f3 Business Simplified Notes SP

BUSINESS STUDIES NOTES
FORM 3 SIMPLIFIED VERSION
QUICK REVISION NOTES

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Current Form 3 Syllabus.
SERIES 1
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TOPIC 1: DEMAND
CONTENTS
 Introduction
 Factors influencing demand
 Types of demand
 Demand schedule and demand curve
INTRODUCTION
 Demand refers to the quantity of a good or service which is purchased at a specific price within a
given period of time.
 Demand therefore exists only when there is willingness and ability to pay for the product.
The Law Of Demand

The law of demand states that, “with all other factors held constant, the higher the market price, the
lower the market demand and vice versa”
Assumptions of the law of demand

a) The demand for a product is normal and not habit forming
b) Demand and price in the market are constant for a specific period of time
c) Consumers’ tastes and preferences do not change
d) There are no anticipated future changes in market price
e) There is no change in the income levels of the consumers
f) There are no changes in the prices of related products
FACTORS INFLUENCING DEMAND

a) Price of the product
b) Price and availability of related products
c) Income of consumers
d) Tastes and preferences
e) Consumer expectations
f) Size of the population
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g) Income distribution
h) Government policies
i) Sociological factors
j) Seasonal changes
k) Terms of sale
Price Of The Product

For a normal product, the higher the market price, the lower the market demand and vice versa.
Price And Availability Of Related Products

Related products are classified into two:
 Substitutes
 Compliments
Substitutes: These are products that can be used in place of one another e.g. tea and coffee. If the
price for one substitute product goes up, it’s demand fall as consumers switch to the other product.
Complements: Compliments are those products which are used together e.g. car and petrol. If the
price for one product increases, its demand will fall and so will be the demand for its compliment
Income Of Consumers
Income determines the ability of consumers to buy. The higher the income, the higher the demand
and vice versa.
Tastes And Preferences
Taste is the desire of the product by the consumer due to the satisfaction he derives from using the
product. When consumer tastes and preferences change in favor of the product, its demand will
increase and vice versa
Consumer Expectations
Expectations refer to future anticipated changes. These changes may relate to price and supply.
When consumers expect price to fall in future, they will buy less now and more in future. On the
other hand, if consumers expect a future shortage, they will buy more now and less later
Size Of Population
An increase in population means more products are demanded to satisfy the needs of the growing
population. The opposite will happen if the population decreases.

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Income Distribution
When income is evenly distributed, more consumers will have the ability to buy hence demand will
increase. On the other hand, when income is in the hands of a few, ability to buy is reduced hence
demand decreases.
Government Policies
Government influences demand through the following methods:
 Taxation
 Subsidies
 Legislations
 Price control
Taxation: Imposing a tax increases the price of the product hence reducing its demand. On the other
hand a reduction in tax will reduce price leading to price reduction.
Subsidies: Subsidies reduce the production costs enabling producers reduce their selling prices
hence increasing demand.
Legislations: The government may pass laws that encourage or discourage consumption of certain
products e.g. cigarettes. This will increase or decrease demand for such product.
Price control: The government may control the price of certain products by ensuring that they don’t
exceed certain limits. This move will increase the demand for such products. Socialogical
Factors
Refers to factors such as age, education, marital status, culture etc. All these factors may dictate the
kind and amount of product consumers’ demand. For instance, young people are likely to buy
more movies than the aged.
Seasonal Changes
Demand for some products depends on the season. For example, umbrellas are demanded more
during the rainy season.
Terms Of Sale
Terms of sale refers to credit, cash sales or discounts. When terms of sale are favorable, demand
will be high unlike when they are unfavorable.

