Cambridge O Level Business Studies Assessment Objectives
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Questions and Answers

What is the purpose of business activity?

To provide certain goods and/or services to satisfy human needs and wants.

What is the primary objective of business activity?

  • To provide goods and/or services to satisfy human needs and wants (correct)
  • To contribute towards economic prosperity
  • To make a profit
  • To provide employment opportunities

    • What are the four main factors of production?

    Land, Labour, Capital, and Enterprise

    Human needs are the same as human wants.

    <p>False</p> Signup and view all the answers

    The process of combining factors of production to provide goods and/or services to satisfy human needs and wants is called ______________________.

    <p>Business Activity</p> Signup and view all the answers

    What is the importance of entrepreneurship in business activity?

    <p>To combine factors of production and provide goods and/or services.</p> Signup and view all the answers

    According to Paul Samuelson, why are human beings always left with some wants that remain unsatisfied?

    <p>Human beings are expected to be greedy by nature, as soon as a want is satisfied another crops up</p> Signup and view all the answers

    What gives rise to the basic economic problem of scarcity?

    <p>Limited resources relative to unlimited wants</p> Signup and view all the answers

    Opportunity cost is the next best alternative ________.

    <p>foregone</p> Signup and view all the answers

    What is the purpose of a business enterprise?

    <p>Provision of goods and/or services, economic development, create wealth, employment creation, raise standard of living</p> Signup and view all the answers

    Match the group affected by the economic problem with its available resources and choices:

    <p>Consumer = Available Resources = $200, Choice = Purchase Mobile phone Producer = Available Resources = 1 ACRE OF LAND, Choice = Construct building Government = Available Resources = 500 labour units, Choice = Construct school with 500 labour units</p> Signup and view all the answers

    Which measures are commonly used to determine the size of a business?

    <p>All of the above</p> Signup and view all the answers

    Division of labor is a form of specialization where each worker performs various tasks.

    <p>False</p> Signup and view all the answers

    What is the importance of specialization in the context of resources?

    <p>Specialization leads to more efficient resource utilization, cost advantages, and continuous improvement in living standards.</p> Signup and view all the answers

    The ___________ system involves the coexistence of both private and public sectors.

    <p>Mixed economic</p> Signup and view all the answers

    Competition between private and public sectors in a mixed economic system leads to resource wastage.

    <p>True</p> Signup and view all the answers

    What are some potential problems associated with adding value to products?

    <p>May involve huge investment and risks</p> Signup and view all the answers

    Based on the content, what factors does added value depend on?

    <p>All of the above</p> Signup and view all the answers

    The __________ sector involves businesses in the extraction of natural resources.

    <p>primary</p> Signup and view all the answers

    Match the business sectors with their descriptions:

    <p>Primary sector = Extraction of natural resources Secondary sector = Conversion of materials into finished goods Tertiary sector = Provision of services</p> Signup and view all the answers

    Private sector enterprises are mainly driven by profit motives.

    <p>True</p> Signup and view all the answers

    What are some reasons why some established businesses might fail?

    <p>Inexperienced management, Increase in competition, Poor forecasting, Change in government policies, Lack of customer relationship building, Megalomania, Bad publicity, Liquidity issues</p> Signup and view all the answers

    Match the types of private sector businesses with their descriptions:

    <p>Sole Trader = An unincorporated private one-person business with unlimited liability Partnership = An unincorporated private business involving 2-20 partners with unlimited liability Limited Companies = Incorporated private sector businesses governed by regulations with shares issued for capital</p> Signup and view all the answers

    Profit is a method of measuring business size. (True/False)

    <p>False</p> Signup and view all the answers

    Which of the following are features of a sole trader business?

    <p>Quick decision making</p> Signup and view all the answers

    Partnerships often face challenges related to decision making due to the need for unanimous agreement on all matters.

    <p>True</p> Signup and view all the answers

    What is the purpose of using the number of employees for comparing the size of firms in the same industry?

    <p>To compare the size of organizations</p> Signup and view all the answers

    Define 'Capital Employed'.

