WJEC Business A level UNIT 1

• Why do people start their own businesses?

  - To make a profit

  - To provide a good or service

  - To fill gap in the market

  - To turn a hobby into a career or business

  - To be independent/their own boss
• What is an entrepreneur?

  An entrepreneur is somebody who starts and runs a business.

  they make a product or provide a service,

  Many Entrepreneurs are innovators-they bring new ideas to the market and drive the development of new technologies.
• What are the key characteristics of an entrepreneur?

  - A risk taker

  - Innovative

  - Initiative

  - Organised

  - Hard working

  - Determined
• Why create a business plan?

  1. Gives an idea if the business will work

  2. Gives a clear view of aims and deadlines

  3. Part of the capital raising process

  4. To monitor progress

  5. Allows survival and expansion
• Drawbacks of using a business plan?

  - Costs of market research

  - Hard to protect a source of finance

  - How reliable is the data?

  - Unachievable objectives can give false hope

  - Entrepreneurs have little knowledge of market
• What are consumer goods?

  The final product
• What are capital goods?


  Used in the production of other good or services
• What are public goods?

  Available to everybody, non-excludable and non-rivalry (e.g. Police and Street lighting)
• What are merit goods?

  Goods or services that would be under consumed if left to the private sector (e.g. Education and Healthcare)
• Advantages of international trade

  - Provides employment

  - Reduces the risk of closure

  - New technologies

  - More revenue for the UK economy

  - Expansion can can mean the opportunity to benefit from economies of scale
• Disadvantages of international trade

  - Competition may be misunderstood

  - Language barriers

  - Exchange rate fluctuations

  - Cannot guarantee same response as home country

  - Changes in interaction relations may stop trade
• What is a Multinational country?

  Businesses that operate in more than one country
• Advantages of multinational companies

  - Creates employment

  - Investment leads to infrastructure development

  - No export costs

  - No language barriers

  - investment to locate given my local government
• Disadvantages of multinational companies

  - Increased competition

  - Can put smaller firms out of business

  - Deplete natural resources

  - More resource costs
• Characteristics of perfect competition

  - Perfect knowledge of the market

  - Many suppliers

  - Price takers

  - Product is identical/homogenous

  - No barriers to entry

  - Normal profit in the long run
• Characteristics of monopolistic competition

  - Independent firms

  - Low barriers

  - Normal profits in long run

  - Differentiated products (colour, size, etc.)

  - Many suppliers

  - Supernormal profits in the long ru

  - Market is dynamic
• Characteristics of an oligopoly

  - Power to fix prices

  - Interdependent

  - Market is dominated by a few large firms

  - Few barriers to entry (e.g. 3 for 2)

  - e.g. Tesco, Morrisons, Asda & Sainsburys
• Characteristics of a monopoly

  - Controlled by a single producer/seller

  - Price makers

  - High barriers of entry/start up costs

  - Unique products wit no close substitutes

  - Price discrimination (different prices at different times - e.g. Cinemas)
• Types of barriers to entry

  Strategic:

  - Predatory pricing

  - Brand loyalty

  - Aggressive price wars

  Structural:

  - High start up costs

  - Patents

  - Copyrights
• Reasons to increase market share

  - Economies of Scale (lower average cost per unit produced)

  - Customers more likely to repeat purchases (brand loyalty)

  -Increased bargaining power with suppliers and investors

  -When sales in a market are slow, investment is needed for growth
• Reasons not to increase market share


  - Overall profits may decline

  - Working at full capacity may affect ability to meet demand

  - Investigations by Competition Market Authority
• How do you calculate market share?


  Total value of sales for individual product ÷ Total Value of sales for whole market × 100
• how do you calculate percentage change?

  (Current year - previous year) ÷ previous year × 100
• Advantages of Mass Markets


  - Greater sales (maximises income)

  - Large quantities produced (lower costs)

  - Wider customer base

  - Brand awareness and loyalty
• Disadvantages of Mass Markets


  - Lots of competition

  - Greater marketing costs

  - High market research costs

  - Research and Development costs
• Advantages of Niche Markets


  - Less competition (others may target niche)

  - Specialised product

  - Less marketing costs

  - Able to focus on company strengths

  - Firms can gain expert knowledge
• Disadvantages of Niche Market


  - Competition may target & takeover niche

  - Smaller customer base

  - Less profit and higher production costs

  - Not always neat little markets
• What are the 4 main types of market segmentation?

  Geographical, Psychographic, Behavioural and Demographic
• Why conduct market research?


  - Identify consumer's needs and wants

  - Monitor competition

  - Cain feedback and test customer responses

  - Identify changes in demand

  - Assess the effectiveness of promotional campaigns
• Advantages of primary research


  - Specific to business objectives

  - Latests and most up to date information
• Disadvantages of primary research


  - Expensive and time consuming

  - Risk of bias
• Advantages of secondary research


  - Cheaper and less time consuming

  -Based on actual sales figures or larger samples
• Disadvantages of secondary research


  - Quickly out of date

  - Not tailored to company objectives
• What is the public sector?

  Made up of businesses that are owned and run by the government. It is funded by taxes ( e.g. income tax) and includes organisations such as the NHS, Police, Education and Defence . The role of the public sector is to create a fair and just society.
• What is the private sector?


  This is the part of the economy that is operated by businesses owned by shareholders and private individuals.
• What are the objectives of private sector companies?


  - To make a profit

  - Fill a gap in the market

  - Expand and survive

  - Increase/gain market share

  - Keep shareholders happy (through dividends)
• Advantages of Sole Traders


  - Be your own boss

  - Keep all profits for yourself

  - Easy to set up

  - Turn a passion into a hobby
• Disadvantages of Sole Traders


  - Limited capital for startup

  - Unlimited liability

  - Have to do/make all decisions yourself
• Characteristics of a partnership


  - Joint ownership of a business (between 2-20 people)

  - Often found in professions (lawyers & dentists)

  - Shared responsibilities

  - Partnership agreement (deed of partnership)
• Advantages of Partnerships


  - Easy to set up

  - Shared responsibility

  - Increased capital contribution

  - More skills and expertise

  - Shared unlimited liability

  - Less borrowing required