[GCSE ECONOMICS SECTION 4 REVISION NOTES

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Buck Merritt
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1 Types of business organizations Sole proprietors Partnerships Private companies Public companies Multi-nationals Co-operatives Public corporation Sole proprietor Sole proprietor is a business owned and managed by one person Sole proprietor is often referred to as the sole trader Sole trader has unlimited liability Sole trader has limited finance Sole trader makes all the decisions Sole trader business is easy to set up Partnership Partnership is a business owned and managed by at least 2 persons Owners of partnership are referred to as partners Partner have unlimited liability Partnerships raise more finance Partners make decisions after consultation Partnership business is easy to set up Private companies Private limited is a business owned and managed by at least 2 persons Owners are referred to as shareholders Private companies have limited liability Private companies raise finance by issuing share Cannot sell share without consent of the other shareholders F R E E O N L I N E L E C T U R E S & R E V I S I O N M A T E R I A L B Y F E T S Y S T E M Page 1

business is easy to set up Partnership Partnership is a business owned and managed by at least 2 persons Owners of partnership are referred to as partners Partner have unlimited liability

2 Public companies Public limited is a business owned and managed by at least 2 persons Public limited companies have plc after their company name eg. FET plc PLC companies have limited liability Public limited companies raise large amount of finance by selling shares Can sell shares to general public Multi-nationals A company which produces or provides services in more than one country The advantages and disadvantages they provide to the country where they operate are: Advantages: employment, tax revenue, quality products Disadvantages: harm to domestic industry Co-operatives Cooperatives are owned and managed by its members persons Cooperative operate for the welfare of its members Owners are referred to as the members Different co-operatives have different objectives Can sell shares to general public Public corporations Public corporations are owned by the government There are no shareholders in public corporation Main aim is to work for welfare of the general public Run by a management appointed by the government Effect of changes in structure of business organizations When public corporations are sold to the private sector it is called privatisation Effects of privatization: Business efficiency (low cost, high quality)what determines the demand for factors of production F R E E O N L I N E L E C T U R E S & R E V I S I O N M A T E R I A L B Y F E T S Y S T E M Page 2

provides services in more than one country The advantages and disadvantages they provide to the country where they operate are: Advantages: employment, tax revenue, quality products Disadvantages:

3 What determines the demand for factors of production The following factors determine the demand for factors of production: Consumer- entrepreneurs produce the products which consumers want Productivity Cost Costs Total costs Total expense of producing an output or a product Average cost Total cost divided by output Costs Fixed cost The costs which stays same irrespective of the fact that the business produces or not Variable cost A cost which changes as the production of the business changes Total and average revenue Total revenue The sum of units sold and selling price Average revenue Total revenue divided by output or number of units sold Principle of profit maximization Firms strive to achieve maximum profits. They do this by keeping the difference between total revenue and total cost highest and in a positive figure Pricing and output policies in perfect competition Large number of buyers and sellers The firms charge the same price as the competition does, they do not increase or decrease price They seek to achieve competitive advantage Firms respond quickly to the changes in consumer demands F R E E O N L I N E L E C T U R E S & R E V I S I O N M A T E R I A L B Y F E T S Y S T E M Page 3

that the business produces or not Variable cost A cost which changes as the production of the business changes Total and average revenue Total revenue The sum of units sold and selling price Average

4 Pricing and output policies in monopoly One seller supplying the product Monopoly can charge the price which is acceptable to the consumers It may restrict the supply to increase the demand and earn abnormal profits Monopoly does not respond to the consumers demands because it knows it will sell the product anyway Advantages of monopoly Lower costs Save money, by not producing wasteful duplication Spend money on research Offer lower price to the consumer Disadvantages of monopoly Inefficiency in production Does not cater to the demands of consumers May exploit the consumers as it is the only business providing the product May charge higher price by decreasing the supply Main reasons for different sizes of firms Size of market Capital Organization Barriers to enter Integration Integration is when two businesses join each other Types of integration Horizontal integration Vertical integration Backward vertical integration Forward vertical integration F R E E O N L I N E L E C T U R E S & R E V I S I O N M A T E R I A L B Y F E T S Y S T E M Page 4

duplication Spend money on research Offer lower price to the consumer Disadvantages of monopoly Inefficiency in production Does not cater to the demands of consumers May exploit the consumers as it

5 Horizontal integration Horizontal integration happens when a business acquires or joins a business which is providing the same product at the same stage of production Example: A Coffee shop acquires another coffee shop Vertical integration Backward vertical integration happens when a business acquires or joins one of its suppliers Example: Coffee shop acquires a dairy farm Forward vertical integration happens when a business acquires or joins one of its retailer or distributor Example: a dairy farm acquires a coffee shop Economies of scale Economies of scale is when there is a reduction in long term cost when the business grows Types of economies of scale Internal economies of scale External economies of scale Diseconomies of scale Diseconomies of scale is when there is an increase in long term cost when the business grows Types of diseconomies of scale Internal diseconomies of scale External diseconomies of scale F R E E O N L I N E L E C T U R E S & R E V I S I O N M A T E R I A L B Y F E T S Y S T E M Page 5

integration happens when a business acquires or joins one of its retailer or distributor Example: a dairy farm acquires a coffee shop Economies of scale Economies of scale is when there is a

Types of Business Organisation

Types of Business Organisation Revision Presentations 2004 Introduction A business is always owned by someone. This can just be one person, or thousands. So a business can have a number of different types