Published for

OXFORD INTERNATIONAL
AQA EXAMINATIONS

International GCSE
BUSINESS

Robert Dransfield
Jane King
2
Contents

Introduction ......................................... 1 2.2.2 The impact of business activity on the

environment ....................................................... 48
Unit 1 Understanding business activity
2.2.3 Costs and benefits of business
1.1 Purpose of business ........................................... 2 activity .................................................................... 50
1.1.1 The purpose and nature 2.3 Effects of the economic climate on
of business.............................................................. 2 business................................................................. 52
1.1.2 Factors of production and dynamic 2.3.1 Interest rates ....................................................... 52
business.................................................................... 4 2.3.2 Employment, spending and the
1.1.3 The sectors of the economy .......................... 6 trade cycle ........................................................... 54
1.1.4 What is an entrepreneur?............................... 8 2.4 Globalisation ....................................................... 56
1.2 Business ownership ......................................... 10 2.4.1 What is globalisation? ................................... 56
1.2.1 Sole traders and partnerships.................... 10 2.4.2 Multinational companies ............................. 58
1.2.2 Other types of business organisation.... 12 2.4.3 Exchange rates................................................... 60
1.2.3 Limited and unlimited liability ................... 14 2.5 Legislation ............................................................ 62
1.2.4 Private and public sector businesses...... 16 2.5.1 Employment Law, Health and
1.2.5 Business organisations in the Safety Law and Consumer Law ............... 62
public sector ....................................................... 18 2.6 Competitive environment ............................ 64
1.3 Setting business aims and 2.6.1 Competitive markets ...................................... 64
objectives ............................................................. 20 Practice questions ............................................ 66
1.3.1 Business aims and objectives ..................... 20
1.3.2 Changing objectives as a business Unit 3 Business operations
grows...................................................................... 22 3.1 Production processes...................................... 68
1.3.3 Aims of the private and public 3.1.1 The meaning of production ....................... 68
sectors.................................................................... 24 3.1.2 Methods of production................................. 70
1.3.4 Why businesses fail ......................................... 26 3.1.3 New methods of increasing
1.4 Stakeholders ....................................................... 28 efficiency .............................................................. 72
1.4.1 Stakeholders and their different 3.1.4 How technology has changed
objectives ............................................................. 28 production methods ...................................... 74
1.5 Business location .............................................. 30 3.2 The role of procurement .............................. 76
1.5.1 Factors influencing location and 3.2.1 Managing stock ................................................ 76
relocation ............................................................. 30 3.3 The concept of quality................................... 78
1.6 Business planning ............................................ 32 3.3.1 Quality and quality issues ............................ 78
1.6.1 Contents of a business plan and 3.4 Good customer services ............................... 80
how business plans assist 3.4.1 Customer service .............................................. 80
entrepreneurs .................................................... 32 Practice questions ............................................ 82
1.6.2 Fixed and variable costs ................................ 34
Unit 4 Human resources
1.6.3 Basic financial calculations
(break even) ........................................................ 36 4 4.1.1 Organisational management ..................... 84
1.7 Expanding a business ..................................... 38 4.1.1 What is organisational structure? ........... 84
1.7.1 Business growth ................................................ 38 4.1.2 The role of management/styles of
1.7.2 Scale of production ......................................... 40 management ...................................................... 86
Practice questions ............................................ 42 4.2 Recruitment and selection of
employees............................................................ 88
Unit 2 Influences on business 4.2.1 The recruitment and selection
2 2.1 .1 Technology and its influences on process................................................................... 88
business................................................................. 44 4.2.2 Recruiting and selection in practice ....... 90
2.1.1 Technology and marketing ......................... 44 4.3 Motivating employees ................................... 92
2.2 Ethical and environmental 4.3.1 Motivation............................................................ 92
considerations ................................................... 46 4.3.2 Why people work............................................. 94
2.2.1 Ethical considerations .................................... 46 4.3.3 Key motivational theories ............................ 96

iii
 4.3.4 Financial methods of motivation ............. 98 6.3 Financial terms and calculations ............148
4.3.5 Non-financial methods of 6.3.1 Basic financial terms .....................................148
motivation .........................................................100 6.3.2 Investment projects .......................................150
4.4 Training ................................................................102 6.3.3 Break-even and margin of safety ..........152
4.4.1 The importance of training .......................102 6.4 Analysing the financial performance
Practice questions ..........................................104 of a business.....................................................154
6.4.1 Profit and gross profit ..................................154
Unit 5 Marketing
6.4.2 Income statements ........................................156
5 5.1.1 Identifying and understanding 6.4.3 The statement of financial
customers...........................................................106 position – the main elements .................158
5.1.1 The importance of identifying 6.4.4 Analysis of financial statements .............160
and satisfying customer needs ...............106 6.4.5 Analysis of financial statements
5.2 Segmentation ...................................................108 (continued) ........................................................162
5.2.1 Market segmentation ..................................108 6.4.6 Working capital ...............................................164
5.2.2 Mass markets and niche markets..........110 6.4.7 Users of accounts ...........................................166
5.3 The purpose and methods of Practice questions ..........................................168
market research ..............................................112
5.3.1 Primary and secondary market Glossary ...............................................................170
research ...............................................................112
5.3.2 Quantitative and qualitative Answers ...............................................................175
market research ..............................................114
5.3.3 Use of marketing research and Index......................................................................190
presentation of information ....................116
5.4 The elements of the marketing
mix; price, product promotion
and place ............................................................118
5.4.1 The four Ps .........................................................118
5.4.2 The price .............................................................120
5.4.3 The product .......................................................122
5.4.4 Promotional methods ..................................124
5.4.5 Place – distribution channels ...................126
5.4.6 E-commerce ......................................................128
5.4.7 Integrated nature of the marketing
mix .........................................................................130
5.5 International markets ...................................132
5.5.1 Problems of entering new markets
abroad..................................................................132
Practice questions ..........................................134
Unit 6 Finance
6 6.1 Sources of finances .......................................136
6.1.1 The need for finance ....................................136
6.1.2 Major sources of finance ...........................138
6.1.3 Sources of internal and external
finance .................................................................140
6.1.4 How to choose finance ...............................142
6.2 Cash flow ...........................................................144
6.2.1 Cash and cash-flow forecasts .................144
6.2.2 The difference between profit
and cash .............................................................146

iv
1 Understanding business activity
1.1 Purpose of business
1.1.1 The purpose and nature of business