    <p>Total amount of money or capital invested in a business net assets.</p> Signup and view all the answers

    Match the following terms with their descriptions:

    <p>Horizontal Merger = Same industry and similar stage of production Vertical Integration = Same industry but different stage of production Lateral Merger = Same industry but not related Conglomerate Merger = Different industry</p> Signup and view all the answers

    Define 'Dividend'.

    <p>Proportion or part of profit distributed to shareholders as a reward for investing in company shares.</p> Signup and view all the answers

    What is 'Limited Liability'?

    <p>Mainly applies to incorporated businesses where shareholders' obligation for payment of company debts is restricted only to the extent of their capital invested.</p> Signup and view all the answers

    What are some advantages of a Private Limited Company (Ltd.)? Choose all that apply.

    <p>Limited liability for shareholders</p> Signup and view all the answers

    A Private Limited Company generally consists of 2-50 shareholders.

    <p>True</p> Signup and view all the answers

    What 'legal documents' are typically prepared for the incorporation of a Private Limited Company? Memorandum of Association and Article of Association are submitted to the ______ of Companies.

    <p>Registrar</p> Signup and view all the answers

    Match the following terms with their definitions:

    <p>AGM = Annual legal requirement for all companies Dividend = Proportion of profit distributed to shareholders Prospectus = Document providing information to attract investors Limited Liability = Shareholders' responsibility for company debts limited to investment capital</p> Signup and view all the answers

    What is a franchise?

    <p>An established and reputed business allowing other businesses exclusive rights to use its products and services in a specific area</p> Signup and view all the answers

    What are some advantages for the franchisor in a franchise arrangement?

    <p>Franchisee pays for using the license, product name, and service; Expansion is faster in multiple locations; Franchisee finances and may advertise; Goodwill of the franchisor is enhanced in various regions; Bears no risks but still obtains a share of the profit; Supplies materials to franchisees that may lower production costs.</p> Signup and view all the answers

    What problems can a franchisor face if a franchisee engages in unprofessional business practices? Unprofessional business practice by any franchisee may affect the entire business ________________.

    <p>image</p> Signup and view all the answers

    Franchisors bear all the risks and capital investments in a franchise arrangement.

    <p>False</p> Signup and view all the answers

    What are the advantages of backward integration or growth?

    <p>Assured supply of materials and components</p> Signup and view all the answers

    What are the disadvantages of backward integration or growth?

    <p>Difficulty in managing firms operating at different stages</p> Signup and view all the answers

    What is forward vertical integration in business?

    <p>When a firm merges with or takes over another firm operating at a later stage of production</p> Signup and view all the answers

    What are the advantages of forward vertical growth?

    <p>Assured supply of finished products to the other integrated firm</p> Signup and view all the answers

    What are the disadvantages of forward vertical growth?

    <p>Greater market risks due to being in the same industry</p> Signup and view all the answers

    Explain lateral integration in business with an example.

    <p>Lateral integration occurs when a firm merges with or takes over another business in the same industry but not directly related. For example, a bus company merging with a car rental business within the transport industry.</p> Signup and view all the answers

    Define conglomerate integration in business and provide an example.

    <p>Conglomerate integration happens when a firm merges with or acquires another business not directly related to its industry. An example is a shoe-making firm acquiring a textile company for diversification.</p> Signup and view all the answers

    What are the advantages of diversification through conglomerate integration?

    <p>Provides a wide range of products to customers</p> Signup and view all the answers

    What are the disadvantages of diversification through conglomerate integration?

    <p>Difficulty in managing two businesses in different industries</p> Signup and view all the answers

    What is a joint venture in business?

    <p>A joint venture is a business arrangement where two or more businesses collaborate to work together on a specific project or purpose by creating a separate entity. It involves sharing costs, ideas, risks, and profits.</p> Signup and view all the answers

    What are the advantages of joint ventures to businesses?

    <p>Sharing of risks, ideas, and expertise</p> Signup and view all the answers

    What are the potential problems of joint ventures between businesses?

    <p>Culture differences and management style disagreements</p> Signup and view all the answers

    What are some common problems associated with business growth?

