Business and Economics Unit 1


Characteristics of Entrepreneurs

Entrepreneur  -   A person who is will to take all the risks involved in setting                                            up a business.

C reative - need to have good original ideas

H ardworking - willing yo work long hours or carry out difficult tasks

R esilience - ability to withstand or recover from difficult situations

I nitiative - see and seize every oppurtunity to advance the business

S elf-confident - believing in your own ideas / abilities

T aking Calculated Risks - estimating the probability of success or failure

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Leadership Styles

Autocratic - makes and takes all decisions without consulting employees. One way                     communication.

+ useful for guiding new employees, swift decision making can be crucial in a crisis

-  staff may resent it and become de-motivated


Democratic - guides rather than dictates, two way communication. Tasks most likely to be delegated. 

+  Consultation increases motivation, all ideas considered

- lengthy decision making, not necessarily the best decision could be made.


Paternalisitic - parent figure, some consultation, takes final decision themselves.

+ some consultation, needs of staff looked after 

- still mostly autocratic

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McGregor's Theory X and Y

Theory X manager assumes - 

  • The average person dislikes work
  • They will avoid work unless directly supervised, controlled and directed
  • Threat of punishment must exisy
  • People are relatively unambitious



Theory Y manager assumes -

  • The average person enjoys work
  • They can be self motivated and work without supervision, no need to be controlled / directed
  • Respond well to praise and incentives
  • People are ambitious
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Identifying a Business Opportunity

Demand Curve -

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.Supply Curve - 

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Causes of Supply Curve and Demand Curve Shifts


  • Change in costs 
  • Imposition of a tax
  • New technology
  • Change in size of the industry
  • Natural phenomena



  • Changes in income
  • Changes in population
  • Advertising
  • Changes in the prices of other goods such as 

1. Substitutes - goods that can be consumed in place of one another

2. Complements - goods that are normally consumed together

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Market and Product Orentation

Market Orientation - business focuses its activities, products and services around the wants and needs of the customer 

+ produces a product/service the customer wants and will therefore buy

+ competitive advantage, brand loyalty may be created



Product Orientation - business will focus its effort on creating the product rather than responding to market preferences

+ More unique products with high quality

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Market Research

Primary (Field Research) - First hand information that has not been collected before.

  • Can be specific to suit the purpose
  • Up to date and directly relevant
  • Not available to competitiors
  • Can be expensive
  • Can take a long time
  • Can be biast


Secondary (Desk Research) - Second hand information, already gathered.

  • Quick
  • Cheaper than primary
  • May not be specific
  • Can be dated
  • May not be accurate
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Sampling ( Market Research )

Random Sampling - group of people to be representive of the population as a whole. completely random choosing e.g. pick addresses at random etc.

  • Can be effective and accurate
  • Needs a large sample size to be accurate
  • Can be expensive


Stratified Sampling - Targeting one particular segment of the market you are researching. 

  • Targets market effectively 
  • More complex to organise and analyse results


Quota Sampling - Segmenting the market into groups that share specific characteristics.

  • Cheap and effective sampling
  • Need to be careful drawing up quotas to avoid bias
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Market size - total sales of all the businesses in that market added together

Market share (individual business) - total sales as a percentage of the overall market

Mass market - very large market with a high value of sales by volume

Niche market - small part of an overall market that has certain special characteristics


Market segmentation - dividing the market into groups of consumers with similar characteristics

  • more likely a sale will be made
  • Encourages the devlopment of brand loyalty
  • Can be expensive to research and identity different segments


Market positioning - how individual products or brands are seen in relation to their competition by the consumers

Product Differentiation - businesses make their product a little different from competing products

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Markets 2

Market mapping - use of a grid showing two features of a market.

  • enables a business to spot gaps in the market
  • help business to differentiate its product from the competition


  • Identifying a gap does not mean there is a need for a product to fill it


Adding value - altering the product so it increases its value to the customer

Product trial/ Test marketing - lauching the product on a limited scale in a representative segment of the market to measure initial reactions.