TOPIC AIMS Satisfying wants and needs

Businesses are usually set up to satisfy the wants and needs of
Students should be able to: customers. Everybody has wants and needs. We need food, drink,
• understand the purpose of clothing, shelter and other essentials to stay alive. Other things are
business not quite so essential, but we still want them so our life can be
• understand the concept of enjoyable.
adding value and how value Business activity is concerned with satisfying these wants and needs.
can be increased The act of preparing a good or service for sale is called production.
• understand the concepts of Businesses are set up to satisfy our needs by providing physical
needs, wants and scarcity and goods (manufacturing) and services. When you visit a restaurant
opportunity cost. not only are you provided with a physical product, the food, but
you also receive a service in the form of a member of the restaurant
staff bringing the food to the table and making sure that you have
ACTIVITY everything that you want to enjoy the meal.
Which of the following would
you describe as your needs and Adding value
which would you describe as Businesses aim to provide products and services to customers that
additional wants? Justify the are more attractive than those of their competitors. Everything that a
choices you make. business does to make a good more desirable is adding value.
A midday or evening meal / a For example, cold fresh orange juice is enjoyed across the globe.
bed to sleep in / a bar of soap / Oranges are grown in temperate climates such as California (United
a visit to the cinema / a blanket States), Libya (North Africa) and Italy (Southern Europe). The oranges
/ a roof over your head at night are transported in lorries, freight trains and ships across the globe.
/ a toothbrush / a computer / a Hotels and restaurants buy and squeeze the oranges to make a fresh
bottle of water / new clothes / a drink for the end customer. Ice may be added to cool the juice.
book to read.
A restaurant selling freshly squeezed orange juice might buy three
oranges at 10 cents each (totalling 30 cents) to make a glass of fresh
orange juice that it sells to a customer for $1. The value added by
the restaurant is therefore 70 cents. $1 – 30 cents = 70 cents.
$1

Scarcity
30 cents We cannot have everything we want: we have to make choices. This
is because resources are scarce: there are not enough for all the things
that we would like to do. If we turn a field or park into a car park, then
Product we lose the green space. Choices have to be made all the time.
Figure 1.1.1.1 Value adding by increasing In the same way, a business makes choices. Farmers make choices
the worth of 3 oranges about when and how to improve their land. Farmers in Jamaica can
bought for 30 cents to
a glass of orange juice
decide to grow sugar cane or coffee. They sometimes make choices
sold for $1 about who to sell their produce to (e.g. at a local market or to an
agent of a food company).

2
Stage of production: How value is added
1 Growing the oranges
Farmers look after the orange
trees for several years before the
trees give fruit. Each year they
must be treated against pests.

2 Transporting the oranges

Fresh ripe oranges are transported
closer to market.
Enjoying fresh, cold orange juice – value is
added in growing the oranges and also in
serving the juice to the end consumer.

3 Preparing the oranges

The juice is squeezed from the
STUDY TIP
oranges and ice added. Distribution includes the
processes involved in gettin
g
goods to consumers. A range
of businesses are involved in
distribution including transp
ort
4 Serving the customer companies, retailers (all for
ms
The juice is presented to the end of shops and sellers to the
end
consumer in a polite and friendly consumer, including online
way. sales), as well as wholesalers
who store goods and supply
goods to retailers in bulk.
Figure 1.1.1.2 Adding value to a product: the customer benefits from value being
added at each stage of production

DID YOU KNOW? KEY POINTS

Opportunity cost is the term used to describe the cost of a 1 Everyone has basic needs for
choice made in terms of the next best alternative. For instance, food, shelter and clothing
the opportunity cost of the choice made by a business to buy a in order to survive. On top
new computer may be the building repairs that can no longer be of these we have additional
afforded. wants.
2 Businesses are set up to meet
SUMMARY QUESTIONS the needs of consumers.
3 Businesses produce goods to
1 In your own words, write definitions for: needs, wants, scarcity,
help consumers satisfy their
choice, opportunity cost, adding value.
wants and needs.
2 How might packaging of a product add value to it? Explain your
4 Businesses add value,
answers.
to make products more
3 Explain the difference between producing goods, supplying desirable and suitable for
services and distributing products. customers.

3
 1.1.2 Factors of production and dynamic business

TOPIC AIMS Factors of production

Factors of production are the resources that go into making products.
Students should be able to: There are four categories of factors of production.
• understand the meaning of 1 Land. This not only includes physical land but also other natural
the factors of production – resources (e.g. rivers and seas providing fish stocks, mines
land, labour, capital and producing coal, lead, tin).
enterprise.
• Understand that business is Land is fundamental to enterprise in providing a physical space
dynamic. from which to operate as well as the fundamental natural
resources required – whether this be in the form of cotton for
cotton textiles, coal and oil for providing energy supplies, or
farmland for growing food.
2 Labour consists of the physical and mental effort of employees.
Physical labour would consist of activities such as lifting,
DID YOU KNOW?
shovelling, labelling, and so on, while mental labour would
Some of the factors of be required to make calculations and to engage in clear
production can be substituted communications with others.
for other ones. For example, 3 Capital includes all those items that go into producing other things
you can replace some of your (e.g. machines and tools). In addition, a business needs financial
workforce by machinery – this is capital in order to pay its bills.
known as the mechanisation of
tasks. You could substitute some 4 Enterprise is the factor that brings other factors together to
of your land for more efficient produce goods. Entrepreneurs are people who take risks by
machinery. running businesses. Each of these factors will specialise in particular
activities and lines of production.

Rewards to factors of production

Each of the factors of production receives a reward in the form of a
factor income.
The reward for enterprise typically comes in the form of profit. It is
also possible to argue that entrepreneurs will be rewarded in the
form of the enjoyment they gain from being their own boss and
running an enterprise in a creative way. Profits are not guaranteed.
STUDY TIP Where enterprises do badly the entrepreneurs may have to pay for
losses out of their own funds, which ultimately may drive them out of
d
Make sure that you understan business.
how the entrepreneur of a The reward for labour comes in the form of wages. Typically the
business requires the other higher the level of scarce skill provided by an employee the greater
three factors of production as the person’s wage will be.
well as enterprise in order to The reward to land comes in the form of rent.
e
run a successful business. Th
entrepreneur will be rew arded The reward to capital comes in the form of interest. An example of
this would be in the form of interest received for depositing money in
for skillfully combining these a bank.
other factors.

