UNIT 1: BUSINESS ACTIVITY

• What is a need in the context of business activity?

  A good or service essential for living
• What distinguishes a want from a need?

  A want is not essential for living
• What is scarcity in economics?

  The situation of unlimited wants and limited resources
• What does opportunity cost refer to?

  The next best alternative forgone by choosing another item
• What are the four factors of production?

  Land, Labour, Capital, Enterprise
• What is the reward for land as a factor of production?

  Rent
• What does labour refer to in the context of production?

  The physical and mental efforts put in by workers
• What is the reward for capital in production?

  Interest received on capital
• What is enterprise in the context of production?

  The risk-taking ability of a person who organizes production
• What is specialisation in business?

  Concentrating on a task at which one is best
• What are the advantages of specialisation?

  • Increases efficiency
  • Saves time and energy
  • Quicker training for workers
  • Skill development
• What are the disadvantages of specialisation?

  • Monotony for workers
  • Higher labour turnover
  • Over-dependency on specific workers
• What are the three main purposes of business activity?

  1. Combine scarce factors of production
  2. Produce goods and services to satisfy needs and wants
  3. Employ people and pay wages
• What does adding value mean in business?

  The difference between the selling price and the cost of materials
• What are two ways to increase added value?

  • Reducing the cost of production
  • Raising prices
• What does the primary sector involve?

  The use/extraction of natural resources
• Give an example of an activity in the primary sector.

  Agricultural activities
• What does the secondary sector involve?

  The manufacture of goods using resources from the primary sector
• Give an example of an activity in the secondary sector.

  Auto-mobile manufacturing
• What does the tertiary sector consist of?

  All the services provided in an economy
• What is the private sector?

  Where private individuals own and run business ventures
• What is the aim of the public sector?

  To provide essential public goods and services
• What is an entrepreneur?

  A person who organizes, operates, and takes risks for a new business venture
• What are the characteristics of an entrepreneur?

  • Risk taker
  • Creative
  • Optimistic
  • Self-confident
  • Innovative
  • Independent
  • Effective communicator
  • Hard working
• What is a business plan?

  A document containing business objectives and important operational details
• What are the contents of a business plan?

  1. Executive summary
  2. The owner
  3. The business
  4. The market
  5. Advertising and promotion
  6. Premises and equipment
  7. Business organisation
  8. Costs
  9. Finance

  10. Cash flow

  11. Expansion
• Why do governments want to support start-ups?

  To reduce unemployment and increase competition
• How do governments support start-ups?

  • Organise advice
  • Provide low-cost premises
  • Provide loans at low interest rates
  • Give grants for capital
  • Give grants for training
  • Give tax breaks/holidays
• What are three ways to measure business size?

  Number of employees, value of output, value of capital employed
• What are the two types of growth for businesses?

  • Internal growth
  • External growth
• What is horizontal integration?

  When one firm merges with or takes over another in the same industry at the same stage of production
• What are the benefits of horizontal integration?

  • Reduces number of competitors
  • Opportunities for economies of scale
  • Bigger share of the total market
• What is backward vertical integration?

  When one firm merges with or takes over another firm in the same industry but at a stage of production that is behind the predator firm
• What are the benefits of backward vertical integration?

  • Assured supply of essential components
  • Absorbs profit margin of the supplying firm
  • Prevents supplying firm from selling to competitors
• What is forward vertical integration?

  When one firm merges with or takes over another firm in the same industry but at a stage of production that is ahead of the predator firm
• What are the benefits of forward vertical integration?

  • Assured outlet for their product
  • Absorbs profit margin of the retailer
  • Prevents retailer from selling goods of competitors
• What is conglomerate integration?

  When one firm merges with or takes over a firm in a completely different industry
• What are the benefits of conglomerate integration?

  • Activities in more than one country
  • Spreads risks
  • Transfer of ideas between businesses
• What is a drawback of business growth?

  Difficult to control staff as the business grows
• What is diseconomies of scale?

  Average costs tend to increase as a firm grows beyond a point