enterprise

Answer 41

has social objectives as well as an aim to make a pro t to reinvest back into the business

Question 42

A stakeholder

Answer 42

is any person or group with direct interest in the performance and activities of a business