Summary Of Pob Topics

Answers to exam-style questions Please note that these are not the only possible answers. Most CSEC ® Principles of Business examination questions can be answered in many ways, using a variety of different examples. the globe. They specialize in related activities, for example energy production or banking.

1. The nature of business 1. a Two advantages of doing business as a sole trader are:(Choose any two) zz zz

zz zz

Easy to establish and manage. Decision-making is speedy, since sole traders own and operate their own businesses. Customers receive special attention. Profits are not shared.

Two disadvantages of doing business as a sole trader are:(Choose any two) zz

zz zz zz

zz

zz

Unlimited liability, that is, all losses and debts incurred by the business must be borne by the owner. Problems in raising capital. Limited managerial skills. Lack of competitiveness. (Discounts, if offered to the sole trader may be small in comparison to big business operations). Lack of continuity, if the owner dies, the business also dies. Long working hours.

b Multinational corporations are giant international firms, which operate from their corporate headquarters in their home countries, but conduct their business activities through their subsidiaries across

Conglomerates are large companies which own a variety of businesses producing different goods or services. c

Multinational corporations:- Bank of Nova Scotia; British Petroleum (BP); Alcoa Conglomerates:- Neal and Massy Ltd.; Ansa McCall; Grace Kennedy Ltd.

d Two benefits of a franchise for an individual starting a business are:zz

zz

the entrepreneur enjoys the goodwill associated with the franchise and can use an international brand name. there are fewer risks involved than in starting a new business (e.g. in developing markets for products etc.).

Two disadvantages of a franchise for an individual starting a business are:zz

zz

e

the entrepreneurial spirit is restricted as the business must follow the regulations of the franchisor the entrepreneur has to pay a portion of the profits in the form of royalties to the franchisor.

Two differences between a private limited company and a public limited company are:-

Areas of difference

Private limited company

Public limited company

Accounts

Accounts may be kept confidential.

Reports and financial information must be made public.

Raising Capital

Private companies cannot issue shares to raise capital for the business.

They can raise large amounts of capital through the issue of shares to the public.

2. a The four different types of economic systems are:zz zz

zz zz

Planned or command economy Mixed economy.

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b Two differences between any two economic systems listed in (a) above are:(Choose any two systems and compare) Areas of differences

Subsistence Economy

Market Economy

Planned Economy

Mixed Economy

Ownership of the factors of production

Individual and family

Private individuals and firms

The state or government

Both government and private individuals and firms. (Private Sector)

Who decides what, how much and for whom to produce? (areas & levels of production)

Individual and family

Consumers’ choices and demand

The state or government

Government provides essential services (hospitals, education, infrastructure, etc.) and the private sector provides goods and other services.

Government participation or involvement

No government involvement.

Little or no government involvement.

Total government involvement in all areas.

Government involvement only in certain areas of national importance, (national security, hospitals, education, infrastructure, etc)

c

Three areas of differences between the private and public sectors are:-

Areas of difference

Private Sector

Public Sector

Ownership & control

It is that part of the economy that is owned and controlled by private individuals and firms.

It is the operations in the economy that are undertaken by the government for the benefit of its citizens, and all central and local government activities which are funded by the public.

Motive of operation

Its primary motive for being in business is making profits.

Its primary motive is to provide essential services to the citizens of the country; the making of profits is secondary.

Sources of funding (capital)

 Loans

 

from local financial institutions.   Personal savings.  Loans from family members.  Sale of shares to the public.

d Two groups of people who may form a co-operative are:(Choose any two) zz zz zz

2

Producers Consumers Savers.

e

Taxation.  Loans from local and/or international financial institutions.  Sale of Treasury Bills and Government bonds and securities.   Sale or divestment of public assets. One purpose for which a co-operative might be formed for each of the two groups in (d) above are:zz

Producers – to ensure that the best price is obtained for their products.

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zz

zz

Consumers – to obtain goods at higher quality and lower prices. Savers – to encourage savings and to obtain low-interest loans, etc.

3. a Barter is the exchange of goods/services without the use of money. b Two problems associated with the barter system are:(Choose any two) zz

zz

zz

zz

c

zz zz zz

c

Double coincidence of wants (each person has to have what the other wants). Rate of exchange (deciding how much of one good is exchanged for another). Store of value (can't save goods for use at a future date without spoiling). Divisibility (some goods can't be split into smaller parts without losing its value).

zz

zz

zz

there is no longer a need for a double coincidence of wants to take place. Money is widely accepted for any transaction. Money is divisible, and can be used for both large and small payments money is portable, and can be used to make payments at any distance.

Two ways in which payments may be made using money, other than the use of notes and coins are:zz

zz

by the use of cheques which are not legal tender but an order to the banker to make the payment to the bearer. by the use of debit cards which is a non-cash transaction at the point of sale. The merchant will receive his/her money from the bank.

Three functions of a business are:(Choose any three functions) zz

zz

zz

zz

Medium of exchange. Standard for deferred payments. Measure of value. Store of value.

d Three advantages of making payments with money rather than through the barter system are:-

3

b Two ways in which a shareholder may benefit from a successful business are:zz the shareholder can receive dividends on his shares zz the shareholder can expand his equity, that is, the value of his shareholdings.

The four functions of money are:zz

e

4. a A shareholder is a person who is part owner of a business through the purchase of shares.

zz

zz

to create employment and incomes for people in the society. to maintain and expand its market and the economy. to compete by producing goods and/or services to satisfy the needs and wants of the population. to maintain its social status as a corporate citizen by assisting the community in which it operates. to satisfy the need or desire for making more money by maximizing profits. to take on the risks associated with running a business.

d A stakeholder is any person, group of people, or organisation that has an interest in the business. Three groups of stakeholders, and one way in which each may benefit from the successful operation of a business are:zz Owners, from the receipt of profits. zz Employees, from improved wages and working conditions. zz Customers, from quality products and reasonable prices. zz Society, from the funding of community groups and activities. zz Government, from taxes, both direct and indirect. 5. a An entrepreneur is a person who undertakes the risks involved in establishing and running a new business. e

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b Two reasons why James may be interested in starting his own business are:(Choose any two) zz

zz

zz

zz

c

Two advantages and one disadvantage for James if he starts his business on the Island of St Anne as against the island of St George Advantages:zz

zz



Desire for financial independence, and to earn their own money and be financially secure. Self-fulfilment. He may want to be successful and to determine that success. Self-actualisation. It may have always been a dream or goal to own and operate his own business. To improve his status in life, by improving his income, and their economic standing in society.

