Factors of Production & Economic Activity

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Questions and Answers

Explain how a business can increase its added value by both increasing the selling price and decreasing the cost price.

A business can increase added value by increasing the selling price through offering higher-quality goods or enhanced marketing, and simultaneously decreasing the cost price by finding cheaper supplies or increasing efficiency.

Describe a situation where a seemingly cost-effective decision could lead to a higher opportunity cost for a business. Give an example.

A business might choose a cheaper supplier, but the lower quality of materials leads to increased product defects and customer dissatisfaction. The opportunity cost is the potential for higher sales and customer loyalty from using a more reliable, albeit more expensive, supplier.

How can a business foster flexibility in decision-making to succeed in a dynamic environment?

A business can foster flexibility by encouraging open communication, empowering employees to make decisions at their level, and regularly reviewing and adapting strategies based on market feedback and emerging trends.

Outline the key differences in liabilities and rewards between an entrepreneur and an intrapreneur. How does risk play a factor?

<p>An entrepreneur bears the direct liability for business risks and receives the profits, whereas an intrapreneur's liability is borne by the business, with rewards in the form of promotions or wage raises. Risk falls directly on the entrepreneur, but is absorbed by the company for the intrapreneur.</p> Signup and view all the answers

Explain how lack of record-keeping can lead to the failure of a new business, even if the business idea is strong.

<p>Without proper record-keeping, a business cannot accurately track its cash flow, expenses, and revenues, leading to poor financial decisions, inability to secure funding, and ultimately, business failure.</p> Signup and view all the answers

Describe how changes in the business environment can cause a business to fail in its early stages, even if it initially showed promise.

<p>New competitors, legal changes, economic downturns, or technological advancements can alter customer spending or increase operational costs leading to reduced sales, profitability, and ultimately failure.</p> Signup and view all the answers

What are the key differences between a national and a multinational enterprise, beyond just the scope of their operations?

<p>A national enterprise operates within a single domestic market, while a multinational enterprise operates in multiple countries, navigating diverse legal, cultural, and economic environments.</p> Signup and view all the answers

Aside from sourcing finance, what are two significant challenges entrepreneurs face when starting a new business, and how might they overcome them?

<p>Entrepreneurs face challenges in (1) determining a suitable location, which can be solved by thorough market research and cost-benefit analysis, and (2) building a customer base, which requires offering superior customer service and targeted marketing.</p> Signup and view all the answers

Explain how enterprise (entrepreneurial activity) can lead to both employment creation and economic growth in a country.

<p>New businesses create jobs directly, and successful enterprises can generate substantial national income, attract investment, and foster further economic activity, leading to overall economic growth.</p> Signup and view all the answers

What are the benefits of intrapreneurship to a business? Explain two clearly.

<p>Intrapreneurship can inject creativity and innovation into a business, boosting sales and improving product offerings. It can also lead to the development of new business methods that enhance efficiency.</p> Signup and view all the answers

Differentiate between 'business risk' and 'business uncertainty'. Provide an example of each faced by a retail business.

<p>Business risk involves measurable events like increased competition, whereas business uncertainty involves unpredictable events like natural disasters. For a retail business, a risk might be a competitor opening nearby; an uncertainty might be a sudden economic crisis.</p> Signup and view all the answers

List three factors of production and their corresponding returns.

<p>Land yields rent, labor earns wages, and capital generates interest.</p> Signup and view all the answers

Why can added value be different from profit?

<p>Added value is the difference between the selling price and cost price, while profit accounts for all expenses incurred by the business, not just the cost of materials.</p> Signup and view all the answers

Explain opportunity cost with an example.

<p>Opportunity cost is the benefit of the next best alternative forgone when making a decision. For example, if a business invests in new machinery, the opportunity cost might be the expansion of marketing efforts.</p> Signup and view all the answers

Describe the primary reason why new businesses often suffer from a lack of cash and working capital.

<p>A primary reason is often poor cash flow management, where the business spends cash faster than it receives it, leading to a shortage of working capital necessary for day-to-day operations.</p> Signup and view all the answers

Name three essential managerial skills that help prevent problems in new businesses.

<p>Leadership, cash handling/management, and planning/coordinating skills are essential for effective management.</p> Signup and view all the answers

In what way can a poor business plan undermine a company's chances of getting financing?

<p>A weak business plan fails to demonstrate the viability and potential profitability of the business, making lenders and investors hesitant to provide funds.</p> Signup and view all the answers

Categorize hairdressing, coal mining, and craft manufacturing into their respective sectors of entrepreneurial businesses.

<p>Hairdressing is in the tertiary sector, coal mining is in the primary sector, and craft manufacturing is in the secondary sector.</p> Signup and view all the answers

What is the purpose of a business plan and list two of its advantages?

<p>The purpose of a business plan is to document the business's objectives and how it intends to achieve them. Two advantages are that it facilitates resource allocation and aids in future planning.</p> Signup and view all the answers

Explain the role of enterprise in fostering innovation and technological change within an economy.

