I have been a private tutor of Business subject (AS & A level, by Cambridge University Press) for a few months. I will jot down points to remember during my teaching.
1. Social enterprise: Social enterprises are not charities. They have objectives that are often different from those of an entrepreneur who is only profit motivated. It's a business with mainly social objectives that reinvests most of its profits into benefiting society rather than maximising returns to owners.
The three objectives of social enterprises are economic, social and environmental.
2. Types of business organisations - the private sector
- Sole trader: a business in which one person provides the permanent finance and, in return, has full control of the business and is able to keep all of the profits
- Partnership: a business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilites
- Limited companies:
+ Private (Ltd): a small to medium-sized business that is owned by shareholders who are often members of the same family, this company cannot sell shares to the general public
+ Public (plc): a limited company, often a large business, with the legal right to sell shares to the general public - share prices are qouted on the national stock exchange
- Other forms of business organizations include Cooperatives, Franchise, Joint venture, Holding company
3. Different measures of size of business:
- Number of employees
- Revenue
- Capital employed
- Market capitalization
- Market share
4. Profit satisficing: This means to achieve enough profit to keep the owners happy but not aiming to work flat out to earn as much profit as possible. This objective is often suggested as being common among owners of small businesses who wish to live comfortably but do not want to work longer and longer hours in order to earn even more profit.
5. Factors that determine the corporate objectives of a business:
- Corporate culture: This can be defined as the code of behavior and attitudes that influence the decision-making style of the managers and other emplyees of the business. Culture is a way of doing things that is shared by all those in the organisation. Culture is about peole, how they perform and deal with others, how aggressive they are in the pirsuit of objectives and how adaptable they are in the face of change. If directors are aggressive to take over or defeat rival businesses and care little about social factors , then the objectives of the busiess will be very different from those of a business owned and controlled by directors with a more people- or social-oriented
- The size and legal form of the business
- Public-sector or private-sector business
- The number of years the business has been operating
- Divisional, departmental and individual objectives
6. Management by objective (MBO): a method of coordinating and motivating all staff in an organisation by dividing its overall aim into specific targets for each department, manager and employee.
7. Benefits of free trade between countries:
- Consumers are offered a much wider choice of goods and services
- The living standard of all consumers of all countries trading together should increase as they are able to buy products more cheaply than those that were produced just within their own countries
- Countries can begin to specialise in those products they are best at making if they import those that they are less efficient at as compared to other countries. This is called comparative advantage
- Specialization can lead to economies of scale and further cost and price benefits
- Importing products creates additional competition for domestic industries and this should encourage them to keep costs and prices down and make their goods as well designed and of as high quality as possible
- Imports of raw materials can allow a developing economy to increase its rate of industrialization
8. Privatization:
(+) Arguments for privatization:
- the profit motive will lead to much greater efficiency
- decision making in state bodies can be slow and bureaucratic
- privatisation empowers managers and employees which leads to strong motivation in work
- market forces will be allowed to operate
- have access to private capital markets
(-) Arguments against privatization:
- the state should take decisions about essential industries based on the needs of society and not just the interests of shareholders
- more difficult to achieve a coherent and coordinated policy for the benefit of the whole country
- private monopolies could exploit consumers with high prices
- breaking up nationalized industries into competing units will reduce cost saving through econ0mies of scale
9. Types of integration:
- Horizontal integration: integration with firms in the same industry and at same stage of production
- Vertical integration: forward integration with a business in the same industry but a customer of the existing business or backward integration with a business in the same industry but a supplier of the existing business
- Conglomerate: integration with a business in a different industry
10. Synergy: literally means "the whole is greater than the sum of parts", so in integration it is often assumed that the new, larger business will be more successful than the two, formerly separate, businesses were
11. Social audit: a report on the impact a business has on society - this can cover pollution levels, health and safety record, sources of supplies, customer satisfaction and contribution to the community
(It is currently not a legal requirement for businesses to produce such audits but many do so voluntarily)
12. Economic objectives of governments:
- Economic growth
- Low price inflation
- Low rate of unemployment
- A long-term balance of payments between imports and exports
- Exchange rate stability
- Reduce inequalities
13. Factors that lead to economic growth:
- Increases in output resulting from technological changes and expansion of indutrial capacity. Governments want to encourage this form of non-inflationary economic growth by encouraging business investment and innovation in new industries and products
- Increases in economic resources, such as higher working population or discovery of new resources of oil and gas
- Increases in productivity
14. The business cycle (measured by real GDP):
(1) Boom: A period of very fast economic growth with rising incomes and profits. However, a boom often sows seeds of its own destruction. Inflation rises due to very high demand for goods and services and shortages of key skilled workers lead to high wage increases. High inflation makes an economy's goods uncompetitive and business confidence falls as profits are hit by higher costs. The government or central bank often increases interest rates to reduce inflationary pressure. A downturn often results from this.
