Define needs, and explain how they are different from wants.
Needs are things people must have to survive, such as food, water, clothing and shelter. Wants are things people would like to have but do not need in order to survive, such as a games console or a holiday.
Define opportunity cost.
Opportunity cost is the value of the next best alternative that is given up when a choice is made.
Name the three economic sectors used to classify businesses.
Define private sector and public sector.
The private sector is made up of businesses that are owned and controlled by private individuals or groups, usually aiming to make a profit. The public sector is made up of organisations that are owned and controlled by the government, usually funded by taxes to provide a service for the public.
Define entrepreneur.
Name three methods used to measure the size of a business.
State what is meant by a business having liquidity problems.
A furniture maker buys wood costing \$90 and uses it to make a table. The table is sold for \$250. (a) Explain added value. (b) Calculate the value added.
Added value is the difference between the price a business sells its finished good or service for and the cost of the materials it bought in to make it.
- Formula: $$\text{Value added} = \text{selling price} – \text{cost of materials bought in}$$
- Given: selling price = \$250, cost of materials = \$90
- Substitute: $$\text{Value added} = 250 – 90$$
- Calculate: $$\text{Value added} = 160$$
Classify each business as primary, secondary or tertiary sector: (a) a wheat farm, (b) a bread factory, (c) a supermarket, (d) an iron ore mine.
(b) A factory that bakes the wheat into bread — Secondary
(c) A supermarket that sells the bread to customers — Tertiary
(d) A company that mines iron ore — Primary
Classify each organisation as private sector or public sector: (a) a clothing shop, (b) a public hospital, (c) a family bakery, (d) a state school.
(b) A government-run public hospital — Public sector
(c) A family-owned bakery — Private sector
(d) A state (government) school — Public sector
A factory worker fits the same part onto every car made in the factory (specialisation). (a) State one benefit for the worker. (b) State one drawback for the worker.
The worker becomes highly skilled at this one task, which can improve the quality and speed of their work.
The work can become repetitive and boring, since the worker does the same task every day.
A clothing company wants to add more value to its T-shirts without increasing material costs much. Identify two ways it could do this.
Way 2: Improving quality or design — making the T-shirts better made or more attractive so they can be sold at a higher price.
State whether each situation is internal growth or external growth: (a) a bakery uses its own profits to open a second shop, (b) a bakery buys an existing rival bakery business.
(b) A bakery buys an existing rival bakery business — External growth
A business owner says: “My business must be large, because it makes a big profit.” Explain why this statement is incorrect.
The statement is incorrect because profit is not used to measure the size of a business. The size of a business is measured using methods such as the number of people employed, the value of output, or the capital employed — not how much profit it makes.
In Country A, employment in the primary sector has fallen sharply while employment in the tertiary sector has risen. Explain two reasons why this might have happened.
Point: New machinery and technology may have been introduced in the primary sector.
Explain: Machines can now do work that used to need many workers, such as harvesting crops or mining. This means fewer workers are needed in the primary sector to produce the same amount, so primary sector employment falls.
Point: As the country’s economy develops, people become wealthier.
Explain: Wealthier people have more money to spend on services such as banking, education and transport. This rising demand for services means more people are employed in the tertiary sector.
Amara is planning to start her own business. (a) State three characteristics that would help her succeed. (b) State two things included in a business plan. (c) Explain two ways the business plan would help her.
Any three of: innovative, willing to take risks, hardworking and determined, good organisational skills, good decision-making skills, confident.
Any two of: a description of the business idea, the objectives of the business, details about the target market and competitors, a marketing plan, financial forecasts, details of how the product/service will be made or provided, how much finance is needed and where it will come from.
Point: The business plan helps Amara raise finance.
Explain: Banks and investors usually want to see a business plan before lending money, so having one makes it easier for Amara to get the finance she needs to start her business.
Point: The business plan helps Amara identify problems in advance.
Explain: By planning carefully before spending any money, Amara is more likely to notice possible problems early and prepare for them, rather than discovering them after the business has already started.
(a) Explain two reasons why governments support new business start-ups. (b) Describe one way a government could provide this support.
Point: New businesses create jobs.
Explain: When entrepreneurs start new businesses, they need workers, which reduces unemployment in the country.
Point: New businesses increase economic growth.
Explain: New businesses produce more goods and services, and once they are successful, they generate more tax revenue for the government.
Governments can give grants — money given to a business to help it start up, which does not need to be paid back. Alternatively, governments can offer training schemes — courses that teach entrepreneurs the skills they need to run a business successfully.
A market trader buys apples from a farm and sells them to customers. (a) Explain the purpose of business activity, using this example. (b) Explain two ways this business could add value to the apples, using examples.
Point: The purpose of business activity is to use resources to produce goods and services that satisfy customers’ needs and wants.
Explain: The market trader takes apples (a resource) from the farm and makes them available to customers who want to buy them. Without this business activity, the customers would not be able to get the apples they want.
Point: Convenience.
Explain: The trader could wash and pack the apples into ready-to-eat bags, saving customers time and effort.
Example: Customers may pay more for a pre-packed bag of apples than for loose apples they have to sort through themselves.
Point: Customer service.
Explain: The trader could offer friendly advice on choosing the freshest apples, making customers more willing to return and pay a little more.
Example: A customer who receives good advice and service may choose this stall again, even if a nearby stall is slightly cheaper.
Do you think specialisation is always beneficial for a business? Justify your answer.
Point: Specialisation can make production faster and improve quality.
Explain: Workers who repeat the same task become highly skilled at it, and less time is wasted moving between different jobs.
Example: A worker who only fits car doors all day becomes very quick and accurate at that one task.
Point: Specialisation can cause problems for the business.
Explain: Repetitive work can become boring for workers, and if a specialised worker is absent, production may stop completely because no one else can do that task.
Example: If the only worker trained to fit car doors is off sick, the whole production line could be delayed.
Specialisation is not always beneficial. It usually improves speed and quality, but it also creates risks such as boredom and over-dependence on individual workers. Whether it is beneficial depends on how the business manages these risks, for example by rotating tasks or training more than one worker to do each job.
A successful bakery business is considering expanding. (a) Explain two reasons why the owners might want to expand. (b) Explain one problem the bakery might face as a result of this growth, and how it could be reduced.
Point: To increase profit and sales.
Explain: By opening more shops or selling more bread and cakes, the bakery can earn more money overall than it could as a single small shop.
Point: To reach more customers and gain a bigger share of the market.
Explain: Expanding into new areas allows the bakery to sell to customers who could not previously reach its shop, increasing its share of the local market.
Point: Cash flow problems.
Explain: Opening new shops or buying new equipment needs a lot of money to be spent before the bakery earns extra money from the growth. This can be reduced by careful financial planning and arranging enough finance in advance, so the bakery does not run out of cash while it is growing.
New businesses are often described as being at a greater risk of failing than established businesses. Explain two reasons why this might be true.
Point: The owner of a new business usually has less experience running a business.
Explain: Without experience, the owner is more likely to make mistakes, such as poor management decisions, which can cause the business to fail.
Point: A new business has not yet built up a base of loyal, regular customers.
Explain: Without regular customers, the new business may not earn enough money in its early months, making it more likely to run into liquidity problems and fail.