4
 CASE STUDY

Popinjay
Popinjay is an enterprise based in Pakistan that produces bags
made by specialist craftswomen. The bags are then sold both
nationally and to global markets.
The enterprise for Popinjay comes in the form of its owner Saba
Gul who came up with the idea and the drive to create networks
of highly skilled craftswomen across Pakistan to produce
high-quality bags. The business started off as a not-for-profit
enterprise with the aim of empowering women to give them fair
value for their work. The enterprise offers its women practical
training, good wages, dignity and a path to self-sufficiency. It
was through Saba’s enterprise that the business has been able Saba Gul created Popinjay in 2013.
to expand from a small network pooling skills to an international
brand selling high-quality bags worldwide.
The labour for Popinjay comes in the form of the craft work KEY POINTS
supplied by the women who provide the handmade bags. The
enterprise typically employs older skilled workers. 1 Factors of production are
required to make goods and
The capital for the business came originally in the form of Saba’s services.
own savings and a grant to support enterprise that she received
from the university where she was studying. More recently, the 2 The four main factors of
business has expanded to become an international brand and production are land (natural
investors have joined the business who now take a share of the resources), labour (physical
profits. In addition to the financial capital, physical capital is and mental work), capital
employed in the form of textile manufacturing equipment used (machinery, equipment and
by the craftworkers. financial resources) and
enterprise (risk taking and
The land for the business comes in the form of the company combining the other factors).
offices and directly owned trading outlets.
3 The rewards to factors of
production take the form
Dynamic business of profit (enterprise), wages
(labour), land (rent) and
Businesses have to constantly respond to change. They operate in a
interest (capital).
dynamic (constantly changing) business world and businesses need to
respond appropriately (i.e. to be dynamic). For example, competitors 4 Businesses operate in
will bring out new products, they will alter their prices, and make dynamic situations and
new offers to consumers. The dynamic business needs to be aware need to be able to respond
of what competitors are doing and try to stay ahead of them e.g. in a dynamic way e.g. by
by bringing out new products of their own. Other examples of the developing new products.
dynamic business world include the growth of competitors from
other countries and the development of new technologies.

SUMMARY QUESTIONS

1 Identify a business that you are familiar with. Give examples of the land, labour, capital and enterprise
employed by this business.
2 Why does a business need to have an entrepreneur or entrepreneurs?
3 In what circumstances might the rewards to labour be higher than those for enterprise?

5
 1.1.3 The sectors of the economy

Business activity is often broken down into three types:

TOPIC AIMS
• extractive (primary industry)
Students should be able to: • manufacturing and construction (secondary industry)
• describe and classify business • services (tertiary sector).
activity in terms of primary, Brazil is the world’s second-largest ethanol supplier after the United
secondary and tertiary sectors: States. The following table shows the three stages involved in
• understand the basis of providing ethanol fuel for cars in Brazil.
classification
• use examples to Extractive industries
demonstrate understanding
Stage 1: Primary Stage 2: Secondary Stage 3: Tertiary
• demonstrate an understanding production production production
of changes that have taken
place in these sectors within
their own country:
• identify the key features of
the structure of their own
national economy.

Farmers grow sugar cane The sugar cane is refined The ethanol is sold on
in Brazil to make ethanol service station forecourts
to car owners and truck
drivers in Brazil
Figure 1.1.3.1 The three stages involved in providing ethanol fuel for cars in Brazil

Extractive, or primary, industries are concerned with using natural

resources. They include farming, mining and oil drilling. Farmers grow
and harvest crops and farm livestock, while miners take fuel and minerals
from the ground. Primary industries sometimes produce raw materials
such as iron ore (for making steel) and oil (for making petrol, plastics,
fibres, etc.). They also produce finished products such as fish and
oranges.

Manufacturing and construction industries

Manufacturing and construction industries are concerned with
A haircut is a service provided by a skilled making and assembling products. Manufacturers use raw materials
hairdresser. and parts from other industries. Most products go through several
stages of production: when the good is only partly made, it is a
semi-manufactured good. Examples of manufactured products
are furniture, cars, chocolate and oil rigs. An example of a semi-
STUDY TIP manufactured good would be the shell of an aeroplane that has not
yet had the engine and inside furnishings (seats, etc.) added.
The process of shifting
resources from primary Service industries
to secondary activities is Service, or tertiary, industries give something of value to people, but
t
industrialisation. More recen are not physical goods. You can physically touch or see a packet of
changes involving shifting biscuits, a bicycle or a computer. You cannot touch or hold a visit to
more resources into tertiary the cinema or a lesson given to you in school: these are both services.
n.
activities is deindustrialisatio Other services include banks keeping your money safe, public
transport carrying people around or hairdressers cutting your hair.

6
CASE STUDY DID YOU KNOW?

Employment by major industry sector in different countries The process of development

has involved the transformation
Employment is classified into different industries by a national of society over time. In the
classification system such as the Standard Industrial Classification first wave of development, the
(SIC) in the UK or the North American Industrial Classification System focus was on primary activity –
(NAICS) in North America. This identifies and classifies specific sectors particularly agriculture and
such as 11 Agriculture, Forestry, Fishing and Hunting, which is then fishing. In the second wave,
broken down into further sectors (e.g. 111 Crop production) and societies experienced an industrial
then into types of crop production (e.g. 1111 Oilseed and grain revolution with the growth
farming). The latest forecast figures for the United States for 2016 of manufacturing industry
are that 1.6 per cent of the population will be employed in primary becoming the main form of
industry, 12.7 per cent in secondary industry, and the vast majority economic activity. In the (most
(85.7 per cent) in the tertiary sector. This data for the United States recent) third wave, developed
contrasts with that of newly industrialised countries (NICs) such as societies principally focus on
Brazil. In Brazil, roughly 20 per cent of the population is still engaged tertiary (service sector) activity.
in agriculture and other primary industries, and a further 14 per cent
in manufacturing, with the remainder working in services.
ACTIVITY
Questions
Group the following activities
1 In your country which is the largest sector of the economy:
under the headings of Primary,
primary, secondary or tertiary?
Secondary and Tertiary industry.
2 What are the main types of industries involved in your largest
sector? Cinema
Electrican Sign Writing
Building Attendant
3 What industrial classification system is used in your country? Cloth
Coal Mining Laundry
What industries are recognised in this classification? Making
Book Civil
Fire Fighting
Publishing Service
Selling Lottery
Banking Oil Drilling
SUMMARY QUESTIONS Tickets
Food Key Public Fishing
1 What are service industries? Give five examples of jobs in service Manufacture Cutting Transport
industries. Food Selling
Retailing
2 State whether you would classify the following industries as
primary, secondary or tertiary. Give reasons for your choices. Figure 1.1.3.2 Primary, secondary
and tertiary industries
Construction / transportation and warehousing / retail trade /
financial activities / manufacturing / mining / farming /
educational services / leisure and hospitality / fishing.
3 The following statistics relate to employment in the industrial
sector in China. (Source: China Statistical Yearbook, 2015)
Primary (%) Secondary (%) Tertiary (%)
1978 70 18 12
1988 58 22 20 KEY POINTS
1998 50 23 27
1 It is helpful to classify
2014 34 30 36 business activity into primary,
secondary and tertiary sectors.
Describe the key trends that you see in the data. Explain why
these changes might have occurred. Do you expect these trends 2 There has been a global
to continue? increase in the tertiary sector.