Manufacturers are free to produce what the consumers require, and the consumers in turn are free to spend their money as they see fit. Decision-making is not controlled, so there is greater participation in the decision on what is to be produced to satisfy the needs of the consumer.

e

zz zz

zz

zz

1. a The four main functional departments of a typical business are:zz zz zz zz

Production „„ „„

zz

zz

sourcing of raw materials manufacturing of the products.

Marketing and Sales „„

„„

Businesses could be exploited through the imposition of high prices for utilities and materials if there is insufficient competition among producers or government regulation of business.

planning in order to achieve the goals and objectives of the business sourcing finance for the day to day operations of the business hiring staff to operate the various areas of the business

Production Marketing and Sales Finance and Accounting Personnel or Human Resource Management.

b Two responsibilities which would be assigned to each of the departments listed above are as follows:-

promoting the products (e.g. advertising, sales promotion, etc) selling the products to customers.

Accounting and Finance „„

„„

d Two functions of a business owner when starting operations are:(Choose any two) zz

Pay workers a fair and reasonable wage Provide safe and proper working conditions Train workers to perform their tasks effectively and efficiently Promote workers based on merit

2. Organization and management

Disadvantage:zz

4

Two roles that James would have to perform with respect to any employees hired by his organization are:(Choose any two)

making and receiving payments on behalf of the company preparing the financial statements of the company.

Personnel or Human Resource Management „„ „„

c

recruiting, disciplining or dismissing staff training, promoting or redeploying staff.

One way in which an increased demand will affect each of the major departments of a sports goods manufacturing company is:Production department will have to source more materials to manufacture more equipment.

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Marketing and Sales departments will have to distribute and sell more items. zz

Accounting and Finance department will have to release more funds to purchase the materials needed to manufacture the additional equipment, as well as pay overtime or new staff.

zz

Personnel or Human Resource Management department will have to hire workers to meet the production demands.

zz

2. a Management is the bringing together of all the resources (human and non-human) in an effort to meet the goals of an organization.

zz

b Four functions of management are:(choose any four) zz

zz

zz

zz

zz

Planning is the process by which a manager prepares for the future. Organizing is the process of pulling together all resources needed, to meet the goals of the organization. Controlling is the process of checking and measuring how activities are being carried out in the business and steering them towards meeting the goals set by the organization. Delegating involves assigning tasks or goals to subordinates whilst at the same time granting them the necessary authority to carry out the tasks. Staffing is the process of selecting, orienting, assigning, training, promoting, and retiring the labour force

c

Two responsibilities of management to the employees of a business are:(Choose any two) zz zz

zz zz

zz

zz

d

as well as matching the right personnel with the right job. Communicating is the process of transmitting information and ideas to people within the various levels of the organization. Directing/Coordinating is the process by which actual performance is guided towards the goals to be met. Evaluating is the process of assessing work performance to determine how well the tasks have been done, and what steps are to be taken to improve future performance. Motivating is the process by which workers are encouraged or influenced to take the right action to get the tasks and jobs done.

i

to provide fair wages to provide safe working conditions and equipment protection against unfair dismissal providing opportunities for promotion and growth within the organization to provide compensation for job-related injuries to provide proper training and education. Lateral relationships exist among people who are at the same level within an organisational structure.

Managing Director

Marketing manager

Production manager

Personnel or Human Resources manager

Reporting relationship Lateral relationship

5

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ii Line management represents lines of commands or authority; it is a vertical relationship in which the line director/

manager gives orders or instructions to subordinates, who may pass these further down the line.

Managing Director

Financial manager

Chief accountant

Accounts Receivable manager

Accounts clerks

iii Span of control is the number of subordinates a manager supervises, or

the effective limit to the number of staff that a manager can supervise efficiently. M. D.

3. a Motivation is the process by which workers are encouraged or influenced to take the right action to get the tasks and jobs done.

d One purpose for which a business may establish a committee:zz

b Maslow’s hierarchy of needs are:zz zz zz zz zz

c

Physiological or basic needs Safety and security needs Social and belonging needs Esteem needs Self-actualization needs.

Two members likely to be appointed to this committee are zz zz

Theory X assumes that most workers don’t like work and prefer to be directed, do not like responsibility and focus more on safety than anything else. Theory Y assumes that the workers like work and are willing and capable of making a positive contribution to the organization.

6

to advise the executive and to assist it in developing policies and procedures for scheduling staff vacations.

e

i

Chairperson Secretary The usual role of the chairman or chairwoman is to convene and to coordinate the proceedings of the meeting.

ii The usual role of the secretary is to record the minutes of the meeting and provide members with copies.

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iii The minutes are a summary of what took place in the meeting, decisions, issues for further discussion, etc.

use their initiative to complete the tasks required. Disadvantage:-



zz

4. a Four different leadership styles are:zz zz zz zz

Authoritarian Democratic Charismatic Laissez Faire.

b One advantage and one disadvantage of any two styles from (a) above are:(Choose any two styles) Authoritarian Advantage:zz





c

One benefit of teamwork and one difficulty associated with teamwork are:(Choose any one)



Benefit:zz

zz

Quick decision making which might be essential in a crisis.

zz

Disadvantage:zz

No participation from employees in decision-making

zz zz zz

Democratic Advantage:Participation by employees in decisionmaking can lead to more effective decisions as employee experience can be useful for managers. Disadvantage:zz



zz



Time must be devoted to involving staff and this can slow down decision-making. This can be a problem when a quick decision is essential.

Charismatic Advantage:The charismatic leader inspires employees with personal magnetism and communication skills and this is a motivating factor. Disadvantage:-



zz



7

A charismatic leader’s decisions may be accepted uncritically. Unwise or unscrupulous leadership may bring disaster to a business.

