PRINCIPLES

OF
BUSINESS
REVISION GUIDE
FOR
CSEC® EXAMINATIONS
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Chapter 1 – The Nature of Business

Objective 1 – Explain the development of barter
Concept of barter:
Early ancestors satisfied their needs directly from nature, which is called the direct
satisfaction of wants.
An economic system where needs and wants are directly satisfied from nature is referred
to as a subsistence economy.
For bartering to be successful, one person must have what the other person wants and
be ready for exchange. This is referred to as the “Double coincidence of wants.”

Advantages of Barter –

• A simple system, free of complex monetary problems

• Ideal utilization of natural resources
• No currency is needed to perform bartering

Disadvantages of Barter –

• Deciding the rate of exchange – The right quantity in exchange for another
• Indivisibility of certain commodities – an example is an exchange from peas for a
cow
• Store of wealth and store of value – Some items lose value over time, while other
gain value

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Objective 2 – Describe the role of money

What is money?

Money is any commodity that is accepted as a measurement of value and a

medium of exchange. Money has helped solve many problems associated with the
bartering system.

Features of money –

• It must be acceptable
• It must be relatively scarce
• Must be capable of being divided into smaller fractions
• It must be homogenous (Identical)

Functions/Role of money –

1. A medium of exchange – It is accepted

2. Standards of value – Different items have different value
3. Store of value – Can be saved and used for future use
4. Means of deferred payments – Used to pay for goods bought on credit

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Objective 3 – Identify the instruments of exchange

Instruments of exchange:
• Barter – the exchange of goods for other goods without the use of money.

• Bills of exchange – this is a written order from one person to another for money
to be paid to another. Usually used by persons who are selling goods to others in
another country.

• Electronic Transfer – money is transferred electronically via the use of a computer

network.

• Telebanking – telebanking is a system for conducting banking transactions over

the telephone.

• E-commerce – any business transaction that is done through the internet.

• Cheques – a document written by the drawer ordering the bank to make payments
of a specific amount to the payee.

• Money order (bank money order) – it is used as a method of payment that is sold
by banks to persons who wish to make overseas payments for goods and services
to suppliers.

• Debit Cards – this is given to customers with savings on current accounts. The card
may be used at the point of sale (POS) where the seller has a machine connected.

• Credit Cards – these are given to customers of financial institutions (banks) who
qualify for credit from the institution. The customer has a limit that cannot be
exceeded. The amount used must be repaid by the due date and an interest rate
is charged.

• Bank Draft – this is a document drawn by one bank on another. The firm that owes
money pays their bank the sum they owe, and the bank will then make out a
cheque made payable to the credits.

• Telegraphic money transfer – an electronic means of transferring funds.

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• Bank transfer – when money is sent from one bank account to another.

• Mobile Money – is a mobile banking service that allows users to store and transfer
through their mobile phones.

• Mobile Wallets – is a virtual wallet that stores payment card information on a

mobile device. It can be used by merchants/traders listed with the mobile wallet
service provider.

Objective 4 – Advantages and disadvantages of e-commerce

Advantages –
• It is convenient as purchases can be done in the comfort of your home
• Access to a wider range of products and services online
• Access to cheaper and affordable goods and services

Disadvantages –
• Your system can get hacked and you can lose all your personal information
• Must have access to the internet to make a purchase
• Items can get lost/damaged whilst in transit
• You can potentially get scammed from your purchase

Objective 5 – Differentiate between the private and public sectors

Private Sector Public Sector

Owner ▪ Owned and ▪ Owned by the
controlled by government/state
private firms
Objective ▪ To make a profit ▪ To gain revenue to
use for the benefit
of the country
Source of capital ▪ Provided by ▪ Financed by the
private individuals government
through taxpayers
Fig 1.0 Diagram differentiating the private and public sectors

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Objective 6 – Describe the various forms of business organizations and

arrangements
Different forms of business organizations:
1. Sole Trader – A person who has total ownership, control and responsibility of his
or her business.
Characteristics -
• He or she does not share profits and is responsible for all debts
• Very small in size
• Easy to form, with minimal start-up capital and legal requirements needed
• Has unlimited liability, which means the owner can lose more than he
invested
• Lack of leisure time
• Limited sources of finance as the business is dependent on one individual

2. Partnership – An association of 2-20 persons operating a business.

Characteristics -
• The goal is to make a profit
• Owners share the responsibilities, profits and losses
• Ordinary partners may have unlimited liability, whereas Preferred partners
may enjoy limited liability
• Greater access to sources of finance than a sole trader
• At least one partner (an ordinary partner) must have unlimited liability
• There is continuity of the business in case one partner dies
• Decision making can be slow
• Conflict may arise
• Profits are shared equally in the absence of a partnership deed.

