Unit 1 revision

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What is an entrepreneur?
A person or group of people who raises the resources and organises the activities needed to start a business
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What is a social enterprise?
A business with social motives, whilst still making a profit but the main aim is to solve social or environmental problems
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What is a paternalistic manager?
Managers who makes decisions after consultation with others; they explain their decisions to the workers in an attempt to persuade the employees the decisions are in everyone’s interest
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What is a laissez-fair manager?
Managers who rarely interfere in the running of the business and the workforce is left to get on with trying to achieve the objectives of the business with minimal input and control from the top
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What are factors affecting demand?
Price of the product, Seasonality, Marketing, Customer income, Actions of competitors
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What is supply?
The quantity that businesses are willing to offer for sale and able to produce
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How would interest rates getting higher affect a business?
High interest rates means less disposable income because the cost of borrowing goes up and makes saving more attractive than spending
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How would interest rates getting lower affect a business?
Lower interest rates mean more disposable income, borrowing is cheaper and saving is less attractive, people can borrow more money to spend so demand rises
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How is inflation measured?
The consumer price index
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What is the consumer price index?
Lists the prices of hundreds of goods and services which the average household would buy
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What is demand pull inflation?
High demand in the economy, more than the economy can supply
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What is cost push inflation?
Rise in inflation caused by rising costs pushing up prices
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How can an increase in inflation effect a business?
Causes spending to go up temporarily, people rush to buy more before prices go up even more, but if wages don't go up in line with inflation sales go down as people can afford less, inflation causes uncertainty and makes it hard to plan ahead
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What are the types of unemployment?
Structural unemployment and Cyclical unemployment
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What is structural unemployment?
Due to change in the structure of unemployment eg a decline in a major industry like coal mining
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What is cyclical unemployment?
Due to a downturn in the business recycle eq lack of demand for labour
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How would high unemployment affect a business?
Unemployed have little disposable income to spend on luxuries, when it is high businesses can hire staff more easily as theres more supply of good labour, so businesses wont have to pay high wages those in work will be extra productive
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What is the monetary policy?
Involves controlling the money supply and changing interest rates
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What is the Fiscal policy?
Determines the level of taxation and government spending, the government is completely in control of this
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What does government spending include?
Spending on benefits, construction projects and defence & law and order
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How does government spending help businesses?
Giving people higher welfare benefits means they will spend more into the economy, building motorways creates jobs
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What will the government do if demand in the economy is too low?
Try to increase demand by cutting taxes so that people have more money to spend in the economy and the central bank will reduce interest rates to cut mortgage payments and
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How does the government try to reduce demand if too high?
Raise taxes so people have less money to spend and cut spending and central banks increase interest rates to raise the cost of borrowing, reduce disposable income and reduce demand
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What is an overdraft?
Where a bank lets a business spend more money than it has in its account, up to a limit
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What is are disadvantages of an overdraft?
The interest rates are high so they’re expensive if used over a long period of time and a bank can remove the overdraft at any minute and demand money back
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What is leasing?
When a business rents fixed assets like cars and office equipment instead of buying them
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What is a disadvantage of leasing?
In the long run leasing works out more expensive than buying
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What are sources of short term finance?
Trade credit (30 days) and Overdrafts
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What are sources of medium term finance?
Loans, Leasing
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What are sources of long term finance?
Debentures, Grants and Venture capitalist
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What is advantages of selling shares?
Don’t have to pay the money back and no interest
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What is a disadvantage of selling shares?
The entrepreneur no longer owns all of the business, and have to give shareholders a share of the profits and a say in how the business is run
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What are the characteristics of a Private limited company?
Cant sell shares to the public, don't have shares on the stock exchange, Shareholders may not be able to sell their shares without the agreement of other shareholders, Often small family businesses, no minimum share capital requirement and use Ltd
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What are characteristics of a Public limited company?
Can sell shares to public, Shares on the stock exchange, shares easily transferable, usually start as pivate limited companies then go public, need over £50,000 of share capital and at least 25% must be publicly available and end in PLC
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What are benefits of trade credit?
You can pay back later when sold stock
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What are drawbacks of trade credit?
You have to pay back in a certain time and company must have good credit history
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What is retained profit?
Money from previous years profits that are kept in the business
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What are disadvantages of retained profit?
Small businesses are unlikely to have them
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What are disadvantages of owners capital?
Owner may not have enough to meet the needs of the business
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What is a bank loan?
A specific amount of money borrowed for a fixed time period, interest is paid back monthly and interest is charged