<p>Enterprise drives the creation of new products, services, and processes, leading to innovation and the adoption of new technologies that boost productivity and competitiveness.</p> Signup and view all the answers

Flashcards

Land (Factors of Production)

All natural resources used in production, such as minerals.

Labour (Factors of Production)

Manual and skilled work contributing to production.

Capital (Factors of Production)

Finance and man-made goods (machinery) used in production.

Enterprise (Factors of Production)

The driving force that organizes factors of production and takes business risks.

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Added Value

Selling price minus cost price; the increase in value a business creates.

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Opportunity Cost

The benefit of the next best alternative given up when making a choice.

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Working Capital

Capital needed to manage the day-to-day running of a business.

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Local Business

Providing goods and services to the local population

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National Business

Provides goods and services to the domestic market.

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Multinational Business

Provides goods and services to more than one country.

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Intrapreneur Characteristics

Passionate, determined, resourceful, and think more like entrepreneurs.

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Entrepreneur Characteristics

innovative, committed/self-motivated, multi-skilled etc

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Impact of Enterprise on an Economy

Employment creation, economic growth, exports, personal development.

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Entrepreneur vs Intrapreneur

Setting up a new business vs develop/execute innovate ideas for existing business.

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Business Risk

Potential events affecting profitability. Measurable .

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Business Uncertainty

Unpredictable events impacting business but not measurable.

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Business Plan

Document outlining business objectives and strategies to achieve objectives.

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Study Notes

  • Businesses add value to raw materials and semi-finished goods to meet consumer needs and wants.
  • This increases living standards by creating employment.

Factors of Production

  • Land includes all natural resources and its return is rent.
  • Labour includes manual and skilled work and its return is salary or wages.
  • Capital includes finance and man-made goods and its return is interest.
  • Enterprise organizes factors of production and its return is profit.

Added Value

  • Added value is the selling price minus the cost price.
  • A business is successful if consumers pay more than the material costs.
  • Increase added value by raising selling price through higher quality, advertising, packaging, or improvements.
  • Decrease cost price by reducing waste, finding cheaper supplies, or increasing efficiency.

Economic Activity

  • Due to limited goods, choices must be made about which needs to satisfy.

Opportunity Cost

  • Opportunity cost is the benefit of the next best option that is given up.

Dynamic Business Environment

  • The business environment changes rapidly.
  • Changes in the business environment can lead to less successful business

Shifts in Business Environment

  • New market entrants.
  • Changes in legal rules.
  • Economic shifts.
  • Technological advancements.

How Businesses Succeed

  • Understanding customer needs.
  • Efficient operations.
  • Flexible decision-making.
  • Sufficient finance.

Why New Businesses Fail

  • Lack of record-keeping.
  • Lack of cash flow (working capital).
  • Ways to manage include cash flow forecasts and good bank relations.
  • Poor management skills
  • Leadership, cash management, planning, decision-making, and communication.
  • Changes in the business environment like new competitors or legal changes.

Early Stage Business Failures

  • Internal problems - Weak ideas, poor management/research, lack of finance.
  • External problems - Unpredicted customer base, unexpected competition, spending pattern changes.

Business Scope

  • Local businesses serve the local population.
  • National businesses serve the domestic market.
  • Multinational businesses operate in multiple countries.

Intrapreneurs and Entrepreneurs

  • Intrapreneurs are passionate, determined, resourceful, think like entrepreneurs, independent and proactive, and innovative
  • Entrepreneurs are innovative, committed, multi-skilled, have leadership skills, self-confidence, and ability to bounce back

Roles

  • Intrapreneurs take responsibility for a business's ongoing success and develop innovative ideas.
  • Entrepreneurs generate new business ideas and invest capital.

Entrepreneur Challenges

  • Identifying opportunities requires finding profitable markets, idea generation from skills/research.
  • Sourcing finance issues from lack of personal finance or awareness of financial assistance.
  • Location decisions based on costs, target market, and area status.
  • Building a customer base requires loyalty through service and promotions.

Entrepreneurial Business Types

  • Primary sector is extracting materials.
  • Secondary sector is manufacturing.
  • Tertiary sector is the service sector.

Enterprise Impact on Economy

  • Employment creation and economic growth.
  • Firm survival and innovation.
  • Export and personal development.
  • Increased social cohesion.

Entrepreneur vs Intrapreneur

  • Entrepreneurs start new businesses, face liability, and gain profit.
  • Intrapreneurs innovate within businesses, face business liability, and gain profit/promotions..

Intrapreneur Benefits

  • Innovation boosts sales and efficiency.
  • Competitive edge and retention of original thinkers.

Business Risk

  • Measurable events or decisions affecting profitability, like competition.

Business Uncertainty

  • Unpredictable events impacting business, such as natural disasters.

Business Plans

  • A document outlining business objectives and strategies.
  • Advantages include resource allocation and attracting investors, while disadvantages include inaccuracy and time consumption.

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