Business Studies As level quiz, 2010

1. Business Studies As level quiz, 2010 Unit 1 Developing new business ideas

2. How to revise • Use your own notes as your basis for revision. • I have used a number of examples in this quiz that you would not be expected to know about. The specification does not require that you learn any specific examples. • Use this revision quiz if you want a change from your own notes. It will test your knowledge of the basic ideas. However, many of the questions contained here have more than one correct answer • If you don’t understand any of the questions, use your own notes, or textbooks, or teachers, or friends to improve your understanding. • Don’t forget – knowledge of the concepts is only part of what you are tested on. Application, Analysis and Evaluation are all equally important. The comments given provide some examples of how basic content might be extended.

3. 1.3.1 Characteristics of successful entrepreneurs This section of Unit 1 looks at: • Have you got what it takes? The personal qualities of successful entrepreneurs • Do you have the drive? What motivates people to set up new businesses? • Can you lead? How will you achieve results through others?

4. 1.3.1(1) Characteristics of entrepreneurs Q1: Why does an entrepreneur need to possess initiative? A: There is no-one to tell the entrepreneur what to do Comment: Successful entrepreneurs need to balance a willingness to use initiative with a willingness to take advice. Even the most talented entrepreneur will soon reach a position where expert guidance on some matter (e.g. legal advice) will make the business more successful

5. 1.3.1(1) Characteristics of entrepreneurs Q2: Why does an entrepreneur need to possess creativity? A: Entrepreneurs will often be faced with new situations, which will demand an imaginative response Comment: Creativity needs to be understood in its widest sense. For example, someone with business flair setting up a clothes shop could employ someone with a flair for fashion to choose the clothes (and vice versa)

6. 1.3.1(1) Characteristics of entrepreneurs Q3: Why does an entrepreneur need to be hard working? A: Entrepreneurs will be competing against established businesses. Entrepreneurs need to make up for their need to win new customers by working harder Comment: Hard work and creativity go together in business. A winning idea has to be followed up by implementation – and implementing new ideas is always hard work

7. 1.3.1(1) Characteristics of entrepreneurs Q4: Why does an entrepreneur need to possess a willingness to take calculated risks? A: Setting up a business is statistically risky. Many fail in their early years Comment: One common trigger for setting up a business is the experience of repeated redundancy. Traditional employment carries its risks too

8. 1.3.1(1) Characteristics of entrepreneurs Q5: Why does an entrepreneur need to have self-confidence? A: Entrepreneurs take the leading role within their business – inevitably this demands more self-belief than working for someone else Comment: While some are naturally more self-confident than others, like any other characteristic self-confidence can grow over time. ‘Nothing succeeds like success’

9. 1.3.1(1) Characteristics of entrepreneurs Q6: Why does an entrepreneur need to have resilience? A: Every new enterprise will meet setbacks. An entrepreneur has to be able to keep going in the face of such setbacks Comment: Successful entrepreneurs often have a streak of hardship somewhere in their backgrounds. Setbacks in life may well lead to a renewed determination to do well. The crucial thing is how we respond to setbacks

10. 1.3.1(2) What motivates entrepreneurs? Q7: What is the difference between working for a wage and working for profit? A: A wage is traditionally a more stable form of income, paid in return for labour. Comment: Setting up a business and working for a profit is more risky, and normally involves an up-front investment of financial capital (cash) – which may be lost. On the other hand, the potential rewards are greater too

11. 1.3.1(2) What motivates entrepreneurs? Q8: Looking purely at the financial angle, why might someone choose to set up a business for profit rather than working for a wage? A: They may have a belief (whether true or false) that they will make more money that way Comment: Alternatively, they may have accumulated sufficient capital to be able to take the risk, or traditional employment opportunities may be limited, or they may be able to rely on a spouse to provide an income from employment

12. 1.3.1(2) What motivates entrepreneurs? Q9: Why might someone wish to work from home? A: This is a cheap and flexible arrangement. It may enable the person to fulfil other responsibilities, such as looking after children, the sick or the elderly – or may be combined with housework Comment: Many large businesses started life in someone’s kitchen, bedroom or garage – and of course many will never outgrow their beginnings

13. 1.3.1(2) What motivates entrepreneurs? Q10: Why might anyone wish to work independently? A: Some people are more productive working independently and/or prefer the autonomy of not reporting to a boss Comment: While an independent turn of mind is essential to any entrepreneur, no business person will ultimately be successful if they cannot also learn to co-operate with others

14. 1.3.1(2) What motivates entrepreneurs? Q11. What ethical reasons might there be for setting up a business? A: Ethical beliefs are one source of the powerful motivation that any entrepreneur needs Comment: This may either be general (e.g. to provide a better and/or cheaper service than rivals), or specific (e.g. to set up a business which is more environmentally friendly than existing options)

15. 1.3.1(3) Leadership styles Q12: When might an autocratic style of leadership work best? A: Simply telling people what to do works well in situations where it is important that everyone does the same thing e.g. informing new employees of company policy Comment: While an autocratic style of leadership is unfashionable the fact remains that it underpins the way most businesses work most of the time

