Business Science Study Guide - PDF

STUDY GUIDE GAC 012 Units 1 and 2 BUSINESS SCIENCE 1. What is a business? A business is an organization that provides goods and services to the society to make a profit. 2. What are the three ways to classify a business? - Industry Sector - Legal Structure - Si...

STUDY GUIDE GAC 012 Units 1 and 2 BUSINESS SCIENCE 1. What is a business? A business is an organization that provides goods and services to the society to make a profit. 2. What are the three ways to classify a business? - Industry Sector - Legal Structure - Size 3. What are the three types of industry sectors? Primary Industry: Primary industries extract natural resources, including farming, mining, and fishing. Secondary Industry: Secondary industries transform raw materials into finished goods, such as manufacturing and construction. Tertiary Industry: Tertiary industries provide services for the economy, including retail, healthcare, banking, and education. 4. Why is a business important? - Businesses create jobs and wealth that lead to economic growth - Businesses develop new products and services that lead to innovation - Businesses contribute to communities which have a social impact 5. How are businesses classified according to legal structure? A sole trader: is owned and run by one person. The law doesn't differentiate between the owner and the business, meaning the owner is personally responsible for all debts. A partnership involves two or more people who share profits and are jointly responsible for debts. Partnerships usually have a contract witnessed by lawyers and are common in professions like accounting, law, and medicine. A private company: limits ownership to approved shareholders. The company is responsible for all the company’s debt. This structure is popular for family businesses seeking control within the family. A public company: has its shares listed on the stock market, making it accessible to a broader range of investors. Public companies are often large and operate on a global scale. A franchise: is a business model where a franchisor grants a franchisee the right to sell their product or service in a specific area. The franchisor typically receives a percentage of the profits. This structure is common in fast food and service industries. A State-Owned company: A company owned and controlled by the government. They provide essential services to the community. Check your Legal Structure Chart to see some advantages and disadvantages of each legal structure 6. What is market capitalization (market cap)? Public companies can be classified by size based on their market capitalization, which is the total value of all outstanding shares. You get to that number by multiplying: Market Cap: Total number of Outstanding Shares X Current Market Price per Share 7. What is a goal? Goals: The goals of a business are what the business wants to achieve (its distinct purpose). For example: Sierra Nevada’s goal is to increase the number of students to whom it provides education (a service). A goal allows managers to keep track of the company’s performance. 8. What is an aim? Aims: The broad goals a business wants to achieve. For example: make a profit 9. What is an objective? Objectives: are measurable outcomes a business is trying to achieve. For example: How many new students does the school Sierra Nevada has on 2024 compared to the new students it had in 2023. 10. What is a company’s mission statement? It states the main purpose and goals of a business. It also informs about what makes a business different from its competitors. 11. What is the company’s Prime Function? The main activity in which a business is involved. The prime function may change as the business adapts and diversifies. For example, Sierra Nevada’s Prime Function is providing education. 12. What is economics? Economics is the social science that studies how societies allocate their scarce resources to satisfy unlimited wants and needs 13. What are External Business Environments? Factors outside a company's direct control that can impact its operations, performance, and strategies. These external forces can present both opportunities and threats, making it crucial for businesses to continuously monitor and adapt to changes in their environment. For example: political, economic, social, technological, and ethical. 14. What is Microeconomy? Microeconomy examines individual economic units, such as households, firms, and industries. It focuses on how these entities make decisions about resource allocation, production, and consumption. Key concepts in microeconomics include supply and demand, market structures, and price determination. For example, microeconomics would study how a change in the price of coffee affects consumer behavior and coffee shop revenues. 15. What is Macroeconomy? Macroeconomy on the other hand, looks at the economy as a whole, studying variables as inflation, unemployment, GDP growth, interest rates, and consumer  spending and consumer confidence. It deals with broad economic issues and policies that affect entire nations or regions. 16. What are needs and wants? Needs are essential items or conditions required for survival and basic well-being. They are typically non-negotiable and include food, water, shelter, and clothing. Wants, on the other hand, are desires for goods or services that enhance life quality but are not essential for survival. They are often influenced by personal preferences, cultural factors, and social trends. Examples of wants include luxury cars, designer clothing, or the latest smartphone model. 17. What is the main impact of each macroeconomic factor on the economy? 18. What is inflation rate? It is the rate at which the level of prices for goods and services rises over time, resulting in a decrease in purchasing power. In simpler terms, it means that your money buys less than it did before because prices are higher. 19. What is CPI? CPI stands for Consumer Price Index. It is a measure that examines the average change over time in the prices paid by consumers for goods and services. CPI is commonly used to assess inflation. 20. What is GDP? GDP stands for Gross Domestic Product. It is the total value of all goods and services produced in a country over a specific period, usually measured annually. GDP tells us if an economy is growing or not. 21. What is demand? Demand means all the goods and services that consumers in an economy are willing to buy relative to its price. As the price of goods and services increases, the quantity demanded is reduced (inverse relationship between price and quantity). 22. What is supply? Supply is all the goods and services that producers are willing to offer to the consumer relative to price. As the price of goods and services increases, so does the quantity supplied increases (positive relationship between quantity and price) 23. What is law of supply and demand? The law of supply and demand is a fundamental principle in economics that describes the relationship between the quantity of a good or service that producers are willing to offer (supply) and the quantity that consumers are willing to buy (demand) at a given price. The point where demand and supply meet is known as equilibrium price. 24. Draw a supply-demand curve and find the equilibrium price. 25. What is an economic system? Economic Systems determine how resources are allocated, how wealth is created, and how economic activity is organized. 26. Mention the 4 types of economic systems - Traditional Economic System: Traditional economies are based on custom and tradition, often passed down through generations. They exchange using barter, have limited specialization and are resistant to change or accepting new technologies. There is no competition and practically no government intervention. - Free Market Economic Systems: You can find competition amongst businesses. They compete to offer the best products and services at the lowest prices. Prices fluctuate based on supply and demand, guiding resource allocation. There is private ownership which means Individuals own and control the means of production. The best example of this economic system is capitalism. - Command (Planned) Economic Systems: Command economies are centrally planned by the government, which controls all aspects of production and distribution. Governments make all economic decisions, and they set the prices of goods and services. There is public ownership, which means the government owns and controls the means of production. The best example is communism. - Mixed Economic System: Mixed economies combine elements of both free market and command economies. 27. What are the 4 stages of an economic cycle? Prosperity: Characterized by increasing economic activity (GDP grows), rising employment, and growing consumer spending. During prosperity, economy reaches the highest point of economic activity, marking the end of the expansion phase. Recession: A period of economic decline (GDP declines), job losses (unemployment increases), and falling consumer spending. Depression: If the government does not intervene and the GDP drops for more than a six-month period, then the economy is in depression. It is characterized by Decrease of GDP, high unemployment, low wages and a reduction in business activity. Recovery: The period after a recession, where economic activity starts to rebound, leading towards expansion. The government achieves this by doing one of the following 2 things: change in fiscal policy (taxes) or change in monetary policy (interest rates).