Enterprise, Business & the Economy

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  • Enterprise, Business & the Economy
    • Role of an entrepreneur in the economy
      • Creative destruction
        • Technological change can result in improvements in efficiency & productivity
          • Could lower costs of production for firms
          • Quality & quantity of goods & services produced might improve
          • E.g. mobile phones > cheaper to produce - why price has fallen, quality significantly improved
            • Due to improvements in technology
          • Can lead to development of new markets & products, destroy existing markets
            • E.g development of DVDs & blu-rays & rise in downloadable films, destroyed market for VHS tapes
          • Creative destruction linked with technological change
            • Schumpter (economist) proposed 'creative destruction'
              • Idea new entrepreneurs are innovative - challenging existing firms
                • More productive firms = grow
                • Least productive = forced to leave market
                  • Results in expansion of the economy's productive potential
                    • More productive firms = grow
      • Making decisions to operate, expand & develop a business
        • Entrepreneurs create ideas & put them into action by taking risks
          • Have to consider what best steps are for a business
            • Might consider past mistakes, potential profitability & potential gaps in the market
            • Also depends on personal circumstances
              • Consider what capital they might have to give up for a business
          • Could expand business by widening product range, merging or taking over another firm or employing more workers
      • Adding value
        • selling output for more than the cost of inputs
        • Incentive for taking risks is profit
          • Want to avoid loss & gain profit - makes them want to innovate
            • Can reduce production costs & improve quality of their products
          • Profit as an incentive
            • Want to avoid loss & gain profit - makes them want to innovate
              • Can reduce production costs & improve quality of their products
            • Entrepreneurs bring together factors of production to make profit
              • Land
              • Labour
              • Capital
              • Enterprise
    • Entrepreneurial motives
      • Profit as an incentive
        • Entrepreneurs bring together factors of production to make profit
          • Land
          • Labour
          • Capital
          • Enterprise
      • Non-financial motives
        • Ethical stance & social entrepreneurship
          • Could be motivated by their will to have an impact in the world
            • Could develop product which increases standard of living
            • Personal legacy
        • Independence & working from home
          • Flexibility = incentive - freedom
    • Factors of Production
      • Entrepreneurs bring together the factors of production to make a profit
      • CELL
        • Capital
          • Physical goods which can be used in production process
            • Interest from the investment
              • Fixed: Machines, buildings
              • Working: finished or semi-finished consumer goods
          • Fixed: Machines, buildings
          • Working: finished or semi-finished consumer goods
        • Entrepreneurship
          • Managerial ability - takes risks, innovates & uses FOP
            • Profit - an incentive to take risks
        • Land
          • Natural resources like oil, water
          • Also physical space for fixed capital
            • Rent
              • Natural resources like oil, water
        • Labour
          • Human capital - workforce in the economy
            • Wages
    • Specialisation
      • Occurs when each worker completes a specific task in a production process
        • Increased advantage of increased efficiency & lower average costs of production
      • Advantages
        • Higher output & potentially higher quality - focuses on what best at
        • There could be greater variety of goods & services produced
        • More opportunities for economies of scale - market size increases
      • Disadvantages
        • Work becomes repetitive - lower the motivation of workers - affecting quality & productivity
          • Could become dissatisfied
        • Could be more structural unemployment, since skills might not be transferable
        • Producing a lot of 1 type of good through specialisation - variety could decrease
        • Could be higher worker turnover for firms - means employees become dissatisfied with jobs & leave regularly
    • The wider economic environment
      • Interest Rates
        • Increase - makes more expensive to take out loan & borrow money - result in fall in spending & investment
          • Encourages saving, reward for keeping money in the bank is higher
            • Firms could have lower profits & make fewer sales
      • Exchange Rates
        • Depreciation in the £ means UK exports become more price competitive
          • Could reduce £ of good being exported ti increase sales, or keep same price to increase profit margins

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