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What are advantages of a bank loan?
Easy to organise and you agree to how much you pay back monthly
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What are disadvantages of a bank loan?
You will have to pay more money back than you borrowed and if it’s a secured loan the bank can take business assets or personal assets
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What is a debenture?
A special kind of long term loan with low fixed interest rates and fixed repayments dates
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What are disadvantages of debentures?
Interest must be paid and company can go bankrupt
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What are advantages of debentures?
Last a long time and provides stable income
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What is an advantage of hire purchase?
Business can have the use of up to date equipment immediately and once repaid the business owns the asset
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What are disadvantages of hire purchase?
It is expensive and has high interest
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What are advantages of factoring?
Immediately available and saves the business time
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What are disadvantages of factoring?
Time consuming and a percentage of the debt collected will be paid to the debt factory
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What is factoring?
Available if the business has debtors and needs funds quickly, a factoring company make immediate payment of 80% of the debt and the rest minus commission once debt is settled
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What is mass marketing
When a firm promotes to all types of customers such as Hovis bread or toilet roll
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What are characteristics of a niche market?
Low volumes sold because not many people can afford them, High selling price and low advertising as not as much competition eq Ferrari
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What are characteristics of a mass market?
High volumes sold because a lot of people buy them, low selling prices because here is high supply and demand and high advertising as a they have a lot of competition eq Hovis
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What are advantages of a niche market?
Easy to pinpoint the target audience so lower marketing costs, able to concentrate on the company/product strength, there isn't a lot of competitors, because the service or product is limited the business can set higher prices to cover costs
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What are disadvantages of a niche market?
Niche markets can disappear because of changes in the economy, fashion and taste, mass markets firms can target the niche market if it grows & a small market may be effected
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What are advantages of a mass market?
It is likely to appeal to many people, hence maximising sales, allows reduction in average cost through bulk buying, allow to generic advertising which allows a strong brand image
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What are disadvantages of a mass market?
Competition is often fierce, must be market orientated, high advertising costs
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What are benefits of a Private Limited Company (LTD)?
You know eachother and can't go over money
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What are disadvantages of a Private Limited Company (LTD)?
Profits shared and more retained profit
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What is a Public Limited Company (PLC)?
Can be on the stock market, any member of the public can buy a share, it has limited liability
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What are benefits of a Public Limited Company (PLC)?
More money put in and can get money from the public
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What are disadvantages of a Public Limited Company (PLC)?
Group decisions and company can go bust
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Why might a firm use Break Even Analysis?
The can spot problems, they can manage profits, they know output needed to produce a certain level of profit, easy to use and provide quick estimate to assist decision making
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What are limitations of Break Even Analysis?
Just an estimate and you need o raise a certain amount of money
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What is the formula for margin of safety?
Actual sales - Break even point
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What is the margin of safety?
The gap between the Break Even Point and actual, a high margin of safety they're safer and if sales drop they still may make some profit, a small MOS has more risk and likely to make a loss if sales fall
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What is the Break Even formula?
Fixed costs / Contribution
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What is the formula for contribution?
Selling price - variable cost per unit
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What is contribution?
The amount of money left over after the variable cost per unit is taken away from the selling price. This money makes a contribution towards paying fixed costs and earning a profit
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What happens to supply if the price of goods goes down?
Supply often goes down for commodity goods and supply often increase even when price falls for electrical goods
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How does the cost of supplying products affect supply?
If the cost of supplies goes up the business' profit margin decreases at the current price so business is less willing to supply the product & if cost goes down the product will be more profitable and at current price so supply will increase
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What happens if there is excess supply?
Prices will fall
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What happlens if there's a shortage of supply?
Prices will rise
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What is demand?
The quantity the buyer will buy at a particular price
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What usually happens to demand when as price decreases?
demand usually increases
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What does the price elasticity of demand show?
How much the demand changes with price
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What happens to supply as price increase?
Supply increases, the producer likes higher prices because they mean bigger profit
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What is the equilibrium point?
The rpcie where the quantity demanded is equal to the quantity supplied (where the demand and supply curves meet on the graph)
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What happens when thee is too much supply or demand?
The market is in disequilibrium (out of balance)
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Why can the price being too high cause disequilibrium?
There aren't enough customers willing to buy the products so there's excess supply and sellers cut prices to increase demand
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Why can prices being too low cause disequilbrium?
There's too much demand demand for a limited supply so buyers will be willing to pay more and the prices rises back to equilibrium level
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How can demand change even when the price stays the same?
