- By Riya Belel

 Definition of ‘need’
 a good or service essential for living. .
 Examples:
 Food, Water, Clothes
 Shelter – Home – Electricitys
 Safety
 Education
 Physiological – Social needs
 Esteem
 Self-actualisation

 Definition of ‘want’
 Wants are goods or services that people would like to have, but are not essential to
live or survive.
 Examples:
 Expensive cuisine foods
 Branded expensive clothes
 Aerated water
 Luxury Villa – Bungalow
 TV – Music System
 Fancy shoes

 Wants are unlimited

 Unlimited wants are desire for goods and services that cannot be fulfilled.
 It means that people never get enough, that there's always something else that they would want
 The most typical example of an unlimited want is money. Even the very richest people in the
world continue to work and amass more money, as they never feel satisfied with what they have
earned and saved.
 Imagine getting a sports car as a birthday present. It'd be great for a moment, but then you'd want
everything to go along with it: special fuel for racing, a road without other people to drive it on, a
good pair of sunglasses to look cool while driving, and so on.
 Unlimited wants can never be satisfied, yet people spend most, or even all of their life, pursuing
them anyway.

 Definition of ‘scarcity’
 Scarcity is the lack of sufficient products to fulfil the total wants of the population

 Definition of ‘opportunity cost’

 Opportunity cost is the next best alternative given up by choosing another item

 Definition of ‘factors of production’

 Factors of Production are resources required to produce goods or services. They
are classified into four categories.
 - By Riya Belel

 Land
 Labour
 Capital
 Enterprise
 Definition of ‘land’
 the natural resources that can be obtained from nature. This includes minerals,
forests, oil and gas. The reward for land is rent.

 Definition of ‘labour’
 the physical and mental efforts put in by the workers in the production
process. The reward for labour is wage/salary

 Definition of ‘capital’
 the finance, machinery and equipment needed for the production of goods and
services. The reward for capital is interest received on the capital

 Definition of ‘enterprise’
 the risk-taking ability of the person who brings the other factors of production
together to produce a good or service. The reward for enterprise is profit from
the business

 Definition of specialization’
 When people or business concentrate on what they are best at
 Clear understanding [2]: E.g. way in which work is divided so each worker
concentrates on a specific task so become expert at it
 Some understanding [1]: E.g. workers only do one job
 Advantages of specialisation (knowledge points)
 Increased output OR quicker production OR increased
 productivity OR higher efficiency
 lower unit cost OR economies of scale
 Workers become expert OR more skilled OR focus on what they are good at
 Improved accuracy OR better quality OR fewer mistakes OR reduced waste
 Help improve competitiveness
 Disadvantages of specialisation (knowledge points)
 Risk of worker alienation
 Risk of disruptions to production process
 Risk of structural unemployment due to occupational immobility
 It can get monotonous/boring for workers, doing the same tasks repeatedly
 Higher labour turnover as the workers may demand for higher salaries and
company is unable to keep up with their demands
 Over-dependency if worker(s) responsible for a particular task is absent, the
entire production process may halt since nobody else may be able to do the task.
 - By Riya Belel

Knowledge Analysis Application Evaluation

more skills prevents the need for rework Workers are quicker at producing
goods/increased productivity or
efficiency/
higher output
Being efficient lower cost can offer a better service Lower (unit) cost/benefit from economies
of scale
Expertise so have time to focus on what they are Every worker focuses on what they are
good at good at/become expert
Less mistakes so people trust their products Improved quality or accuracy or less
wastage
More competitive.

Specialist machinery used so more efficient Specialist machinery used to cut wood for Thus increasing
for production making furniture output would result
in increasing profit

 Definition of ‘Division of labour’

 Division of labour is when the production process is split up into different tasks
and each worker performs one of these tasks.
 It is a form of specialisation
 Advantages of ‘division of labour’
 Workers are trained in one task and specialise in this - this increases
efficiency and output
 Less time is wasted moving from one workbench to another
 Quicker and cheaper to train workers as fewer
 skills need to be taught
 Disadvantages of ‘division of labour’
 Workers can become bored doing just one job - efficiency might fall
 If one worker is absent and no one else can do the job, production might be
stopped

Knowledge Analysis Application Evaluation

Technological advancements in allows unskilled workers to be Car assembling industries can hire Thus more
the business employed and hence wage costs are different workers for different work specialisation is
lower attained at every
worker is involved in
one specific activity
which he is best at

 Definition of ‘Business Activity’

 - By Riya Belel

 Businesses combine factors of production to make products (goods and

services) which satisfy people’s wants.
 Business activity involves organizing, combining and using scarce resources
to
satisfy the needs and wants of the consumer

 Need of ‘business activity’
 People have unlimited wants.
 The four factors of production - the resources needed to make goods - are in
 limited supply.
 Scarcity results from limited resources and unlimited wants.
 Choice is necessary when resources are scarce. This leads to opportunity cost.
 Specialisation improves the efficient use of resources.
 Purpose of ‘business activity’
 combines scarce factors of production to produce goods and services
 produces goods and services which are needed to satisfy the needs and wants
of the population
 employs people as workers and pays them wages to allow them to consume
products made by other people.

 Definition of ‘added value’

 Added value is the difference between the selling price of a product and the
cost of bought-in materials and components
 Added value is the difference between the cost of bought in resources and the
price at which the “finished product” sells.
 Value added = Sales Revenue - cost of Raw materials
 In this context it is the difference between the costs of rearing animals and
their market price.
 Knowledge of concept [1-2]
 Understanding of concept in context [1]
 The value is added by the work or processes carried out by the business.
 Simple answer might say “difference between costs and selling price” (this is
really profit) but can be awarded 1 mark.

 Benefits of ‘ added value’

 Charging a higher price
 Creating a point of difference from the competition
 Protecting from competitors trying to steal customers by charging lower prices
 Focusing a business more closely on its target market segment
 How could a business increase added value?
 increase selling price but keep the cost of materials the same
 Reduce the cost of materials but keep the price the same

Knowledge Analysis Application Evaluation

 - By Riya Belel

Added value Allows costs to be Increased profit margin as people likely to pay more for
paid handmade/quality suits
 Increase price As wages and other factory costs are to help ensure sales increase
 explained why/how paid out of the revenue
prices can be increased Improve quality of products such as plant
pot containers
– improve reputation
– establish brand image
– improve product features such as
excellent customer service
 Reduce cost of This will increase the used in products
materials gap between price and input costs and buy cheaper sources of /find
 explanation of how therefore increase added value cheaper suppliers
these can be reduced – lower the quality of inputs such as
such as: cheaper seeds
– reduce the amount of inputs
needed, for example less fertiliser

Change packaging Better packaging would help products Better packing would lure more
last longer and in better conditions customers to buy the product
Branding OR create a USP adding value is certainly a step towards to use on social networks
being profitable.
Improve design Gain brand loyalty and potential Better quality and more quantity of
customers production
Add extra features Adding value in this context implies
that by making the clothing fashionable
it will increase its
appeal to customers and will allow a
larger ‘gap’ to exist between bought in
materials and the
saleable worth of the end product
Reward ways of how to set Improve quality
higher prices such as – Provide extra services
– Improve brand image
Reward ways of how to reduce adding value is a Buy cheaper ingredients by changing
input costs such as necessary condition to be profitable but supplier/buying in bulk to
is not a sufficient one gain a discount/negotiating cheaper price
– Source cheaper ingredients from home
country instead of
importing ingredient

 Definition of ‘primary sector’

 The primary sector of industry extracts and uses the natural resource of Earth
to produce raw materials used by other businesses.
 those activities that are concerned with extraction of resources or agriculture
[2] or first stage of the production process [2].
 Involves the extraction/production of raw materials [2].
 Clear understanding [2] e.g. Involves extraction/production of raw materials
OR use the natural resources of the earth to produce raw materials used by
other businesses.
 Some understanding [1] e.g. Involves extraction OR deals with raw materials.
Examples only max 1 mark. Just ‘raw materials’ [0].
 - By Riya Belel

 Examples:
 mining,
 fishing,
 forestry,
 oil extraction,
 logging.

 Definition of ‘secondary sector’

 The secondary sector of industry manufactures goods using the raw materials
provided by the primary sector.
 this involves the manufacture of goods using the resources from the primary
sector.
 Examples include auto-mobile manufacturing, steel industries, cloth
production etc.

 definition of ‘tertiary sector’

 The tertiary sector of industry provides services to consumers and the other
sectors of industry
 this consist of all the services provided in an economy.
 Clear understanding [2] e.g. industry which provides/sells services [1] to
consumers and/or other sectors of the economy.
 Some understanding [1] e.g. provide services plus an example [+1].
 Do not accept examples on their own e.g. delivery company, accountant, shop.
 This includes hotels, travel agencies, hair salons, banks etc
 Examples might include reference to any service type activity such as retailing or
banking.
 Activities rather than businesses are acceptable e.g. coal mining or a shop.1 mark
per acceptable example in each part

 Definition of ‘deindustrialization’
 De-industrialisation occurs when there is a decline in the importance of the
secondary, manufacturing sector of industry in a country.
 This is due to the growing incomes of consumers which raises their demand
for more services like travel, hotels etc.

 Definition of ‘private sector’

 Private sector is where private individuals own and run business ventures.
 Their aim is to make a profit, and all costs and risks of the business is undertaken by
the individual.
 Examples, Nike, McDonald’s, Virgin Airlines etc.
 Good knowledge [2]: When business activities are owned by individuals OR groups
of individuals [2]
 Some knowledge [1] e.g. run by individuals OR not controlled directly by government
OR aim to make a profit OR controlled by person/group of people
 For two marks, must have idea of ownership and by whom.
 - By Riya Belel

 Do not accept ‘privately owned’ as does not explain term OR ‘owned by the people’
as it is too vague

 Definition of ‘public sector’

 The public sector refers to those activities that are owned and managed by the
government or its agencies (1).
 The public sector is not interested specifically in profits and is more interested
in making products and services to be more readily available.
 The public sector comprises business activities that are not usually profit
motivated but whose rationale is to provide a range of acceptable quality
services to all irrespective of ability to pay

 Objectives set by businesses in the public sector

 Identification of objective [knowledge] [2–1].
 Analysis of objective [2–1]
 Aims might include:
• Free access for all OR provided irrespective of ability to pay OR affordable
for all
• Minimum standard of provision
• Provide (essential) services
• Strategic – control production of certain goods
• Meet (profit/quality) target set by government
• protect or create employment in certain areas
 do NOT accept to reduce unemployment or to charge lower prices

 Reasons why the size of the public sector might increase over time.

Knowledge Analysis Application Evaluation

political views regarding The analysis shows why the factor health care/quality e.g. to ensure
desirability identified may explain changes in the standards/free at point of
size of the public sector consumption/available according to need
not ability to pay/maintain jobs and
employment levels.
state of economy might demand Provision of important public services some industries are too important to be
action Natural monopolies made- wasteful to run by the private sector
have competitors & no abuse of market
power
expectations of society change. aim of public sector business is to For example if the transport system is
provide services to the community owned by the government and it is
running a bus service to an interior village
and it is not getting enough customers, the
government might still continue it as its
main objective is to provide service and
not to maximise profits.
Public sector strives to create Public sector business usually locates in Industrialization by government in remote
employment whereas regions where there is areas.
underdevelopment so as to create jobs
and income for local population.

 Definition of ‘mixed economy’

 - By Riya Belel

 A mixed economy has both a private sector and a public (state) sector
 Mixed economy is a combination of market economy as well as government
planning.
 It has both private sector and public sector.
 Some businesses are owned by private individuals while some businesses are
owned by the government.
 India, Indonesia is examples of mixed economies.
 Mixed economy implies a balance of public and private sector organisations.
Thus ownership and objectives differ.
 Knowledge of terms [1–2]
 Understanding shown either by examples or explanation [development] [1–2]

 Advantages of ‘mixed economy’

 Mixed economy attempts to overcome the disadvantages of a market
economic system by using government intervention to control or regulate
different markets.

 Definition of ‘entrepreneur’
 Good knowledge [2]: a person who organises, operates and takes the risk for a
new business venture.
 Some knowledge [1]: e.g. identifies qualities such as risk taker, initiative,
good management skills, leader, decision maker.

 characteristics of a successful entrepreneur

 Knowledge (2 × 1) – award one mark for each relevant characteristic identified
 Analysis (2 × 1) – award one mark for a relevant explanation of each characteristic
 Application (2 × 2) – award two application marks for each relevant characteristic
 Relevant characteristics might include:
 Award one mark for each relevant characteristic (maximum of two), such as:
 Hard working
 Risk taker
 Creative
 Optimistic
 Self-confident
 Innovative
 Independent
 Effective communicator
 Forward thinker
 Determined


Knowledge Analysis Application Evaluation

They are risk takers *helpful in the financial management of as Archi And Boris have risked $10 000
a small business of their own
* possibility of losing own capital –sole money in the business and could have
 - By Riya Belel

trader so may lose gained interest on this money if they had

personal assets put it in the bank. (ap)
risk taker, innovator, creative, prepared to work a lot of Self-confident – decision to leave full-
self-confident, optimistic, hours/prepared to make all the time job
hardworking, decisions and take on all responsibilities
independent, effective of running the business
communicator, leadership,
initiative,
self-motivating/determined,
results driven, good at
networking, multi-skilled
Self-confident – decision to leave full-time job

Creative created new menu to attract additional

customers
Independent It earns the trust and respect of his team willing to go with own ideas
Leadership qualities by demonstrating positive work
qualities and confidence. They foster a
positive environment and then
proliferates these values through the
team.
Hard worker If George did not work so hard, the and this is needed as the café is
George works very hard in his reputation of the café could open many hours a week. (ap) If he was
business (k) fall and the business would be less not there most of the time then
successful. (an) employees may not work as hard and the
café may not maintain the high
quality. (ap)
Effective communicator Excellent inter-personal and networking persuades others
skills go a long way in business success.
Optimistic think positively about new ventures

Innovative they usually identify gaps in consumer creating new recipes to retain customers
demands or needs which have been
ignored for long. They welcome
change and are consistently innovating
with the changing demand patterns.

 Benefits of entrepreneur
 independence - able to choose how to use time and money
 able to put own ideas into practice
 - By Riya Belel

 may become famous and successful if the business grows

 may be profitable and the income might be higher than working as a employee
for another business
 able to make use of personal interests and skills

 Disadvantages of entrepreneur
 risk - many new entrepreneurs’ businesses fail, especially if there is poor
planning
 capital - entrepreneurs have to put their own money into the business and,
possibly, find other sources of capital
 lack of knowledge and experience in starting and operating a business
 opportunity cost - lost income from not being an employee of another business

 Definition of “business plan”

 Clear understanding [2] e.g. a document containing the business aims/objectives and
important details about the operations, finance and owners of a business OR states
aims/objectives and shows how business aims to achieve them
 Some understanding [1] states one element of plan e.g. shows marketing
strategy/production costs
 A business plan is a document containing the business objectives and important
details about the operations, finance and owners of the new business.
 Knowledge [2 × 1] – award one mark for each way
 Analysis [2 × 1] – award one mark for a relevant explanation for each way
 Application [2 × 2] – award two application marks for each way

 Content in “business plan”

Knowledge Analysis Application Evaluation

 To obtain a bank loan

To plan the strategy for the new

business
To help to set a budget/see if he
can afford to expand
To help identify the best
location/premises
 To help analyse the
market/demand for the new
restaurant/marketing mix for the
new business
Accounting information
 - By Riya Belel

 Advantages of “business plan”

 Knowledge [2 × 1] – award 1 mark for each relevant advantage [max 2]
 Application [2× 1] – award 1 mark if relevant reference to Si and Ramon’s
business
 Analysis [2× 1] – award 1 mark for each relevant explanation
 It helps to secure a bank loan or overdraft
 The entrepreneur thinks ahead and plans out carefully the next few years
 Reduces risks of failure as the owners have thought through problems the
business might have
 To clarify the aims and objectives / targets to aim for
 Aids financial planning
 Motivate

Knowledge Analysis Application Evaluation

 Support loan applications can be repaid as bank/lenders will want to know that
the $12500
Clear aims/guidance for business so, they know what they have to do
to get there
help decision making so will not waste time and money as Si believe there is customer demand
targeting the wrong people for service before start
helps understand the possible risks as they might not have run a business
before
provides an estimate of costs so, they will know how much they for the photography business
need
provides a checklist so that they don’t forget any important
task
A business plan reduces risk for the This will allow them to prepare for as Samah and Selina will have thought
business any problems and stop these causing through problems such as where to
difficulties for the business source their ingredients for the ice
cream and what it will
cost them
This might include preparing for cash
flow problems at times
of the year when demand is low
Provide an estimate of costs/what type
of finance they need

Guide business/help set

 - By Riya Belel

objectives/checklist/monitoring
Support loan applications/attract
investors
Gets out of date quickly

 sections of a business plan

 Executive summary
 Business aims OR targets OR vision statement OR objectives
 Marketing OR any element of mix, e.g. pricing, product, place or
 promotion
 •Market research OR Competition OR market analysis•
 Financial, e.g. cash flow forecast OR budgets
 Human resources OR number of employees OR skills needed
 Production details
 Organisational OR management details, e.g. structure, type of
 business, name and location of business

 Why governments support business start-ups?

 Knowledge [2×1] award 1 mark per reason
Points could include:
• Reduce unemployment
• Increase competition / develop market
• Increase output / economic growth
• Generate new ideas
• Can become large / important businesses in future
• Source of tax
 To encourage job creation as unemployment is a problem.
 To help more businesses get started to encourage further economic growth. Increased
 taxation and decreased government spending on welfare payment

 How governments support business start-ups?

 Organise advice
 Provide low cost premises
 Provide loans at low interest rates
 Give grants for capital
 Give grants for training
 Reduced tax payments

Knowledge Analysis Application Evaluation

To increase employment as Peter will need to employ other By giving Peter a grant to start his own
workers to convert vans business

this will reduce unemployment in the

area and increase incomes
provide business advice to potential
entrepreneurs, giving them information
useful in staring a venture, including legal
 - By Riya Belel

and bureaucratic ones

provide land at low cost or low rent for
new firms
provide financial aid to new firms for
investment
provide financial aid for workforce
training
high taxes are a disincentive for new firms
to set up. Governments can thus
withdraw or lower taxation for new firms
for a certain period of time

 Measuring Business Size

 Number of employees: larger firms have larger workforce employed
 Value of output: larger firms are likely to produce more than smaller ones
 Value of capital employed: larger businesses are likely to employ much more
capital than smaller ones

 Limitation of using ‘number of employees’ as a method of measuring business

size.
 Knowledge: [2 × 1] – award 1 mark per limitation.
 Points could include:
 Not account for capital intensive business/could be labour intensive
 Could have many part – time employees
 Gives no indication of value/market share/revenue

 Definition of “internal growth”

 Internal growth occurs when a business expands its existing operations.
 Definition of “external growth”
 External growth is when a business takes over or merges with another
business.
 It is often called integration as one business is integrated into another one

 Definition of “takeover”
 A takeover or acquisition is when one business buys out the owners of another
business, which then becomes part of the ‘predator’ business (the business
which has taken it over
 A merger is when the owners of two businesses agree to join their businesses
together to make one business.

 Benefits of a takeover
 Knowledge [1] – award 1 mark for identification of relevant issue(s). Positive
or negative points allowed [max 1]
 Application [1] – award 1 mark if relevant reference made to AB’s business
 - By Riya Belel

 Analysis [2] – award up to 2 marks for relevant development of point(s)

 Evaluation [2] – justified decision made as to whether the takeover is in the
best interests of the employees.

Knowledge Analysis Application Evaluation

employees may gain as jobs so able to pay for basic needs

more secure
opportunities for promotion or
more responsibility or increased
pay as it will be a larger
business [k]
loss of benefits as pay or so employees might not be able to earn
conditions offered by rival as much
business might not be as
generous
employees might have less as both
opportunities for promotion or businesses will have employees looking
responsibility for roles so could become demotivated
loss of some jobs as some tasks might be duplicated in the
two businesses
risk of job losses is much greater as the economy is in recession [ap] so so a takeover might
cost cuts or not benefit
redundancy is more likely employees as they
might face greater
job insecurity
hich in a recession they might be AB has $200m in loans so it
unable to repay might be safer to be
taken over by a
larger business
Increase in share price/money
made from sale of shares [k]
Larger company might mean
more secure investment / more
capital to invest [k]
Level of influence as likely to have less say in larger
company

 Disadvantages of ‘takeover’
 - By Riya Belel

 employees will be concerned about job security in short run, although the merger
might
create firmer job prospects for others
 management might find extra complexity in work and be concerned about their
position
and status in new organisation
 owners would probably gain if the terms of the takeover were attractive
 country [Government] might gain through increased tax receipts from a larger
business
 consumers might be affected by changes in prices or a different range or choice of
products.

 Definition of “merger”
 A merger is when the owners of two businesses agree to join their businesses
together to make one business.


 Definition of “market share”

 Clear understanding [2] Percentage of the total market sales [1] held by one
brand or business [+1]
 Some understanding [1] e.g. share of all sales made

 Definition of “horizontal merger”

 Horizontal integration is when one business merges with or takes over another
one in the same industry at the same stage of a production

 Benefits of “horizontal merger”

 Reduces number of competitors in the market, since two firms become one.
 Opportunities of economies of scale.
 Merging will allow the businesses to have a bigger share of the total market.

 Definition of “vertical integration”

 Vertical integration is when one business merges with or takes over another
one in the same industry but at a different stage of production.
 Vertical integration can be forward or backward

 Definition of “backward vertical integration”

 When one firm merges with or takes over another firm in the same industry
but at a stage of production that is behind the ‘predator’ firm.
 For example, when a firm that manufactures furniture merges with a firm that
supplies wood for manufacturing furniture.

 Benefits of “backward vertical integration”
 Merger gives assured supply of essential components.
 The profit margin of the supplying firm is now absorbed by the expanded firm.
 The supplying firm can be prevented from supplying to competitors.

 - By Riya Belel

 Definition of “forward vertical integration”

 When one firm merges with or takes over another firm in the same industry
but at a stage of production that is ahead of the ‘predator’ firm.
 For example, when a firm that manufactures furniture merges with a furniture
retail store.

 Benefits of “forward vertical integration”
 Merger gives assured outlet for their product.
 The profit margin of the retailer is now absorbed by the expanded firm.
 The retailer can be prevented from selling the goods of competitors.

 Definition of “conglomerate integration”

 Conglomerate integration is when one business merges with or takes over a
business in a completely different industry.
 This is also known as diversification.
 Spread business risk [k] so if one product doesn’t sell, others might [an]

 benefits of “conglomerate integration”

 Conglomerate integration allows businesses to have activities in more than one
country.
 This allows the firms to spread its risks.
 There could be a transfer of ideas between the two businesses even though they
are in different industries.
 This transfer of ideas could help improve the quality and demand for the two
products.

 Drawbacks of “growth”
 Difficult to control staff: as a business grows, the business organisation in
terms of departments and divisions will grow, along with the number of
employees, making it harder to control, co-ordinate and communicate with
everyone
 Lack of funds: growth requires a lot of capital.
 Lack of expertise: growth is a long and difficult process that will require
people with expertise in the field to manage and coordinate activities
 Diseconomies of scale: this is the term used to describe how average costs of a
firm tends to increase as it grows beyond a point, reducing profitability.

 Why some business stays small?

 personal wishes / owners’ objectives
 size of market / niche Lack of demand/market size
 lack of finance/ Lack of capital for investment
 - By Riya Belel

 avoid diseconomies of scale / communication issues / co-ordination

 Lack of demand/market size
 Offers a personal service
 Close contact with customers
 Close contact with employees
 Wants to keep the business in family ownership/control
 Easier to control
 Less stressful
 each explanation – 2 of which must be applied to this context.

Knowledge Analysis Application Evaluation

A lack of demand Without a large demand there is no  as the motorbikes may not
point in trying to expand have a large number of
potential customers in the
local area
 to sell large number of
motorbikes and so the business
will remain small
To stay as her own boss and she does not want anyone telling  as Bethany has run the business
her what to do or disagreeing with her successfully for 10 years
decisions
 The business idea is all her
own and so she does not want
to have anyone else influencing
her decisions about which treatments to
offer clients

 Why some businesses fail?

 Knowledge [2 × 1] award 1 mark per reason
 Relevant points might include:
 Lack of demand / recession
 Poor management skills / poor planning
 Change in tastes
 Financial problems e.g. lack of cashflow
 Change in legal controls
 Action of competitor
 Change in economic situation e.g. rise in interest rates, taxes

Knowledge Analysis Application Evaluation

Poor management this is a common cause of business

failure for new firms. The main
reason is lack of experience and
planning which could lead to bad
decision making. New
entrepreneurs could make mistakes
when choosing the location of the
firm, the raw materials to be used
for production, etc, all resulting in
failure

Over-expansion: this could lead to diseconomies of scale

 - By Riya Belel

and greatly increase costs, if a firm

expands too quickly or over their
optimum level
Failure to plan for change the demands of customers keep changing
with change in tastes and fashion. Due to
this, firms must always be ready to
change their products to meet the demand
of their customers. Failure to do so could
result in losing customers and loss. They
also won’t be ready to quickly keep up
with changes the competitors are making,
and changes in laws and regulations
Poor financial if the owner of the firm does not manage
management his finances properly, it could result in
cash shortages. This will mean that the
employees cannot be paid and enough
goods cannot be produced. Poor cash
flow can therefore also cause businesses
to fail

 Definition of ‘sole trader’

 Ownership of business in the hands of one individual/person.
 Clear understanding [2] e.g. ownership of business in the hands of one individual/person.
 Some understanding [1] e.g. run/operated by one person.
 Features of a sole trader business
 Ownership by one person
 Unlimited liability
 Unincorporated business.
 Advantages of a Sole Trader (knowledge points)
 Keeps all the profit
 Own boss/has complete control
 Does not have to give information about his business to anyone else/secrecy in business matters
 Has freedom to choose own holidays/hours of work/prices to charge
 Has close contact with customers

Knowledge Analysis Application Evaluation

Keeps all the profit So if successful, will make more From his painting business
money
Own boss – has complete control So can make his own decisions more Of what prices he should sell his
quickly paintings, where should he sell, how
should he sell his paintings (Online, art
gallery etc.)
Does not have to give So competitors have less information Details about the number of paintings
information about his business or about his business secrets. sold and the value of annual sales,
himself A sole trader’s personal details also profitability of his painting business can
remain private, whereas certain details remain secret
 - By Riya Belel

relating to company directors are

disclosed publicly
Has freedom to choose own He can live his life as per his wish by This can enable him to balance his
holidays/hours of work/prices to planning how much to work and when lifestyle between his painting business
charge to take a holiday. He can also decide as and his personal life. His decision of
whether to offer 3 months credit terms giving credit terms to a customer based
to customers. on his own judgement about a customer
may enable him to gain more customers
and also increase more customers and
sales.
Has close contact with customers So, he can respond quickly to needs of And thus, give them better service and
the customers satisfaction about what type of paintings
do they like to buy or when do they want
a specific painting to be delivered

 Disadvantages of a Sole Trader (knowledge points)

 Unlimited liability
 Limited sources of finance/difficult to raise funds
 May have limited range of skills
 No continuity/if ill who will take control
 Has to work long hours/difficult to take holidays
 No one to share the risks/losses with
 Not able to benefit from economies of scale

 Definition of ‘limited liability’

 Limited liability means that the liability of shareholders in a company is limited
to only the amount they invested.
 Clear understanding [2]: Liability of shareholders in a company is only limited to
the amount they invested OR shareholders in a limited liability company which
fails only risk losing the amount they have invested in the company and not any
of their personal wealth
 Some understanding [1]: Cannot lose personal assets or only lose amount
invested
 - By Riya Belel

 Definition of ‘unlimited liability’

 Unlimited liability means that the owners of a business can be held responsible
for the debts of the business they own.
 Their liability is not limited to the investment they made in the business.

 Definition of ‘partnership’
 Partnership is a form of business in which two or more people agree to jointly
own a business
 A clear definition indicating that two or more people own the business. [2]
Partnership is an association between people who agree to own and run a
business together. [2]
 Weak definition showing some relevant knowledge. [1]

 Features of “partnership”
 Knowledge [2 × 1] one mark per feature. Points might include:
 share of risk and rewards
 Share of profits
 Decision making
 Share of ownership
 Flexibility
 Business privacy
 Legal agreement between 2 or more people
 Owned and financed by partners
 Profits shared
 Unlimited liability [usually]
 Unincorporated
 Share risk of failure
 Definition of Partnership agreement
 A partnership agreement is the written and legal agreement between business
partners.
 It is not essential for partners to have such an agreement but it is always
recommended.

 Advantages of ‘partnership’
 raise additional capital;
 additional expertise in business;
 share losses.
 Additional assets could now be purchased.
 The responsibilities of running the business can be shared.
 Absences and holidays did not lead to major problems as one of the partners
was always available.
 Fewer legal formalities when setting up and running the business
 Partners can work in the business/help with decisions/holidays/responsibility
shared/more ideas/ additional specialisms/skills of partners
 disadvantages of ‘partnership’
 have to share profits
 partners share control
 - By Riya Belel

 conflict between partners

 No continuity
 Responsible for actions of other partners
 Slower decision making
 Profit will have to be shared.

Knowledge Analysis Application Evaluation

Increased capital to put into the This will reduce the need to all partners will invest
business borrow money, saving interest
payments,
More ideas [k which could make business more
competitive
More capital (than sole trader which may help solve cash flow
problems [app] so less need to
borrow money
Share responsibilities OR workload OR so have time to focus on what they as Corey
Specialisation OR more skills are good at focuses on finance
Share risk OR losses

Fewer legal formalities when setting up

Partnerships can create strains in the

following areas –
division of Work
loads/responsibilities/control/decision
making/personal conflicts.

 what is a limited company?

 Clear knowledge [2]: business which has a separate legal identity/status to its
owners OR a business whose owners are legally responsible for its debts only to
the extent of the amount of capital they invested.
 Some knowledge [1]: e.g. able to sell shares or owners have limited liability

 Definition of ‘private limited company’

 - By Riya Belel

 Private limited companies are businesses owned by shareholders but they cannot
sell shares to the public
 Clear understanding [2] e.g. a business whose shares cannot be sold to the general
public [2] Or shares only sold to family and friends [2]
 Some understanding [1] e.g. outlines general features of limited companies e.g.
have limited liability/separate legal identity from owners/can sell
shares/incorporated

 Features of ‘private limited companies’

 legal identity in own right
 owners have limited liability
 restriction placed on sale of shares
 owned by individuals.

 Advantages of ‘private limited company’
 Shares can be sold to a large number of people
 All shareholders have limited liability
 The people who started the company are able to keep control of it as long as they
do not sell too many shares to other people.
 shareholders in a company have less risk than sole traders and partners
 more capital from shareholders
 limited liability
 continuity
 disadvantages of ‘private limited company’
 The shares in a private limited company cannot be sold or transferred to anyone
else without the agreement of the other shareholders
 The accounts of a company are less secret than for either a sole trader or a
partnership
 the company cannot offer its shares to the general public. Therefore, it will not be
possible to raise really large sums of capital to invest back into the business
 sale of shares restricted to family and friends
 accounts not private any more
 more legal requirements

 definition of ‘public limited’

 Clear understanding [2] e.g. a company whose shares can be sold on the stock
exchange OR identifies specific features of public limited company e.g. shares
issued to and owned by public/shares sold freely on the stock market.
 Some understanding [1] e.g. identifies general features of limited companies e.g.
have limited liability/separate legal identity from owners/can sell shares/freedom
of access to financial statements.
 Do not accept private sector on its own.
 features of ‘public limited company’
 shares issued to and owned by public
 shares sold freely on the stock market
 freedom of access to financial statements

 - By Riya Belel

 advantage of ‘public limited company’

 able to sell shares on stock market - so no limit to potential number of investors
 access to more sources of finance – so easier to raise funds to expand
 limited liability - so investor only liable for amount invested /could be more
likely to invest in company as risk limited
 separate legal identity -accounts separate to owners, so if one dies, business can
continue
 high status -so easier to attract suppliers who will sell to them on credit OR banks
more likely to lend to them as seen as lower risk

 disadvantage of ‘public limited company’

 Accounts published -have to disclose accounts, so less able to keep financial details secret from
rivals
 many legal requirements/regulations, which is expensive and time consuming
 selling shares expensive because shares need to be listed on the stock market
 shares are freely traded so there is a greater risk of takeover/danger that original
 owners might lose control
 Divorce of ownership and control

Knowledge Analysis Application Evaluation

Access to greater sources of so help fund expansion

finance
Greater prestige/status so might be able to attract
Can give a company a more prestigious better managers/employees
profile OR status [k]
More legal requirements to meet

Already have limited liability as private limited company so is there much

benefit
[eval]
business is already successful so might have funds as profits have increased
for expansion already
Greater Risk of takeover/ Cannot control
who buys the shares
A public limited company can issue new This is a his will allow it
shares to the public cheaper way to raise this necessary to raise the additional
/Shares tradeable on the stock exchange capital for the expansion as interest
will not
need to be paid on the finance
 - By Riya Belel

 Definition of ‘annual general meeting’

 An Annual General Meeting is a Legal requirement for all companies.
Shareholders may attend and vote on who they want to be on the Board of
Directors for the coming year.

 Functions of ‘annual general meeting’

 AGM is the means by which communications between directors and
shareholders directly occur on a two-way basis.
 Shareholders are informed as to what has happened and directors are
answerable for their actions.
 Resolutions formally approved and accounts accepted.
 Discussion of strategic issues but not operational ones.
 The meeting also acts as the basis for election of company officers [board
members but not managers].
 elect OR re-elect directors/approve OR present accounts/vote on
 resolutions e.g. approve directors pay OR agree dividends/opportunity for
shareholders to question the board OR inform performance.
 [2–1] knowledge of functions
 [2–1] analysis [explanation] of functions

 Definition of ‘dividend’
 Dividends are payments made to shareholders from the profits (after tax] of
company. They are the return to shareholders for investing in the company
 Dividends are the profit after tax paid out to shareholders of the business. [2]
 Good knowledge [2] e.g. Payment to shareholders [1] from profits of a
company [+1] Return to shareholders for investing in the company [2]
 Some knowledge [1] e.g. Payment to shareholders
 Answers like ‘money paid to shareholders’/ ‘reward for owning shares’ [1]
 MUST refer to profit as the source for second mark.

 Definition of Unincorporated business

 An unincorporated business is one that does not have a separate legal identity.
Sole traders and partnerships are unincorporated businesses
 Definition of Incorporated businesses
 An Incorporated business are companies that have separate legal status from
their owners.
 Definition of Shareholders
 Shareholders are the owners of a limited company. They buy shares which
represent part ownership of the company.

 Definition of ‘franchise’
 A franchise is a business based upon the use of the brand names, promotional logos
and trading methods of an existing successful business.
 The franchisee buys the licence to operate this business from the franchisor.
 Clear understanding [2]: A business based upon the use of the brand names,
promotional logos and trading methods of an existing successful business.
 - By Riya Belel

 The franchisee buys the licence to operate this business from the franchisor.
 A business system where entrepreneurs buy the right to use the name, logo and
product of an existing business.
 Some understanding [1]: Using the name or logo of another business

 Advantages of ‘franchise’ to franchisor

 The franchisee buys licence from the franchisor to use the brand name
 Expansion of the franchised business is much faster than if the franchisor had
to finance all new outlets
 The management of the outlets is the responsibility of the franchisee
 All products sold must be obtained from the franchisor

 Disadvantage of franchise to franchisor

 Poor management of one franchised outlet could lead to a bad reputation for
the whole business
 The franchisee keeps profits from the outlet

 Advantages of franchise to franchisee

 The chances of business failure are much reduced because a well-known
product is being sold
 The franchisor pays for advertising
 All supplies are obtained from a central source - the franchisor
 There are fewer decisions to make than with an independent business - prices,
store layout and range of products will have been decided by the franchisor
 Training for staff and management is provided by the franchisor
 Banks are often willing to lend to franchisees due to relatively low risk

 Disadvantages of franchise to franchisee

 Less independence than with operating a non-franchised business
 May be unable to make decisions that would suit the local area , for example,
new products that are not part of the range offered by the franchisor
 Licence fee must be paid to the franchisor and possibly a percentage of the
annual turnover

Knowledge Analysis Application Evaluation

Franchisee pays fee to franchisor to use so franchisor does not have to raise
the brand name as much capital
Can expand more quickly (than if
franchisor had to
finance all new outlets)
Franchisees are responsible for day-to- so franchisor has time to focus on
day management more strategic objectives
Franchisee should have local knowledge Which could help increase
sales/revenue
 - By Riya Belel

Franchisor receives a percentage of

revenue/profits
Franchisor shares risks with franchisee

Brand/customer awareness increases

All products sold must be obtained from

the franchisor
Wrong decision or poor management by reducing sales/revenue
one franchisee can damage reputation for
whole business
Franchisor may have to provide training which will increase franchisors costs
and support

 Definition of ‘joint venture’

 A joint venture is where two or more businesses start a new project together,
sharing capital, risks and profits
 Clear understanding [2]: when two or more businesses agree to start a(new)
project together so share risks OR project)
 Clear understanding focusing on key features [2].
 Some understanding e.g. allows someone else to sell their products [2].
 Advantages of ‘joint venture’
 Provide access to new markets
 Share costs
 Access to other specialist staff and technology
 Share risks
 Different management styles or objectives
 Skills and expertise of partners differ
 Any mistakes might damage reputation of both firms
 Disadvantage of ‘joint venture’
 A

Knowledge Analysis Application Evaluation

Access to new markets increasing brand awareness of its range of cereals

so Access to local expertise / ideas [k]

better able to meet customer e.g. cultural knowledge as tastes differ
requirements / ensure sales
Wider range of contacts / better so might be able to obtain
access to resources [k] cheaper ingredients [app]
Increased capital / share costs so less risk

Increased capacity without affecting so can meet expected growth in

supply for other markets demand
 - By Riya Belel

Way to avoid government so able to maximise

restrictions potential sales
Less competition so one less rival as working with local
business
Economies of scale

Build reputation

 Definition of ‘public corporation’

 A public corporation Is a business in the public-sector that is owned and
controlled by the state(government).
 Clear understanding [2]: A business that is owned and controlled by the
government/state
 Some understanding [1]: E.g. run by government/state

 Advantages of ‘public corporation’

 Some industries are considered so important that government ownership is
thought to be essential. These include water supply and electricity
generationin many countries.
 If industries are controlled by monopolies because it would be wasteful to
have competitors - two sets of railway lines to a certain town, for example -
then these natural monopolies are often owned by the government. It is argued
that this will ensure consumers are not taken advantage of by privately owned
monopolists.
 If an important business is failing and likely to collapse, the government can
step in to nationalise it. This will keep the business open and secure jobs.
 Important public services, such as TV and radio broadcasting, are often in the
public sector. Non-profitable but important programmes can still be made
available to the public
 Disadvantages of ‘public corporation’
 There are no private shareholders to insist on high profits and efficiency. The
profit motive might not be as powerful as in private sector industries.
 Government subsidies can lead to inefficiency as managers will always think
that the government will help them if the business makes a loss. It may also be
unfair if the public corporation receives a subsidy but private firms in the same
industry do not.
 Often there is no close competition to the public corporations. There is
therefore a lack of incentive to increase consumer choice, increase efficiency
or even improve customer service.
 - By Riya Belel

 Governments can use these businesses for political reasons, for example, to
create more jobs just before an election. This prevents the public corporations
being operated like other profit-making businesses
 Definition of ‘business objective’
 Business objectives are the aims or targets that a business works towards.
 Clear understanding [2] e.g. a statement of a specific target that a business
works towards
 Some understanding [1] e.g. target or goal
 Importance of ‘business objectives’
 To gain a good reputation
 To keep customer loyalty/customer satisfaction/meet customer needs
 To attract new customers
 To reduce customer complaints
 Unique Selling Point (USP)/Brand Image
 Added Value.
 Benefits to the business of having ‘business objective’
 Gives sense of purpose and direction
 Goal to be achieved
 Measure of success
 Helps decision making and planning
 Importance of business objective – “high market share’
 Increased growth in the market but could grow without taking a larger market
share as market itself is growing.
 May have to accept lower profit in a competitive market to increase market
share
 Improved brand image / good reputation from having a higher market share
encourages sales
 Increased influence over suppliers
 May have to reduce prices or increase marketing costs to attract more
customers
 Possibly have more control over prices if more dominant in the market
 definition of ‘growth’
 once a business has passed its survival stage it will aim for growth and
expansion.
 This is usually measured by value of sales or output. Aiming for business
growth can be very beneficial.
 A larger business can ensure greater job security and salaries for employees.
 The business can also benefit from higher market share and economies of
scale.
 Definition of ‘profit’
 Profit is total income of a business (revenue) less total costs
 Importance of business objective – ‘profit’
 Dividends should be paid to shareholders to reward the investment or
shareholders may want to sell their shares. However, it is a private limited
company and shareholders can only sell shares to family and friends so there
will be fewer opportunities to sell shares than if it is a public limited company.
 - By Riya Belel

 Will need to make a profit in the long term or will not attract more investors
in the future.
 Profit should be made so that it may be retained for future investment without
the need to borrow capital

 Definition of ‘market share’
 Market share is the percentage of total market sales held by one brand or
business.
 Proportion of total market sales accounted for by one business.
 market share = total sales / individual sales
 Clear understanding [2] e.g. percentage of the total market sales [1] held by
one brand or business [+1] OR business sales/total market sales × 100
 Some understanding [1] e.g. share of all sales made/percentage of customers a
business has
 Importance of business objective – “high market share’
 Need to make a profit in order to be worth staying in business but survival is
usually an objective when the business is first starting out or if times are
difficult such as in a recession, when expanding the business or facing
increasing competition.
 In the long term this may not be an objective – other objectives become more
important

 Ways to increase ‘market share’(knowledge)

 takeover rival business
 offer new routes
 spot new trends or market gaps quicker than rivals
 enter new markets
 offer better customer service (to maintain customer loyalty)
 get existing customers to buy more
 sell through new channels

 Advantages of business objective being an environmentally Friendly business

 Improved brand image– may attract ethical customers – increase sales
 Less likely to break government regulations on environmental damage
 Employees may prefer to work for an ethical business
 Avoids WA having to deal with pressure groups
 Disadvantages of business objective being an environmentally friendly business
 May have a higher cost –higher price for furniture
 Less competitive especially if competitors do not use sustainable wood

 Advantages of business objective - ‘increasing market share’
 increase sales – higher revenue and profit
 More dominant in the market – more influence on price
 Disadvantages of business objective – ‘increasing market share’
 Increased cost of marketing
 Marketing costs may be higher than improvement in sales and revenue
 - By Riya Belel

 Increase in sales may not increase market share if market is growing at the
same rate
 Advantages of business objective - ‘survival’
 Avoids making a loss – costs are covered
 Easier to achieve than other objectives – just needs to aim to breakeven
 Protects family investment
 disadvantages of business objective - ‘survival’
 Long term not good as low / no retained profit this is usually a short-term objective
 May need to borrow externally if low profit


Knowledge Analysis Application Evaluation

To gain a good reputation because then customers will tell Customers will not use a photography
their friends about the service business
and this will increase sales revenue very often and Thao and Liang will
rely on gaining new customers for
wedding
photographs from hearing about them
from other happy customers
Lower prices could increase but might lead to lower revenue as
sales people only buy
cameras [app] because they are
cheaper
If larger share of a smaller market sales volume might have fallen as people now
have cameras in phones
Larger market share due to increased educing unit cost
sales volumes may lead to purchasing increasing margins
economies
of scale
Stronger brand recognition which could improve
competitiveness
More power to charge higher prices

 Definition of ‘social enterprise’

 A social enterprise has social objectives as well as an aim to make a profit to
reinvest back into the business
 Clear understanding [2]: e.g. business with both social objectives as well as
aim to make a profit
 Some understanding [1] e.g. not all about profit

 Why business objectives could change

 - By Riya Belel

 A business set up recently has survived for three years and the owner now
aims to work towards higher profit.
 A business has achieved higher market share and now has the objective of
earning higher returns for shareholders.
 A profit-making business operates in a country facing a serious economic
recession so now has the short-term objective of survival.

 Definition of ‘stakeholder’
 A stakeholder is any person or group with a direct interest in the performance
and activities of a business.
 Clear understanding [2]: any person or people with a direct interest in the
performance and activities of a business
 Some understanding [1]: someone affected by what a business does

 Features of stakeholders
 Owners (Internal)
 They put capital in to set up and expand the business.
 They will take a share of the profits if the business succeeds.
 If the business does not attract enough customers,
 they may lose the money they invested.
 They are risk takers.
 Workers (Internal)
 They are employed by the business.
 They have to follow the instructions of managers and may need training to do
their work effectively.
 They may be employed on full- or part-time contracts
 and on a temporary or permanent basis.
 If there is not enough work for all workers, some may be made redundant
(retrenchment) and told to leave the business

 Managers (Internal)
 They are also employees of the business and control the work of other
workers.
 They take important decisions.
 Their successful decisions could lead to the business expanding.
 If they make poor decisions, the business could fail.
 Customers (External)
 They are important to every business. They buy the goods that the business
produces or the services that the business provides.
 Without enough customers, a business will make losses and will eventually
fail.
 The most successful businesses often find out what consumers want before
making goods or providing services - this is called market research.
 Government (External)
 It passes laws to protect workers and consumers.
 It is responsible for the economy of the country.
 - By Riya Belel

 The whole community (External)

 The community is greatly affected by business activity.
 For example, dangerous products might harm the population.
 Factories can produce pollution that damages rivers, the sea and air quality.
 Businesses also create jobs and allow workers to raise their living standards.
 Many products are beneficial to the community, such as medicines or public
transport
 Banks (External)
 They provide finance for the business’s operations

 Objectives of stakeholders
 Owners/shareholders
 Shareholders are entitled to a rate of return on the capital they have invested
into the business and will therefore have profit maximization as an objective.
 Business growth will also be an important objective as this will ensure that the
value of the shares will increase.
 Workers
 Contract of employment that states all the right and responsibilities to and of
the employees.
 Regular payment for the work done by the employees.
 Workers will want to benefit from job satisfaction as well as motivation.
 The employees will want job security– the ability to be able to work without
the fear of being dismissed or made redundant.
 Managers
 Like regular employees, managers too will aim towards a secure job.
 Higher salaries due to their jobs requiring more skill and effort.
 Managers will also wish for business growth as a bigger business means that
managers can control a bigger and well known business.
 Customers
 Price that reflects the quality of the good.
 The products must be reliable and safe. i.e., there must not be any false
advertisement of the products.
 The products must be well designed and of a perceived quality.
 Government
 The government will want the business to grow and survive as they will bring
a lot of benefits to the economy.
 A successful business will help increase the total output of the country, will
improve employment as well as increase government revenue through
payment of taxes.
 They will expect the firms to stay within the rules and regulations set by the
government.
 The whole community
 the banks will expect the business to be able to repay the amount that has been
lent along with the interest on it. The bank will thus have business liquidity as
its objective.
 The business must offer jobs and employ local employees.
 - By Riya Belel

 The production process of the business must in no way harm the environment.
 Products must be socially responsible and must not pose any harmful effects
from consumption.

 Conflicts of stakeholder’s objective
 As all stakeholders have their own aims they would like to achieve, it is
natural that conflicts of stakeholders’ interests could occur.
 Therefore, if a business tries to satisfy the objectives of one stakeholder, it
might mean that another stakeholders’ objectives could go unfulfilled.

Knowledge Analysis Application Evaluation

Employees/management should pay fair wages

or offer good conditio
Suppliers pay fair price/pay on time [an

Community

Government paying its taxes on time/not do tax as create jobs in more towns
avoidance
Customer do not exploit them by charging
high prices

Case Study – Activity

1. Case Study 1 -Rakesh’s bakery
Rakesh owns a small bakery selling bread, cakes and biscuits. His business is just making enough
money to survive. His wife, Neeta, had the idea of serving customers tea and coffee at two small
tables that could be fitted into the bakery shop. ‘Customers will pay more for each cake and biscuit if
we sell them with tea or coffee - just like a little cafe.’ Rakesh bought some second-hand cafe
equipment and furniture and tried what Neeta had suggested. She was right! Some of his customers
not only bought teas and coffees but they paid higher prices for the cakes and biscuits they bought as
they were served them on a plate! Rakesh had increased the value added to the flour, sugar and butter
he used to make these cakes and biscuits.
Activity 1.3
Refer to the case study above.
 - By Riya Belel

a. If the best-selling cake in this bakery uses 30 cents' worth of flour, sugar and butter and
Rakesh sells each one for $1, calculate the value added,
b. If customers are prepared to pay $1.50 when this cake is served on a plate at a table within the
bakery, what is the new value added per cake?
c. Does the opening of the small cafe mean that Rakesh must have increased his weekly profit?
Explain your answer.

2. Case Study 2- COMPARING THE THREE ECONOMIC SECTORS – India and Papua
New Guinea
The relative importance of the three economic sectors in. India is very different to that in Papua New
Guinea. India does not have large reserves of primary products (natural resources), whereas Papua
New Guinea is rich in mineral deposits including copper, gold and oil and also has extensive forests
covering much of the country producing timber products. Extracting these valuable resources makes a
huge contribution to the economy of Papua New Guinea. India's textile, steel and car manufacturing
industries are rapidly growing, but the secondary sector in Papua, New Guinea is small- palm oil
processing, plywood production and wood chip production are the most important secondary
industries. If Papua, New Guinea developed a furniture industry making tables and chairs from the
timber extracted from its forests, secondary production could increase. The tertiary sector is
expanding in both countries tourism is starting to gain importance in Papua New Guinea but it is still
in its early stages of development and its main service industries are linked to the transport and export
of its minerals. Providing IT services to businesses all over the world is India's largest service
industry.

Activity 2.2
a)Explain what tertiary production means by using examples from the case study,
b) Explain two reasons why the primary sector is relatively more important to Papua ,New Guinea
than to India.
c) In 2017, it was estimated that 47 per cent of Indians worked in the primary sector- mainly in
agriculture. Why was this sector the least important of the three in terms of output?
d) Discuss the likely impact on Papua New Guinea if its copper and gold mines become exhausted
(the copper and gold runs out!).

3. Case Study 3: Bangladesh - the importance of economic sectors over time

In 1970, Bangladesh had an economy largely based on agriculture. A high proportion of the
population worked in farming, either to produce crops for their own consumption or to sell in local
markets. Secondary manufacturing activities were not very important and the tertiary sector was also
small as incomes were very low and people had little spare cash to spend on services. By 2017,
Bangladesh had undergone significant changes. Although 40 per cent of the workforce still works in
 - By Riya Belel

agriculture, primary production of goods such as jute, tobacco and food has fallen in relative terms.
Manufacturing industries - mainly food processing and clothing - have expanded rapidly. Tertiary
services such as telecommunications, transport and finance now contribute approximately half of total
national output. Economic sectors in Bangladesh- World Bank estimates of % share of GDP

Activity 2.3
refer to the case study above.
a) Explain two possible reasons why the relative importance of primary output has fallen.
b) Would workers who formerly worked in agriculture find it easy to obtain jobs in the secondary or
tertiary sectors of industry? Explain your answer.
c) What do you expect to happen to the relative importance of tertiary industries if incomes continue
to rise in Bangladesh? Explain your answer.

CASE STUDY 3:
Business plan for Pizza Place Ltd
Name of business Pizza Place Ltd
Type of organisation Private limited company
Business aim To provide a high-class takeaway pizza service including home
delivery
Product High-quality home-cooked pizzas
Price Average price of $8 with $2 delivery charge
Market aimed for Young people and families
Market research Research in the area conducted using questionnaires
undertaken and the Also, research into national trends in takeaway sales and local
results competitors
Results of all research in the appendix to this plan
Human Resources The two business owners to be the only workers to be employed
plan initially
Details of business Peter Yang - chef of 15 years' experience
owners Sabrina Hsiu - deputy manager of a restaurant for three years
Production details Main suppliers - P&P Wholesalers
and business costs Fixed costs of business - $50 000 per year
Variable costs - approximately $2 per unit sold
Location of business Site in shopping street (Brunei Avenue) just away from the town
centre
 - By Riya Belel

Leasehold site (10 years)

Main equipment Second-hand kitchen equipment - $6000
required Second-hand motorbike - $3000
Forecast profit See financial appendix to this plan
Summary: In the first year of operations the total costs are
forecast to be $75000 with revenue of $105000
Predicted profit = $30000
Level of output to break even - 10 000 units per year
Cash flow See financial appendix to this plan
Due to the high set-up and promotion costs there will be negative
cash flow in the first year
Finance $10 000 invested by each of the owners
Request to bank for a further $15000 plus an overdraft
arrangement of $6000 per month
Activity 3.1
Read managers plan for Pizza each of Place the Ltd following above. Explain why, if you were a bank
manager reading this plan , each of the following would be important to you before you gave the
entrepreneurs a loan:
• market research results
• experience of business owners
• forecast profit.
Activity 3.2
Draw up another business plan. It should be based on your own idea for a business that
is operated within your school or college (for example, a stationery shop, confectionery
Store or cake shop)
Activity 3.3
Research in the background and business activities of two well that -known entrepreneurs in your own
country. Identify the personal characteristics that you believed that each entrepreneur has which have
helped them to succeed. Write a brief report on each one and prepared to present your reports to the
rest of the class.
- By Riya Belel