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TYPES OF DEMAND
There are FOUR types of demand:
 Joint demand
 Derived demand
 Competitive demand
 Composite demand
Joint Demand
This is demand that arises from complementary goods. It is the demand that exists between goods
that are used together e.g. tea and sugar such that as demand for one product increases, demand
for the other product also increases.
Derived Demand
This is where the demand for one product is triggered by the demand for the other product. For
example, demand for hens is derived from the demand for eggs.
Competitive Demand
This is demand existing between close substitutes e.g. tea and coffee. An increase in demand for one
product reduces the demand for the other product.
Composite Demand
This is the demand that arises where the product is used for more than one purpose e.g. demand for
timber which is required for building, making furniture etc. Therefore a rise in need for one of the
purposes, will increase the demand for timber.
DEMAND SCHEDULE AND DEMAND CURVE

DEMAND SCHEDULE
A demand schedule is a table that shows the quantities of goods demanded at a particular time
TYPES OF DEMAND SCHEDULE
Demand schedule can be classified into two:
 Individual demand schedule

 Market demand schedule

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Individual demand schedule: This is a table showing the quantities demanded by a single
consumer at a particular time.
Illustration: The table below shows the demand schedule of consumer A
PRICE(Ksh) QUANTITIES DEMANDED(Kgs)
10 40
20 30
30 20
40 10
Market demand schedule: This is a table showing the sum of all the quantities demanded by all
consumers at a particular time.
Illustration: The table below shows the demand schedules for consumers A, B and C
PRICE(Ksh) QUANTITY QUANTITY QUANTITY TOTAL MARKET

DEMANDED DEMANDED DEMANDED DEMAND(Kgs)
BY A(Kgs) BY B BY C(Kgs)
10 40 40 40 120
20 30 30 30 90
30 20 20 20 60
40 10 10 10 30
DEMAND CURVE: A demand curve is a graphical representation of the information contained in

a demand schedule.
NOTE: Mention the law of demand

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TYPES OF DEMAND CURVES
INDIVIDUAL DEMAND CURVE
This is a graphical representation of an individual demand schedule.
Assign: Draw the demand curve for the individual demand schedule above
MARKET DEMAND CURVE

This is a graphical representation of a market demand schedule.
Assign: Draw the demand curve for the market demand schedule above
ABNORMAL DEMAND
Refers to a situation where a decrease in the price of the commodity may not result in an increase in
the quantity demanded for the commodity and vice versa
(Illustrate)
Reasons for abnormal demand

a) Goods of ostentation (prestigious goods)
b) Inferior goods
c) Giffen goods
d) Necessities
e) Habitual goods and services
f) Expectations of future shortages
g) Expectations of future increase in price
MOVEMENTS ALONG THE DEMAND CURVE

The demand curve may either contract or extend due to changes in market price. An extension in
demand refers to an increase in quantity demanded while a contraction refers to a decrease in
quantity demanded. (Illustrate)
SHIFTS IN DEMAND CURVE

Refers to the dislocation of the entire demand curve either to the right or to the left. A shift to the
right indicates an increase in demand where as a shift to the left indicates a decrease in demand.
(Illustrate)
A shift in demand curve is caused by changes in any other factor affecting demand other than market
price.

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Causes of a shift to the right (increase in demand)
 A rise in the incomes of consumers

 A rise in the price of the substitute product
 A fall in the price of the complement product
 A positive change in consumers’ tastes towards the product
 Favorable government policies e.g. lower taxes
 Increase in consumer in incomes
 Increase in population
 Even distribution of income
Causes of a shift to the left (decrease in demand)
 A fall in consumer income

 A fall in price of the substitute product
 A rise in the price of the complement product
 Negative change in consumer preferences
 Uneven income distribution
 Decrease in population
 Decrease in consumer income
 Unfavorable government policies e.g. increase in taxes
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TOPIC 2: SUPPLY
CONTENTS
 Introduction
 Factors influencing supply
 Types of supply
 Supply schedule and curve
Introduction
Supply refers to the quantity of a product that sellers are able and willing to bring to the market at a
particular price over a given period of time
THE LAW OF SUPPLY

The law of supply states that, “with other factors held constant, the higher the market price, the
higher the market supply and vice versa”
Assumptions of the law of supply

a) Suppliers have perfect knowledge of price changes in the market
b) Suppliers have the ability to offer any quantity of a commodity in the at any given price
c) Consumers are rational in their consumption behavior
d) There are no abnormal price fluctuations in the market
FACTORS INFLUENCING SUPPLY

a) Price of the product
b) Prices of other related products
c) Prices of factors of production
d) State of technology
e) Goals of the firm
f) Time
g) Government policies
h) Natural factors
i) Industrial unrest
j) Entry of new firms
k) Future expectation of changes in price

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Price Of The Product

The higher the market price of a product the higher the market supply. This is due to the fact that
sellers will be motivated to make more profits from increased prices.
Prices Of Related Products

