Friday, August 24, 2012

Chapter 2: Types of business activity

Levels of economic activity


In order for products to be made and sold to the people, it must undergo 3 different production processes. Each process is done by a different business sector and they are:
  • Primary sector: The natural resources extraction sector. E.g. farming, forestry, mining... (earns the least money)
  • Secondary sector: The manufacturing sector. E.g. construction, car manufacturing, baking... (earns a medium amount of money)
  • Tertiary sector: The service sector. E.g banks, transport, insurance... (earns the most money)
Importance of a sector in a country:
  • no. of workers employed.
  • value of output and sales.
Industrialisation: a country is moving from the primary sector to the secondary sector.
De-industrialisation: a country is moving from the secondary sector to the tertiary sector.
In both cases, these processes both earn the country more revenue.

Types of economiess

Free market economy:
All businesses are owned by the private sector. No government intervention.

Pros:
  • Consumers have a lot of choice
  • High motivation for workers
  • Competition keeps prices low
  • Incentive for other businesses to set up and make profits
Cons:
  • Not all products will be available for everybody, especially the poor
  • No government intervention means uncontrollable economic booms or recessions
  • Monopolies could be set up limiting consumer choice and exploiting them
Command/Planned economy:
All businesses are owned by the public sector. Total government intervention. Fixed wages for everyone. Private property is not allowed.
Pros:
  • Eliminates any waste from competition between businesses (e.g. advertising the same product)
  • Employment for everybody
  • All needs are met (although no luxury goods)
Cons:
  • Little motivation for workers
  • The government might produce things people don't want to buy
  • Low incentive for firms (no profit) leads to low efficiency
Mixed economy:
Businesses belong to both the private and public sector. Government controls part of the economy.

Industries under government ownership:
  • health
  • education
  • defence
  • public transport
  • water & electricity
Privatisation
Privatisation involves the government selling national businesses to the private sector to increase output and efficiency.

Pros:
  • New incentive (profit) encourages the business to be more efficient
  • Competition lowers prices
  • Individuals have more capital than the government
  • Business decisions are for efficiency, not government popularity
  • Privatisation raises money for the government
Cons:
  • Essential businesses making losses will be closed
  • Workers could be made redundant for the sake of profit
  • Businesses could become monopolies, leading to higher price
Comparing the size of businesses
Businesses vary in size, and there are some ways to measure them. For some people, this information could be very useful:
  • Investors - how safe it is to invest in businesses
  • Government - tax
  • Competitors - compare their firm with other firms
  • Workers - job security, how many people they will be working with
  • Banks - can they get a loan back from a business.
Ways of measuring the size of a business:
  • Number of employees. Does not work on capital intensive firms that use machinery.
  • Value of output. Does not take into account people employed. Does not take into account sales revenue.
  • Value of sales. Does not take into account people employed.
  • Capital employed. Does not work on labour intensive firms. High capital but low output means low effiency.
You cannot measure a businesses size by its profit, because profit depends on too many factors not just the size of the firm.

Business Growth
All owners want their businesses to expand. They reap these benefits:
  • Higher profits
  • More status, power and salary for managers
  • Low average costs (economies of scale)
  • Higher market share
Types of expansion:
  • Internal Growth: Organic growth. Growth paid for by owners capital or retained profits.
  • External Growth: Growth by taking over or merging with another business.
Types of Mergers (and main benefits):

- Horizontal Merger: merging with a business in the same business sector.
  • Reduces no. of competitors in industry
  • Economies of scale
  • Increase market share
- Vertical merger:
Forward vertical merger:
  • Assured outlet for products
  • Profit made by retailer is absorbed by manufacturer
  • Prevent retailer from selling products of other businesses
  • Market research on customers transfered directly to the manufacturer
Backward vertical merger:
  • Constant supply of raw materials
  • Profit from primary sector business is absorbed by manufacturer
  • Prevent supplier from supplying other businesses
  • Controlled cost of raw materials
Conglomerate merger:
  • Spreads risks
  • Transfer of new ideas from one section of the business to another
Why some businesses stay small:
There are some reasons why some businesses stay small. They are:
  • Type of industry the business is in: Industries offering personal service or specialized products. They cannot grow bigger because they will lose the personal service demanded by customers. E.g. hairdressers, cleaning, convenience store, etc.
  • Market size: If the size of the market a business is selling to is too small, the business cannot expand. E.g. luxury cars (Lamborghini), expensive fashion clothing, etc.
  • Owners objectives: Owners might want to keep a personal touch with staff and customers. They do not want the increased stress and worry of running a bigger business.
Thats the end of chapter two! Chapter 3 coming soon!
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124 comments:

  1. thnkx they help alot

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    Replies
    1. worst notes i have ever come across

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  2. Hey dude when are chapters 10 11 and 12 coming

    ReplyDelete
  3. They are already there:
    11: canyourunit.com (the url is like this for some reason ==)
    12: http://igbusinesss.blogspot.co.uk/2011/04/chapter-12-communication-in-business.html
    13: http://igbusinesss.blogspot.co.uk/2011/04/chapter-13-motivation-at-work.html

    ReplyDelete
    Replies
    1. Mr.Spitting fire, the anonymous man asked for ch. 10,11,12 and you are giving linkings to 11, 12, 13! where is 10???

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    2. give him a break dude he just made a mistake

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    3. Hey man, really like your notes, I have my IGCSE exam next week and I'm just wondering if you think revising from these notes is as effective as out of the book? I know it comes from the book and you have done very well but do you think you have left out any important info?

      thanks

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    4. are bhen chod

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    5. Hahaa the comment up there ^^^^

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  4. My bad
    Chapter 11: http://igbusinesss.blogspot.co.uk/2011/04/chapter-11-managing-business.html

    ReplyDelete
    Replies
    1. Curry and Rice womensApril 23, 2013 at 2:54 PM

      Mr.Spitting fire, the anonymous man asked for ch. 10,11,12 and you are giving linkings to 11, 12, 13! where is 10???

      Delete
  5. hey mate can you compare the size of business using profit ?? cause in the book it says you can but in your notes you say you can not so wich is wich??

    ReplyDelete
    Replies
    1. Well, if it was me, i'd have preferred what is written in the book!!

      Delete
    2. It all depends on which book ur using, i use the Karen Borrington book which Mr.Spitfire has used here and it says that profit is an inaccurate way of comparing a business' size but can be used to compare efficiency.

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    3. u guys no nothing

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    4. wat makes u zinks we noe naffingzzz

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    5. i think you should just use the book

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  6. thank you so much, you are so amazing! this study guide is helping me so much with the igcse end of year examination1

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  7. thanks so much

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  8. what r Pros: Cons: ????????????

    ReplyDelete
    Replies
    1. Pros: advantages
      Cons: disadvantages

      Delete
  9. pros and cons are advantages and disadvantages.

    ReplyDelete
  10. Thanks a lot!! Really appreciate it:D

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  11. THANK YOU SO MUCH YOUR NOTES ARE VERY HELPFUL FOR MY FOR BUSINESSSTUDIES .DO YOU HAVE NOTES FOR IGCSE ECONOMICS?

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    Replies
    1. Economics notes - http://economics-igcse.weebly.com/

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  12. Thanks a million!

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  13. thanks so much for all of this!
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  14. what dose pro and con mean

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    Replies
    1. advantage and disadvantages

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    2. Pro means Prostitute and Con means Condoms...

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    3. love the reply @Always Mr. Right
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    4. your reply is really stupid ...asshole

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  15. umm....isn't net profit used to measure the size of a business? my school notes implies that and I've researched various books and in internet and most of them say that this method is used..so can you pls check and confirm whether its used or not cuz I'm having this big doubt... thanks very much!

    ReplyDelete
    Replies
    1. Profit CAN be used to measure the size of a business but it's not accurate cuz a really large business can have really low profits.

      Delete
  16. Thanks,this really helped a lot!!!!!!!!!!!

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  18. what is the definition of a verticle merger?

    ReplyDelete
    Replies
    1. when you are merging with a business that is in a higher or lower sector than yours. for example merging the tertiary sector of selling the car with the secondary sector of manufacturing the raw materials for the car

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  31. i think it's better if you had detailed notes it helps us understand more

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  32. Another reason why businesses stay small (owner objective) is because owners would
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  33. Sir what does this line mean
    Importance of a sector in a country:

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  42. isn't DE-industrialization's definition wrong?
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