Chapter 1 basics

Chapter 1 basics

Adding Value
1. The difference between the cost to produce and the selling price as a product moves through chain of production a product is changed and thereby the price of the product increases
Scarcity and Choice
1. All things are scarce (except the air). There is a limit to how much we can have. As a result people, businesses and consumers must make choices. In business these choices based on scarcity are called Opportunity Costs.
Opportunity Costs
1. All people and businesses have wants and needs.
2. A need is something that is considered essential and a want is something that would be beneficial but we could do without.
3. However all goods and services are scarce – i.e. There is not an unlimited supply of everything and as such everyone has to make choices. Making a good choice will however mean that you will give up one thing in favour of getting another. This is known as an opportunity cost.
Production
1. Production is all activities that help to provide goods and services that people want or need.
2. Factors of Production
  1. Land
    1. This can be rented or bought. It also includes natural resources such as oil, forests, and rivers.
  2. Labour
    1. This includes all the people who are paid for their services and also people who offer their services for free
  3. Capital
    1. These are the physical equipment, tools and machinery needed to run the business. Capital also includes money that is used to set the business up.
  4. Entrepreneurial Skills:
    1. This is the person who develops the business idea and runs the business. An entrepreneur takes the risks, has the ideas and reaps the rewards through profit
  5. All of the factors of production work together to allow the business functions to happen. Business functions include o Production o Research & Development o Finance o Marketing o Administration o Human Resources. When these come together the business is able to produce the goods or services that it set out to achieve.
Goods And Services
1. Consumer Goods:
  1. These are goods that are provided for the general public. Consumer goods fall into two categories: Durable goods and non-durable goods.
2. Durable Goods:
  1. Goods that are used repeatedly over a period of time. Although they will eventually need replacing through wear and tear they are not used up.
3. Non-Durable Goods:
  1. Goods that are used up and need replacing. In the shops these are known as “fast moving consumer goods”
4. Capital Goods.
  1. These are goods purchased by businesses to produce the goods or services that they will eventually sell. Capital goods are one of the factors of production.
5. Many goods fall into different categories depending on where they are in the production chain.
6. Services
  1. includes all businesses providing services to industry such as selling (a restaurant will buy meat form a butcher), to transport (a manufacturer needs to get its products to their customers either at home or abroad), banking and insurance and tourism.
Sectors of Production
1. Primary production means work that gets natural resources from the land or sea.
  1. Primary industry is sometimes known as the extractive industry
2. Secondary Production means work that turns natural resources into finished goods
  1. Secondary industry is sometimes called manufacturing and construction industry
3. Tertiary production means work that provides services rather than goods.
  1. The tertiary industry can also provide a service to the other twos sectors of production.
4. Industrialisation and De-Industrialisation
  1. Industrialisation is when a country experiences an increase in secondary production.
  2. De-industrialisation is when a country experiences a decline in secondary production.
Sectors of Industry
1. The Private Sector
  1. includes goods and services provided by businesses that are aimed mainly at making a profit.
  2. The business owners are either individuals (sole traders), small groups of business people (partners) or business people who join together to form a joint stock company
2. The Public Sector
  1. includes goods and services provided by the government
  2. These goods and services may be supplied either for a profit or not for a profit
3. Not for profit public sector goods:
  1. Some goods are provided by the government because they are considered general needs that will benefit everyone but if left to the private sector they either would not be provided or would be too expensive for many people to buy.
4. For profit public sector goods:
  1. For profit businesses that are owned by the government will either be useful to the government because it employs lots of people and so keeps unemployment down Usually the government will out such a business that looks like it could go bust and will then sell it back to the private sector when the business is considered to be a “going concern”
5. The Voluntary Sector
  1. Non-Governmental Organisation (NGO) or charitable sector
    1. These organisations exist to raise money for good causes or draw attention to the needs of disadvantaged groups in society. Examples include AIDS charities, The Red Cross and Oxfam. The aim of this sector is to run with minimal costs and to pour as much of the funding into helping the charity. Many staff will therefore work for free, although larger organisations will employ administrators or many pay survival wages to some staff. In some countries Non Government Organisations (NGOs) will exist to ensure that funding that is donated goes to the intended cause.
Business growth and measurement of size
1. Growth and Measurement of Size
  1. The growth of a business is when it expands in size.
    1. The size of a business can be measured by the following means: · Sales turnover (or sales revenue) · Number of employees · Market share · Number of outlets (e.g. shops) · Profit
2. Businesses either grow organically or externally
3. Organic growth
  1. the business grows by expanding its sales or their operations and is financed through its own profits.
4. Acquisitions and mergers
  1. when the business joins or buys other businesses, not necessary of the same type.
5. Businesses may wish to expand for the following reasons: 1. Economies of scale 2. Increased market share 3. To survive a very competitive market.
6. A business can grow organically in the following ways: a) Lower price b) Increase advertising c) Sell in different location d) Sell on credit
7. Mergers and Acquisitions
The role of Business
1. a business aims to meet the needs and wants of individuals or organisations through:
2. producing or extracting raw materials from the earth
3. creating a product providing a service
Chapter 1
1. Barter
  1. to exchange and get what you want
2. Supply and demand
  1. demand is when you have to have it
  2. the price goes up where there is a limited amount
  3. the supply will meet the demand at one point
  4. or the demand will go down and meet the supply
3. Scarcity
  1. when there are limited resources, therefore people must make choices
4. Luxury
  1. When you want something but do not need it.
5. Producer
  1. anyone who makes a good or service
6. Consumer
  1. someone that has to consider how they will spend money
7. Opportunity cost
  1. consider how you will spend an amount of money
8. Business Functions and role of business departments
  1. functions carried out by departments that work together to achieve the objectives of the business
  2. internal and external factors determines the ability of the business to reach their goals and objectives
9. Sectors of business activity
  1. Holding companies
    1. A company that owns and controls a number of separate businesses yet does not unite them into one company.
    2. Different market with diversified interests.
    3. Possibility of centralized control from the directors of the holding company.
10. Legal formalities in setting up a company
  1. Name of a company Address of the head office Maximum shared capital for which the company seeks authorization. Articles of association concerns with the internal working and control of the business. PLC providing evidence that they have share capital of at least $50

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	Created by Nathalia Maria Veit over 8 years ago