Partnership Deed Partnership Act

The Partnership Deed states – The Partnership Act states –
1. Name of business 1. Profits and losses are shared equally
2. Nature of business 2. No salaries are paid to partners
3. Amount of capital by each partner 3. No interest is paid on capital
Fig 1.1 Diagram depicting the partnership deed and partnership act

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3. Cooperatives – These are businesses that are formed and operated by their
members.
Characteristics -
• It must be registered
• Managed and controlled by members
• Selected Board of Directors to manage the business
• Profits are shared among members in the form of dividends
• Decision making is slow
• Members have easier access to loans compared to banks
• Creates employment for members
• The interest rate on loans may be higher than that of banks
• An example of a cooperative is the Credit Union

4. Companies – A company may be defined as a separate legal identity that is owned

and operated by a group of persons, or other companies, who have purchased
shares in the business. These individuals who have purchased shares are known as
shareholders.

Legal requirements must be met by submitting documents to the registrar of

companies. These requirements are:

1. Memorandum of Association
2. Articles of Association
3. Statement of authorized, registered or normal capital
4. The Prospectus

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There are two types of companies:

a) Private Limited Company
Characteristics -

• Had the abbreviation “Ltd” at the end of the business name

• Has 2-50 shareholders
• Shareholders have limited liability
• It may be family owned
• Shares are not sold to the public
• Greater access to capital than a sole trader or partnership
• There is continuity
• Company financial statements are private. They are not published
• Capital is limited
• The company must submit financial reports for auditing
• Decision making can be slow
• Examples of private companies are A.S Bryden & Sons Ltd and
Amalgamated Security Service Ltd

b) Public Limited Company (sometimes called a Joint Stock Company)

Characteristics -

• Has the abbreviation “PLC” at the end of the business name

• Has a minimum of 7 and no limit on the maximum amount of members
• Shareholders have limited liability
• Shares are sold to the public which leads to greater access to capital
• Separate legal existence
• Shares are easily transferrable from one shareholder to another

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• Shareholders gain dividends on profits

• Financial statements must be audited and published
• Decision making can be slow
• Risk of losing control of the company if another company acquires a greater
percentage of shares
• Examples of public companies are The Royal Bank of Canada and Sagitor

5. Franchise – An agreement between an established company (the franchisor) and

a franchisee to conduct business in a manner set by the franchisor. Examples of
franchises are KFC, McDonald’s and Pizza Hut.

Characteristics -

• The franchisor sells the right to use its name and idea
• The contract is temporary
• A ready-made business operation
• Larger capital base
• Easy source of revenue for the franchisor
• Must pay royalties to the franchisor which reduces profits for the franchisee
• CANNOT change or enhance the product or service set by the franchisor
• Less of a need to market the business as it is recognized around the world

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Objective 7 – Differentiate among the types of economic systems

What is an economic system?
An economic system refers to the way society organizes its scarce resources to
produce goods and services.

Types of economic systems:

a) Traditional (Subsistence)
▪ Existing early society
▪ People formed communities and produced food and basic goods for a simple
lifestyle
▪ They exchanged goods if there was any surplus
▪ Bartering was used

b) Command or planned economy (Socialist)

▪ The government is responsible for economic planning, ensuring the best use of
and distribution of a country’s scarce resources.
▪ The government decides what, how much and for whom to produce
▪ Prices are set by the state
▪ Less wastage of resources
▪ Incomes are more evenly distributed
▪ Planning may be more rigid and inflexible

c) Free Market economy (Capitalist)

▪ The customer drives the economy by influencing producers based on their
demands
▪ Private individuals own the resources and there is little or no government
interference

d) Mixed Economy (Public, Private)

▪ Both the government and private individuals make economic decisions as to
what, how much and for whom to produce for
▪ Efficient use of resources
▪ More equitable distribution of income than Free Market
▪ Conflict may arise between both parties

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Objective 8 – Describe the functional areas of a business

The function areas of business are:
1. Production – The process where raw materials are converted into goods and
services. This function includes:
• Purchases of raw materials
• Scheduling
• Making the product

2. Marketing – This department deals with identifying, anticipating and satisfying

customer wants profitably. This function includes:
• Market Research
• Product Design
• Pricing
• Sales Promotion