    <p>Common issues related to business growth include diseconomies of scale, increased market risks, employee resistance, high capital investment, and loss of control rights.</p> Signup and view all the answers

    How might businesses overcome growth problems?

    <p>Companies can overcome growth challenges by decentralizing operations, leveraging technology for communication and control, spreading expansion costs through reinvesting profits, involving workers in decision-making, carefully evaluating organizational culture during integration, and forecasting market trends and government policies.</p> Signup and view all the answers

    Why do some businesses choose to remain small?

    <p>Businesses may stay small due to limited capital, lack of skilled personnel, idle capacity, business motives or objectives, small market size, fierce competition, and government regulations.</p> Signup and view all the answers

    Explain the importance/significance of small businesses.

    <p>Small businesses provide flexibility, proximity to markets, regional employment opportunities, training grounds for larger firms, unique product markets, support for large enterprises, market competition, and distribution channels for large companies.</p> Signup and view all the answers

    How do small firms compete with larger firms producing the same products?

    <p>Small firms compete with larger companies by targeting niche markets, locating closer to customers, adapting quickly to market changes, leveraging government support, and offering personalized services for customer loyalty.</p> Signup and view all the answers

    What are the advantages of small businesses?

    <p>Require lesser start-up capital</p> Signup and view all the answers

    What are some problems associated with small businesses?

    <p>Often uneconomical due to high costs</p> Signup and view all the answers

    What forms of government assistance are available to small businesses?

    <p>Government support for small businesses includes subsidies, tax incentives, soft loans, research and development funding, technical advice, infrastructure development, and premises provision.</p> Signup and view all the answers

    What are some reasons for government constraints on business size or activities?

    <p>Government restrictions on business size aim to prevent issues like production of hazardous goods, resource depletion, environmental harm, consumer exploitation, employee abuse, non-compliance with laws, and to maintain market fairness.</p> Signup and view all the answers

    Why do some new businesses fail? Provide some common causes.

    <p>New businesses often fail due to financial constraints, mismanagement, external factors like recession or changes in policies, fierce competition, lack of market research, and the highly unpredictable nature of emerging markets.</p> Signup and view all the answers

    Why are new businesses at a greater risk of failing?

    <p>Market uncertainty due to newness</p> Signup and view all the answers

    Study Notes

    Cambridge O Level Business Studies Assessment Objectives

    • AO1: Knowledge and understanding (40% weightage in O Level)
    • AO2: Application (20% weightage in O Level)
    • AO3: Analysis (25% weightage in O Level)
    • AO4: Evaluation (15% weightage in O Level)

    International Accounting Terminology

    • Financial statements: Final accounts
    • Statement of financial position: Balance sheet
    • Intangible assets: Goodwill, etc.
    • Non-current assets: Fixed assets
    • Inventory: Stock
    • Trade receivables: Debtors
    • Current liabilities: Creditors: amount due within 12 months
    • Capital or Equity: Share capital
    • Non-current liability: Long-term liability

    Understanding Business Activity

    • Business activity: Combining factors of production to provide goods and/or services to satisfy human needs and wants for a reward.
    • Purpose of business activity:
      • To provide certain goods and/or services to satisfy human needs and wants.
      • To contribute towards economic prosperity.
      • To provide employment opportunities.
      • To raise the standard of living.
      • To make a country popular, attracting further investment.
    • Importance of business activity:
      • Provides certain goods and/or services to satisfy human needs and wants.
      • Contributes towards economic prosperity.
      • Provides employment opportunities.
      • Raises the standard of living.
      • Makes a country popular, attracting further investment.
    • Problems of business activity:
      • Involves in unethical and non-ecological activities.
      • May operate with high social costs.
      • Profit motive often leads to worker and consumer exploitation.
      • May overexploit and deplete non-renewable natural resources.
      • Causes harm to natural beauty and national heritage.

    Factors of Production

    • Land: Includes all natural resources and gifts of nature.
    • Labour: Physical and mental effort exerted by a human being in the production of goods and/or services.
    • Capital: Includes all man-made aids to production, such as finance, machines, and equipment.
    • Enterprise: Innovative and risk-taking skills of people who combine resources to provide goods and/or services.