Related products can be classified into two:
 Substitutes
 Complements
Substitutes: These are products which compete for the same piece of land e.g. maize and wheat. An
increase in the supply of one product causes a decrease in the supply of the other product.
Complements: These are products which undergo the same production process e.g. hide and beef.
An increase in supply for one product leads to an increase in supply for the other product.
Prices Of Factors Of Production

Factors of production refer to the inputs to the production process. If these inputs are expensive to
acquire, the cost of production will increase hence reducing the quantity supplied in the market.
State Of Technology
With improved technology, production of commodities may increase. Therefore, producers will
produce more and market supply will increase.
Goals Of The Firm

Goals set by a firm may also influence what they produce and how much they produce. For instance,
a firm may decide to continue producing a particular product irrespective of the risks incurred. In
this case supply for the product will increase. On the other hand, if a firm fears taking risks, its
production of certain products may reduce.
Time
Supply for some products is seasonal e.g. agricultural products. In this case, their supply will be high
during harvesting season. Some products are also supplied more during specific seasons e.g.
umbrellas are demanded more during the rainy season.
Government Policies
Government can influence supply through the following methods:
 Subsidies

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 Taxation
 Quotas
 Price control
Subsidies: Subsidies are incentives given to producers e.g. free seeds for farmers. Subsidies have the
effect of lowering production cost hence increasing supply
Taxation: Taxes have the effect of increasing the cost of production therefore discouraging
producers leading to lower market supply.
Quotas: A quota is a restriction on the amount of a product that can be produced. Quotas therefore
control the amount of a product thereby reducing its market supply.
Price control: If the government sets a low price for the product, its supply will be lower.
Natural Factors
Refers to factors related to weather and climate. Such factors affect the production of agricultural
products. When these factors are favorable, supply will increase and vice versa.
Industrial Unrest
Industrial unrest refers to disagreements between the employers and the employees which in most
cases lead to strikes. Industrial unrests hinders production therefore reducing market supply.
Entry Of New Firms

Entry of new firms in the industry will increase market supply. On the other hand, withdrawal of
firms from an industry will lead to a reduction in market supply.
Future Expectations Of Changes In Price

If producers expect a future increase in market price, they will hoard their products and sell them
later. This will reduce the current supply for the product. But if producers expect a future decrease
in price, they will sell more products hence increasing its supply.
TYPES OF SUPPLY
There are two major types of supply:
 Joint supply
 Competitive supply

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JOINT SUPPLY
This is supply which exists between products which undergo the same production process e.g. hide
and beef. An increase in the supply of one product will cause an increase in supply for the other
product and vice versa.
COMPETITIVE SUPPLY
This is a kind of supply which occurs when a factor of production is used to produce two or more
products e.g. maize and wheat.an increase in the supply of one product leads in a decrease in
supply for the other product.
SUPPLY SCHEDULE AND CURVE

SUPPLY SCHEDULE
A supply schedule is a table which shows the quantities of a commodity that sellers are willing and
able to offer for sale at a specific price at a given period of time.
The supply schedule
PRICE(Ksh) QUANTITY(Kgs)
10 10
20 20
30 30
40 40
SUPPLY CURVE
A supply curve is a graphical representation of the information contained in the supply schedule.
(Illustrate)

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MOVEMENT ALONG THE SUPPLY CURVE

Refers to extension or contraction of supply due to changes in market price. When price increases,
quantity supplied increases (extension).On the other hand, when price decreases, quantity supplied
will decrease (contraction) (Illustrate)
SHIFT IN SUPPLY CURVE

Refers to the dislocation of the entire demand curve either to the left or to the right. A shift to the
right indicates an increase in supply whereas a shift to the left indicates a decrease in supply
(Illustrate)
Causes of a shift to the right (increase in supply)
 A fall in price of factors of production

 Improvement in technology
 Favorable government policies
 Entry of new firms in the industry
 Favorable weather conditions
 Industrial peace
Causes of a shift to the left (decrease in supply)
 An increase in the price of competing products

 An increase in the price of relevant factors of production
 Improved technology in the production of a competing product
 Unfavorable weather conditions
 Industrial unrest


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TOPIC 3: EQUILIBRIUM PRICE AND QUANTITY

