PRACTICE BUSINESS TEST

Business Activity:
The process of producing goods and services to satisfy consumer demand.

Need:
A good or service which is essential to living

Want:
A good. Or service which is people would like, but is not essential for living.

Economic problem:
Unlimited wants cannot be met because there are limited factors of production. This
creates scarcity.

Scarcity:
There are not enough goods and services to meet the wants of the population

Opportunity cost:
The benefits that could have been gained from an alternative use of the same resources

Factors of productions:
The resources needed to produce goods and services- Land, labour, capital and
enterprise.
- Land Is all-natural resources such as minerals, ores, fields, oil and
forest
- Labour Is the number of people available to work
- Capital Is machinery, equipment and finance needed for production
of goods and services
- Enterprise Is people prepared to take risk of setting up business- they
are known as entrepreneurs

Specialization:
People and business concentrate on what they are best at.

Division of labour:
Production is divided into separate tasks and each employee does just one of those task.

Consumer goods:
Products which are sold to the final costumer. They can be seen and touched for
example computers and food.
Consumer goods:
Nontangible products such as insurance services, transport, etc.

Capital goods:
Physicals goods such as machinery and delivery vehicles, used by other business to help
produce other goods and services.

Durable goods:
These are goods that can be used over and over

No durable goods:
These are goods that can only be used once.

Adding value:
Selling a product for more than it cost to make it. -Example, Jeans-

Added value:
The difference between the selling price of a product and the cost of bought in
materials/ components.

2 WAYS TO INCREASE ADDED VALUE:

- Reduce cost
- Good customer service
- Increase price selling

Primary sector:
Firms whose business activity involves the extraction of natural resources.

The primary sector includes all those activities the end purpose of which consists in
exploiting natural resources: agriculture, fishing, forestry, mining, deposits

Secondary Sector:
Firms that process and manufacture goods from natural resources

The secondary sector covers all those activities consisting in varying degrees of
processing of raw materials (manufacturing, construction industries).

Tertiary sector:
Firms that supply a service to consumers and other business.

Chain of production:
The production and supply of goods to the final consumer involves activities from
primary, secondary and tertiary sector business.
Industrialization:
The growing importance of secondary business activity and the reduced importance of
primary business activity.

Mixed Economy:
An economy where the resources are owned and controlled by both the private and the
public sectors.

Private sectors:
The part of the economy that is owned and controlled by individuals and companies for
profits.

COMMON OBJECTIVES OF BUSINESS THE PRIVATE SECTOR:

- Generate profits.
- Reduce costs

Public sector:
The part of the economy that is controlled by the state or government. Example,
education, security, hospitals, etc.

COMMON OBJECTIVES OF BUSINESS THE PUBLIC SECTOR:

- Provide services
- Create jobs

Entrepreneurs:
An individual who has an idea for a new business and takes the financial risk of starting
and hanging it

WHY BECOME AN ENTREPRENEURS?

- Be your own boss

- You can keep all the profits
- You have the control of everything

Business enterprise:
An organization set up for the purpose of carrying out business activities.
SUCCESFUL ENTERPRENEURS:

- Self-confident
- Leadership qualities

Business plan:
A detailed written document outlining the purpose and aims of a business which is often
used to persuade lenders or invertors to finance a business proposal.

MAIN SECTIONS OF BUSINESS PLAN:

- Marketing
- Financial

Revenue:
The amount business earns from the sale of its products.

Business start-up:
A newly formed business. They usually start small, but some might grow to become
much bigger.

WHY DO GOVERNMENTS HELP START-UPS?

- To improve taxes
- Small business can grow

WHY DO SOME BUSINESS GROW?

- Increase profits
- Increase customer base
- Increase market share

Internal / Organic growth

Expansion of a business by means of opening new shops, ect

Internal growth
- Developing new products
- Buying more machinery
ADVANTAGES OF INTERNAL GROWTH:

- Easier to manage
- Relatively low risk

PROBLEMS CAUSED BY INTERNAL GROWTH:

- Communication problems
- Overtrading, to much work
- Can be expensive

External growth integration:

When a business merges with or takes over another business in the same or different
industry.

Mergers:
This is where a business agrees to become integrated to form one business under joint
ownership
-The managers of both businesses will make decisions together

Takeover;
This is where one business buys another business
-The manager of the dominant business will be in control

BENEFITS OF MERGERS AND TAKEOVERS:

- Gain knowledge
- Benefits from economies of scale
- Increase market share by removing competitors

PROBLEMS CAUSED BY MERGERS AND TAKEOVERS:

- May have to close shops

- Takeovers can be expensive
- Difficult to control
WHY DO BUSINESS REMAIN SMALL?

- Owner preference
- Market size

BENEFITS OF BUSINESS REMAINING SMALL?

- Strong relationship with customers

- Easier to control

DISADVANTAGE OF BUSINESS REMAINING SMALL?

- Unable to generate large amounts of capital

NEGATIVES OF BUSINESS GROWTH:

- Lack of finance
- Poor communication
- Competition