3. Finance – This department is responsible for the final account of the business.
It involves:
• Making Payments
• Receiving money from the company
• Deals with all financial matters of the business
4. Human Resource Department – The department is responsible for:
• Recruitment of staff
• Training of staff
• Promotion of staff
• Welfare of staff

5. Research and Development – This department deals with:

• Keeping abreast of what is happening in the market, in which the business
operates
• Developing new products and services
• Redesigning/Improving the product or service

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Objective 9 – Identify the stakeholders involved in business activities

The various stakeholders involved:
1. Owners/Investors
2. Employees/Managers
3. Consumers
4. Suppliers
5. Communities
6. Environment
7. Government
8. Future generations

Objective 10 – Discuss the role and functions of the stakeholders involved in

business activities
What are stakeholders?
Stakeholders are the various groups within and outside an organization or any
individual with an interest in the operations of the business.

Roles and functions of various stakeholders:

1. Owners/Investors –
• To achieve profits
• Achieve efficient management of resources
• To provide goods and services of high quality and at reasonable prices
2. Employees/Managers –
• To carry out the activities stated in their job description
• To efficiently utilize the resources placed in their care
3. Consumers –
• Provide feedback on product quality through complaints and
suggestions
• Use the product or service in the way it was intended to be used

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4. Suppliers –
• To provide high-quality materials at a reasonable price to the business
buying
• To allow products to be recognized by consumers through the business
buying
5. Communities –
• The community and society in which the business operates
• Provides employment for the business
• Promotes good human relationships
• Expects the business to be a good corporate citizen, showing respect for
the community, environment and human dignity
6. Environment –
• The environment around the business would need to business respect
laws on protecting the environment
• Provides good climate
• Can affect us in ways such as climate change
• The business can affect the environment in ways such as pollution
7. Government –
• Provide regulations that businesses must follow
• Assist businesses in the form of loans, trading, research, financial aids
and subsidies.
8. Future generations –
• The future employees, customers, investors etc.
• They are the heirs who will inherit the world we leave/business

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Objective 11 – Explain the ethical and legal issues in the establishment & operations
of a business
Ethical and legal issues in the establishment of a business:
1. Ensuring that the business is a bona fide firm or establishment and not using it as
a front for money laundering and other illicit activities

2. Ensuring that capital is legally obtained and not tainted with illegal operations as
a source of funding

3. In the operations of a business, the business must make payment to the National
Insurance Contributions (NIS) and taxes.

Objective 12 – Explain the principles that must be adopted in the establishment &
operation of a business
Principles that must be adopted in the establishment of a business:
1. The adoption of an organization code of ethics

2. Policies on environmental issues

3. Handling of personal information

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Objective 13 – Explain the consequences of unethical and illegal practices in a

business
Consequences of unethical practices in a business:
a) Misleading Advertisement –
Unfair and fraudulent practices on the population; customers spend unnecessary
money on items they don’t need.

b) Withholding of tax –
Cheating the government of revenue.

c) Unethical disposal of waste –

Leads to pollution and diseases.

d) Money laundering –
Leads to distortions in the national economy.

Objective 14- Describe the careers in the field of business

Careers in the field of business:
i. Advertising & Public Relations
ii. Compliance officers
iii. Strategic planner
iv. Educators (Online and face to face)
v. Information officers
vi. Entrepreneurs
vii. Resource Personnel
viii. Web designers
ix. Web planners
x. Software developers

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Chapter 2 – Internal Organizational

Environment
Objective 1 – Describe the functions of management
The functions of management are:
a) Planning – creating short-term and long-term goals to achieve the overall goals of
a business and sourcing the necessary resources to accomplish these goods.

b) Organizing – this involves bringing together the factors of production (land,

labour, capital, enterprise) to accomplish the goals of the business.

c) Directing – this involves getting people to perform duties efficiently and

effectively.

d) Controlling – this involves setting standards to ensure goals are being achieved by
monitoring employees and making necessary corrections.

e) Coordinating – this involves making all the resources in the business work
together.

f) Delegating – this involves assigning work activities to subordinates (employees

who take orders from a manager or supervisor)

g) Motivating – the process by which workers are influenced to take the right action
to get the task assigned done.

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Objective 2 – Outline the responsibilities of management

Management responsibilities to:
1. Owners & Shareholders – by maximizing efficiency and creating surplus (profits)

2. Employees – providing adequate working conditions, training, maintaining good

communication and human relations.

3. Society – ensure the company operates within the law by carrying out fair practices
and enhancing social responsibilities by supporting charity.