CONTENTS
 Introduction
 Excess demand and excess supply
 Effects of shifts in demand and supply curves on equilibrium price and quantity(Illustrate)
 Other methods of determining market price other than price mechanism
Introduction
The term equilibrium means equal or balanced. Equilibrium price is the price that equates quantity
demanded and quantity supplied. Equilibrium quantity is that quantity that is bought and sold at
the equilibrium price. The point at which demand and supply are equal is the equilibrium point.
(Illustrate)
Excess Demand and Excess Supply

Excess demand is the amount by which the quantity demanded exceeds the quantity supplied at a
given price. On the other hand, excess supply is the amount by which the quantity supplied
exceeds the quantity demanded.
Excess demand or excess supply will cause disequilibrium in the market (illustrate)
Effects Of Shifts in demand And Supply On Equilibrium Price And Quantity

(Illustrate)
OTHER METHODS OF DETERMINING MARKET PRICE

Apart from price mechanism, other methods of determining market price include
 Haggling
 Government intervention
 Auction
 Tendering
Haggling: Refers to bargaining
Government intervention: Refers to a system where prices are influenced by the government
through:
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 Price control
 Taxation
 subsidies
Auction: A method of selling where buyers are given the opportunity to compete for the product by
quoting different prices. The one who quotes the highest price becomes the buyer.
Tendering: A method of selling where buyers are given an opportunity to suggest the selling price
independently. The highest bidder becomes the buyer.

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TOPIC 4: THEORY OF A FIRM

CONTENTS
 Introduction
 Factors influencing what to produce
 Determining the size of a firm
 Location of a firm
 Localization and delocalization of firms
 Economies and diseconomies of scale
 Existence of small firms in an economy
 Effects of production activities on the environment and community health
 Ensuring a health environment
A FIRM: The term firm refers to a single unit of business organization that brings together factors
of production in order to produce a given product e.g. Bata shoe company
AN INDUSTRY: An industry refers to all those firms producing a particular product for a given
market.
Types of production decisions made a firm

a) What to produce
b) How production is to take place
c) Where the production plant is to be located
d) When to produce
e) What the scale of production will be
f) When and where to invest
g) How to improve and control production
h) What type of business activity to engage in
Factors influencing the decisions made by the firm

a) Whether the firm is product oriented or market oriented
b) Level of market competition
c) Level of technology
d) Financial viability of the firm
e) Socio-cultural factors
f) The level of the country’s economy

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g) Government policy
h) Profitability of the business
i) Environmental issues
j) Costs of production
FACTORS INFLUENCING WHAT TO PRODUCE

These are factors considered by a firm before it makes a decision on the kind of goods and services
to produce. These factors may include:
Profitability
Businesses tend to produce those goods and services that yield more profit
Level Of Competition
Firms tend to produce those products whose market competition is minimum i.e. those that are
scarce in the market
Availability Of Resources
A firm will produce those products whose required resources it has. These resources may include
labor, raw materials, equipment etc.
Government Policy
A firm will produce those products which are favored by the government i.e. those which are lowly
taxed and legal
Market Demand
Firms will produce products whose demand is high in order to ensure high sales volume
Cost Of Production
A firm will produce those products whose production cost is low.


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DETERMINING THE SIZE OF A FIRM

Indicators of The Size of a Firm
Number Of Employees
Large firms employ more staff since there several functions to be executed unlike small firms which
only require fewer staff
Volume Of Output
Large firms unlike small firms produce more goods and services
Area Covered By Premises

Large firms have several building which covers a lot of space unlike small firms
Amount Of Capital Invested

Firms with high invested capital are considered large firms whereas firms with little capital
investment are small firms.
Type Of Production Methods Used

Large firms have the financial capability to afford advanced production methods such as division of
labor and specialization unlike small firms
Size Of Market Served

Large firms unlike small firms control a large market
Sales Volume
If a firm presents many goods and services to the market, then it is considered to be a large firm
unlike when it presents fewer goods and services to the market
Location Of A Firm
Location of a firm refers to selection of a place where the proposed firm is to be established

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FACTORS TO CONSIDER WHEN LOCATING A FIRM

Availability Of Raw Materials
Most firms are located near a source of raw materials. This is because of the need to:
 Lower the cost of transporting raw materials to the firm

