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Class Test - Chapter 1+2+3

The document discusses business concepts such as the difference between wants and needs, factors of production, opportunity cost, added value, advantages and disadvantages of specialization, reasons governments support business startups, and ways of measuring business size. It also provides two case studies, one about Nestle acquiring a Chinese company and the other discussing public vs private sector production.

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Jacques Prinsloo
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Download as PDF, TXT or read online on Scribd
32 views

Class Test - Chapter 1+2+3

The document discusses business concepts such as the difference between wants and needs, factors of production, opportunity cost, added value, advantages and disadvantages of specialization, reasons governments support business startups, and ways of measuring business size. It also provides two case studies, one about Nestle acquiring a Chinese company and the other discussing public vs private sector production.

Uploaded by

Jacques Prinsloo
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Name: Chapter 1+2: 18 September 2019

Business activity + classification

Section A: Definitions

1. Define the difference between a want and a need [2]

A want is not vital for survival while a need is vital for survival

2. Identify the four factors of production [4]

1. Land
2. Labor
3. Capital
4. Enterprise

3. Define opportunity cost [2]

The cost of the second best alternative not taken, example: If you can
choose between sleep and study, if you choose sleep, study is the cost

4. Define added value [2]

Added value is the difference between the price of the product and the
cost of the materials needed to produce it.

5. Identify two advantages and two disadvantages of specialization [4]

Advantages - Higher efficiency; less time lost from moving; quick and
cheap training.
Disadvantages – Boring work = less efficient; no production if labor is
sick
6. Discuss two reasons why governments support business start-ups [4]

Reduce unemployment since new businesses will create jobs


Increased competition will give consumers more choice
Increased output in the economy from the production of G+S
New business may benefit society if they are involved in the community

7. Identify two ways of measuring business size [2]

Size can be measured by number of people employed, value of output,


value of sales or value of capital employed.
Section B: Case Study 1

Nestlé is the largest food and confectionery manufacturer in the world. The company made the decision to
take over Hsu Fu Chi International (based in Guandong, China). This Chinese company makes sweets and
snacks. The takeover cost US$1.7 billion. It will now be easier for Nestlé to sell its products in China. There
should also be cost savings from the takeover. Some consumers are worried that there might be less choice
of sweets and snacks than before the takeover. Also, perhaps Nestlé might increase prices as there will be
less competition in the sweet and snack market.

a) Is this takeover an example of horizontal or vertical takeover? Explain your answer [2]

Horizontal takeover since Nestle bought another sweet manufacturer


which is the same industry as their own.

b) Discuss two possible reasons why Nestle took over the Hsu Fu Chi company [2]
Nestle has reduced the number of competitors in the market which can lead to
more profits. Nestle could also benefit from economies of scale in China that will
earn them more profits
Section B: Case Study 2

The government of Country Y owns and controls many businesses. ‘The public sector always
produces goods and services more efficiently than privately owned businesses,’ a
government minister recently said. Other ministers disagree and want to privatise many
state-owned businesses. The private sector businesses in Country Y produce 55 per cent of
total output – mainly in services such as transport, tourism and finance. The secondary
sector of industry produces 35 per cent of total output.

c) Define public sector [2]

Goods and services produced by government.

d) Outline two reasons why the tertiary sector is becoming more important [4]

Value of output – Goods and services in the tertiary sector are much
more valuable.
Employment percentage – More people are employeed in the tertiary
sector in comparison to other sectors

Total:
30

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