Key Idea: A business turns resources into goods or services that people need or want. This topic is about what that means, the four kinds of work inside a business, the four sectors a business can sit in, and what it takes to start one.
What a business is
- Inputs go in, a process turns them, outputs come out.
- Goods can be touched and stored; services are done for you at the time.
- Needs keep people alive; wants are everything beyond that.
- Added value: selling price minus the materials bought in.
The four functions
- Human resources: the people.
- Finance and accounts: the money.
- Marketing: finding and keeping customers.
- Operations: making the product or delivering the service.
- They depend on each other: what marketing promises, operations has to make.
The four sectors
- Primary: takes from nature (farming, mining, fishing).
- Secondary: makes things from it (factories, building).
- Tertiary: provides services (shops, banks, hotels).
- Quaternary: works with knowledge (research, software, consulting).
- Richer economies lean towards tertiary and quaternary work.
Starting a business
- Idea, research, plan, finance, legal form, launch.
- Opportunities: independence, keeping the reward, being first to a gap in the market.
- Challenges: cash running out, competition, long hours, rules and paperwork.
The words to know
| Word | Means | Do not confuse with |
|---|---|---|
| Business | an organisation that combines resources to produce goods or services that satisfy needs and wants | a shop or a company name: those are examples, not the meaning |
| Good | a physical product you can touch and store, such as a loaf | anything you pay for: a haircut costs money and is a service |
| Service | something done for you, used as it is provided, such as a bus ride | a good sold with a smile: the loaf is still a good |
| Need | something a person must have to live | something expensive: a hospital bed is a need, a sports car is a want |
| Want | something a person would like but could live without | something cheap: a chocolate bar is still a want |
| Added value | selling price minus the cost of the materials bought in | profit: wages and rent are still to be paid out of added value |
| Entrepreneur | the person who takes the risk of starting and running a business | any employee: a manager on a salary is not taking the owner's risk |
| Primary sector | takes raw materials from nature: farming, fishing, mining | secondary: the factory that turns the wheat into bread |
| Tertiary sector | provides services: shops, transport, banking, hotels | quaternary: knowledge work such as research and software |
For a definition: say what kind of thing it is, then what it does, in one sentence. For a sector or a function: name it, say what it does, then point to the business in the question as the example. The example is where the second mark usually is.
Exam-style question
With reference to a car factory and a car-hire firm, explain the difference between the secondary sector and the tertiary sector.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.
Important: Deciding need or want by how much it costs, and deciding the sector by how big the company is. Ask instead: could the person live without it? And does the business take from nature, make things, serve people, or work with knowledge?
Tap each card to check yourself.
A fishing boat: which sector? Primary. It takes a raw material, fish, straight from nature.
A hotel: which sector? Tertiary. It provides a service: a room and a bed for the night, nothing you take home.
A software research lab: which sector? Quaternary. Its product is knowledge and information rather than a service to a customer in person.
Name the four business functions. Human resources (people), finance and accounts (money), marketing (customers), operations (making the product).
Why can a new business that makes a profit still close? It runs out of cash. Bills fall due before customers pay, so the money is not there when it is needed, even though the year adds up to a profit.
Ingredients cost $0.60 and the loaf sells for $3.00. Added value? $2.40. Selling price minus the materials bought in. Wages and rent come out of that afterwards.
Exam tips
- A definition is one sentence: the kind of thing it is, then what it does.
- Name the sector or the function in your answer, then show it in the business you are given.
- Good or service: could it sit on a shelf overnight? Need or want: could the person live without it?
- Two marks means two things: two features, or one point and what it means for the business.
- When a question gives you a company, use it. A general answer with no reference to it earns half.