4. Customers – to produce quality goods and services at reasonable prices and ensure
often sales services.

5. Government – to abide by the laws by paying taxes and making deductions from
employees’ salaries such as NIS.

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Objective 3 – Construct simple organizational charts

What are organizational charts?
Organizational charts are diagrams that give a pictorial representation of the
different management and employee positions in a business.

1. Line organizational charts - shows very clear and direct lines of authority flowing
from top to bottom

OWNER

WORKER 1 WORKER 2

Fig 2.0 Diagram showing a simple line organization chart

2. Line and staff organizational charts - combines line and staff. It shows the
relationship between line managers and specialist staff who work together to meet
the organization’s goals.

Staff relationship is shown by a broken line ( - - - - - ). Staff relationship entails

specialists who have advisory and authority over the subordinates of other
managers.

MARKETING
MANAGERS

SALES ANALYST

SALES AGENT SALES AGENT SALES AGENT

Fig 2.1 Diagram showing a simple line and staff organization chart

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3. Functional organizational chart - the business is structured according to the basic

functions

GENERAL
MANAGERS

FINANCE DEPT. PRODUCTION DEPT. MARKETING DEPT.

Fig 2.2 Diagram showing a simple functional organization chart

Objective 4 – Interpret simple organizational charts

Interpretation of simple organizational charts:
a) Chain of command – the direction of authority with a business

b) Span of control – the number of people a person is responsible for

c) Levels of hierarchy – the number of layers of authority

Objective 5 – Outline the essential characteristics of a good leader

Characteristics of a good leader:
▪ Honesty ▪ Knowledgeable

▪ Flexibility ▪ Committed
▪ Focus
▪ Trustworthiness
▪ Ability to make intelligent decisions
▪ Critical Thinker

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Objective 6 – Discuss the different leadership styles

The different types of leadership styles:

1. Autocratic or Authoritarian Style

The leader is a dominant figure and makes all decisions without consultation. He
uses top-down or formal lines of communication and does not encourage
feedback. Best suited for military organizations.

Advantages –

• There is a clear chain of command

• Decisions are made quickly

Disadvantage –

• It creates frustration and resentment (to become negative) amongst employees

• It does not contribute to team building

2. Democratic or Participative Style

This leader seeks the opinions of subordinates and encourages mutual co-
operation to achieve the goals of the organization. The leader encourages a two-
way flow of communication and delegates authority to subordinates. Best suited
for smaller companies.

Advantages –

• Encourages delegation & shared responsibility in decision making

• Encourages personal commitment in achieving goals of the organization

Disadvantages –

• The Decision-making process is time consuming

• Conflict may arise during decision making

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3. Laissez-faire
This leadership style allows staff to work with little or no guidance. Staff work on
their own and contribute to decision making. The leader is absent from the day-to-
day operations of the organization. Well suited for tertiary education.

Advantages –

• Allows staff to be innovative

• Encourages horizontal communication

Disadvantages –

• Decision making becomes tardy, through the numerous discussions led by staff
• Delay in decision making adds to unnecessary cost

Objective 7 – Identify potential sources of conflict within an organization

What is conflict?
Conflict can be defined as a disagreement between two or more organizational
members or teams.

Internal sources of conflict are as follows:

i. Poor working conditions
ii. Competition among employees regarding performance and promotion
iii. Breakdown in communications leading to false information
iv. Industrial relation issues such as Breach of labour or Industry law
v. Unfair treatment of an employee
vi. Unfair dismissal
vii. Management or leadership issues

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Objective 8 – Outline strategies used by employers and employees to gain an upper

hand during a period of conflict
How do organizations settle disputes?
Smaller organizations settle disputes with the managers, owners or supervisors.

Larger organizations settle different using industrial relations officers or human

resource officers

Employer Strategies:
a) Lock Out – employees are told to stay home, organization closes its doors

b) Scab Labour – employees replacing those on strike

c) Negotiation – the organization and union discuss and bargains to arrive at an

agreement

Employee Strategies:
a) Strike Action – union permits employees to stop working

b) Work to Rule – doing only what is officially required in the job description or
employment contract; This slows down production

c) Go-Slow – workers work at a slow pace, taking them longer to complete a task

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Objective 9 – Describe strategies for the resolution of conflict within an organization

Strategies for resolving conflict in an organization:
a) Trade Unions – This is a collection of workers who agree to negotiate with
employers for better wages, working conditions and settle disputes. This process
is called Collective Bargaining.