 Prevent raw materials from going bad especially when they are perishable
 Minimize the handling costs of raw materials
 Ensure constant supply of raw materials in order to facilitate continuous production
 Counter competition especially when competition for raw materials is high
 Comply with the government policy e.g. when the government requires firms to be located near a
source of raw materials
Availability Of Market
It is advisable to locate a firm near a market. This is because of the need to:
 Lower cost of transportation to the market

 Avoid breakages especially where fragile goods are produced
 Prevent perishable goods from going bad
Availability of Labour
Labour intensive firms are located near an abundant labour source e.g. in urban areas
Availability Of Appropriate Transport And Communication Network

Firms are located in area with a good transport network in order to:
 Ensure constant supply of raw materials

 Facilitate easy transportation of finished goods to the market
 Facilitate information flow
 Facilitate easy movement of labour to and from work
 Save on transport cost and frequent repair of vehicles
Availability Of Adequate Power And Water Supply

Water and power are very essential to a firm’s operations. Power is required to run the machines
whereas water is used as a machine coolant, for cleaning or even as a raw material. Firms should
therefore be located in places with adequate supply of water and power.

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Government Policies
Government may also influence the location of firms using the following methods:
 Offering free or cheap land

 Reduction of taxes
 Offering subsidies
 Offering financial assistance
 Improving infrastructure
 Providing credit facilities to investors
OTHER FACTORS
1. Availability of auxiliary services such as banking and insurance
2. Availability of room for expansion
3. Effects of a firm’s operation on the environment
4. Availability of security
5. Nature of terrain
6. Climatic conditions
LOCALISATION AND DELOCALISATION OF FIRMS

LOCALIZATION OF FIRMS
Localization refers to concentration of similar firms in one particular region.
REASONS FOR LOCALISATION
 A well-developed infrastructure
 Availability of a large population to provide labour and market
 Need for interdependence among firms in areas such as training of personnel
 Government policy requiring firms to be located in a given area
 Availability of raw materials in a given area
 Availability of support industries such as banks
ADVANTAGES OF LOCALISATION
a) It encourages the establishment of support industries e.g. banking, insurance, warehousing etc.
b) Encourages the creation of a pool of labour due to rural urban migration
c) Establishment of firms that use finished goods as raw materials are encouraged
d) Disposal of waste products is made easier since it can be sold to other firms or recycled
e) Creation of employment opportunities is encouraged
f) Encourages the development of infrastructure such as roads, communication, health and education
facilities

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DISADVANTAGES OF LOCALISATION
a) May cause environmental pollution from industry emissions

b) Results in regional imbalance in development
c) Encourages rural-urban migration leading to overcrowding in towns
d) Emergency of social problems such crimes, diseases, immorality etc.
e) May attract terrorist attacks since terrorists mostly target congested areas
f) A fall in the of the product produced by a localized firm may spark widespread unemployment
DELOCALISATION OF FIRMS
Refers to establishment of firms in different parts of the country. It is highly encouraged by the
government
ADVANTAGES OF DELOCALISATION
a) Reduces effects of terrorist attacks

b) Provides employment opportunities to every part of the country
c) Reduces rural-urban migration
d) Ensures balanced regional development
e) Widens market for local produce
f) Makes products easily available to local consumers
DISADVANTAGES OF DELOCALISATION
a) Spreads pollution all over the country

b) Lack of skilled manpower in the rural areas
c) There may be insecurity in some areas
d) Service industries may not be available in the rural areas
e) Incentives offered by the government to encourage delocalization may burden the taxpayer
f) Continued protection of local firms from competition from foreign firms by the government may
make local firms produce poor quality goods.
Disadvantages of locating a business away from other businesses
a) Difficulty in acquiring relevant labour

b) Exchange of ideas is not easy
c) Difficulty in acquiring raw materials
d) The firm may produce poor quality goods due to lack of competition
e) Exchange of technology is not possible

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Objectives of delocalization
a) To promote a balance regional development

b) To redistribute income by ensuring that there is a widespread location of industries
c) To ensure better use of resources in different parts of the country
d) To create employment in various regions
e) To reduce congestion in urban centres
Methods used to delocalize industries
a) Offering cheap land

b) Offering tax concessions
c) Provision of infrastructure
d) Establishment of rules and regulations
e) Development of training institutions in different regions
f) Government directives
ECONOMIES AND DISECONOMIES OF SCALE

