IB Business Management topic 1 (for study) Questions and Answers ( Certified solutions)

IB Business Management topic 1 (for study) Questions and Answers ( Certified solutions) Business - ANS- A decision-making organization involved in the process of using inputs to produce goods and services Market - ANS- A place or process whereby buyers (customers) and sellers (businesses) meet to trade Factors of production - ANS- Land, Labor, Capital, Enterprise Financial returns for land - ANS- rent Financial returns for labor - ANS- wages/salaries Financial returns for capital - ANS- interest Financial returns for enterprise - ANS- profit Specialization - ANS- A business that concentrates on the production of a particular good or service or a small range of similar products (Occurs at different levels: individual, departmental, corporate, regional, and national) Division of Labor - ANS- the specialization of people, rather than organizations- Involves defining different aspects of a job or task and assigning different people to each part of the work Opportunity Cost - ANS- Cost measured in terms of the best alternative benefit or profit foregone when making a decision Primary sector - ANS- Businesses that collect and produce raw materials- eg farming, fishing, agriculture, mining etc Secondary sector - ANS- Businesses that manufacture and process raw materials into goods- eg computers, brewing, baking, clothing and construction Tertiary sector - ANS- Businesses that provide services to consumers and other businesses- eg retail and wholesale, transport, insurance, banking, hotels, tourism etc Private sector - ANS- part of the economy under the control of private individuals and businesses, rather than the government- eg sole traders, partnerships, public/private limited companies Public sector - ANS- part of the economy under control of the government or public corporations- eg state health/education services, emergency services, roading infrastructure Entrepreneur - ANS- people who take risks to manage, plan and organize the other three factors of production in order to provide goods and services Why people set up a business - ANS- Growth, Earnings, Transference/Inheritance, Challenge, Autonomy, Security, Hobbies Market Opportunity - ANS- The identification of new/unsatisfied customer needs Market Research - ANS- Allows businesses to better understand the nature of the industry and the customers' needs and wants Factors that affect the choice of business organization - ANS- type of business activity, sources of finance, Size, Limited Liability, Degree of ownership of control, objectives Sole Trader - ANS- A business owned by one person and has one or more employees and often remains a small business. Sole owner runs and controls the business and is responsible for its success and failure Advantages of sole trader - ANS- Cheap, easy to start, keep all net profits, total control, privacy, con offer special services Disadvantages of sole trader - ANS- Unlimited liability, owner has total risk, limited sources of finance, workload and stress, difficult to specialise or enjoy economies of scale, problem with continuity of sole trader retires or dies Partnership - ANS- profit-seeking business owned by 2 or more people and can have between 2 to 20 partnerships Advantages of Partnerships - ANS- Shared costs, more capital, shared workload, less liability, more ideas/expertise, easier to borrow money, can cover holidays and illness Disadvantages of Partnerships - ANS- unlimited liability, shared profits, less control, each partner is liable for decisions made by other partners, risk of partner conflict Corporations - ANS- Companies that are owned by their shareholders Shareholders - ANS- Individuals or other businesses that have invested money in/bought shares in another company Incorporated - ANS- meaning a company has gone through the formal legal process to become a corporation- the company as a separate entity, has its own legal rights and duties Limited Liability - ANS- Shareholders are covered by legal protection and so do not have complete responsibility of a company's debts and will not lose personal belongings if the company becomes liquidated Board of Director - ANS- Elected by shareholders to run the company on their behalf Private limited company - ANS- A company owned by private shareholders and run by directors therefore they cannot raise share capital from the general public- shares are sold to private family members and friends Advantages of private limited companies - ANS- separate legal entity- gov listed therefore limited liability, easier to raise larger sums of capital Disadvantages of private limited company - ANS- Ownership shared amongst shareholders, control shared amongst directors, can only sell shares privately, not very flexible Public limited company (PLC) - ANS- Raise finance by selling shares to the general public via the stock exchange Advantages of public limited company - ANS- Limited liability, easier access to finance from public, more funds available for investment, public awareness gives status Disadvantages to Public Limited - ANS- costly and complicated to set up, certain financial info available to everyone, competitors and customers alike, increased threat of takeovershareholders expect steady stream of dividends, greater public scruitiny Initial Public Offering (IPO) - ANS- When a business first sells all or part of its business to external investors ("go public!") Non-Profit organization - ANS- An establishment that is run in a professional and business-like manner but without profit being the major objective. Instead, such organizations aim to provide a service or to promote special causes Charities - ANS- Organizations with very specialized aims. Exist to raise money for 'good' causes and draw attention to the needs of disadvantaged groups in society. Minimize costs, market themselves and employ staff Pressure groups - ANS- Groups without the direct political power to achieve their aims, but whose aims lie within the sphere of politics. Attempt to influence local gov't, central gov't, businesses and the media Aims - ANS- General long-term goals of an organization Objectives - ANS- The short-term and more specific goals of an organization, based on its aims SMART - ANS- Specific, Measurable, Agreed, Realistic, and Time Specific Organizational Objectives functions - ANS- To control, To motivate, To direct Vision statements - ANS- Outline a business's aspirations in the distant future, very long term, do not have actual targets, explains what could be Mission statements - ANS- Simple declaration that broadly states the underlying purposes, what the business is trying to achieve and outlines the organization's values, medium-long term, updated frequently, explains values, beliefs, and guiding principles Strategy - ANS- Any plan or scheme to achieve the long-term aims of a business. Used for trying to achieve strategic objectives