Laissez Faire Advantage:zz

zz

zz



zz

zz

incompatibility of the team members may lead to rivalry within the team. there may be too much rivalry between teams. a team member who is not interested in the particular task may weaken the overall effort.

d Four channels of communication which may be used in a business context are:(Choose any four) zz zz zz zz zz

Gives employees a sense of empowerment, as they are allowed to

creative problem-solving from the inputs of individuals of the team. the pooling of resources, ideas and expertise. motivation of the workers personally and collectively. increases the level of productivity. improvement in the quality of work. fostering a participative approach to work, giving a feeling of belonging and making a significant contribution to the organization. providing for continuity in the carrying out of projects if a member leaves. increase in the efficiency and effectiveness of the negotiation process.

Difficulty:(Choose any one)

zz

zz

Employees could be given too much freedom, to the extent that they begin operating outside of the goals of the organisation.

zz zz

consultation suggestion box meetings (formal or informal) reports memorandum (a memo) telephone electronic mail (e-mail)

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zz zz zz zz zz zz zz zz

e

letters newsletters interviews manuals notice boards speeches courses and seminars intercoms.

c

zz zz zz zz

One purpose for which each in (d) above would be suitable is:(Choose any four) zz

zz

zz

zz

zz

zz

zz

zz

zz

Two types of Management Information System are:(Choose any two)

consultation (to have discussions between management and staff on particular issues) suggestion box (to get feedback from workers to improve procedures) meetings (formal or informal) (to discuss issues affecting the organization) memorandum (to inform staff about decisions and issues) telephone (to contact anyone within or outside the organization, usually for informal communication) electronic mail (e-mail) (to transmit or receive information rapidly) interviews (to select the appropriate candidate for a position within the organization) manuals (to provide instructions for particular tasks or jobs) intercoms (to contact a specific person or groups of people).

d Two ways in which one type of Management Information System may be used, and two requirements for effective operation are:(Choose any one) zz

Transaction Processing System (TPS) „„ it can be used to handle point-ofsale transactions „„ it is used by the automatic teller machines „„ it requires quick systems response „„ it requires the system to be reliable.

zz

Decision Support System (DSS) „„ it is used to enhance decisionmaking, for example on production volume or staff recruitment. „„ it is used to collect and organize information in a less structured environment „„ it requires adaptability to deal with new requirements „„ it requires the ability to use many different types of information.

zz

Office Automated System (OAS) „„ it may be used for internal e-mails „„ it may also be used for teleconferencing „„ it requires flexible, adaptable and stable technology „„ it requires a local or wide area network system to facilitate its operations.

zz

Executive Support System (ESS) „„ it is used to support management decision-making „„ it is used to obtain high-level, aggregated and standardised „„ information from many sources

5. a Management Information System is the development and use of effective information systems in organizations to support monitoring and decision-making by management. b Two advantages of a Management Information System over a paper-based management system are:zz

zz

8

data can be retrieved and processed in a much shorter time. Less space is needed for storage than a paper-based system.

Transaction processing system (TPS) Decision-making support system (DSS) Office automation system (OAS) Executive support system (ESS)

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„„

„„

e

it must be flexible for use in many different situations it must be easy to operate for executives with no specific computer training.

Two challenges likely to arise in the introduction or operation of a Management Information System are:(Choose any two) zz

zz

zz



ii One benefit the organization hopes to derive from introducing the flat organizational structure is to speed up the flow of communication and information as there will be fewer levels to go through.

e

Two forms of industrial actions that are available to the employees if differences cannot be resolved are:(Choose any two)

the cost of setting up and maintaining the system (establishment, maintenance and security) the cost of training workers to operate the system the possibility of human error in the input of data.

zz

zz

zz

6. a A leader is one who is able to employ the most appropriate strategies for getting work done in order to meet the goals of the organization. b Abigail’s former leadership style was laissez faire, because she always allowed people to choose when, and how, they wanted to get the job done as long as it was completed within the timelines set. c

Two advantages and two disadvantages of Abigail’s former leadership style are:Advantages:zz

zz



it gives employees a sense of empowerment, as they are allowed to use their initiative to complete the tasks required the employees’ self-esteem is developed and they feel more involved.

3. Establishing a business 1. a

i Enterprise is one of the factors of production which organises the other factors of production (land, labour and capital) to produce goods and services and make a profit (or loss).



ii An entrepreneur is a person who undertakes the risks involved in establishing and running a new business.



b Four qualities of a successful entrepreneur are:zz

zz

Disadvantages:zz

zz

employees could be given too much freedom, and might become lazy and ineffective they could begin operating outside of the goals of the organisation.

d i The new structure will affect the span of control for senior managers to the extent that they will have more subordinates to supervise.

9

zz

Go slow, that is taking a longer time than normal to perform a task Work to rule, that is the workers will only do a certain amount of work and nothing more Sick out, that is staying at home and pretending to be sick Striking, that is withholding their labour entirely and walking off the job.

zz

zz

Creativity. The entrepreneur must be able to take the step of setting up a new business. Determination. The entrepreneur must be firm in his goal and objectives for the business to ensure that they are met. Flexibility. The entrepreneur must be will to adjust strategies as circumstances changes within the business environment. Willing to take risk. The entrepreneur must be willing to take the risks involved in starting any new business, and be aware of all the pitfalls or obstacles that may be involved.