The Trade Union represents the employee’s interest. The Union representative at
the workplace is called the Shop Steward and represents his or her co-workers at
union meetings. Members of the Union pay a membership fee.

It should be noted, that the Trade Union gets involved when it becomes difficult to
settle disputes between workers and management in an organization.

b) Grievance Procedures – A grievance exists when a labour law or work code has
been violated, or a worker is treated unfairly or if health and safety are threatened.

The grievance procedure is the process used to resolve the conflict, involving the
Union representative. If there is no agreement between management and the
Union, the following steps will take place:

a) Conciliation – A third party such as a representative from the Ministry of

Labour will be resent during discussions to reach an agreement.

b) Mediation – The third-party purposes solutions to the problems which are

considered.

c) Arbitration – Both groups agree to ask the third party to give a solution,
which they would accept.

There are other strategies not involving the Union or a third party such as compromise
or avoidance.

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Objective 10 – Establish guidelines for the conduct of good management and staff
relations in the workplace
Guidelines for establishing good relations between managers and employees:
1. Good communication with workers
2. Improve working conditions
3. Motivating workers
4. Practicing good leadership

Objective 11 – Identify strategies for motivating employees in a business

a) Financial Methods – Increase in salary or bonuses.

b) Non-Financial Methods – Good working conditions, challenging tasks,

recognitions and awards.

Objective 12 – Evaluate the role of teamwork in the success of an organization

What is teamwork?
Teamwork is a group of two or more people interacting and coordinating their
work and ideas to accomplish a common goal or objective.

Advantages –

• The quality of decision making is improved by sharing ideas

• Quantity and quality of output would be abundant and improved
• Ensures continuity
• They can motivate each other
• Builds good human relationships

Disadvantages –

• Decision making is time consuming

• Conflict may arise during decision making
• The cost of trading might be high

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Objective 13 – Outline strategies for effective communication within an organization

What is communication?
Communication is the process of creating, transmitting and interpreting ideas,
facts, data, feelings, and opinions.

The process of communication involves the following elements:

1. The sender
2. The message
3. The receiver
4. The channel/medium
5. Feedback

Sender Message Receiver

Medium

Feedback

(Involved in the communication process is the presence of noise and distractions)

Fig 2.4 Diagram showing the communication process

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Different types of communication mediums/channels:

1. Letters
2. Reports
3. Emails
4. Face to face conversations
5. Telephone calls
6. Film
7. Body language/Non-Verbal (posture and facial expressions)

Strategies for effective communication:

a) Decide what is to be communicated and who the receiver will be

b) Choose the appropriate medium for your message
c) Identify barriers to communication
d) Ensure your receiver understands the message
e) The receiver should send the required feedback

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Chapter 3 – Establishing a business

Objective 1 – Define the term entrepreneur & entrepreneurship
What is an entrepreneur?
An entrepreneur is a person who identifies successful business opportunities, risks,
time and money to start and operate a business. Entrepreneurs bring together the
resources with the intention of making a profit.

What is entrepreneurship?
Entrepreneurship is the process of identifying successful business opportunities,
risks, time and money to start a business, bringing the resources together to make
a profit.

Whilst these explanations are somewhat similar, note that an entrepreneur is a person,
whereas entrepreneurship is the process/activity.

Objective 2 – Explain the functions of an entrepreneur

The functions of an entrepreneur:
a) Conceptualizing – Forming a new business idea.

b) Planning – Setting goals and planning to achieve them.

c) Accessing Funds – Financing is an important function; entrepreneurs can access

funds through loans or credit.

d) Risk bearing – by bearing risk, the entrepreneur is entitled to all profits and suffers
all the losses.

e) Organizing the business – Such as keeping records, proper documentation, hiring

of staff and acquiring resources.

f) Operating the business – Ensuring day to day activities are carried out.

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g) Evaluating the performance of the business – Comparing projected results with

actual results.

Objective 3 – Identify the characteristics of the average entrepreneur

Characteristics of the entrepreneur:
1. Creative – Ability to develop ideas.

2. Innovative – Developing a new idea or making changes to an existing one.

3. Ability to react quickly to changes – Such changes are economic changes.

4. Goal-oriented – Seeks a higher need for achievement.

5. Persistent – Entrepreneurs are determined and confident.

6. Risk-taker – Likes challenges and are confident that they can be successful.

Objective 4 – Describe the role of the entrepreneur in the decision-making process

Role of the entrepreneur in decision making:
Entrepreneurs make different types of decisions on an everyday basis. As an
entrepreneur, you will make decisions about everything. Some of these decisions are
more influential and beneficial to your overall business process, whereas smaller
decisions would not have a significant effect on your business as a whole.

