Business Studies IGCSE

• Need


  A good or service essential for living
• Want

  A good or service that people would like to have but is not required for living
• Scarcity


  The basic economic problem, a situation that exists when there are unlimited wants and limited resources to produce the goods and services to satisfy those wants
• Opportunity cost


  The next best alternative forgone by choosing another item
• Scarcity, Choice, Opportunity Cost


  Scarcity leads to choice, which leads to opportunity cost
• Factors of Production


  • Land
  • Labour
  • Capital
  • Enterprise
• Specialisation


  When a person or organisation concentrates on a task at which they are best at
• Advantages of Specialisation


  • Workers are trained to do a particular task and specialise in this, thus increasing efficiency
  • Saves time and energy: production is faster by specialising
  • Quicker to train labourers: workers only concentrate on a task; they do not have to be trained in all aspects of the production process
  • Skill development: workers can develop their skills as they do the same tasks repeatedly, mastering it
• Disadvantages of Specialisation


  • It can get monotonous/boring for workers, doing the same tasks repeatedly
  • Higher labour turnover as the workers may demand for higher salaries and company is unable to keep up with their demands
  • Over-dependency: if worker(s) responsible for a particular task is absent, the entire production process may halt since nobody else may be able to do the task
• Purpose of Business Activity

  Businesses attempt to solve the problem of scarcity, using scarce resources, to produce and sell those goods and services that consumers need and want
• Added Value


  The difference between the cost of materials bought in and the selling price of the product
• How to increase added value


  • Reducing the cost of production
  • Raising prices
• Sectors of Business


  • Primary sector
  • Secondary sector
  • Tertiary sector
• Shift in importance of business sectors over time
• Private sector


  Where private individuals own and run business ventures, with the aim of making a profit
• Public sector


  Where the government owns and runs business ventures, with the aim of providing essential public goods and services to increase the welfare of citizens
• In a mixed economy, both the public and private sector exists
• Entrepreneurship


  The organising, operating, and taking of risks for a new business venture
• Characteristics of an entrepreneur

  • Risk taker
  • Creative
  • Optimistic
  • Self-confident
  • Innovative
  • Independent
  • Effective communicator
  • Hard working
• Business plan

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

  • Executive summary
  • The owner
  • The business
  • The market
  • Advertising and promotion
  • Premises and equipment
  • Business organisation
  • Costs
  • Finance
  • Cash flow
  • Expansion
• Startup


  A company typically in the early stages of its development, started by 1-3 founders who focus on capitalising upon a perceived market demand
• Why governments want to help new startups

  • They provide employment
  • They contribute to economic growth
  • They can contribute to exports
  • They introduce fresh ideas and technologies
• How governments support businesses

  • Organise advice
  • Provide low-cost premises
  • Provide loans at low interest rates
  • Give grants for capital
  • Give grants for training
  • Give tax breaks/holidays
• Ways to measure business size

  • Number of employees
  • Value of output
  • Value of capital employed
• Ways businesses can grow

  • Internal growth
  • External growth
• Internal growth


  When a business expands its existing operations
• External growth


  When a business takes over or merges with another business
• Types of external growth

  • Horizontal merger/integration
  • Vertical merger/integration
  • Conglomerate merger/integration
• Horizontal merger/integration


  • Reduces number of competitors in the market
  • Opportunities of economies of scale
  • Merging will allow the businesses to have a bigger share of the total market
• Backward vertical integration


  • Merger gives assured supply of essential components
  • The expanded firm now absorbs the profit margin of the supplying firm
  • The supplying firm can be prevented from supplying to competitors
• Forward vertical integration


  • Merger gives assured outlet for their product
  • The expanded firm now absorbs the profit margin of the retailer
  • The retailer can be prevented from selling the goods of competitors
• Conglomerate merger/integration


  • Diversification into completely different industries
• Vertical integration


  When one firm merges with or takes over another firm in the same industry but at a different stage of production
• Backward vertical integration


  • Merger gives assured supply of essential components
  • The expanded firm now absorbs the profit margin of the supplying firm
  • The supplying firm can be prevented from supplying to competitors
• Forward vertical integration


  • Merger gives assured outlet for their product
  • The expanded firm now absorbs the profit margin of the retailer
  • The retailer can be prevented from selling the goods of competitors
• Conglomerate merger/integration


  When one firm merges with or takes over a firm in a completely different industry. Also known as 'diversification'.
• Benefits of conglomerate integration


  • Allows businesses to have activities in more than one country, spreading risks
  • Transfer of ideas between the two businesses, even though they are in different industries, can improve quality and demand
• Drawbacks of growth


  • Difficult to control staff
  • Lack of funds
  • Lack of expertise
  • Diseconomies of scale
• Reasons why businesses stay small

  • Type of industry
  • Market size
  • Owners' objectives