Section 1: Understand Business Activity

• What are the Four Factors of Production

  Land

  Labor

  Capital

  Enterprise
• Definition of Economic Problem


  Unlimited wants but limited resources to produce goods and services to satisfy those wants
• Definition of Opportunity Costs

  Next best alternative given up by choosing another item.
• Definition of specialisation


  When people and businesses concentrate on what they are best at.
• Definition of Added Value

  Difference between selling price of product and cost of bought-in materials.
• What are the three sectors

  Primary

  Secondary

  Tertiary
• Define Primary, Secondary and Tertiary Sector

  Primary - Industry that extracts and uses natural resources to produce raw materials.

  
  

  Secondary - Industry that manufactures goods using the raw materials provided by the Primary Sector.

  
  

  Tertiary - Industry that provides services to consumers and other sectors of industry.
• Definition of De-industrialisation


  Decline in importance of Secondary Sector (manufacturing) in a country.
• Definition of Entrepreneur

  A person who organises, operates and takes risks for new business venture.
• Definition Business Plan

  Document containing the business objective and important details about operations, finance and owners of new business.
• Contents of Business Plan

  Description

  Products and services

  The market

  Business location

  Organisation structure and management

  Financial information

  Business Strartegy
• Capital employed - Total value of capital used in business
• Ways to measure to business size:

  Number of people employed

  Value of output

  Value of sales

  Value of capital employed
• Why do owners want to expand their business:

  Possibility of higher profits

  More status and prestige

  Lower average costs

  Larger share of total market sales
• What is Horizontal, Vertical and Conglomerate Intergration

  Horizontal - Business mergers with or takes over another one in the same industry at the same stage of production.

  Vertical - Business mergers with or takes over another one in the same industry but at a different stage of production.

  Conglomerate - Business mergers with or takes over a business in a different industry.
• Why do some businesses remain small:

  Type of industry the business operates on

  Market size

  Owners objective
• Causes of business failure:

  Lack of management skills

  Changes in the business environment

  Poor financial management

  Over-expansion
• Forms of business organization in private sector:

  Sole Traders

  Partnerships

  Private limited companies

  Public limited companies

  Franchises

  Joint ventures
• Limited liability - Liability of shareholders in company is limited to only the amount they invested.

  Unlimited liability - Owners of business are responsible for the debts of business. Liability is not limited to investment made in business.
• Partnerships - Form of business which two or more people agree to own a business.
• Advantages and Disasvantages of Partnership

  Advantages:

  More capital

  Responsibility of running business is shared

  Partners would be motivated to work hard

  Disadvantages:

  Unlimited liability

  Partners can be inefficient and dishonest

  Consulting partners takes time
• Private Limited Companies


  Business owned by shareholders but cannot sell shares to the public