7
 1.1.4 What is an entrepreneur?

TOPIC AIMS Being enterprising

An entrepreneur is someone who not only comes up with a great
Students should be able to: new idea but is also able to put this idea into practice.
• understand the terms Entrepreneurs need to be willing to take a risk. If the business idea is
‘enterprise’ and ‘entrepreneur’ successful then the entrepreneur stands to make a profit. However,
• outline the characteristics of should the idea fail then they stand to lose money.
an entrepreneur
• outline the objectives of an
entrepreneur.

CASE STUDY

James Dyson and the Dyson Dual Cyclone not being sucked up. As a consumer he felt that
the existing method did not fully meet his needs.
He felt that given time he could add value to the
machine to make it better.
James was already a well-known designer,
having invented (among other things) the
‘ballbarrow’ (a wheelbarrow with a ball
rather than a wheel). His business was using
an industrial cyclone to capture dust during
production. Cyclone towers are a well-known
industrial filtering system, with air being
dragged into a tower and whirled around, at
very fast speeds. James realised that the cyclone
system could be applied to vacuum cleaners
to enable them to work more efficiently. He
started to work on the task, which took him
four years and 5127 prototypes (trial models).
He realised that for household vacuuming you
need a dual cyclone – one to separate out
larger items and the second to catch the smaller
particles. Unlike traditional vacuum cleaners,
the Dyson Dual Cyclone does not use bags.
The product has proved to be a great success
story, revolutionising the industry and turning
the Dyson company into a large and successful
international business, manufacturing and
exporting the product across the globe.
James Dyson was doing some housework in 1979.
His first job was to vacuum the living room using a Questions
Hoover Junior machine. The vacuum cleaner that
he was using employed the standard technology 1 How did James Dyson turn an idea into an
of the time. effective product?
James felt that the system was very inefficient 2 What does this case study tell you about the
because there was so much dirt and dust that was qualities of an effective entrepreneur?

8
Objectives of entrepreneurs
STUDY TIP
People like James Dyson start their own enterprise for a variety of
reasons. Some have a bright idea that they think will make them rich Being enterprising does
(e.g. a ballbarrow or dual cyclone system). Others find themselves not always involve inventing
unemployed and start their own business to survive. Some can only a totally new product. An
be themselves when they are their own boss. Others want to give entrepreneur may find a
something to the community and can see no other way of doing it new variation or style on an
except by setting up on their own. However, setting up an enterprise
is not for everyone. It requires a lot of hard work and long hours to
existing product, or a new
make an enterprise a success. It also requires a lot of attention to process of production or
detail, not just the creation of exciting ideas. Often someone who selling.
is creative and imaginative (important qualities for an entrepreneur)
will need a business partner with greater attention to detail and who
can set firm commercial foundations in place (other qualities of an
entrepreneur).
KEY POINTS

Characteristics of entrepreneurs The key characteristics of

successful entrepreneurs include:
Generally speaking, it is possible to identify a number of characteristics
of entrepreneurs. As you work through the list consider whether the • the willingness to work long
points apply to you. hours and to work hard
• willingness to take risks in
Characteristics Do you have these characteristics? order to establish a successful
Logical, perceptive, organised, realistic, enterprise
responsible – good at getting things • ability to take tough decisions
done
and not to be put off by
Outgoing, confident
failure
Good communicator – able to get a
point across • ability to spot new
opportunities
Sociable, good leader – can win people
over instead of irritating them • good communication skills
Single-minded, decisive, independent and the ability to get on with
Open-minded, able to take advice people.
Flexible, adaptable
Opportunist, risk taker, ambitious
Hard-working, committed, determined, SUMMARY QUESTIONS
‘get up and go’ type
Tough – often the best test of a 1 Identify a celebrated local
successful entrepreneur is his or her entrepreneur in your country.
ability to deal with failure
To what extent does he or she
Individual – not afraid to stand out from have the characteristics that
a crowd, or of what others think
have been outlined in this
Knowledgeable about the dynamic unit?
business environment and respond to
changes in a dynamic way 2 How could you go about
developing the characteristics
These characteristics are important because entrepreneurs need to required to be a successful
be confident enough to make decisions and take risks, see Risk and entrepreneur?
ownership in 1.2.3.
3 What enterprising ideas do
you have? What would you
need to turn these ideas into
a successful enterprise?

9
1.2 Business ownership
1.2.1 Sole traders and partnerships

When setting up a business, one of the first decisions is what type of

TOPIC AIMS
business to form. The type of business chosen determines the legal
Students should be able to: status of the business and how easy it is to raise capital.
• describe the main features of
sole traders and partnerships The sole trader
• understand the differences This section looks at privately owned businesses – that is, ones that
between sole traders and are owned by individuals or groups of owners rather than by the
partnerships. government.
Private businesses Public businesses
(private sector) (public sector)
Sole traders Government-owned businesses
Partnership
Companies (including multinationals)
Operating as a sole trader is the most common way of owning
a business and the easiest way to set up. Examples include street-
corner flowers or drinks sellers in cities, tailors and operators of
shoeshine services. A sole trader is a business owned by one person –
though it may still employ a large number of people.
The table below shows some of the advantages and disadvantages of
setting up as a sole trader rather than as a larger business.
Advantages Disadvantages
It is easy to set up; no special paperwork Having unlimited liability puts personal
is required possessions at risk
It is usually a small business; less capital Finance can be difficult to raise
is required
Speedy decisions can be made by the The small scale of the business limits
owner – few people are involved discounts and other benefits of
large-scale production
Personal attention can be given to Prices are often higher than those of
business affairs larger organisations
Special services can be offered to Ill health, holidays, etc. may affect the
customers running of the business
A sole trader can cater for the needs Only one owner may mean a narrow
of local people; because the business range of skills
STUDY TIP is small, the owner comes into contact
with the customers
It is a common mistake to Profits do not have to be shared Mistakes may be more likely because
assume that a sole trader is there are no colleagues to consult
e
a business that employs on for advice

person. Rememb er that the Business affairs can be kept private

term refers to the numb er

of
of owners, not the numb er
Unlimited liability

employees. When you set up a business you will need capital to run it. Sole
traders have only their own resources to draw on. They will finance
their business through savings, and borrowing from banks and on
their credit card.

