Business

• A need is a good or service essential for living
• A want is a good or service which people would like to have, but which is not essential for living. People's wants are unlimited
• Economic Problem:

  • Unlimited wants but limited resources to produce goods and services
  • This creates scarcity
• Factors of production are resources needed to produce goods and services

  • There are four factors of production
  • Factors of production are in limited supply
• Scarcity is the lack of sufficient products to fulfill the total wants of the population
• Opportunity cost is the next best alternative given up by choosing another item
• Specialization occurs when people and businesses concentrate on what they are best at
• Division of labour is when the production process is split up into different tasks and each worker performs one of those tasks

  • It is a form of specialization
• Businesses combine the factors of production to make goods and services which satisfy people's wants
• Added value is the difference between the selling price and the cost of bought-in materials and components
• Primary sector of industry:

  • Extracts and uses natural resources of Earth to produce raw materials for other businesses
• Secondary sector of industry:

  • Manufactures goods using raw materials provided by the primary sector
• Tertiary sector of industry:

  • Provides services to consumers and other sectors of industry
• De-industrialisation:

  • Occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country
• Mixed economy:

  • Has both a private sector and a public (state) sector
• Capital:

  • Money invested into the business by the owners
• Entrepreneur:

  • Person who organises, operates, and takes the risk for a new business venture
• Capital employed:

  • Total value of capital used in the business
• Internal Growth:

  • Occurs when a business expands its existing operations
• External Growth:

  • Business takes over or merges with another business, often called integration as one business is integrated into another one
• Takeover or acquisition:

  • One business buys out the owners of another business becomes part of the 'predator' business
• Merger: when the owners of two businesses agree to join their businesses together to make one business
• Horizontal integration: when one business merges with or takes over another one in the same industry at the same stage of production
• Vertical integration: when one business merges with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backward
• Conglomerate integration: when one business merges with or takes over a business in a completely different industry. Also known as diversification
• Sole trader: a business owned by one person
• Limited liability: the liability of shareholders in a company is limited to only the amount they invested
• Unlimited liability: 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
• Partnership: a form of business in which two or more people agree to jointly own a business
• Unincorporated business: does not have a separate legal identity. Sole traders and partnerships are unincorporated businesses
• Incorporated businesses: companies that have separate legal status from their owners
• Shareholders: owners of a limited company. They buy shares which represent part-ownership of the company
• Private limited companies: businesses owned by shareholders but they cannot sell shares to the public
• Public limited companies: businesses owned by shareholders but they can sell shares to the public and their shares are tradable on the Stock Exchange
• Dividends: payments made to shareholders from the profits [after tax] of a company. They are the returns to shareholders for investing in the company
• Franchise:

  • Business based on existing successful business's brand names, logos, and trading methods
  • Franchisee buys the license to operate this business from the franchisor
• Joint venture:

  • Two or more businesses start a new project together
  • Share capital, risks, and profits
• Public corporation:

  • Business in the public sector
  • Owned and controlled by the state (government)
• Business objectives:

  • Aims or targets that a business works towards
• Profit:

  • Total income of a business minus total costs