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c Two reasons why someone may decide to establish their own business are:zz

zz



Desire for financial independence, and to earn money and be financially secure. Self-fulfilment. The desire to be successful and to determine that success.

d Four sources from which an entrepreneur may obtain capital to start a business are:zz zz zz

zz

zz

management data on the ways in which the business is expected to grow, recording procedures, and methods for monitoring progress.

d One topic which should be covered by a business plan under each of the following headings is:

your own money (personal savings) loans from family or friends loans from financial institutions (Banks, Credit Unions, etc.) Loans or grants from government institutions (e.g. the National Enterprise Development Company in Trinidad and Tobago)

i Finance (Choose one of these) Capital requirements to start the business (e.g. plant, machinery, stocks) and operate the business for the first six months. zz Sources of capital, that is, where the entrepreneur can obtain funding to start the business. ii  Legal aspects zz

2. a A business plan is an explanation of who will be responsible for a new business, what the business is intended to do, how it is going to get the money and other resources to do it, and what profit it hopes to make.



b Two ways in which a business plan helps entrepreneurs are:(Choose any two)

e

i



ii Long-term plan. This is outlines strategies for change over a period of at least three years, and usually longer.



iii Project plan. This is planning for a specific project or task; it is time specific to the respective project.



zz

zz

zz

zz

zz

c

Two types of data which may be used in the preparation of a business plan are:(choose any two) zz

zz

10

Providing a blueprint for the operations of the business Identifying the likely income and expenditure Giving the entrepreneur a baseline to monitor progress of the business Providing a guide to the goals of the business and future financial flows for those financing the firm Enabling professional advisers to monitor the progress of the business.

market data on who the intended customers are, customer needs, competition, size of market, etc., and proposed marketing strategy financial data on how the business will be financed, profit and loss forecasts, cash flow forecast, capital expenditure requirements

zz

Whether the business will be organised as a sole trader, a partnership, a company or another form of organization.

Contingency plan. This is an plan to deal with an event outside the control of the business, such as a natural disaster.

3. a Three steps that John must take before starting his own business are:zz to find a proper location to operate the business zz to register the name of the business with the Registrar of Companies zz to register the business with the Revenue Authority for taxes. b Two regulations affecting John’s Burger Palace which would be applied by each of the following are:

i 

Local government zz food handlers licences (food badge) for himself and any employees zz building regulations for his business premises.

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ii  National government zz

zz

c

registration with the Revenue Authority for the payment of taxes registering all employees with the National Insurance Board for the payment of NIS

c

i

The risk faced by the bank if there is no collateral is that it will lose its money if the borrower fails to pay.



ii

The benefit that a bank may get from the use of collateral is that it can recover the money loaned to a borrower by selling the collateral if he fails to repay the loan.



zz

zz

zz

zz

iii Two possible sources of collateral are:(Choose any two) zz zz zz zz zz zz

Government tax-free savings bonds. Stocks and shares. Fixed deposit certificate. A loan guarantee from a third party. Land titles or deeds of property. Life assurance policies (cash value).

zz

zz zz

zz

the danger of selling substandard goods due to the use of poor quality ingredients improper or misleading advertising he has to pay all taxes and NIS contributions to the relevant authorities he must properly dispose of all garbage and waste to avoid polluting the environment.

4. Business and the law 1. a A contract is an agreement between two or more parties that is legally binding or enforceable by law. b The three essential features of a valid simple contract are:zz zz zz

offer acceptance consideration.

by breach, that is when one party to a contract fails to carry out their side of the agreement by performance, that is when both parties carry out their side of the contract. by agreement, that is when both parties agree to cancel the contract before it is completed by death, that is one party might die and cause termination. However, in some cases, that party’s agent or beneficiaries may be liable to continue the terms of the contract.

d Two remedies for a breach of contract are:(Choose any two) zz

zz

d Two ethical issues that John must be mindful of if he is to start a new business are:(Choose any two)

11

Three ways in which a contract may be terminated or discharged are:(Choose any three)

zz

financial compensation, or compensatory damages. specific performance for example where the vendor is ordered to complete a sale of land. declaratory relief, in which the courts state each party’s rights and obligations.

2. a An invitation to treat is an expression of intent to negotiate or an invitation to make an offer. A social agreement is a bare promise that is not enforceable by law.

b Three differences between a simple contract and a specialty contract are:-

   A simple contract „„ can be either oral or implied. It need not be in writing „„ does not always need to be signed „„ does not usually need to be witnessed.

A specialty contract „„

„„

„„

is a formal agreement that must be done in writing must always be signed by all parties agreeing to it in most countries, a deed or specialty contract must be witnessed.

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c

Three types of specialty contracts and their purposes are:zz zz

zz

Sale of land (deed of conveyance) Deed of gift, transferring land or property by gift Deed of partnership, setting out the rights and duties of each partner.

compensates the person from the premiums it has received from its clients. d Four principles of insurance are:(Choose any four) zz

d The difference between a ‘void contract’, a ‘voidable contract’ and an ‘unenforceable contract’ are:zz

zz

zz

3

Void contract. These are contracts that never came into existence, for example an agreement to break the law. Voidable contracts. These are contracts which may be overturned by legal action, for example because they were based on misrepresentation of an important fact, or because one of the parties was under duress. Unenforceable contract or transaction is one that is in conflict with the legal rights of one party, for example a contract for the sale of goods which states “no refund, no return”.

zz

zz

zz

e

zz

Insurance is about uncertainty, for example insurance against loss by fire. Assurance is about certainty, as in life assurance.

b Two benefits which may be provided by assurance are:zz

zz

c

to provide for a payment after death to the beneficiaries (whole life policy) to provide for a payment of a basic sum at a certain age or on the death of the insured, whichever comes first (endowment policy).

The pooling of risk is where a risk is defined as a loss that may or may not occur, and the insurance company undertakes to bear the risks of many insured persons in return for the premium they pay the company. When a person makes a claim for a loss arising from an insured risk, the insurance company

Two forms of insurance which are appropriate for businesses, but not for most individuals or households are:zz

a T  he difference between “insurance’ and ‘assurance’ is:zz

12

zz

Utmost good faith (the parties must be truthful in their declaration and must disclose all relevant facts) Insurable interest (the insured must be the one that would suffer financially if an event occurred) Proximate cause (the damage that is incurred is caused by the risk insured against) Indemnity (the policy holder is compensated for the actual loss incurred) Contribution (if the same risk is insured with several insurance companies, each insurer will contribute a percentage towards payment of the claim).

zz

liability insurance protects businesses against liability as a result of losses or injury incurred by people on the property cargo insurance protects exporters and shippers against the hazards of the sea, or damage or loss of cargo.

