Enterprise

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Vocab.:

Consumer goods: the physical and tangible goods sold to the general public-they include durable consumer goods, such as cars and washing machine, and non-durable consumer goods, such as food, drinks and sweets that can be used inly once

Consumer services: the non-tangible products sold to the general public-they include hotel accommodation, insurance services and train journeys

Capital goods: the physical goods used by industry to aid in the production of other goods and services such as machines and commercial vehicles

Creating value: increasing the difference between the cost of purchasing bough-in materials and the price the finished goods are sold for

Added value: the difference between the cost of purchasing bought-in materials and the price the finished goods are sold for

Opportunity cost: the benefit of the next most desired option which is given up

Entrepreneur: someone who takes the financial risk of staring and managing a new venture

Social enterprise: a business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximizing returns to owners

Triple bottom line: the three objectives of social enterprises: economic, social and environmental

1.1. What do businesses need to produce goods and services?

Factors of production: the inputs that are used in the production process to produce goods and services

Land – not only land itself but all of the renewable and non-renewable resources of nature, such as coal, crude oil and timber

Labour – manual and skilled labour make up the workforce of the business

Capital – not just the finance needed to set up a business and pay for its continuing operations, but also all of the man-made resources used in production. These include capital goods (e.g. computers, machines, factories, offices and vehicles

1.2. The concept of creating or adding value

There are different ways through which businesses can add value to their products and services.

Creating a brand: Brands represent quality and sometimes status. Consumers are prepared to pay more for products that have a strong brand attached to it. Why does a pair of Nike sell costlier than its counterpart Puma, though the cost of production may not be much different.

Advertising: Through advertising the business can create a strong brand loyalty among its customers and in the process charge more for its goods or services.

Providing customised services: Business providing better quality-personalised services to their consumers adds more value. Consumers are willing to pay a little extra for customised services

Providing additional features: A product or service with additional features or functionality can make the consumers pay extra. This is very often seen in different version of a car model. Toyota has 12 versions of its Innovation model. The basic engine and build is the same, but the price increase as additional features are added.

Offering convenience: Consumers love convenience. If you get a product or service without much effort then you might happily pay a premium for it. For example, free home delivery of your weekly grocery.

Benefits to a business of adding value

There are a number of benefits a business derives through adding value to its products or services.

First of all, it can charge more to its customers. This leads to more profitability for the business in the long run.

A business can differentiate itself from its competitors. By adding more value to its goods or services a business can stand out among its competitors as producer providing superior or premium quality.

A business can save the cost on advertising and other promotional activities once it has created a perception of high quality and brand loyalty among its customers. Thus, adding value helps cost cutting in the long run.

1.3. Economic activity and the problem of choice

We have unlimited Needs and wants and there are limited resources. In economic terms we say the resources are scarce. Scarcity refers to the fact that people do not and cannot have enough income, time or other resources to satisfy every desire. Faced with this problem of scarcity, human beings, firms and governments must make a choice.

Problem of choice: businesses must make a choice on how to use scarce resources to fulfil their wants. Business must choose on whether to use labour or capital to produce their products. The business must also choose the types of goods to produce. When something else is chosen, it means something else is given up (sacrificed). Thus choice leads to opportunity cost.

Opportunity Cost-: this is the next best choice given up in favour of the alternative chosen from two choices.

1.4. The role of the entrepreneur

Had an idea for a new business

Invested some of their own savings and capital

Accepted the responsibility of managing the business

Accepted the possible risks of failure

1.5. Characteristics of successful entrepreneurs

Innovation: