Section 1

• Economic Problem - unlimited wants but limited resources that satisfies people's wants and needs which creates SCARCITY
• Factors of Production - resources needed to produce goods or services. There are 4 factors of production which are:

  • Land - (resources)
  • Labour - (number of people available to make products)
  • Capital - (money used to buy machinery/equipment)
  • Enterprise -(the skill and risk taking ability of a person who brings other resources together to produce good or service)
• Scarcity - lack of sufficient products to fulfill the the total wants of the population
• Division of Labour - when the production process splits up into different tasks and each worker performs one of the tasks
• businesses - combine factors of production to make goods and services which satisfies people wants
• Added Value - the difference between the selling price of the product and the cost of bought in materials

  
• Why added value is important?

  • can pay other costs (e.g. labour costs/management expenses/etc)
  • may be able to make a profit if the other costs come to a total that is less than the added value
• How can a biz increase added value?

  • Increase Selling Price but keep materials that are bought in the same
  • reduce the cost of materials but keep the price the same
• Primary Sector - extracts and uses the natural resources of Earth to produce raw materials used by other businesses (e.g. Woodcutter)
• Secondary sector - manufacturing goods using raw materials provided by the primary sector (e.g. furniture maker)
• De-industrialisation : the decline in the manufacturing industry in a country
• Capital - the money invested into a business by the owners
• Entrepreneur - a person who organises, operates and takes the risk of a new business venture
• Business plan - a document containing business objectives and important details about owners of the new business
• Uses of a business plan:

  • can help to gain finance
  • careful planning which reduces risk
• Why govt. supports business start ups?

  • to reduce unemployment - new businesses will often create jobs to help reduce unemployment
  • can grow further - as new firms are still small, the govt. may be helping some firms that grow to become very large and important in the future
  • to increase output - the economy benefits from increased output of goods and services
• how govt. support business start-ups?

  • finance - loans for small biz's at low interest rates
  • labour - grants to small biz's to train employees and help increase their productivity
  • research - encourage universities to make research facilities available to new biz entrepreneurs
• Capital employed - the total value of capital used in the business
• business size can be measured in different ways:

  • value of sales - often used when comparing size of retailing biz
  • value of output - common way to compare biz size in the same industry
  • number of people employed - easy to calculate & compare with other biz
  • capital employed - total value of capital invested in the biz
• internal growth - occurs when a biz expands its existing operations
• external growth - when a biz takes over/merges with another biz
• takeover - when one biz buys out the owners of another biz
• horizontal integration - when one merges with/take over another one in the same industry at the same stage of production
• vertical integration - when one biz merges/take over another one in the same industry but at a different stage of production
• Conglomerate integration - when one biz merges/takes over a biz in a completely different industry
• causes of business failure:

  • lack of management skills
  • changes in the biz environment
  • poor financial management
  • over expansion
• Limited liability - the liability of shareholders in a company is limited to only the amount they invested in
• unlimited liability - owners of a biz can be held responsible for the debts of the biz they own
• partnership - when two or more people agree to join/come together to own a biz
• unincorporated business - is a biz that does not have a separate legal identity (e.g. sole traders & partnerships)
• Incorporated business - a biz that has a separate legal identity from their owners
• shareholders - owners of a limited company. They buy shares which represent part-ownership of the company
• Private limited company - businesses owned by shareholders but cannot sell shares to the public
• advantages of LTD (private):?

  • shares can be sold to a large number of people (there is a maximum number)
  • all shareholders have limited liability
• disadvantage of LTD (private):

  • very time consuming to set up
  • high set up costs
• public limited companies - businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on the Stock Exchange
• advantage of PLC:?

  • limited liability to shareholders
  • can sell shares to public
• disadvantage of PLC:?

  • selling shares to the public is expensive
  • legal formalities
• Annual General Meeting - when shareholders attend and vote who they want to be on the board of directors for the upcoming years
• Dividends - payments made to shareholders from the profits of a company