Key terms: Retrieval practice
Add the following key terms to their definitions.
Specialisation
Franchise
Primary activity
Business plan
Opportunity cost
Third sector
Partnership
Labour
Internal growth
Dividend
Supplier
Key term
Sole trader
Land
Private sector
Joint venture
Secondary activity
Enterprise
Tertiary activity
Public limited company (PLC)
Limited liability
Deed of partnership
Social enterprise
Capital
Free economy
Private limited company (Ltd)
Scarcity
Business size
Planned economy
Public sector
Mixed economy
Market share
External growth
Stakeholder
Definition
Needs and wants are greater than the resources available to satisfy
them.
What you have to give up/sacrifice in order to choose something.
(The next best alternative)
All natural resources used to make a product or service
The effort of workers required to make a product or service
Finance, machinery and equipment required to make a product or
service
Skill and risk-taking ability of the entrepreneur
Focus on one task. It is beneficial for workers because it will mean
reduced errors if workers know what they are doing
Involves the earth´s natural resources (raw materials). Examples
include farming, fishing, forestry, extractions.
Involves taking natural resources and converting them into
manufactured and processed goods. E.G. building/construction
Involves providing services/goods to both consumers and other
businesses. Examples include transport, banking, and hotels.
When all resources are owned privately. The government has no
control over the factors of production.
Where government plans and controls use of resources. They
decide everything, where people work and what they do.
Where features from both free and a planned economy are
combined. Most countries of the world have this type with a public
and private sector.
A business that is owned and controlled by just one person who
takes all of the risks and receives all of the profits
A business formed by two or more people who will usually share
responsibility for the day-to-day running of the business.
Often a small to medium-sized company, owned by shareholders
who have limited liability. The company cannot sell its shares to the
public only to those that are invited.
Often a large company; owned by shareholders who have limited
liability. They can sell its shares to the general public.
A business system where entrepreneurs buy the right to use to the
name, logo and product of an existing business.
Formed of businesses aim to make profit
They are often run and funded by the country’s government. E.g
police, education and military
Non-For profit / Charities
Two or more businesses agree to work together on a project and set
up a separate business for this purpose.
A written document that outlines the aims and vision of a business
and the plans to achieve it. This can be used to attract investors
How a business is measured. This could be in terms of profit, value,
number of employees or turnover
This occurs when a business opens new outlets or factories or
moves into new markets abroad
This happens when a business buys another business through a
takeover or a merger
A legally binding document, drawn up by partners. It will include
details of finance, profit, holidays and salary entitlement.
Legally registered companies (corporations) are separate legal
identities. This means that the company, not the owners is liable for
all its debts.
A dividend is a proportion of profits paid to shareholders in return
for their initial investment
The proportion of sales a business has within the industry in which
it operates
A business that seeks to raise income which it invests in a specific
social or environmental issue.
Anybody who has an interest in what a business does
These are businesses that sell goods that other businesses use to
make their own products
How many did you get right?
/ 33
Needs, wants and opportunity cost
Concepts of needs, wants, scarcity and opportunity cost
A Need is a good or service essential for living.
A want is a good or service which people would like to have, but which is not essential for living.
People’s wants are unlimited.
Economic problem:
There exists unlimited wants but limited resources to produce the goods and services to satisfy
those wants. This creates scarcity.
Factors of production:
Resources needed to produce goods or services. There are four factors of production and they are in
limited supply. Land, Labour, Capital and Enterprise.
Opportunity costs:
The next best alternative given by choosing another item.
Importance of specialisation
Specialisation occurs when people and companies concentrate on what they are best at.
Division of Labour is when the production process is split into different tasks and each worker
performs one of these tasks. It is a form of Specialisation
Advantages
Higher productivity
Workers become highly skilled
Less waste
Disadvantages
Staff absence (No cover)
Can lead to de-motivation (Boredom)
Lack of job-satisfaction
Purpose of business activity
Products: You can see and touch and take home. This means they are tangible.
Services: These are provided and we receive them but we don’t physically take them home
or wear them. This means they are intangible
Split the businesses above into products and services
Products
Services
Diversification:
Many modern businesses today combine their activities and have diversified
This means that they have enlarged AND varied the products/service they offer.
Explain two reasons why Apple has diversified its product and
service range?
(6 Marks)
Reason 1:
Explanation: For example
This could lead to
Reason 2:
Explanation: For example
This could lead to
(Answers below)
The concept of adding value and how added value can be
increased
Adding value = the difference between the selling price of a product and the cost of bought
in materials and components.
How can we add value?
•
Improve the packaging / Brand
•
Offer better quality
•
Increase convenience
•
Improve customer service
•
Add ingredients
Explain two ways a small takeaway can add value (4 Marks)
Way 1:
Explanation
Way 2:
Explanation
(Answers below)
Classification of businesses
Primary, secondary and tertiary sectors (also known as stages of
production)
Primary sector – extracts and uses the natural resources of the earth to produce raw
materials used by other businesses.
Secondary sector – manufacture goods using raw materials provided by the primary sector.
Tertiary sector – provides products/services to consumers and other sectors of the industry.
Private sector and public sector in a mixed economy
Public Sector (Schools, Police, NHS) – To provide the best possible service to the population
they serve.
Third Sector (Oxfam, Drop Inn) – To support the cause of the groups they represent.
Private sector (Costa, Cadbury’s, Coca Cola) – Profit maximisation.
Industrialisation – the growing importance of secondary sector business activity and the
reduced importance of primary sector business activity. Examples include China and India.
De-industrialisation – the growing importance of the tertiary sector and the reduced
importance of the secondary sector. Examples include the UK and USA.
Enterprise, business growth and size
Characteristics of successful entrepreneurs
Entrepreneurs
A person who organises, manages, and takes on the risks of a business.
Entrepreneurial Mind-set/Characteristics
Entrepreneurial Skills
Enthusiasm: They have an interest and
enjoyment in their product or service.
Resilience: They have a capacity to recover
quickly from difficulties.
Tenacity: They have the strength of will to keep
going regardless of setbacks.
Self-Motivation / Determination: They have the
drive to keep going even when things get
difficult.
Listening skills
Organisational skills
Planning skills
Financial skills
Business plans
A business plan is a detailed development plan for a business. It includes information about
the company’s:
•
Location
•
Ownership
•
Products/services
•
Resources
•
Production methods
•
Target market (Size, potential for growth)
•
Marketing
•
Aims and objectives
•
Financial details (Projected sales, revenue and profit. Cash flow forecast)
Advantages
Drawbacks
Helps you to decide whether to go ahead
with an idea
Estimate your start-up costs and how much
you’ll need to invest
Helps to convince investors to fund your
business
Identifies risks involved and how to solve
potential problems.
Start-up costs are only estimates and can
increase significantly
New competition might come into the
market after the business plan is written
Running costs can be significantly higher
than predicted
Explain two reasons why a business plan might be inaccurate (4
Marks)
Reason 1:
For example
Reason 2:
For example
Explain how a business plan can reduce risk (6 Marks)
Way 1:
For example
This could lead to
Way 2:
For example
This could lead to
(Answers below)
Why and how governments support business start-ups
TASK: (Cross out the one’s that aren’t real examples)
The importance of small businesses include:




They pay tax to the government
They offer employment
They provide more choice for the consumer
They borrow and save in banks
Measuring business size
Ways to measure business size:




Number of employees
Value of output (Overall worth of goods/services produced)
Value of sales (Revenue)
Value of capital employed (Spent on machinery & technology)
Why some businesses grow and others remain small
Growth
Horizontal integration - Is when one firm merges with or takes over another one in the same
industry at the same stage of production.
Backwards vertical integration - Is when one firm merges with or takes over another one in the
same industry but at an earlier stage of production
Forwards vertical integration - Is when one firm merges with or takes over another one in the
same industry but at a higher stage of production
Conglomerate integration - Is when one firm merges with or takes over a firm in a completely
different industry, this is also known as diversification.
Reasons for business growth





Increase market share
Increase publicity
To increase profits
To eliminate competitors
To benefit from economies of scale
Why some (new or established) businesses fail
Internal factors – are factors within a business that can be controlled by the organisation.
External factors– factors outside of a business that will have an impact on its success. These can be
positive or negative
Factor
Employee demotivation (Internal)
Poor leadership (Internal)
Poor management of cash flow
Increased national minimum wage
Increased interest rates
Inflation rises too rapidly
Increased competition
Fail to respond to new technology
Environmental changes
How it could lead to business failure
Productivity falls and thus costs rise
Reduce morale, poor communication, lack of
direction
Liquidity problems lead to the business being
unable to repay its short term debts
Increased labour costs, thus reduce profit
margins (If not passed onto consumer)
Cost of borrowing increases (increasing existing
debt repayments)
Raw material costs rise / natural resource costs
rise (petrol), if costs aren’t passed onto
consumer, profit margins will suffer
Reduces demand and thus revenues suffer
Fall behind competition and lose market share
May have to re-think production methods
which often comes with high costs
Types of business organisation
The main features of different forms of business organisation
Sole trader
A sole trader sets up a business on their own. However they can hire as many employees as they
wish to work for them. The sole trader is personally responsible for all of the businesses debts this is
called unlimited liability. They are often small companies but can grow to be quite big.
Partnership
A partnership consists of a minimum of 2 and a maximum of 20 partners. The partners usually set up
the business together and they have each invested money into starting the business and own a
financial share in the business. They often have unlimited liability.
Limited companies:
A ‘Company’ has its own legal identify, separate from that of its owners. The company can own
property, equipment and other goods in its own right and is responsible for its own debts.
Incorporation – When owners of companies have to complete various documents including a
‘memorandum of association’, ‘articles of association’ and register at the companies house.
Private limited companies tend to be smaller than public limited companies. The main shareholders
in a private limited company are often also the directors of the company.
Public limited companies often a large company; owned by shareholders who have limited liability.
They can sell its shares to the general public.
Franchise:
A franchise is a business that sells a product or service developed by someone else
A franchise has the right to sell or use another businesses format:




Ideas
Colours
Logo
Products
Joint ventures:
Advantages of joint ventures

Shared risk (costs)




Access to new knowledge and expertise
Access to greater resources
Increased capacity
Access to new markets
Disadvantages of joint ventures






Objectives of the venture could be unclear
Shared profits
Communication could break down
Partners could expect different things from the joint venture.
The level of expertise and investment might not be equally matched.
The work and resources may not be distributed equally
Explain two advantages of Sarah having a business partner (4
Marks)
Advantages 1:
Explanation:
Advantage 2:
Explanation:
Do you think that it would be a good idea for Sarah to expand
her business? (6 Marks)
Consider the advantages and disadvantages of converting a
partnership into a private limited company: Recommend
whether the partners should do this. Justify your answer. (6
Marks)
Business objectives and stakeholder objectives
Business Objectives – The aims or targets that a business works towards.
Reasons for business objectives:




Provide direction
Motivate workers
Provide accountability
Measure performance
The most common objectives for private sector businesses include:
Stakeholders:
Stakeholder – Anyone who has an interest in the business
Internal – Within the business
External – Outside the business
Stakeholder
Internal or
external?
Match the objective to the
stakeholder
Why the stakeholder is important
to the business.
Workers
Managers
Owners
Customers
Suppliers
Government
Local Community
ANSWERS
Key term
Definition
Scarcity
Needs and wants are greater than the resources available to satisfy
them.
What you have to give up/sacrifice in order to choose something.
(The next best alternative)
All natural resources used to make a product or service
Opportunity cost
Factors of production
Labour
Capital
Enterprise
Specialisation
Land
Secondary activity
The effort of workers required to make a product or service
Finance, machinery and equipment required to make a product or
service
Skill and risk-taking ability of the entrepreneur
Focus on one task. It is beneficial for workers because it will mean
reduced errors if workers know what they are doing
Involves the earth´s natural resources (raw materials). Examples
include farming, fishing, forestry, extractions.
Involves taking natural resources and converting them into
manufactured and processed goods. E.G. building/construction
Tertiary activity
Involves providing services/goods to both consumers and other
businesses. Examples include transport, banking, and hotels.
When all resources are owned privately. The government has no
Free economy
control over the factors of production.
Where government plans and controls use of resources. They
Planned economy
decide everything, where people work and what they do.
Where features from both free and a planned economy are
Mixed economy
combined. Most countries of the world have this type with a public
and private sector.
A business that is owned and controlled by just one person who
Sole trader
takes all of the risks and receives all of the profits
A business formed by two or more people who will usually share
Partnership
responsibility for the day-to-day running of the business.
Often a small to medium-sized company, owned by shareholders
Private limited
who have limited liability. The company cannot sell its shares to the
company (Ltd)
public only to those that are invited.
Public limited company Often a large company; owned by shareholders who have limited
liability. They can sell its shares to the general public.
(PLC)
Franchise
Private sector
Public sector
Third sector
Joint venture
Business plan
Business size
Internal growth
External growth
Deed of partnership
Limited liability
Dividend
Market share
Social enterprise
Stakeholder
Supplier
A business system where entrepreneurs buy the right to use to the
name, logo and product of an existing business.
Formed of businesses aim to make profit
They are often run and funded by the country’s government. E.g
police, education and military
Non-For profit / Charities
Two or more businesses agree to work together on a project and set
up a separate business for this purpose.
A written document that outlines the aims and vision of a business
and the plans to achieve it. This can be used to attract investors
How a business is measured. This could be in terms of profit, value,
number of employees or turnover
This occurs when a business opens new outlets or factories or
moves into new markets abroad
This happens when a business buys another business through a
takeover or a merger
A legally binding document, drawn up by partners. It will include
details of finance, profit, holidays and salary entitlement.
Legally registered companies (corporations) are separate legal
identities. This means that the company, not the owners is liable for
all its debts.
A dividend is a proportion of profits paid to shareholders in return
for their initial investment
The proportion of sales a business has within the industry in which
it operates
A business that seeks to raise income which it invests in a specific
social or environmental issue.
Anybody who has an interest in what a business does
These are businesses that sell goods that other businesses use to
make their own products
Explain two reasons why Apple has diversified its product and
service range? (6 Marks)
Reason 1: Spread risk (K)
Explanation: For example by offering more products such as the IPhone and ear pods. (app)
This could lead to less chance of business failure (an)
Reason 2: Increased revenue (K)
Explanation: For example through the sales of its Apple TV stream (app)
This could lead to higher profit margins (an)
Explain two ways a small takeaway can add value (4 Marks)
Way 1: Delivery service
Explanation: For example deliver its pizza’s and kebab’s up to a 5 mile radius (app)
Way 2: Offer better quality (K)
Explanation: For example, use better meat in its food products (app)
Explain two reasons why a business plan might be inaccurate (4
Marks)
Reason 1: Costs are estimates (k)
For example: fixtures and fittings maybe more expensive than predicted (app)
Reason 2: Competition could enter the market (K)
For example: New competitors could affect the predicted revenues (app)
Explain how a business plan can reduce risk (6 Marks)
Way 1: Estimates start-up costs (K)
For example: Stock, fixtures and fittings and insurance (app)
This could lead to: Managing your cash flow more effectively (an)
Way 2: Helps decided whether your idea if achievable (K)
For example: A business will get feedback from banks and investors (app)
This could lead to: Expert knowledge on whether the idea could be a success or not, thus
reducing the risk of failure (an)
Explain two advantages of Sarah having a business partner (4
Marks)
Advantages 1: Shared decision making (K)
Explanation: For example in relation to which town or village to open the new nursery (app)
Advantage 2: Shared costs
Explanation: For example when purchasing stock for the nurseries (app)
Do you think that it would be a good idea for Sarah to expand
her business? (6 Marks)
Argument for is increased revenue (K) this could lead to a larger market share and thus increased
profit margins (an)
Argument against is its high risk (K) as they don’t benefit from limited liability (an)
Judgement – Reason to expand, benefit from greater economies of scale (lower average costs) and
thus increased profit margins. However, it depends on the population of the new locations and
whether they can attracts enough children. (EV)
Consider the advantages and disadvantages of converting a
partnership into a private limited company: Recommend
whether the partners should do this. Justify your answer. (6
Marks)
Argument for is limited liability (K). This will allow Dmit to take more risks and invest in growth, thus
benefiting from greater economies of scale (an)
Argument against is the extra costs (K) as more legal requirements (an)
Judgement – Depends on the ambition of the partners. They are already successful, so they might
not want to take the risks and compete against larger retailers (EV)