16. 1.3.1(3) Leadership styles Q13: When might a democratic leadership style work best? A: A willingness to seek consensus before a decision is made works well where participants have specific expertise and their ‘buy-in’ is important to the decision’s implementation Comment: Decision-making cannot be entirely abdicated to a group. Leaders are inevitably held responsible for the decisions which they make – or allow others to make

17. 1.3.1(3) Leadership styles Q14: Does a paternalistic leadership style have anything to offer contemporary Britain? A: A genuine and sensitive concern for an employee’s welfare in its widest sense will always be welcome Comment: However, employees are not children and an over-dependence on the boss is unlikely to lead to the personal growth and development on which an employee’s future productivity depends

18. 1.3.1(3) Leadership styles Q15: What assumptions are made by MacGregor’s Theory X? A: That employees are looking for the most money for the least effort, and will therefore only respond to rewards and threats Comment: While an unfashionable view, there is an element of truth in this for everyone. For example, secondary education has been largely built on the premise that the prospect of exam success or failure is a prime motivator

19. 1.3.1(3) Leadership styles Q16: What assumptions are made by MacGregor’s Theory Y? A: That employees seek meaning in their work, and will find it through acting responsibly and using their abilities to the full Comment: One outcome that follows on from this insight is that over-qualified people should not be employed. If a job has little scope for enlargement, then the over-qualified person may soon become disaffected even if the pay is good

20. 1.3.2 Identifying a business opportunity This section of Unit 1 looks at: • What determines the price of a product? How does the willingness of companies to supply a product affect both the size of a market and the price at which a good will sell? • What affects the demand for a product? Why should every company pay close attention to the preferences of its customers?

21. 1.3.2(1) What makes a market? What should firms supply? Q17: What does a demand curve show? A: The amount of a product that ‘the market’ (i.e. consumers) will buy (i.e. demand) over a range of different prices. Its negative gradient reflects the fact that the higher the price the less consumers will buy. Comment: The size of the market reflects the distance over which the good or service can be traded. So the market for plumbers is regional, while the market for oil is world-wide

22. 1.3.2(1) What makes a market? What should firms supply? Q18: What does a supply curve show? A: The amount of a product that ‘the market’ (in this case companies) will sell (i.e. supply) at a range of different prices. Its positive gradient reflects the fact that the higher the price the more companies will wish to sell Comment: The concept of a supply curve works best with homogenous goods such as raw materials and currencies, which can always be sold at a known price

23. 1.3.2(1) What makes a market? What should firms supply? Q19: How is the price of a good determined? A: The price of any good will tend towards that price at which the quantity demanded equals the quantity supplied – what is known as the ‘equilibrium price’ (P*, for short) Comment: The simplest supply / demand diagram will also show the quantity both demanded and supplied at P*. This is known as the ‘equilibrium quantity’ (Q*, for short)

24. 1.3.2(1) What makes a market? What should firms supply? Q20: How does knowledge of the equilibrium price help a company identify a business opportunity? A: If a company thinks it can produce goods of the same quality for a lower price, or of a higher quality for the same price, then it has identified a business opportunity Comment: Companies may also look for ‘gaps in the market’ i.e. products for which there is, at present, no equilibrium price at all

25. 1.3.2(1) What makes a market? What should firms supply? Q21: How can supply & demand curves, and P* & Q* be illustrated on a single diagram? Comment: Price is measured in some unit of currency e.g. pounds sterling or euros. Quantity is measured in units per time period e.g. if the product was oil, it might be millions of barrels per month

26. 1.3.2(1) What makes a market? What should firms supply? Q22: What are the factors of production (also called inputs), which firms need to produce their output? A: Labour (L) and capital equipment (K) Comment: ‘Labour’ refers to every worker with the various skills which are needed. Sometimes ‘entrepreneurship’ is listed separately from other types of labour. Equally, ‘land’ is sometimes included with capital equipment and sometimes listed separately

27. 1.3.2(1) What makes a market? What should firms supply? Q23: What is the name for the amount of output which can be produced from one unit of input? A: The productivity of that input e.g. the productivity of a worker in a call centre might be measured as X calls answered per hour or Y sales achieved per hour Comment: It follows that the two ways to raise output is either to use more inputs or raise the productivity of those inputs

28. 1.3.2(1) What makes a market? What should firms supply? Q24: What factors, other than the price of the product, affect the willingness of firms to supply the product [such factors are known as ‘non-price determinants of supply’]? A: The costs of production. These include the price of labour (i.e. the wage rate), the price of capital equipment, the productivity of those inputs and any indirect taxes (such as VAT) paid Comment: Lower input prices & taxes, and higher productivity all lead to lower costs

29. 1.3.2(1) What makes a market? What should firms supply? Q25: Illustrate the impact of lower costs on the equilibrium price and quantity of any product Comment: This explains the current trends in the market for high-technology goods. As advances in technology reduce costs, so the supply shifts outwards leading to rising sales and falling prices

30. 1.3.2(2) Identifying what consumers want or need Q26: What factors, other than the price of the product, affect the willingness of consumers to buy the product [such factors are known as ‘non-price determinants of demand’]? A: The incomes of consumers, the prices of any substitute goods and any complementary goods and personal tastes Comment: We could add: the size & structure of the population in the market, and the way income is distributed between consumers