10
Any debt that a sole trader builds up has to be paid by the owner.
ACTIVITY
The owner is personally responsible for all the debts of the business.
This situation can be contrasted with larger companies. Owners of a Choose a business and decide
company have legal protection known as limited liability: this limits on its purpose. Set out a
the debts owed by an individual owner of a company to the sum of partnership agreement between
money that person has put into the business. In contrast, sole traders’ yourself and a friend for a small
debts are unlimited. If the sole traders find themselves in debt, they enterprise that you could set up.
may have to sell their house, car, etc. in order to pay what they owe.
The agreement should cover:

Partnerships • who will provide the capital,

and how much
A partnership is a business association between two or more • how the profits or losses will
owners of an enterprise. Setting up a partnership usually involves be shared
creating a legal agreement between the partners. Partnerships • the duties of the partners
usually have between 2 and 20 members, though this can vary. In • when profits will be taken
some countries, legal restrictions allow a maximum of 20 partners. from the business (e.g.
Partnerships are common in many types of business – small shops as monthly)
well as professional practices for vets, doctors, solicitors and dentists. • procedures for bringing in
The table shows the advantages and disadvantages of setting up a other partners and for settling
partnership. disputes.

Advantages Disadvantages
DID YOU KNOW?
Capital comes from partners, There is unlimited liability (except for ‘sleeping
so more capital is available partners’, who put money into the business but do In limited partnerships, one or
not get involved in its running)
more of the partners can have
Partnerships are larger scale There may be disagreements between partners limited liability: if a partnership
than sole traders
runs into debt, the maximum
Members of family can join The number of partners is limited (in many countries
it is restricted by law to maximum of 20)
amount in law that partners are
expected to lose is what they
Affairs can be kept private If the partnership was set up by legal agreement, it
will need to be re-formed if one partner dies put into the business. Limited
partners would not have to sell
Risks and responsibilities are
spread among partners off private possessions to pay
off the debts of the partnership.
Most partnerships are not protected by limited liability.
KEY POINTS

1 A sole trader enterprise

SUMMARY QUESTIONS is owned and run by one
person. A partnership is
1 Abdul is considering setting up a small business repairing owned and run by two or
broken windows and is not sure whether to set up as a more people.
partnership or a sole trader. What would be the benefits of 2 Sole traders and partners
forming a partnership in terms of the following? typically do not have limited
liability. Capital raised is
Access to capital / liability / ease of setting up the business /
restricted to the person’s
access to skills
own savings, borrowing and
What other advantages might there be to setting up a any profits made.
partnership? 3 Sole traders have control over
their own business and take all
2 What is limited liability? How does not having limited liability
the profits.
disadvantage many sole traders and partnerships?
4 Partners can share skills
3 Set out a table showing the main differences between and spread the workload of
partnerships and sole traders. running the business.

11
 1.2.2 Other types of business organisation

TOPIC AIMS A company

‘Company’ suggests a group of companions who have come
Students should be able to: together to set up a business. The business they set up becomes a
• describe the main features of legal body, separate in law from the owners. To become a company,
limited companies, franchises a business needs to become legally incorporated. This involves
and joint ventures registering the company with the Registrar of Companies in the
• understand the difference country in which the company has its head office.
between unincorporated The owners of a company are its shareholders. They appoint a board
businesses and limited of directors to make the strategic decisions. The decisions they
companies. make include how much profit to distribute to shareholders, and
what direction the business should take. The managing director is the
senior director, with the lead role for managing the business.
Shareholders The following are some reasons for incorporating a business.
(own company)
• If the business gets into financial difficulty, shareholders risk losing
only the value of their shareholding in the business. Their private
choose
possessions are protected by limited liability and only the assets of
the business are at risk.
Board of Directors • An incorporated business is easier to sell than an unincorporated
(make the key decisions of the business)
one, because all the complicated arrangements of setting up the
business have already been done. Companies are expected to keep
led by detailed accounts so that buyers can immediately see how the
company is doing financially when they buy it.
Managing Director The main disadvantages of a company concern the administration
Figure 1.2.2.1 Shareholders are the needed to register the company and the requirement to produce
owners of a company annual reports. Detailed accounts have to be kept.
The table shows the two types of limited companies.

DID YOU KNOW? Private companies Public companies

1 Shares can only be bought direct from the 1 Shares can be bought and
Shareholders appoint directors company with the permission of the board of sold on a stock exchange.
directors. Anyone can buy them.
to manage the day-to-day
running of a limited company. 2 The company usually has quite a small number 2 The company can have a large
of shareholders. It may be a family-run business. number of shareholders (may be
Every year directors report to millions) all over the world.
shareholders at an annual
3 It has access to less capital than a public company. 3 It has access to more capital.
general meeting (AGM). At
the AGM, shareholders have
The main advantage of being a private company is that the original
an opportunity to question
owners can stop outsiders from buying up their company. Having a
directors on company policies
smaller number of people from whom to draw funds, however, may
and decisions (e.g. bonus
restrict growth. The main advantage of being a public company is
payments and dividend
access to large amounts of capital, which enables growth.
distribution).
Franchises
A franchise business is made up of a franchisor and franchisees.
The franchisor is an established enterprise (often a public limited
company) with a well-known name and products or services. The
franchisor grants a licence to a franchisee to produce a product, sell
products or provide services in a given area. Examples of franchises
include food franchises (e.g. a McDonald’s franchise), a coffee shop
franchise (e.g. Costa Coffee or Starbucks), and retail franchises
(e.g. United Colors of Benetton) operating in over 120 countries.

12
Franchisees pay for the franchise to trade in a given area, but will
receive training and equipment from the franchisor. They will be
expected to share the profit with the franchisor.
The main advantage to franchisors is that they only have to invest a
limited amount of capital in each franchise, but they take profits from
the franchisee. The franchisee benefits from working with a proven
business idea, trading under a well-known name and getting support
and materials from the franchisor.

ACTIVITY

Speak to a franchisee in your own country. Find out how the

person came to be in the business. What is the relationship with
the franchisor? Share your findings with the class.