    Importance of Each Factor of Production

    • Land: To extract minerals, raw materials, and locate the business.
    • Labour: To undertake production processes, plan, organise, coordinate, command, and control business activities.
    • Capital: To purchase machines and equipment, finance other activities, and provide intellectual capital.
    • Enterprise: To combine factors, ensure efficient utilisation of resources, and encourage further investment.

    Human Needs and Wants

    • Human needs: Essential goods and services that are vital for human survival.
    • Human wants: Goods and services that are desired but not essential for living.

    The Economic Problem - Scarcity

    • Unlimited wants > Means or resources = Scarcity.
    • Scarcity leads to choice and opportunity cost.
    • Opportunity cost: The next best alternative foregone.

    Specialisation

    • Division of labour: Breaking down a whole job into various simpler tasks, where each worker performs a specific task.
    • Importance of specialisation:
      • For sustainable development.
      • For more efficient utilisation of resources.
      • To keep costs low and face competition.
      • To utilise specialist technology.
      • To continuously improve living standards.
      • To create value to available resources.
    • Benefits of specialisation:
      • Less wastages.
      • Saves time.
      • Workers become specialists.
      • Machines and equipment can be used for each specific task.
      • Greater individual output reduces total unit cost.
    • Problems of specialisation:
      • High risk of accidents.
      • Monotony and boredom.
      • Structural unemployment.
      • Workers become over-dependent on other workers.
      • Machine breakdown or delay in any task affects the whole process.

    The Concept of Adding Value

    • Value added: The difference between the selling price and the cost of bought-in materials in a final product.

    • Example: Value added = Selling price - Cost of bought-in materials.### Value Added and Profit

    • Value added is not the same as profit, and only considers the cost of bought-in inputs (raw materials and components) in the final product.

    • Value added does not include manufacturing expenses, labour costs, administrative costs, and selling and distribution costs.

    • An increase in value added may not necessarily increase profits to the same extent, as profit depends on other expenses incurred.

    How to Increase Value Added

    • Adding new features to a product
    • Modifying product design
    • Using better quality materials and other inputs
    • Applying marketing strategies
    • Providing financial facilities
    • Selling same product under another brand (rebranding)
    • Ethical/sustainable/ecological practices

    Importance of Adding Value

    • Retaliating to high added value products of competitors
    • Retaining existing customers through differentiated products
    • Meeting ever-changing customer needs
    • Extending a product's market existence
    • Making demand for its products less price elastic and increasing profit margins
    • More efficient utilization of resources (sustainability)
    • Triggering and encouraging innovation, research, and development

    Benefits of Adding Value

    • Attracting and retaining customers
    • Competitive advantage over rivals through new products
    • Exploring other potential markets
    • Extending a product's market existence
    • Increasing sales, revenue, profits, and market share

    Problems of Adding Value

    • May involve huge investment and risks
    • Does not guarantee profit
    • May instigate other rivals for cutthroat competition
    • Customers have to pay the price
    • Customers may be misguided

    Evaluation of Adding Value

    • Adding value depends on competitors' products, price elasticity of demand, customers' tastes and disposable income, marketing strategy, and rate of technological development

    Classification of Businesses

    • Primary sector: extraction of natural resources (e.g., mining, fishing, farming)
    • Secondary sector: conversion of materials into semi-finished and finished goods (e.g., manufacturing, processing)
    • Tertiary sector: provision of services (e.g., banking, insurance, marketing)

    Levels of Business Activity

    • Primary sector: extraction of natural resources
    • Secondary sector: conversion of materials into semi-finished and finished goods
    • Tertiary sector: provision of services
    • Quaternary sector: knowledge-based services (e.g., research and development, consulting)

    Importance of Business Classification

    • Measured by percentage of total workforce employed and percentage contribution to GDP
    • Highest proportion of employment and contribution to GDP means greater importance

    Changing Importance of Business Classification

    • Reasons for change: increase in per capita disposable income, higher literacy rate, globalisation, westernisation, development in ICT, and climatic change
    • Example: the Mauritian economy, which has diversified from sugar-based to manufacturing, tourism, and service-based economy### Entrepreneurship
    • An entrepreneur is someone who identifies a market opportunity and exploits it by organizing resources effectively to accomplish an outcome that changes existing interactions within a given sector.
    • An entrepreneur is also an investor who takes risks by investing capital and combining resources to provide a commodity for a reward, often profit.