ECONOMIES OF SCALE
Refers to advantages a firm enjoys as a result of expansion.
There are two economies of scale:
 Internal economies of scale

 External economies of scale
INTERNAL ECONOMIES OF SCALE

These are advantages accruing to a single firm as a result of it’s expansion irrespective of what
happens in other firms. These economies may include:
 Marketing economies
As the firm expands, it buys and sells goods in large quantities thus enjoying the following:
 Trade discounts
 Lower transport cost
 Lower cost of advertising
 Lower distribution cost

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 Financial economies
As a firm expands its scale of operations, it is in a position of accessing loans easily and in large
amount from financial institutions.
 Risk bearing economies
Large firms are able to reduce risks though selling many products in several markets such if one
product fails or demand in one market declines, the firm can still make profit.
 Managerial economies
As the firm expands, it is in a position of employing qualified staff. These staff can go a long way in
increasing the efficiency and productivity of the firm.
 Technical economies
Technical economies are those benefits associated with specialization of both labour and machinery.
A large scale firm is able to hire qualified staff and buy modern machines to improve its
productivity.
 Research economies
Research is a very expensive exercise and it can only be afforded by large firms
 Welfare economies
Welfare facilities are those things which motivate workers. Such things may include: recreation,
health, education etc. These facilities are expensive and can only be afforded by large firms.
EXTERNAL ECONOMIES OF SCALE

These are those benefits which accrue to a firm as a result of growth in the entire industry. These
benefits include:
 Availability of ready skilled labour

 Ready market
 Easy disposal mechanisms
 Improved infrastructure
Ways in which large-scale businesses reduce their cost of operations
a) Buying goods in bulk from suppliers hence enjoying quantity discounts

b) Promoting their products hence increasing sales
c) Bargaining for lower interest rates on loans
d) Diversifying products and markets hence spreading risks
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e) Attracting skilled manpower hence lowering supervisory costs, wastes and losses so as to improve
efficiency
f) Using modern technology hence ensuring efficient production
g) Producing and selling in large quantities thereby reducing average costs
h) Carrying out research hence improving methods of production
DISECONOMIES OF SCALE
These are those problems a firm experiences as a result of expansion. They may be classified into
two.
 Internal diseconomies of scale

 External diseconomies of scale
INTERNAL DISECONOMIES OF SCALE

Refers to those problems which arise from within the firm as it expands. They include:
 Managerial diseconomies
Continued expansion of a firm may pose problems associated with poor control and coordination,
long decision making and poor relations between staff and management
 High operational costs
As the firm expands, money required for the day to day running of the firm will increase. This is
likely to lower the profits of the firm.
EXTERNAL DISECONOMIES OF SCALE

These are problems a firm experiences as a result of growth in the entire industry. They include:
 Struggle for raw materials

 Lack of land for expansion
 Scramble for qualified labour
 Market competition
 Easy target for terrorist activities

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Ways of expanding a business
a) Entering into a suitable merger or amalgamation

b) Diversifying operations/ dealing in a variety of products so as to capture a wider market
c) Buying/acquiring other similar businesses so as to widen the scope of operations
d) Securing loans to expand the capital base
e) Arranging for franchising by acquiring rights to produce/sell goods under the name of another
firm
f) Expanding market to increase the volume of sales
g) Adopting appropriate technology to increase the quantity and quality of output
h) Ploughing back profits to finance its operations
i) Forming cartels with similar businesses
EXISTENCE OF SMALL FIRMS IN AN ECONOMY

Despite the benefits enjoyed by large firms, small firms still exist alongside large firms. Some of the
reasons for this existence may include:
 Size and nature of market
In cases where the market size is small, small firms will prevail since it will be uneconomical for
large firms to operate in such markets. Consumers in some markets may demand goods in small
quantities, in such cases small firms will be preferred.
 Nature of the product
Some products cannot be provided in large quantities e.g. personal services such as nursing or
painting. These products can only be provided by a small firm.
 Simplicity in organization and operation
Small firms may also exist due to the fact that they are easy to operate as compared with big firms
 Flexibility
Compared with large firms, small firms are easily adaptable to changes in the environment. For
example it is easy for a small scale firm to switch from one line of trade to another unlike a large.
Small firms will therefore exist in an economy due to the fact that they highly flexible.
 Quick decision making
Most people go for small firms because it is easier to make decisions in these firms given that few
people are to be consulted when making a decision

