1. BUSINESS IN THE REAL WORLD
1.1 Business basics
Business
An organisation that produces goods or provides services to satisfy customer needs
and wants.
Goods
Physical products that can be sold.
Example: trainers, phones, food.
Services
Activities provided to customers.
Example: haircuts, banking, Netflix.
Needs
Things people require to live.
Example: food, water, shelter.
Wants
Things people would like to have but don’t necessarily need.
Example: designer clothes, gaming consoles.
Factors of production
Remember:
Factor Meaning
Land Natural resources
Labour Human effort
Capital Man-made resources used to produce goods/services
Enterprise The ability to organise resources and take risks
Opportunity cost ⭐
Opportunity cost = the next best alternative given up when making a decision.
Example:
A business has £10,000 and chooses to buy new machinery instead of opening another
shop.
Opportunity cost = opening another shop.
⸻
🏭 Business sectors
Primary sector
Extracts raw materials.
Examples:
• Farming
• Fishing
• Mining
• Forestry
,Secondary sector
Turns raw materials into finished products.
Examples:
• Car manufacturing
• Construction
• Food manufacturing
Tertiary sector
Provides services.
Examples:
• Banking
• Retail
• Hairdressing
• Insurance
⸻
👨💼 Entrepreneurs
Entrepreneur: Someone who starts and runs a business, taking risks in the hope of
making a profit.
Characteristics
Know these:
• Hard-working
• Organised
• Creative
• Innovative
• Willing to take risks
• Determined
Why become an entrepreneur?
• Be your own boss
• Make more money
• Flexible working
• Pursue an interest
• Identify a gap in the market
• Escape an unsatisfying job
⸻
🏢 1.2 Business ownership
Sole trader
A business owned by one person.
Advantages
, • Easy to set up
• Owner keeps all profits
• Owner has complete control
• Quick decision-making
Disadvantages
• Unlimited liability
• Can be difficult to raise finance
• Owner has lots of responsibility
• Business may have limited growth
Unlimited liability: The owner is personally responsible for business debts.
⸻
Partnership
A business owned by 2 or more people.
Advantages
• More capital available
• Responsibilities can be shared
• More ideas and skills
• Relatively easy to set up
Disadvantages
• Profits are shared
• Disagreements can occur
• Unlimited liability in a traditional partnership
• Decisions may take longer
⸻
Private limited company — Ltd
Owned by shareholders.
Shares cannot be sold to the general public.
Advantages
• Limited liability
• Easier to raise finance than a sole trader
• Business continues if an owner leaves/dies
Disadvantages
• More expensive and complicated to set up
• Accounts have to be produced
• Profits are shared between shareholders
• Less privacy
⸻
Public limited company — plc
1.1 Business basics
Business
An organisation that produces goods or provides services to satisfy customer needs
and wants.
Goods
Physical products that can be sold.
Example: trainers, phones, food.
Services
Activities provided to customers.
Example: haircuts, banking, Netflix.
Needs
Things people require to live.
Example: food, water, shelter.
Wants
Things people would like to have but don’t necessarily need.
Example: designer clothes, gaming consoles.
Factors of production
Remember:
Factor Meaning
Land Natural resources
Labour Human effort
Capital Man-made resources used to produce goods/services
Enterprise The ability to organise resources and take risks
Opportunity cost ⭐
Opportunity cost = the next best alternative given up when making a decision.
Example:
A business has £10,000 and chooses to buy new machinery instead of opening another
shop.
Opportunity cost = opening another shop.
⸻
🏭 Business sectors
Primary sector
Extracts raw materials.
Examples:
• Farming
• Fishing
• Mining
• Forestry
,Secondary sector
Turns raw materials into finished products.
Examples:
• Car manufacturing
• Construction
• Food manufacturing
Tertiary sector
Provides services.
Examples:
• Banking
• Retail
• Hairdressing
• Insurance
⸻
👨💼 Entrepreneurs
Entrepreneur: Someone who starts and runs a business, taking risks in the hope of
making a profit.
Characteristics
Know these:
• Hard-working
• Organised
• Creative
• Innovative
• Willing to take risks
• Determined
Why become an entrepreneur?
• Be your own boss
• Make more money
• Flexible working
• Pursue an interest
• Identify a gap in the market
• Escape an unsatisfying job
⸻
🏢 1.2 Business ownership
Sole trader
A business owned by one person.
Advantages
, • Easy to set up
• Owner keeps all profits
• Owner has complete control
• Quick decision-making
Disadvantages
• Unlimited liability
• Can be difficult to raise finance
• Owner has lots of responsibility
• Business may have limited growth
Unlimited liability: The owner is personally responsible for business debts.
⸻
Partnership
A business owned by 2 or more people.
Advantages
• More capital available
• Responsibilities can be shared
• More ideas and skills
• Relatively easy to set up
Disadvantages
• Profits are shared
• Disagreements can occur
• Unlimited liability in a traditional partnership
• Decisions may take longer
⸻
Private limited company — Ltd
Owned by shareholders.
Shares cannot be sold to the general public.
Advantages
• Limited liability
• Easier to raise finance than a sole trader
• Business continues if an owner leaves/dies
Disadvantages
• More expensive and complicated to set up
• Accounts have to be produced
• Profits are shared between shareholders
• Less privacy
⸻
Public limited company — plc