Joint ventures STUDY TIP

A joint venture is formed when two independent businesses set up Joint ventures are often us
ed
a new enterprise in which they jointly own a stake. It can take the as a means of avoiding tar
form of an incorporated business or a partnership. Joint ventures are iff
barriers and so gaining
commonly used when a business from one country wants to enter
access to new markets. They
a new country, but prefers to do so with a local partner. The local
partner will have a lot of contacts and know how to conduct business reduce the amount of capit
al
in that market. A lot of oil companies create joint ventures to search that a company needs, but
for and then exploit oil reserves. Many Western companies have they can also cause difficultie
s
created joint ventures when entering the Chinese, Indian and other for that company such as
South East Asian markets. controlling the quality of the
products or services provide
Not-for-profit organisations d.
Not-for-profit organisations have objectives other than making a
profit for their owners. A good example is Amnesty International – its
objective is to protect human rights worldwide. Any money made by
a not-for-profit organisation is used to keep it running and to meet its
objectives. In most countries such an organisation is free of government
taxes. Money is earned from selling goods and services and from KEY POINTS
donations. Where an excess of income over spending is made by a
not-for-profit organisation this is termed a surplus rather than a profit. 1 A company is owned by
shareholders who are able to
bring capital into a business.
SUMMARY QUESTIONS
2 Shareholders are protected
1 Why might a group of friends setting up in business for the by limited liability. The
first time prefer to create an incorporated rather than an financial risk is limited to the
unincorporated business? value of the shares they hold.
2 What benefits might a Western European manufacturer of 3 Another way for a business
chocolate and confectionery products gain from setting up a to grow with less risk to
joint venture with an existing Chinese manufacturer rather than its own capital is to sell
setting up its own independent plant in China? franchises.
3 Fast-food franchises such as McDonald’s are found in many 4 A good way of entering a
countries. What would be the advantages to a local franchisee foreign market is to create
of working with McDonald’s rather than setting up his or her a joint venture with a local
own food business? company.

13
 1.2.3 Limited and unlimited liability

TOPIC AIMS

Students should be able to:

• understand the role and
function of entrepreneurship
• understand the concept of
risk and ownership
• understand the concept of
limited liability.

Nestlé produces many of the world’s best-known food brands. It is a Swiss company
with over 250 000 shareholders. The shareholders share in the profits made, but also
take a risk that the company will not make a profit. Each shareholder has limited
liability.

DID YOU KNOW? Risk and ownership

One of the words most commonly associated with business is risk.
Figures for the UK suggest that The owners of a business risk the capital that they put into it. The
four out of five new businesses capital may come from their life savings, from money they have
fail. However, a study carried received in redundancy pay, or even a loan secured against their
out in Australia showed that house or other valuable possessions. More businesses fail than
although two out of three succeed, and the casualty rate of new businesses is particularly high
businesses closed down within in the first year of trading.
10 years of starting, the most
common reason for this was This principle of risking capital is the same for sole traders, partners,
that the existing owner sold out shareholders in a company, franchise operators and owners of joint
to a new owner, who changed ventures.
the name. The owners of a business are liable for its debts. The amount of
liability that sole traders and most partners are accountable for is not
restricted to the sums that they have put into the company. They are
required by law to meet all the liabilities of their business. As we have
seen, this could mean having to sell their car, their house and other
possessions to meet business debts (see 1.2.1).

ACTIVITY Limited liability

In the 1850s, the British and French governments passed laws that
In some countries, a private
would allow individuals and groups to invest in companies. This
limited company has ‘Ltd’ after
was the principle of limited liability (see 1.1.2). It limits the risk for a
the name and public limited
shareholder to the sum that person has invested in a company.
companies have ‘plc’. What is
used in your country? Find out Most large businesses are set up as limited companies (incorporated
and make a list of 10 limited businesses). These companies have shareholders. A shareholder might
companies that operate in your
town or region.

14
be an individual, with only a small sum of money invested in, say,
companies such as Singapore Airlines, Nestlé or Tata. Alternatively,
the shareholder might be a huge pension fund, investing the savings
of millions of pensioners in these companies. These shareholders
would not buy shares in companies if they were held liable for
business debts.
Shareholders → invest money in → limited companies.
Shareholders may be individuals or other companies. They are
not responsible for the company’s debts unless they have given
guarantees (e.g. of a bank loan). However, they may lose the money
they have invested in the company if it fails.
The protection of limited liability therefore makes it possible for
companies across the globe to raise large sums of money. The Swiss
multinational company Nestlé is famous for its products such as
Nescafé and Quality Street sweets. The company has over 250 000
shareholders and no single shareholder owns more than 3 per cent
of the shares in the company. Each of the 250 000 shareholders is
willing to invest in the company because they think that it has good
prospects to make profits, and they know that because of limited
liability, the maximum amount of capital that they are risking is the
value of their shareholding.

SUMMARY QUESTIONS DID YOU KNOW?

1 Which of the following would have limited liability? Some forms of business
organisation are specific to
An incorporated business / a sole trader / an ordinary
particular countries. Indian law
partnership / a company / a limited partnership
recognises the joint Hindu family
2 Singapore Airlines is owned jointly by the government form of business ownership:
of Singapore and by private shareholders. The Singapore members of a family own a
government has the majority shareholding in the airline. business and the eldest member
The airline is an incorporated business. How much would an manages it. All members of
individual shareholder be liable for in the event that the airline the family get a share of the
had to meet debts? profit, regardless of how much
they participate. Apart from the
3 In what ways might it be more risky to set up a sole trader
eldest member, the liability of
business than a small incorporated company?
the partners is limited.

KEY POINTS

1 Limited liability is a legal protection that reduces the risks

involved in business.
2 A shareholder or other owner of a business with limited liability
is only liable for the value of his or her investment in a business.
3 There are certain types of partnerships that have limited liability
status. However, in ordinary partnerships there is unlimited
liability of partners.

15
 1.2.4 Private and public sector businesses

TOPIC AIMS The private and public sector

Another major classification is into the public and private sectors.
Students should be able to: The private sector consists of businesses that are owned by private
• explain the purpose of individuals (people that own and run businesses directly themselves)
business activity in terms and businesses that are owned by shareholders (people who have
of the objectives of non- bought a share in a company and have the right to share in the
profit-making activity, profits of the company and to appoint directors to run the business
private enterprise and public on their behalf).
enterprise
• classify business enterprises
Private enterprise Public enterprise
between private sector and organisations organisations
public sector in a mixed
economy. Goals include Goals include

Making a profit Running public services

Other secondary goals well
Providing ferry and postal
services to rural
communities
Providing street lighting,
police service