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 Simplicity in management
Most businessmen may opt for small firms due to the belief that they are easy to run as compared to
big firms
 Lower costs of production
Small firms unlike large firms enjoy lower operational costs
 Desire to retain control
The need to exercise control and be the own boss may drive business people towards operating in
small scale
 Legal constraints
Measures put in place by the government may also hinder the growth of firms e.g. the government
may impose a higher tax if sales exceed a given limit, in this case, the firm will rather remain
small.
Disadvantages of small firms
a) High overhead costs due to low output

b) It is difficulty for small firms to diversify
c) Low profits due to limited capital
d) Overworking due to lack of division of labour
Role of small firms in developing countries
a) They create employment since they mostly use labour intensive techniques
b) They allow more low income earners to participate in economic activities
c) They promote delocalization of industries
d) They lend valuable support to large industries
Implication of Production Activities On Environmental And Community Health

As production activities take place in a given area, environment and the health of people around may
be adversely affected. Some these effects may include:
a) Affects the health of the people and animals due to pollution of water, air and soil
b) Disrupts the ecosystem of the area as animals and plants may have to be moved or destroyed
c) Leads to excessive use of resources resulting in land degradation and reduction in the productivity
of land
d) Depletion of the environment especially the ozone layer through toxic emissions from industries

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e) Causes negative social effects such as crimes in areas where production activities take place due
to high population in those areas
MAINTAINING A HEALTHY ENVIRONMENT
NOTE!
This is a Sample of the Well Organized Detailed Simplified Notes
Available.
Call/Text/WhatsApp 0746-222-000 for the Complete Notes.

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FOR THE FOLLOWING;

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THIS IS A PROPERTY OF MWALIMU

CONSULTANCY LTD.
POWERED BY MR
ISABOKE
SUCCESS

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BUSINESS STUDIES NOTES

FORM 3 SIMPLIFIED VERSION

QUICK REVISION NOTES

THIS IS A FREE SAMPLE OF THE

CONTACT US FOR FULL VERSION OF THE NOTES

Mr Isaboke 0746 222 000

of brief quotations in a book review.

Mwalimu Consultancy Ltd.

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

The Law Of Demand

Assumptions of the law of demand

FACTORS INFLUENCING DEMAND

Price Of The Product

Price And Availability Of Related Products

Tastes And Preferences

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

Government influences demand through the following methods:

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

DEMAND SCHEDULE AND DEMAND CURVE

TYPES OF DEMAND SCHEDULE

Demand schedule can be classified into two:

 Individual demand schedule

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

Illustration: The table below shows the demand schedule of consumer A

PRICE(Ksh) QUANTITIES DEMANDED(Kgs)

PRICE(Ksh) QUANTITY QUANTITY QUANTITY TOTAL MARKET

DEMAND CURVE: A demand curve is a graphical representation of the information contained in

NOTE: Mention the law of demand

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

MARKET DEMAND CURVE

Reasons for abnormal demand

MOVEMENTS ALONG THE DEMAND CURVE

SHIFTS IN DEMAND CURVE

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

 A rise in the incomes of consumers

Causes of a shift to the left (decrease in demand)

 A fall in consumer income

This is a Property of Mwalimu Consultancy Ltd. Contact Mr Isaboke

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

THE LAW OF SUPPLY

Assumptions of the law of supply

FACTORS INFLUENCING SUPPLY

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

Price Of The Product

Prices Of Related Products

Prices Of Factors Of Production

Goals Of The Firm

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Entry Of New Firms

Future Expectations Of Changes In Price

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

SUPPLY SCHEDULE AND CURVE

The supply schedule

CONTACT MWALIMU CONSULTANCY 0746-222-000 FOR COMPLETE NOTES.

MOVEMENT ALONG THE SUPPLY CURVE

SHIFT IN SUPPLY CURVE

Causes of a shift to the right (increase in supply)

 A fall in price of factors of production

Causes of a shift to the left (decrease in supply)