(2) Downturn or recession: The effect of falling demand and higher interest rates start to bite. Real GDP growth slows and may even start to fall. Incomes and consumer demand fall and profits are much reduced - some firms will record losses and some will go out of business
(3) Slump: A very serious and prolonged fownturn can lead to a slump where real GDP falls substantially and house and asset prices fall. This is most likely to occur if the govenment fails to take corrective economic action.
(4) Recovery and growth: Real GDP starts to increase again. This is either because corrective government action starts to take effect or the rate of inflation falls so that the country's products become competitive once more and demand for them starts to increase.
15. How is inflation measured?
The UK is typical in using a consumer price index (CPI) to measure annual inflation. An index number can be used to record average changes in a large number of items. Each month, government satisticians record the prices of around 6,000 items that commonly feature an average household budget. These prices are compared to those of previous month and the changes are then weighted to reflect the importance of each item in household budgets. All of the weighted price changes are then averaged and given an index number.
16. What causes inflation?
- Cost-push cause
- Demand-pull cause
17. The impact of inflation on business strategy:
(+) Benefits if the rate is quite low:
- Cost increases can be passed on to consumers if there is a general increase in prices
- The real value of debts owed by companies will fall
- Rising value of fixed assets such as land and buildings
- Increased profit margin since inventories are bought in advance ans sold later
(-) If rates are 5-6% per year, can have very serious drawbacks for business:
- Higher wage demand
- Consumers are much more price sensitive
- Higer rates of interest
- Higher cost of materials
18. Business strategy during a period of rapid inflation might focus on:
- Cutting back on investment spending
- Cutting profit margins to keep prices stay competitive
- Reducing borrowing to levels at which the interest payments are manageable
- Reducing time period for customers to pay
- Reducing labor cost
19. Does this mean that deflation is beneficial?
NO!
- Consumers delay would delay making important purchases, hoping that prices would fall further
- Discourage borrowing to invest as the value of debt might gain
- As prices fall, the future profitability of projects might be doubtful and firms will be unwilling to commit funds further
- Holdings of stocks of materials and FGs will decline as they will be falling in value. This will lead to output decrease
20. 3 categories/causes of unemployment:
- Cyclical unemployment: resulting from low demand for goods and services in the economy during a period of slow economic growth or a recession
- Structural unemployment: caused by the decline in important industries, leading to significant job losses in one sector of industry
- Frictional unemployment: resulting from workers losing or leaving jobs and taking a substantial period of time to find alternative employment
21. Balance of payments (current account): This account records value of trade in goods and services between one country and the rest of the world. A deficit means that the value of goods ans services imported exceeds the value of goods and services exported.
22. Exchange rates: the price of one currency in terms of another
(*) Appreciation of the currency
Domestic firms that gain are importers of foreign raw materials and components. However, there will be a fall in demand from overseas tourists. Also, domestic suppliers will be less competitive in their own market as imported goods become cheaper
(*) Depreciation of currency
Home-based exporters can now reduce their prices in overseas markets which leads to expansion of business. Domestic businesses can experience less competition from importers. However, manufacturers depend heavily on imported supplies will suffer from cost rise.
23. Fiscal policy: concerned with decisions about government expenditure, tax rates and government borrowing - these operate largely through the government's annual budget decisions.
- Government budget deficit
- Government budget surplus
24. Monetary policy: the most likely policy measure will be an increase in interest rates. The impact will be:
- Endanger business cash flows (due to increase in interest payments)
- Discourage businesses from borrowing for further investment
- Consumers are less likely to buy goods on credit
- Foreign investors are more likely to flow capital into the country
25. Claimed drawbacks to floating rates - or the benefits of joining a common currency:
- Fluctuating prices affect importers costing and exporters competitiveness
- Having different exchange rates adds costs when trading overseas - currencies have to be converted into the domestic curreny and this involves a commission cost to the bank, different price lists have to be printed and frequently updated for each country
- As the world economy has become increasingly dependent on overseas invesment, floating rates could lead to foreign investment lost to countries with a common currency where there will be fewer exchange rate risks and costs
- Business strategy may have to adapt to the country remaining outside the common currency (relocating for ex)
26. Market failure:
1. External cost: cost of an economic activity that are not paid for by the producer or consumer, but by the rest of society
2. Labour training: for ex - underprovision of training leads to insufficient skilled workforce for economic growth
3. Monopoly producers: underprovision of goods and services compared with what consumers would really like
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