Opportunity cost - cost of the next best alternative that has been sacrificed

Trade off - where more of one thing leads to having less of another

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Economic Considerations - Unemployment

Unemployment - number of people able and willing to work but can't find a paying job

Rising unemployment

  • Demand for businesses that sell luxury items may fall
  • People may switch to cheaper substitutes
  • Wages less likely to increase as there is more competition for remaining jobs
  • Easier to recruit employees and easier to find people with skills that are normally scarce.


Falling unemployment

  • Demand for business that sell luxury items may increase
  • Fall in demand for cheaper substitutes
  • Wages more likely to increase
  • Harder to recruit employees and harder to find people with the right skills
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Economic Considerations- I, I, E

Inflation - sustained increase in the average price level of a country; fall in the value of money. May mean that costs of supplies and wages are rising.

CPI (Consumer Price Index) - measures inflation based on price changes of a wide range of goods and services thought to be typical of the 'average consumer'

RPI (Retail Price Index) - includes mortage interes payments and council tax

Interest rate - price of borrowed money

Interest rates increase

  • businesses less likely to borrow money to expand and fewer new businesses starting
  • consumers less likely to borrow money, spending credit cards likely to reduce, mortgage repayments will increase leaving less disposable income for other spending.

Interest rates decrease

  • investment may increase, existing businesses may expand, new businesses may start up
  • consumer spending may increase as cheaper to borrow money. mortgage repayments may decrease leaving more disposable income for other spending

Exchange rate - price of one currency expressed in terms of another

S P I C E D and W P I D E C 

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Finance Source - Internal

Businesses need finance for:

  • Start-up costs
  • Day to day
  • Expansion

Internal Sources                                                                                                  bghhjOwner's equity - the money that the owner have available to put into the business         

  • does not have to be repaid (no interest)  
  • owner may lose all their saving                            
  • -best for starting a business-

Retained profit - money that's left after all deductions have been taken from total sales revenue does not have to be repaid (no interest)  

  • can be limited, not available for new business          
  • -best for expansion of the business-

Sale of assets - selling assets (things of value) in order to raise money

  • does not have to be repaid (no interest), good to dispose of underused assets             
  • sold assets may be useful in the future                                                                          
  • -best for raising money quickly-
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Finance Source - External

External Sources

Trade credit - time allowed by a business after supplying another business with goods/services before payment is due                                                                                  

  •  + no interest       -only a short term solution  fdfdfdfdf 
  • -best for short term cash flow problems-

Overdraft - bank allows a business to spend more than it has in it's account to an agreed limit

  • + flexible, only play ointerest on amount borrowed  - interest charges usually higher than loans 
  • -best for short term cash flow problems-

Leasing-longterm rental agreement that lets a business use assets without having to pay for them

  • + assets obtained without large expenditure, new models regularly updated                       
  •  - more expensive than businying outright, interest paid  
  •  -best for items such as vehicles etc.

Debenture - flong term loan secured on company's property, equivalent of a mortgage            

  •   immediate sum available                          - secured against property                             
  • -best for very long term large expansions-
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Finance Source - External 2

External Sources

Hire purchase-similar to leasing but asset becomes property of the business at end of payments   

  • + assets obtained without large expenditure    - more expensive than businying outright     
  • -best for items such as vehicles and machinery-

Loan - use of someones money for a period of time, involves repayments and added interest     

  • + fixed sum available    - interest paid and regular payments      
  •  -best for expansion-

Venture capital - provided by specialist firms or individuals (D.Den) in return for some share     

  • + immediate cash  - some loss of control / high interest rates to compensate for increased risk 
  •  -best for businesses deemed too risky for other sources of finance-

Share capital - finance raised by selling shares in the company                                          

  • + immediate cash, does not need repayment   - loss of control as people on a share        
  •  -best for long term or large expansions-
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Sales levels, Costs, Profits and Break even

TR = P x Q


FC - do not change with output       VC - do change with output

Break-even point =      Fixed Costs                                                                                                                               P-VC    

Break-even analysis

  • helps to assess the strength of a business of a business idea and shows impact on changes in price, enables the calculation of porfit/loss of different output levels
  • only a forecast and may be wrong, markets are dynamic (constantly changing)

Gross Profit = Turnover - Variable Costs

Operating Profit = Turnover - (Fixed + Variable Costs)

Profit margin =     Profit        x 100                                                                                                               Turnover

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