Figure 1.2.4.1 Goals of businesses in the public and private sector

Most economies in the world today consist of a mix of private sector

and public sector enterprises, so they are called ‘mixed economies’.
In some economies the majority of production is carried out by
state-owned (government-owned) enterprises. For example, in China
and Cuba government-owned enterprises (the public sector) are
responsible for the majority of production. In contrast, in the United
States, Canada, Mexico, Japan and the EU countries the majority of
In China many of the largest companies such production is carried out by private businesses in the private sector.
as China Mobile are in the public sector –
Over the last 20 years, the size of the private sector has increased.
that is, they are owned by the government.
For example, in countries such as China and Cuba, where in the
past business activity was almost exclusively in government hands,
the government has allowed an increasing number of private
Reasons for privatization sector businesses to set up, particularly in the small business sector
1. To encourage private (e.g. hairdressers, taxi firms, photocopying companies). Increasingly,
enterprise allowing the government in the People’s Republic of China has encouraged the
businesses to be run by set up of large private sector businesses that can be competitive on
individuals for profit. the world stage such as the computer company Lenovo.
2. To encourage new ideas and You will see in Unit 2, however, that private enterprises may have
risk taking by entrepreneurs. additional, or secondary, objectives. India’s Tata Group of companies
created India’s first steel plant, hydroelectric plant and inorganic
3. To create more competition.
chemistry plant. Today the group has operations in six continents and
produces many different goods. The group is not concerned solely
with profits, for example – in 1941 it created the Tata Memorial
Hospital, India’s first hospital for the treatment of cancer.
Setting up and running a private enterprise involves risk. The person
who takes this risk is an entrepreneur. If the business succeeds,
the entrepreneur makes a profit. Should it fail, he or she will be

16
responsible for the losses. The loss could involve having to sell
100
personal possessions, in order to meet the business debts.

% workers in public sector

90
80
Public enterprise 70
60
In many countries, the government is a major employer. Governments 50
40
employ public sector workers to carry out work on their behalf, such 30
as providing a police force, education and a health service. The size of 20
the public sector varies from country to country. Figure 1.2.4.2 shows 10
0
some of these differences. EU India Japan US
The goal of a public sector enterprise such as Indian Railways is to Figure 1.2.4.2 Public sector workers in
provide an essential economic service for the nation. Hundreds of four regions in 2016
millions of people in India rely on the railway service to get around
the country and to transport goods.
ACTIVITY
Public sector enterprises need to be carefully run. They are often
funded by taxpayers’ money, so they need to look after the taxpayers’ Identify a public sector company
interests by providing the best possible value for money. that operates in your country.
When did this company become
DID YOU KNOW? part of the public sector? What
are the main activities of this
In India, large numbers of people work for government-owned company?
businesses, including India’s largest employer, Indian Railways.
The energy companies are also state-owned, as is Indian Airlines.
Indian Airlines is currently facing major competition from the new
privately owned low-cost airlines, especially Indigo Airlines, India’s STUDY TIP
fastest-growing business.
The process of taking an
activity into the public sector
es
is nationalisation. Sometim
SUMMARY QUESTIONS
activities are denationalised
1 Explain how goals of public sector organisations may differ from or privatised. Think about
those in the private sector. why such changes might be
2 Read the following statements and then suggest whether the necessary.
organisation is more likely to be in the private or public sector.
• Our goal is to make a profit for our owners. We will achieve
this by providing excellent customer service. KEY POINTS
• Our goal is to provide an efficient postal service to every
single household in the country. This includes providing 1 The private sector of the
deliveries every day to out-of-the-way locations. economy consists of firms
• Our goal has always been to make a profit. If we provide that are owned by private
additional benefits to the wider community, this is a bonus. individuals including
shareholders.
3 Classify the following according to whether they are primary,
2 The public sector of the
secondary or tertiary and private or public sector:
economy is the state-run
a a state-run mining company sector.
b a telecoms company owned by shareholders 3 In recent years there has
c a small family-run hotel company been a tendency in many
economies for a reduction
d a government-owned steel manufacturer in the number of state-run
e a joint venture between a family business in China operating enterprises.
in insurance and a foreign company.

17
 1.2.5 Business organisations in the public sector

TOPIC AIMS
What is a public corporation?
Public corporations are businesses owned by governments.
Students should be able to: Although the government owns the corporation, the controllers of
• describe business the corporation are given considerable freedom to make their own
organisations in the decisions. Sometimes they are referred to as stated-owned enterprises
public sector (e.g. public (SOEs) or government-owned corporations (GOCs). In India the term
corporations). ‘public sector undertaking’ (PSU) is used.
A public corporation is created by passing a law to create the new
form of business. The government then appoints a chairperson and a
board of managers to lead it.

DID YOU KNOW? CASE STUDY

Government-linked The Saudi Arabian Oil Company

companies (GLCs) are
The Saudi Arabian Oil Company is owned by the Saudi government
companies in which the
because oil is such an important resource to the Saudi Arabian
government owns some of the
economy. The Saudi government controls the amount of oil
shares in the business.
produced, which in turn has an impact on the world oil price.
As in any business, governments usually set yearly targets for
particular public corporations. The chairperson and the managers
must then decide on the best way to meet these targets. With an
oil corporation, the government may set a target for the number
of barrels of oil to produce in a country. The managers of the oil
company will then decide how much to produce from each oilfield
and how to maintain supplies for future years. The managers
will also supervise the marketing and selling of the oil. Agreements
about how much oil to produce and the price to charge has to be
agreed between members of OPEC (Organisation of the Petroleum
Exporting Countries).

Questions

1 Why do you think the Saudi Arabian Oil Company is run as a

public corporation rather than as a private sector business?
2 What types of decision are made by the Saudi Arabian Oil
Company? How are these decisions important to the economy
of Saudi Arabia?
STUDY TIP
The process of privatisation Purposes of public corporations
has taken place in many Public corporations are often created to make sure that important
countries. You will need to activities that affect the whole nation are carried out well. Indian
be able to answer a possible Railways is a PSU: every day millions of people travel on Indian railways
question on the advantages
and goods are transported all over India. In most countries there is
also a state broadcasting company such as the British Broadcasting
and disadvantages of Company (BBC). The purpose of the BBC is to try to present news in a
privatisation. fair way that is not influenced by political or commercial interests.

18
Sometimes public corporations are set up to preserve jobs. The
ACTIVITY
government is able to support public corporations through money
it raises from taxpayers. This enables the government to provide Saudi Airlines was recently
services to locations where it is not economical to provide them, such privatised. Carry out some
as water supplies to areas of water shortage. In Libya water supplies internet research to find out
are transported over 4000 kilometres, down a huge water pipe from why this happened. What do
under the Sahara Desert to major areas of population. you expect the benefits of
the privatisation to be? Who
N owned the airline prior to the
Mediterranean
Sea privatisation? Who owns it
TUNISIA Tripoli now? Produce a report of your
Benghazi Tobruk AFRICA
Sirt findings.
Ghadarnes
Ajdabiya
Brega
ALGERIA plant Jaghboub
Sarir
LIBYA plant EGYPT
Sarir
Tazerbo
Key
Reservoir Kufra
Phase I
Phase II NIGER
Phase III SUDAN
Phase IV CHAD

The great man-made river project in Libya was a government project

bringing water from under the Sahara Desert along 4 000 kilometres
of water pipes to centres of population.

