vigashfernando1234

• Needs


  Goods or services that are essential for survival
• Wants


  Goods or services customers desire but are not essential for survival
• Economic Problem


  Unlimited wants but limited resources to satisfy the wants
• Scarcity


  The lack of sufficient products to fulfil the total wants of the population
• Factors of production


  • Land
  • Labour
  • Capital
  • Enterprise
• Opportunity Cost


  The next best alternative is given up by choosing another item
• Specialisation


  When people and businesses focus on what they are best at
• Division of labour


  Production is split into different tasks, and each worker performs one of these tasks
• Advantages of specialisation


  • Workers are trained in one task and specialise in this, increasing productivity and efficiency
  • Specialisation with division of labour will result in better quality output
  • An increase in efficiency will lead to economies of scale
  • Workers become more skilled and experienced, reducing waste of time and resources
• Disadvantages of specialisation


  • Repetitive tasks can cause boredom and burnout for employees, reducing motivation and job efficiency
  • If a worker is not present, production will be disrupted, causing a waste of time and resources, as well as less output and efficiency
  • Specialised workers require higher wages, and training current employees will increase costs
• Business Activity


  Combines scarce factors, produces goods and services, employs people
• Added Value


  The difference between the cost of purchasing bought-in material and the price of the finished goods
• Advantages of added value

  • May be able to make a profit if these other costs come to a total less than the added value
  • It can be used to pay other expenses
• Disadvantages of added value

  • Increasing the product's price can lead to lower sales and, perhaps, profit
• Ways to increase added value

  • Increase the selling price by increasing the quality of goods and services to convince customers/consumers
  • Reduce the cost of materials but keep the price the same
• Sectors of business


  • Primary Sector
  • Secondary Sector
  • Tertiary Sector
• Developing Countries


  Where the primary sector is the most important, as more employees and output are produced than in secondary and tertiary sectors
• Developed Countries


  Where the output of the tertiary sector is often higher than the other two sectors combined
• De-industrialisation


  When there is a decline in the importance of the secondary sector
• Reasons for changes in the relative importance of the three sectors over time

  • When sources of some primary products become depleted
  • Developed economies are losing competitiveness to newly industrialised countries
  • Due to the rise in living standards, consumers spend more of their income on services such as travel and restaurants than on manufactured goods
• Mixed Economy


  Has both a private sector and a public sector
• Private Sector


  Businesses NOT owned by the government will decide what and how to produce. The main aim is to make profits
• Public Sector


  Owned by the government. Government will decide what and how to produce (i.e. healthcare, education, defence, public transport). The main aim is to provide a service to customers
• Privatisation


  Selling a public sector business to the private sector
• Arguments for Privatisation


  • Costs can be controlled because the private sector's main objective is profit
  • More efficient use of capital
  • Competition between private sector businesses will help improve product quality
• Arguments against Privatisation


  • Increased unemployment as private sector businesses may want to cut costs
  • Less likely to focus on social objective
• Entrepreneur


  A person who organises, operates and takes risk to make the business better
• Characteristics of Entrepreneurs


  • Hard-working
  • Risk Takers
  • Creative
  • Effective Communicators
  • Optimistic
  • Self-confident
  • Innovative
  • Independent
• Advantages of being an Entrepreneur

  • Independent, able to choose how to use time and money
  • Able to put own ideas into practice
  • It may become successful and very profitable if the business grows
  • Able to make use of personal interests and skills
  • Profits to themselves, no need to share them with anyone
  • Income is higher than a regular employee
• Disadvantages of being an Entrepreneur

  • Entrepreneurs will have to put their own money into the business
  • Many entrepreneur's businesses fail (risky)
  • Lack of knowledge and experience in starting and operating a business
  • Lost income from not being an employee for another business (Opportunity cost)
  • They will have to invest their savings as well as find other sources of finance, which is time-consuming and expensive
• Business Plan


  A document containing the business objectives and essential details about operations, finance and owners of the new business
• Contents of business plan

  • Description of the product
  • Products and services
  • The market
  • Business location and how products will reach customers
  • Organisation structure and management
  • Financial information
  • Business strategy
• Reasons why business plans assist entrepreneurs

  • It helps gain finance. Banks will ask for a business plan before agreeing to a loan or overdraft for the business
  • It forces the entrepreneur to plan carefully, which reduces the risk of the business failing
• Reasons why governments encourage entrepreneurs to set up a business

  • Reduce unemployment
  • Increase competition
  • Increase output
  • Benefit society
  • Further growth of the economy
• Ways governments support entrepreneurs

  • Business ideas & help, organising training for entrepreneurs that gives advice, and support sessions
  • Finance, they may lend loans at low-interest rates or grants, as well as low-cost premises
  • Governments provide grants for training employees to make them more efficient and productive
  • Governments allow entrepreneurs to use research facilities in Universities
• Reasons why it is beneficial to compare business size

  • Investors can decide which business to invest in
  • Government, different tax rates for small and large firms
  • Competitors, to compare size and importance with other firms
  • Workers, to have an idea of the number of employees needed
  • Banks, the importance of the loan compared to business size
• Measurements of business size

  • The number of people employed in the business
  • The value of the output of the business
  • The value of sales
  • The total value of capital employed
• Limitations of business size measurements

  • Capital-intensive firms employ fewer people but produce high levels of output
  • Does not take into account the value of goods sold and the sale of goods
  • Different businesses sell different products (expensive and cheap)
  • Some businesses use Labour-intensive methods, which require less capital, more workers
• Capital Employed


  The total value of capital used in the business
• Benefits of business expansion

  • The possibility of higher profits for the owner
  • More status and prestige for owners and managers
  • Lower average costs
  • A larger share of its market portion of total market sales it makes is greater