4. a The purposes of the following documents are:A bill of lading is for goods transported by ship. It acts as a receipt for the goods, summarizes the shipping contract and transfers ownership to the consignee.



i



ii A bill of exchange is a document often used in international trade a which promises payment of a particular sum on a later date.



iii A credit note is sent by the supplier, to the customer, (for example when there is an error in the invoice or when goods are returned to the supplier due to damage) and the customer’s account is to be decreased.

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iv An invoice is a document that lists the goods purchased and informs the purchaser of the amount owed to the supplier. It also states the terms of purchase and payments.

zz

zz

zz

zz

zz

Telegraphic Money Order (wire transfer). It is a quick way of making payments or transferring sums of money to persons in local or overseas locations. It is part of the electronic banking system. Bill of exchange. It is an unconditional order in writing from the purchaser, addressed to his banker giving instructions to make payment on demand or at a fixed or determinable future time, a certain sum of money to a specific person (supplier) or to a bearer. Documentary credit. It is a facility for paying debts arising from international trade. It allows the exporter to receive ‘immediate payment’ from the importer’s bank as long as documentary evidence of the transaction such as a bill of lading is presented. Bank draft. It can be used when payments for goods or services are to be in foreign currency. It is guaranteed by the bank on which it is drawn (issued) because the equivalent amount was paid when the draft was purchased.

Two differences between payment by credit card and debit card are:zz

Credit card it is a form of credit facilitated by the bank

interest is charged on unpaid amounts or balances after the end of the monthly billing period.

Debit card it is directly linked to the holder’s personal bank account „„ no interest is charged by the bank as the payments are automatically deducted from the holder’s account at the time of sale. „„

v A statement of account is a document that summaries all the transactions of a customer; debits and credits for the previous month and shows any amount due for payment.

b Three instruments of payment that can be used for international trade are:(Choose any three)

c

„„

5. Production 1. a The four factors of production are:zz zz zz zz

b i

Land Labour Capital Enterprise. Four natural resources that are found in the Caribbean are:zz zz zz zz



ii One country in which the resources stated in (b)(i) above can be found:zz zz

zz zz



bauxite oil beaches gold.

Bauxite can be found in Jamaica Oil can be found in Trinidad and Tobago Beaches can be found in The Bahamas Gold can be found in Guyana.

iii One way in which a business could make use of the resource listed above for production is:(Choose any one) zz

zz

zz

zz

oil – for the manufacture of gasoline and motor oils bauxite – for the manufacture of aluminium Beaches can be used for the development of tourism Gold can be used to manufacture jewellery.

„„

13

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c

Production is the process of employing labour and capital and other inputs to make goods and services available to consumers. Productivity refers to how much output can be achieved for each unit of one of the factors of production, for example average production for each worker employed.

zz

zz

zz

3. a Three levels of production are:-

2. a Two ways in which migration may benefit each of the following are:i

zz

The migrant zz

zz

zz

to be able to obtain a higher salary from employment an opportunity to gain further work experience and training.

zz

zz

The migrant may send funds home as cash remittances to relatives The migrant may return after some years with improved skills and accumulated capital.

zz

zz

b Two factors which may affect the quality of labour are the:(Choose any two) zz

zz

zz

zz

zz

c

zz

zz

14

education of the labour force – their skills and competencies technology in use – how trained are the workers to use the technology type of on-the-job training provided for employees managerial systems in place for communicating with employees health and well being of the workers. Attitude of workers is critical, whether or not they enjoy their work and make an effort to perform at their best.

Four factors that may affect the location of a business are:(Choose any four) zz

Subsistence production involves producing goods for one’s self and family Domestic production involves producing goods and services for the local market Surplus production involves producing excess goods and services for export.

b Three types of production are:-

ii The home country zz

availability of transportation, is there easy access? availability of labour, are the required skills available? government incentives for locating a firm in a particular area.

location of raw materials, are they available close to the site? location of the market, is it close to the business? location of energy sources, are they available close by?

zz

c

Primary production involves extracting or gathering the raw materials from nature Secondary production involves converting the raw materials into finished or semi-finished goods, and building construction Tertiary production involves providing services to customers, either directly or indirectly.

Three characteristics of a cottage industry are:(Choose any three) zz

zz zz zz zz zz

based in or close to the home of the entrepreneur uses mainly manual labour operates on a small scale uses mainly local raw materials uses family members as labour often produces handicrafts or foods.

d One way in which a cottage industry may benefit the economy is:(Choose any one) zz

zz

zz

contributes to the GDP of the country by adding (to a small extent) to total production the worthwhile engagement of persons by the creation of employment helps the economy by earning foreign exchange, through exports or tourism.

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4. a The distinction between a forward and backward linkage, and an example of each is: Backward linkage is when one industry or sector joins with another industry that produces its raw materials, to ensure that they will always have access to a ready supply.  Example:- a cheese and butter manufacturer links with a dairy farm for its milk supply. Forward linkage is when one industry joins with another industry as a market for its finished or semi-finished products.   E  xample:- a furniture manufacturer links with a department store to sell its furniture.

5. a T  he difference between capital intensive and labour intensive is:zz Capital intensive means that the production processes relies more on machinery and equipment than on human labour. zz Labour intensive means that more human effort is being used than machinery, with the employment of a large number of workers. b Two labour intensive industries that operate in my country are:(Choose any two) zz

b The growth of a business may affect:



c

i  Organizational structure zz the business become more complex, and loses the ‘personal touch’ linking manager and employees in a small business. zz managing the many business activities becomes more difficult ii  Exports zz mass production allows for lower costs of production zz this allows the firm to sell its product more cheaply and become more competitive in the export market zz The firm can sell to overseas supermarkets and other customers who require large-volume production. Economies of scale are the benefits that are derived by a firm, from engaging in large scale production.

d Two examples how economies of scale may benefit a growing business are:zz

zz

15

the business can afford large-scale machinery and equipment, which reduces the cost of production The business can negotiate a discount from its suppliers, if it buys goods and services in large quantities.

zz zz zz

c

banana industry tourism industry handicraft industry sugarcane industry

Mechanization is the replacing of human and animal labour with machines in order to produce more quickly and efficiently.  utomation is use of machines which can A complete a task with minimal human intervention.

d Two positive and two negative effects of automation and mechanization are:zz zz

zz

zz

tasks can be completed in a shorter time more dangerous tasks can be safely done by machines unemployment is created as workers are replaced by machines new technology is costly to install and maintain.