    Benefits of Being an Entrepreneur

    • Independence: being one's own boss with control over time, money, and resources
    • Potential for greater income through profits
    • Ability to utilize personal interests, skills, knowledge, and capabilities
    • Fulfillment of ambition and wishes
    • Gain self-confidence and self-esteem
    • Potential for fame, e.g., Bill Gates

    Problems of Being an Entrepreneur

    • Greater risk: potential loss of invested money and resources
    • Lack of know-how and experience for running a new business
    • Opportunity cost: resources could be used elsewhere
    • Responsibility for all stakeholders, e.g., employees and family members
    • Greater personal commitment, leading to limited time for social matters
    • No guaranteed income
    • Difficulty in achieving a work-life balance

    The Role of an Entrepreneur

    • Prepare business plans and forecasts
    • Organize and allocate factors of production
    • Combine factors of production
    • Seek better business opportunities
    • Lead and motivate employees
    • Define business mission, vision, and objectives
    • Devise strategies to adapt to a changing business environment
    • Operate within the legal framework to make profits
    • Innovate products and implement new ideas to satisfy human wants and needs

    Qualities of Successful Entrepreneurs

    • New ventures
    • Creativity and innovative business ideas
    • Visionary
    • Inner drive to succeed
    • Passion about products/services
    • Risk-taking
    • Willingness to learn
    • Removing obstacles to progress
    • Setting big goals
    • Strong self-confidence
    • Assertive personality
    • Focused
    • Willing to change
    • Aware of the latest technology and ideas
    • Thrives on competition
    • Very energetic

    Role of Business Enterprise in the Development of a Country

    • Determines the level of success, prosperity, growth, and opportunity in an economy
    • Triggers production and sale of new products and services
    • Undertakes risk to profit by satisfying unsatisfied needs
    • Creates value to scarce resources in the nation
    • Improves overall standard of living
    • Makes a nation popular and attracts more investments
    • Benefits society, e.g., creation of social enterprises

    Business Plan

    • A written document that describes a business, its objectives, and strategies, the market it is in, and its financial forecasts
    • Contents of a business plan:
      • Executive summary
      • Description of business opportunity
      • Marketing and sales strategy
      • Management team and personnel
      • Operations
      • Financial forecasts

    Importance of Business Plans

    • To obtain start-up capital
    • Provide a clear sense of purpose, direction, marketing strategies, and type of employees to recruit
    • Financial, HR, Operations, and Marketing plans can be used as targets
    • Useful for rewriting and adapting plans to accommodate new or revised strategies
    • Original financial forecasts can act as budgets and control benchmarks
    • Updated versions can be used for additional funding or to attract partners or go public

    Government Support for Business Start-Ups

    • Reduce unemployment levels
    • Encourage local production and create greater value to available resources
    • Support and attract larger firms and foreign investment, increasing competition
    • Promote economic growth and provision of goods and services at lower costs
    • Reduce overdependence on imports and reduce balance of payments deficits
    • Regional development
    • Preserve traditional products, culture, and processes
    • Benefit society, e.g., creation of social enterprises

    Methods of Government Support

    • Grants
    • Training schemes
    • Research and Development facilities
    • Technical support
    • Finance support schemes
    • Assistance in preparing good business plans
    • Fiscal policies, e.g., tax holidays, low corporation tax
    • Creation of industrial zones with set-up facilities
    • Attracting large businesses, allowing local support enterprises to start up

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    Description

    Learn about the four assessment objectives in Cambridge O Level Business Studies, including knowledge and understanding, application, analysis, and evaluation.

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