Unit 1 The purpose of business activityA NEED is a good or service essential for living.A WANT is a good or service which people would like to have, but which is not essential for living, Peoples wants are unlimited.The ECONOMIC PROBLEM results from there being unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.FACTORS OF PRODUCTION are those resources needed to produce goods or services. There are four factors of production: land labour enterprise capital. They are in limited supply.SCARCITY is the lack of sufficient products to fulfil the total wants of the population.OPPORTUNITY COST is the next best alternative given up by choosing another item.DIVISION OF LABOUR is when the production process is slipt up into different tasks and each worker performs one of these tasks. It is also known as SPECIALISATION.BUSINESS combines factors of production to make products which satisfy peoples wants.BUSINESS OBJECIVES are the aims or targets that a business works towards.1. To make a profit. 2. To increase added value 3. To expand the business. 4. To achieve business survival 5.To provide a service to the community.VALUE ADDED is the difference between selling price of a product or service and the cost of bought in materials and components.A STAKEHOLDER is any person or group with a direct interest in the performance of a business.Society Manager Suppliers Government Creditor Owner Workers CustomersUnit 2 Type of business activityThe PRIMARY SECTOR of industry extracts and uses the natural resources of the earth.The SECONDARY SECTOR of industry manufactures goods using the raw materials provided by the primary sector.The TERTIARY SECTOR of industry provides services to consumers and the other sectors of industry.DE-INDUSRIALISATION occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.A FREE MARKET ECONOMY has no government control over factors of production. Its also known as a MARKET ECONOMY.A MONOPOLY is a business which controls all of the market for a product.A COMMAND ECONOMY does not have a private sector as all resources are owned by the state.A MIXED ECONOMY has both a private sector and a public sector.CAPITAL is the money invested into a business by the owners.PROFIT is the surplus after total costs have been subtracted from sales revenue.INTERNAL GROWTH occurs when a business expands its existing operations.EXTERNAL GROWTH is when a business takes over or merges with another business. It is often called INTEGRATION as one firm together to make one business.A MERGER is when the owners of two businesses agree to join their firms together to make one business.A TAKEOVER or ACQUISITION is when one business buys out the owners of another business which then becomes part of the predator business.HORIZONTAL INTERGRETION is when one firm merges with or takes over another one in the same industry at the same stage of production.VERTICAL INTERGRETRTION is when one firm merges with or takes over another one in the same industry but different stages of production. Vertical integration can be FORWARD or BACKWARD.CONGLOMERATE INTEGRATION is when one firm merges with or takes over a firm in a completely different industry. This is also known as DIVERSIFICATION.Unit 3 Forms of business organizationLIMITED LIABILITY means that the owners of company- shareholders cannot be held responsible for the debts of the company they own. Their liability is limited to the investment they made in buying the shares.UNLIMITED LIABILITY means if business fails to reply business debts. The creditor will force the owner to sell all his own procession to pay the debts. A PARTNERSHIP AGREEMENT is the written and legal agreement between business partners. It is not essential for partners to have such an agreement but it is always recommended.An UNINCORPORATED BUSINESS is one that does not have separate legal identity. Sole traders and partnerships are unincorporated business.SHAREHOLDERS are the owners of a limited company. They buy shares which represent part ownership of a company.A PROSPECTUS is a detailed document issued by the directors of a company when they are converting it to public limited company status. It is an invitation to the general public to buy shares in the newly formed plc.ANNUAL GENERAL MEETING(AGM) is a legal requirement for all companies. All shareholders may attend. They vote on who they want to be on the board of Directors for the coming year.DIVIDENDS are payments made to shareholders from the profits of a company after it has paid corporation tax. They are the return to shareholder for investing i