A successful marketing campaign, change in consumer income levels
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What happens to the demand curve if if demand increases or decreases?
It shifts the demand curves outward when it increases and inwards if demand decreases
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What are benefits of becoming an LTD?
Extra people with ideas, you're in control and make decisions wholly if have 51% of shares, more finance without debt, more experience for decisions, limited liability, pay corporation tax which is lower
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What is a business plan?
A document which states what the owners want to do and how they intend to do it
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Why should a business write a business plan before starting a business?
To get financial backing from lenders or investors to help start up the business, Setting down all of the plans for a business helps the entrepreneur to assess the business' strengths and weaknesses and see if realistic, give detail about objectives
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What are benefits of break even analysis?
Easy to do, Quick and managers can see it immediately to take quick action to cut costs or increase sales if need to increase MOS, Can use it to help persuade banks to give a loan
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What are limitations of break even analysis?
It assumes variable costs always rise steadily, h/w not always case dues to bulk buying, only good for one product and most sell multiple, if data is wrong results will be too, assumes sell all units with no waste
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What does operating profit take into account?
All revenues and costs from regular trade but not any revenues and costs from one off events. Only cover activities likely to be repeated year on year
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What does net profit before tax cover?
All revenues and costs including those from one off events such as the sale or purchase of another business
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What does net profit after tax show?
What is left after corporation tax has been paid
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What is retained profit?
What is left from net profits after tax once share dividends have bee paid to shareholders
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what are the sections of a profit and loss account?
i. Trading account- gross profit ii. Profit and loss account - subtract overheads to work out operating profit and net profit iii. appropiation account- shows what is done with profits and works out retained profit
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What is window dressing?
When a business manipulates their profit and loss to make them look like they're performing better than they're
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What affects the leadership style?
Unskilled large workforce = authoritarian, Small educated workforce suits democratic
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What is cost plus pricing?
Where firms work out the cost of a product and add a mark up for profit, Cost + Mark-up = selling price
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What is competition pricing?
When a firm will follow the lead from another company eq petrol prices
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What is market pricing?
Where the price is based upon market research into what customers are prepared to pay for product
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What is penetration prices?
A firm charges a low price to obtain market interest and then once established the price will rise
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What is predator pricing?
A business will charge a very low price for its products to push out competition and then once gone they increase prices
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What is skimming?
The opposite of penetration pricing, organisations charge a high price to begin with to make it desirable to consumers with large incomes, once established it will drop eq DVD and mobile phones
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What is price discrimination?
Different consumers are charged different prices for same product
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What is psychological pricing?
Where the price is strategically set up to make the customer think the product is cheaper than it is eq 99p
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What is the calculation for price elasticity?
% change in demand / %change in price
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What does price elasticity measure?
How responsive demand is to a change in a particular variable
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What does elastic demand mean?
The demand is relatively responsive to a particular change (eg demand will reduce if price rises)
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What does inelastic mean?
Demand is relatively unresponsive to a particular change (eq the demand will continue at a similar level even if with a rise in price
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What does it mean if the PED is inbetween 0 & -1?
The good is price inelastic
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Why is being inelastic good for a business?
They can increases the price of the good and demand will decrease by a smaller pecentage, resulting in an increase in revenue
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How can a business make their products inelastic?
Get a USP or making them more appealing to the consumer through other methods such as branding or innovative features
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What does it mean if the PED is lower than -1?
The good is said to be elastic and demand is very responsive to the price
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What are factors increasing price elastic?
If the product is a neccessity or luxury, availability of substitutes, income of customers and brand loyalty
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How to make a product more inelastic?
Make product have a USP, take over competition so customers have to buy your products, make prices change over a short period of time so some customers do not notice
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What are exchange rates?
The rate at which one currency trades for another on the foreign exchange market
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What happens when there is a strong pound?
Exports become dearer and imports becom cheaper
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Who is a strong pound bad for?
Most British firms because their exports become dearer which puts people off buying them, making them less desirable depending on price elasticity of the product
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What happens when there is a weak pound?
Exports become cheaper, imports become dearer
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Why does imports being dearer cause inflation?
prices go up in correlation
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Other cards in this set

Card 2


What is a social enterprise?


A business with social motives, whilst still making a profit but the main aim is to solve social or environmental problems

Card 3


What is a paternalistic manager?


Preview of the front of card 3

Card 4


What is a laissez-fair manager?


Preview of the front of card 4

Card 5


What are factors affecting demand?


Preview of the front of card 5
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