6. a Two effects that Sue’s migration may have on her prospective destination country are:zz

zz

Sue is a well-educated which will benefit her employer and may also relieve a shortage of labour in her destination country. Sue will contribute to the variety of cultural differences in her destination country, and may add to its quality of life.

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b Three actions which Sue would need to take if she decides to establish a new business at home are:zz

zz

zz

c

she would have to find a location to set up her business she would have to source the funds (capital) to start and operate her business she would have to hire workers to operate the business.

zz

zz

she would be providing goods and services to the community she would be providing opportunities for employment to people she would be providing a market for other local industries producing inputs for her business.

d Two ways in which the increase in size of the business would have an effect on her operations are:(Choose any two) zz

zz

it would be easier to raise large amounts of capital there will be more capital available for: „„ extensive advertising „„ research and development „„ employing specialist personnel „„ labour-saving machinery „„ mass production allows greater possibilities for specialisation. „„ she would be able to obtain special prices and discounts from her suppliers.

6. Marketing 1. a The product life cycle describes the way in which sales rise and eventually fall. The stages in the life cycle include. zz

zz

zz

Introduction (development, advertised for sale) Growth (sales and profits increase steadily) Maturity (market established, sales stabilise and competition is faced)

Decline (sales and profits fall, product is either pulled or revived, – some goods never reach this stage. e.g. salt, matches).

b The stage in a product life cycle in which sales revenue covered initial development and marketing costs is at the maturity stage. c

Three effects that the new business would have on her home community if she decides to stay are:zz

16

zz

It is important for both the production and marketing departments to be aware of the position of their products in the life cycle because:zz

zz

the production department need to know when to begin research and development on new products or improvements to old products. the marketing department need to know in order to develop the appropriate promotional strategies to boost sales, etc.

d The stage in a product life cycle when there is a focus mainly on: i

Design and development is the prelaunch stage

ii Defending and maintaining market share is the maturity stage iii Developing awareness of the new product is at the introduction stage. e

Three activities which could be used to promote a new consumer product such as a soap or deodorant are:-

 advertising – a non-personal sales presentation technique that is used to encourage consumers to buy a product (radio, television or print).  sales promotion – short-term incentives given to customers to encourage sales (free samples or banded offers).  personal selling – a presentation by a representative of a firm to prospective buyers to persuade them to purchase a product. 2. a Two characteristics of perfect competition are:(Choose any two) zz zz

very large numbers of buyers and sellers. no buyer or seller can influence the ruling market price by individual action.

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zz

zz

zz

b One distinction between monopolistic competition and each of the following:

all buyers and sellers have accurate knowledge about the market in which they are engaged. the product is uniform or homogeneous, that is, it is similar in all aspects. in the long run, firms can enter this market or leave when they want to do so.

Areas of difference

Monopolistic Competition



i  Perfect competition.



ii A monopoly.

Perfect Competition (i)

Monopoly (ii)

Competition among many sellers.

Very large numbers of buyers and sellers

Type of product

Product differentiation.

The product is uniform or The production of a homogeneous, that is product with no close At is, theitequilibrium price demand equals supply Supply increases similar in all aspects. substitute.

Barriers to entry

Free entry into the industry in the long run.

In the long run, firms can enter this market or leave when they want to do so.

At the equilibrium price demand equals supply

as the price goes up

There is no entry of other firms (often legal or government restriction).

Demand increases as the price goes down

If demand is reduced, price will fall and a smaller quantity will be produced. Quantity This quantity is produced

SURPLUS In this area supply is greater than demand. Price is pushed down.

Supply increases as the price goes up

Price

Price

Demand increases as the price goes down

This quantity is produced SURPLUS

the equilibrium price Predatory pricing.At(lowering prices to demand equals supply get rid of unwanted competition). zIn z this Differential pricing. (different prices for area, demand is greater different groups of customers and than supply. The price is pushed up. SHORTAGE markets). zz Promotional pricing (i.e. a low Quantity introductory price to encourage sales of a new product) zz

In this area, demand is greater than supply. The price is pushed up. SHORTAGE Quantity

d One pricing strategy which may be used In this area supply is greater than under monopolistic competition is:demand. Price is pushed down. (Choose any one)

Price

Only one firm operating in the industry.

At the equilibrium price demand equals supply

Quantity

17

Price

Demand refers to the willingness and ability of consumers to purchase a product at a particular price over a given period of time.

This is the equilibrium price

c

This is the equilibrium price

Market size

3. a Three factors which may affect consumer behaviour are:(Choose any three) zz

zz

zz

Price of the goods. A low price may encourage sales. Price of substitutes for a particular good, “X”. If substitutes are expensive, then people will buy “X” instead. Quality of the goods. Poor quality goods discourages sales.

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zz

zz

zz

Taste of the consumer (likes and styles for a type of clothing or food). Income level of the consumers (affordability). High incomes allow the purchase of luxury goods. Brand loyalty of consumers to particular manufacturers’ products.

zz

zz zz

zz

zz

b Four activities which make up ‘the marketing mix’ are:zz

zz

zz

zz

c

Product: developing a product which will appeal to the market. This may include market research by gathering, analysing and interpreting information in a systematic way. Pricing, which is the determination of a particular pricing strategy for a product. Promotion, for example through shortterm incentives given to customers to encourage sales or through advertising campaigns. Placing the product, for example by choosing distribution channels to get a product to the consumers.

Three methods of sales promotion are:(choose any three) zz

zz

zz

zz

zz

giving free samples to customers to try the product giving discount coupons (%-off ) to customers to encourage them to buy more of the product giving premiums (gifts or banded offers) as an incentive to purchase more of a product organizing competitions to boost sales in a particular product advertising the product on television to increase public awareness.

