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| Question | Answer |
| Define Wealth creation | Businesses create wealth because business activity is any activity that results in goods and services being produced in order to satisfy consumer wants and needs. Every business adds value to goods and services. This creates wealth. Businesses also create wealth because: they buy services, materials and components from other businesses, they pay wages and salaries to their employees and they share their profits amongst their owners |
| Define cycle of business | The constant production of goods and services by businesses in order to satisfy consumers’ wants and needs is known as the cycle of business |
| Define production and consumption | Production is the making and creating of goods and services by businesses. Consumption involves using these goods and services to satisfy our wants and needs. In order to satisfy their wants and needs consumers use (consume) goods and services. |
| Define IPO | input involves all the resources required to make the product and the labour, process involves combining the resources to make a product and output involves selling the product |
| Define Value added | At each stage of the production process value is added. Adding value involves making a product more desirable to a consumer so that they will pay more for it. For example, if the sawmill buys in trees for £10,000 and sells them on for £25,000 it will have added £15000 worth of value to the trees. Value added = value of outputs less value of inputs |
| Identify and describe the 4 factors of production that businesses need in order to supply customers with goods and services | • Land- refers to the natural resources used in the production process. Examples of land include oil, water and land itself. • Labour- refers to the human resources used in the production of goods and services. Examples of labour are lawyers and builders. • Capital- refers to the man-made resources used in production such as machines, tools and buildings. • Enterprise- refers to the activities of the fourth factor of production - the entrepreneur. The entrepreneur is the person who has the initial business idea, brings together all the other factors to produce the good or service, organises finance for the business and takes the risks of the business venture |
| Identify and describe the 3 sectors of activity | • Primary Sector- The primary sector is the first stage in the production process. It involves extracting natural resources from the earth, sea and air and the growing of food and other crops • Secondary sector- Involves the manufacture of materials, components and goods and involves the processing of raw materials into finished goods. • Tertiary sector- The tertiary sector involves the production of services. This means that Tertiary Sector businesses provide customers with a service e.g. hairdressing, banking, hotels and transport such railways and bus companies. It also means that the tertiary sector provides intangible items such as financial advice. Services are provided for us by others. |
| Suggest an example of an organisation and an activity in each sector | • Primary sector- Agriculture, forestry, fishing, mining and oil extraction are primary sector activities • Secondary sector- Manufacturing, construction and the supply of electricity, gas and water are secondary sector activities • Tertiary sector- An organisation in the tertiary sector is Craigmount High school and an activity is nursing. |
| Identify and describe the 3 organisational sectors | The private sector of the economy consists of all businesses privately owned by individuals whose main aim is to survive and make a profit. Public sector organisations are owned and controlled by the government and are run by the government for the benefit of the general public. The voluntary sector is the sphere of social activity undertaken by organizations that are non-profit and non-governmental. This sector is also called the third sector. |
| Describe a sole trader | A Sole trader is a business which is owned and controlled by one person. The Sole Trader is an unincorporated business. This means that there is no legal difference between the owner and the business. Examples of Sole traders are newsagents and window cleaners who are self-employed. |
| Describe/ Explain 2 advantages and 2 disadvantages of being a sole trader | Advantages • There are no complicated legal formalities to go through. This means that it is fairly easy and not very expensive to set up as a sole trader. • The sole trader is the only owner of the business. This is an advantage because they can make all of the decisions and do not have to share their profits. • There is no need to consulting others. This means that decisions can be quickly made. • The owner does not have to share the profits with anyone else. This means the owner is rewarded for taking the risks of business. Disadvantages • The owner faces unlimited liability. This means the owner is personally liable should the business fail. • It may be difficult for the sole trader to raise finance. This means it will be difficult to expand the business. • There is no one to share the responsibilities and risks of business with. This means that the owner has a difficult job as they have many responsibilities and will find it difficult to take time off. |
| Describe a partnership | A partnership involves between 2 and 20 people combining their finances and expertise in a business venture. This means that they run the business with joint powers and responsibility. The partners make decisions and share profits according to the legal terms of the partnership. |
| Suggest an objective for a partnership | An objective for a partnership could be to increase their share of the market. |
| Describe/ explain 2 advantages and 2 disadvantages of a partnership Advantages | Advantages • Workload and responsibilities can be shared. This may reduce stress and lead to better quality decision making. • Partners are in a stronger position than a sole trader would be to raise finance. This means that more finance is available which will allow them to buy more resources and to expand Disadvantages Profits have to be shared between the partners. This means that a partner may receive a lower reward for success than a sole trader. • General Partners have unlimited liability. This means that their personal possessions are at risk of being claimed if debts arise. |
| Explain 2 reasons why a sole trader may choose to become a partnership | A sole trader may chose to become a partnership rather than a company. This is because there will be no need to give dividends out to shareholders as profit only needs to be distributed between the partners. The sole trader has sole responsibility for the business. Forming a partnership means that the partners can share opinions, workload, stress; increase the capital available and each can introduce new skills and specialisations into the business. |
| Define a franchise | A franchise is a business agreement that allows one business, the franchisee, to use another business’s name and sell the other business’s products or services. This means that the franchisee has to pay the franchiser a percentage of annual sales or a set royalty each year in order to use its name and sell it products/services. |
| Describe/ explain 2 advantages and disadvantages for the franchisee | Advantages The Franchiser may advertise nationally. This means that little or no advertising needs to be done by franchisee. The franchiser might carry out training and administration. This will reduce the franchisee’s start-up costs. Diadvantages Products, selling price and store layout are dictated by the franchiser This means that there is no flexibility and the initiative of the franchisee is stifled. The franchisee has to pay the franchiser a percentage of annual sales or a set royalty each year to use its name and sell it products/services. This means a reduction the franchisee’s profits. |
| Describe/ explain 2 advantages and disadvantages for the franchiser | Advantages The franchiser’s business can expand without the owners having to invest the finance required. It provides the franchiser with a regular, guaranteed income. Disadvantages A franchisee may not keep to the image or standards set. The reputation of the whole franchise is dependent on individual franchisees therefore the whole organisation can be damaged by one branches problems. |
| Describe a private limited company | A private limited company is a business whose shares are owned privately. This means that their shares are not available on the Stock Market and tend to be issued to family members and friends. It has a minimum of one shareholder. It is owned by the shareholders and is run by a director or board of directors. |
| Explain/ describe 2 advantages and disadvantages of becoming a private limited company | Advantages Shareholders face limited liability. This is an advantage because if the company fails shareholders will only lose the amount they have invested. The consent of the companies directors is required before shares can be sold. This is an advantage as outsiders find it very difficult to take control of a private limited company. Disadvantages Limited companies cannot sell their shares to the general public or the financial institutions. This is a disadvantage as raising finance to expand can be more difficult than it is for a Public Limited Company |
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