Government involvement in a particular industry can also reduce

KEY POINTS
wasteful competition. For example, the government might provide
the only electricity or water supply using one set of cables and 1 A public sector business is
pipelines. This saves having wasteful duplication of pipelines. owned by the government.
When a business or industry is taken over by the government this 2 These businesses have other
is described as nationalisation. Selling a public corporation to objectives than just to make a
shareholders is called privatisation. profit.
3 Public sector businesses
Public sector (government-owned) Private sector (shareholder-owned) do not always use
resources as efficiently as
they would if they faced
Nationalisation greater competition.

Privatisation

SUMMARY QUESTIONS
Figure 1.2.5.1 Nationalisation and privatisation 1 Give examples of three public
corporations in different
countries.
Disadvantages of public corporations
2 Suggest three reasons why
Public corporations can become too large and difficult to manage. governments set up public
The lack of competition can lead to higher prices and wasteful use corporations.
of resources (although, as you read earlier, they can cut wasteful
duplication). Subsidising a public corporation through taxes may prevent 3 Why are public corporations
the revenues from being used more efficiently for other purposes. sometimes privatised?

19
International GCSE
BUSINESS eBook
Available
eBook eBook
Available Available

Robert Dransfield and Jane King

The only textbook that fully supports the Oxford AQA

International GCSE Business specification (9225), for first
teaching from September 2017.
■ Make business relevant with a focus on business
planning and the practical application of business
theories and concepts.
■ Encourage a global outlook with up-to-date case
studies from around the world and international account
standard terms.
■ Ensure students are exam-ready with topic summary
questions and plenty of exam-style practice.
■ Support those students who don’t speak English as a
first language with specialist vocabulary clearly highlighted
and explained.

1 Understanding business activity

Stage of production: How value is added
1.1 Purpose of business 1 Growing the oranges
Farmers look after the orange
1.1.1 The purpose and nature of business trees for several years before the
trees give fruit. Each year they
must be treated against pests.

Satisfying wants and needs

Also available:
TOPIC AIMS
Businesses are usually set up to satisfy the wants and needs of 2 Transporting the oranges
Students should be able to: customers. Everybody has wants and needs. We need food, drink,
clothing, shelter and other essentials to stay alive. Other things are Fresh ripe oranges are transported
• understand the purpose of
not quite so essential, but we still want them so our life can be closer to market.
business
• understand the concept of enjoyable. Enjoying fresh, cold orange juice – value is
added in growing the oranges and also in
adding value and how value Business activity is concerned with satisfying these wants and needs.
can be increased
serving the juice to the end consumer. Published for
The act of preparing a good or service for sale is called production.
• understand the concepts of OXFORD INTERNATIONAL
Businesses are set up to satisfy our needs by providing physical
needs, wants and scarcity and goods (manufacturing) and services. When you visit a restaurant
3 Preparing the oranges
STUDY TIP
AQA EXAMINATIONS
opportunity cost. not only are you provided with a physical product, the food, but The juice is squeezed from the
you also receive a service in the form of a member of the restaurant oranges and ice added. Distribution includes the
staff bringing the food to the table and making sure that you have processes involved in getting
ACTIVITY everything that you want to enjoy the meal. goods to consumers. A range International A Level
CHEMISTRY
International A Level

of businesses are involved in

BUSINESS
Which of the following would
you describe as your needs and Adding value distribution including transpo
which would you describe as rt
Businesses aim to provide products and services to customers that 4 Serving the customer companies, retailers (all forms

STUDIES
additional wants? Justify the are more attractive than those of their competitors. Everything that a of shops and sellers to the
The juice is presented to the end
choices you make. business does to make a good more desirable is adding value.
end
consumer in a polite and friendly consumer, including online
A midday or evening meal / a way. sales), as well as wholesalers
For example, cold fresh orange juice is enjoyed across the globe.
bed to sleep in / a bar of soap / Oranges are grown in temperate climates such as California (United who store goods and supply
a visit to the cinema / a blanket States), Libya (North Africa) and Italy (Southern Europe). The oranges
/ a roof over your head at night
goods to retailers in bulk. AS and
are transported in lorries, freight trains and ships across the globe.
/ a toothbrush / a computer / a Hotels and restaurants buy and squeeze the oranges to make a fresh Figure 1.1.1.2 Adding value to a product: the customer benefits from value being
A LEVEL
bottle of water / new clothes / a drink for the end customer. Ice may be added to cool the juice. added at each stage of production
book to read.
A restaurant selling freshly squeezed orange juice might buy three DID YOU KNOW? KEY POINTS
oranges at 10 cents each (totalling 30 cents) to make a glass of fresh
orange juice that it sells to a customer for $1. The value added by Opportunity cost is the term used to describe the cost of a 1 Everyone has basic needs for
the restaurant is therefore 70 cents. $1 – 30 cents = 70 cents. choice made in terms of the next best alternative. For instance, food, shelter and clothing
V

$1
the opportunity cost of the choice made by a business to buy a in order to survive. On top
Lister Renshaw

Scarcity new computer may be the building repairs that can no longer be of these we have additional
afforded. wants.
30 cents We cannot have everything we want: we have to make choices. This
is because resources are scarce: there are not enough for all the things 2 Businesses are set up to meet
that we would like to do. If we turn a field or park into a car park, then SUMMARY QUESTIONS the needs of consumers.
Product we lose the green space. Choices have to be made all the time. 3 Businesses produce goods to
1 In your own words, write definitions for: needs, wants, scarcity,
Figure 1.1.1.1 Value adding by increasing In the same way, a business makes choices. Farmers make choices help consumers satisfy their
choice, opportunity cost, adding value.
the worth of 3 oranges about when and how to improve their land. Farmers in Jamaica can wants and needs.
bought for 30 cents to 2 How might packaging of a product add value to it? Explain your
a glass of orange juice
decide to grow sugar cane or coffee. They sometimes make choices 4 Businesses add value,
about who to sell their produce to (e.g. at a local market or to an answers.
sold for $1
agent of a food company). 3 Explain the difference between producing goods, supplying
to make products more
desirable and suitable for 2
services and distributing products. customers.

2 3
978-019-841748-4

How to get in touch: ISBN 978-0-19-841724-8

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