4. a Consumerism refers to protection of consumers as they engage in the process of exchange to satisfy their demand for goods and or services, while exercising their rights and responsibilities. b Three rights of a consumer are:(Choose any three) zz

18

c

Two responsibilities of a consumer are:(Choose any two) zz

zz

zz zz

zz

zz

Be alert and aware of the safety of products before purchase Collect all information and facts about a product Make decisions independently Speak out and express needs and expectations Complain and seek redress if treatment received is not fair and ethical Show respect for the environment and thus avoid waste, littering and contributing to pollution.

d Three ways government agencies can protect the rights of consumers are:zz zz

zz

e

though the passing of consumer legislation by providing consumer education programmes through the establishment and operations of government agencies e.g. Bureau of Standards, Department of weights and measures, etc.

Two agencies in my country which support consumers are:(Choose any two) zz zz zz zz

Consumer Affairs Division Office of the Ombudsman Regulated Industries Commission Bureau of Standards

5. a A form of transport which is likely to be used for each of the following are:i

redress – if something is wrong you can get it solved

consumer education – to be informed about your rights and responsibilities safety – to be safe from harmful products be heard – to be given the opportunity to voice ones dissatisfaction be informed – to be told about the pros and cons of a product before purchase to choose – to be able to make an independent choice on the purchase of a product.

Long distance transport of oil or natural gas. zz

Pipeline – because it will be cheaper

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ii

Raw sugar transported by sea.

Bulk carriers – because they can carry heavy loads, which gives economies of scale. iii Consumer goods transported in large quantities by sea.

zz

zz

zz

zz



Containers – because the handling costs and theft are reduced.

ii Three methods which could be used for market research are:zz

iv Bread transported from a bakery to supermarkets. zz

zz

Road – because it can be transported by van which is cheaper and allows for more flexibility.

zz

b Two problems which may arise as a result of inefficient sea or air transport systems are:zz

zz

c

delays in the delivery of goods due to poor scheduling or port congestion loss of cargo as a result of improper documentation, misdirection of goods and theft.

Two ways in which each of the above problems may be avoided or resolved are:zz zz zz

zz

proper scheduling of deliveries improved port facilities careful documentation and routing of cargo proper security measures and frequent checks at port perimeter and gates

6. a A market is a situation in which buyers and sellers come into contact and interact for the purpose of exchange. Marketing is the management process responsible for identifying, anticipating and satisfying consumers’ requirements and profitably selling a product. b i

Two reasons why it is important to invest in a market research are:(Choose any two) zz

zz

zz

19

to identify consumers’ taste and behaviour for a particular product to determine how to price the product to identify the target market for your product

c

to determine the best way to promote the product to identify who are the competitors in the market-place and what is the size of the market.

sample survey using telephone interviews trying out a new product with a small focus group to gauge their response observing how consumers behave in the market place, e.g. how they respond to shop layout and displays.

Two groups which a large company may attempt to influence through its public relations activities are:zz zz

customers investors

d Three activities which may form part of a public relations strategy are :zz

zz

zz

developing a good relationship with news and communications media sponsorship of the sporting and cultural events business entertainment of selected clients special awards to staff and customers in recognition of the part they played in the success of the business.

7. Business finance 1. a Two functions of a commercial bank are:(Choose any two) zz

zz

zz

zz

to keep money for customers in chequing and savings accounts to encourage savings (by giving interests on deposits) to lend money for investment and capital purchases to provide services, such as purchase and sale of foreign currency.

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b Three services offered by a commercial bank are:(Choose any three) zz zz

zz

zz zz zz

zz zz zz

c

provides cheques for customers collects payments on the customer’s behalf makes payments on customer’s behalf through standing orders makes loans to customers provides foreign exchange facilities automated banking facilities to withdraw funds from accounts and make deposits providing safety deposit facilities credit facilities such as credit cards acts as trustees and executors for customers.

zz

zz

iii Dividend Dividend is the return that shareholders receive on their investment as a share in the company’s profits.

c

i

zz

zz

zz

zz

zz

zz

zz

zz

by selling shares by obtaining a loan from a development bank by issuing bonds for sale to investors.

zz

b The role of the following within the stock exchange are:-



20

i

Stockbrokers Stockbrokers buys and sells shares on behalf of their clients (general public), obtaining the best deals they can for them, in return for the payment of a commission.

ii Depository It is an institution which holds shares and securities deposited by others.

Bank deposits interest is received „„ may not always have access to your money when needed (fixed deposits), or a penalty is paid for early withdrawal. Insurance policies „„ provides funding for the future „„ it earns very little in the first few years and a penalty is paid for withdrawing fund before the policy matures. Mutual fund or Unit trust „„ receives dividends or regular payments „„ may lose when selling units, as the market price may be lower than the original purchase price. Bonds, stocks and shares „„ receives interest „„ If bonds are sold before maturity, they may not fetch the original price paid. „„

2. a The main function of a stock exchange is to provide a market where buyers and sellers of stocks and shares can buy and sell.



Bank deposits – saving money in a fixed deposit the bank Insurance policies – purchasing an endowment policy Mutual fund or Unit trust – buying units in the different funds available Shares – buying shares in public companies Buying bonds issued by the government or other organizations in public or private sector.

ii One advantage and one disadvantage of each method of saving or investment described in (i) are:-

by charging fees for the various services that they provide for customers from the spread between interest rate on loans and deposits from the spread between buying and selling rates for foreign exchange.

d Three ways in which a business may raise long-term finance are:zz

Two methods of saving or investment available to individuals are:(Choose any two) zz

Two ways in which a commercial bank may earn revenue are:(Choose any two) zz



zz

3

a Three functions of a Central bank are:(Choose any three) zz

The government bank – it manages the national debt and government accounts.

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zz

zz

zz

zz

zz

The commercial bankers’ bank – it is the banker to all commercial banks, which must by law keep an account with the central bank. The note-issuing authority – it is the only authority to issue bank notes. The lender of last resort – it helps commercial banks and other financial institutions by lending them money. Maintaining foreign exchange reserves – it keeps the country’s foreign currency reserves. Financial agent for the government – it deals with international financial agencies on behalf of the government.

b Three ways in which, Central bank could reduce the level of demand and credit in the economy are through:zz

zz

zz

c

zz

zz

zz

zz

1. a Two ways in which a government may benefit the citizens of a country and two ways it may benefit private sector businesses are:Citizens „„ security of the state – by maintaining law and order and ensuring that all persons receive just treatment „„ social services – by providing services to the public such as education, health care, sanitation, welfare, etc. Businesses „„ trade promotion – by providing various forms of assistance to encourage export trade „„ making grants and loans for small businesses through agencies such as the Jamaica Business Development Corporation. b The four principle of taxation described by Adam Smith are:zz zz

all commercial banks must hold a banking licence from the Central bank The Central bank monitors lending by commercial banks, to ensure that depositors’ funds are not put at risk. the lender of last resort. It helps commercial banks and other financial institutions through their liquidity problems by lending them money and as such controls and monitors their recovery.

zz

zz

zz

when purchasing shares you have to do it through a stock broker to begin savings in a commercial bank you can open account yourself a person can receive dividends on their shares if the company is profitable a person will receive interest on the balances in their savings account

8. Business and government

Three ways in which the Central bank may regulate commercial banks are:zz

21

open market operations by intervening in the financial market as both buyer and seller of bills, securities and other credit instruments in order to control the money supply through the reserves and liquid asset requirements, the Central bank can control the money supply within the economy by adjusting the percentage of their deposits which Commercial banks are required to hold with the Central bank changing the interest rate which the Central bank charges on its loans to Commercial banks as lender of last resort, in order to influence the cost of borrowing.

d Two differences between purchasing shares on the stock market and saving in a commercial bank are:-

zz

c

equity certainty convenience efficiency.

A direct tax is one in which the impact (actual payment) and the incidence (the ultimate burden) of a tax fall on the same person. The taxpayer makes a direct payment to the government.

 Examples:- income tax, corporation tax, property tax, capital transfer tax, estate tax and motor vehicle tax

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An indirect tax is one in which the impact and incidence of a tax fall on different people



 conomic development is more E concerned with the pattern of economic change and it looks at the ability of a country to meet the needs of its citizens. It is a qualitative change.

 Examples:- customs duties, and value added tax For example, with value added tax, the customer pays the cost (the ultimate burden) but the store owner makes the actual payment to the government. d One way in which the government may use the tax system to i

b Two problems which may result from rapid economic growth are:(Choose any two) zz

Redistribute income - by charging a higher rate of income tax to those with high incomes.

ii Encourage investment-by giving tax exemption for investment spending on capital goods 9. Social accounting and global trade 1. a

i Standard of living indicates the value of goods and services consumed.



22

Gross national product is GDP plus earnings from business activities overseas, and minus the local earnings of overseas companies.

iii National income is the sum total of incomes received by individuals and businesses of a country during a given period of time



Quality of life is the well being of the people of a country, for instance their lifespan. It includes many factors as well as the standard of living.

ii Gross domestic product (GDP) is the total money value of the goods and services a country produces during a year.



zz

Per capita income is the average level of income for each member of the population.

iv Economic growth may be defined as an increase in a country’s production, over one or more years. It is a quantitative change.

zz

c

Growth involves change, which benefit some but harm others. Social change may create discontent. For example the use of technology may cause people to lose their jobs. Economic growth may render some jobs redundant. This can lead to technological unemployment. In other cases, rapid economic growth may create a labour shortage, or cause a rapid increase in property prices. It can lead to environmental destruction. For example, landscape is damaged, flora and fauna are destroyed, air and water quality are damaged by pollution. Growth may exploit finite resources and in the long run this could be detrimental to the economy. If non-renewable resources are used up economic growth will not be sustained.

Two ways in which human resource development may be promoted are:zz

zz

by helping to improve the knowledge and skills of the workforce through the educational system and on-the-job training. By improving the health of the general population and the labour force, controlling diseases such as malaria and providing a clean water supply.

d Economic growth may be promoted by investment in new industries and new technology. For a country which depends on tourism for its foreign exchange earnings, there will be negative growth it there is a decline in the international demand for tourism.

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10. The regional and global business environment 1. a (Choose any four) zz

zz

zz

zz

zz

zz

Caribbean Single Market and Economy (CSME) „„ to provide free movement of capital, labour (skills) and investment „„ to ensure an open market for goods and services within region. Organisation of Eastern Caribbean States (OECS) „„ to encourage reasonable and workable trading arrangements among members „„ to facilitate the use of a single currency (EC dollar). Caribbean Community (Caricom) „„ to encourage growth and development among members states „„ to facilitate trade among member states free of duties. World Trade Organization (WTO) „„ to settle trade disputes between member countries „„ to administer and monitor multilateral trade agreements among member countries. International Monetary Fund (IMF) „„ to finance temporary Balance of Payment needs of members „„ to provide member countries with technical advice and training. Inter-American Development Bank (IDB) „„ to provide loans for development projects in member countries „„ to invest in programs and activities that expand economic opportunities for the low-income majority of the region’s population.

zz

zz

c

There is not enough revenue to pay for improvements to schools, health care and other services. Unemployment Unemployment means that there is spare capacity in the economy. In the Caribbean this arises from a number of different factors such as a lack of demand for local products, etc. Economic dualism Economic dualism refers to the existence of two separate, largely independent economies within a single national economic framework. One economy is based on modern industry that uses state-of-the-art-technology, while the other is based on traditional or old-fashioned businesses and agriculture or even subsistence living.

One possible solution for each of the problems outlined above are:(Choose any two) zz

zz

zz

Debt The government may seek debt forgiveness or restructuring from foreign creditors, and be careful to restrain expenditure so that additional borrowing is not needed. Unemployment Government might stimulate economic activity through extra spending, so that businesses take on additional staff. Economic dualism Governments could try to narrow the gap between the two sectors by investing more in agriculture and the traditional sector, so that hey become more productive, and in turn making their country more self-sufficient.

b Two economic problems faced by the many countries of the Caribbean are:(Choose any two) zz

23

Debt In many countries, government debt is so high that much of the government’s revenue is used for interest payments. © OUP: this may be reproduced for class use solely for the purchaser’s institute