Importance of entrepreneurial organizational skills:

a) Conceptualizing
b) Planning
c) Accessing Funds
d) Organizing the factors of production (Land, Labour, Capital, Enterprise)
e) Operating the business
f) Evaluating
g) Risk Bearing

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Objective 5 – Outline the role of the entrepreneur in the economic development

• Collaborating with various stakeholders

• Providing goods & services to satisfy citizens

• Creating jobs

• Contributing to nation-building

Objective 6 – Outline reasons why an individual may want to establish a business

▪ The desire for financial independence / to create one’s wealth

▪ Self-fulfilment / able to get more rewards

▪ Self-actualization / ultimate satisfaction, taking the risks

▪ Increase their income

▪ Increased control of working life

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Objective 7 – Outline the essential steps that should be taken in establishing a

business
Steps that should be taken in establishing a business:
1. Conceptualizing

2. Research (such as market probe). Research may also be an analysis of the

customers wants and the competition

3. Identification of resources (Financial, Human and Material)

4. Creation of a business plan –

The business plan is a detailed document that provides information on the

purpose, the resources and the main activities of the business.

Fig 3.0 An example of the business plan outline.

5. Acquisition of funds

6. Operation of the business

The operation of the business should be the last step in establishing a business. Starting and
operating your business without following the steps listed above could lead to struggles in your
business.

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Objective 8 – Identify the reasons for preparing a business plan

Reasons for preparing a business plan:
a) To ensure that careful research is conducted into the feasibility of the business.

b) To attract potential investors.

c) To source financing.

d) To guide the operations of the business when making decisions.

Objective 9 – Describe the elements of a business plan

The elements of the business plan include:

a) Executive Summary – An overview of the business. This is a summary that gives a

concise picture of the main points of the business plan. This section is what
convinces someone that they should read continue reading the remainder of the
plan.

b) Operational Plan – The business and its objectives. It includes name, address, legal
structure, aims and objectives. It also states the personnel, suppliers and
equipment necessary.

c) The Business Opportunity – A description of the product or service.

d) The Marketing Plan – A description of the potential customers and nature of the
competition.

e) Financial Forecast – Sources of financial sales, cash flow, profit and loss forecast.

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Objective 10 – Identify sources of information for conducting research into the

establishment of a business

Field or Primary Sources

This is information that does not already exist in the business. It is original information
that is collected.
Examples are:
▪ Surveys using questionnaires
▪ Personal interviews
▪ Telephone interviews
▪ Observation
▪ Test marketing

Desk or Secondary Sources

This refers to the use of secondary data; which means that it is information that does
already exist in the business.
Examples are:
▪ Existing market research reports
▪ Sales figures
▪ Reports from salespersons regarding customer feedback
▪ Annual reports
▪ Stock exchange reports

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Objective 11 – Discuss the significance of conducting a feasibility study into the

establishment of a business
What is the Feasibility Study?
The Feasibility Study is an analysis of the viability of a business idea and an
examination of the different aspects of operating a business. It will show whether
the business is a worthwhile business opportunity.

Reasons why feasibility is important:

1. To ascertain the viability
2. To be aware of the possible costs attached to the project
3. For possible sources of finance

Objective 12 – Explain the relationship between planning and the operation of a

business
What is the need for planning in the operation of a business?
Planning helps your business to outline both short-term and long-term goals,
allowing the business to fulfil its ultimate goal.

The need for planning in a business:

1. Planning gives direction
2. Planning helps managers make better decisions
3. Planning helps avoid mistakes & wastage
4. Planning helps to provide a target to compare with what happens in the business

There is a major necessity for all types of planning in operating a business. Managers have
to create different levels of plans for the different levels of activities in the business.
Those levels are:
▪ Short-term plans (Operational) – These are plans for day-to-day activities.
▪ Medium-term plans (Tactical) – These are plans set at the department level and
may cover periods of over one year.
▪ Long-term plans (Strategic) – These are major decisions and long-range plans for
the organization.

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Objective 13 – Identify regulatory practices instituted by the government for the

establishment and conduct of different types of business
Local, regional and global rules for establishing and conducting business includes local
government (municipal, village council, parish council) regulation.
For example:
a) Monetary and Fiscal policies
The Monetary policy involves the management of interest rates and the
total supply of money in circulation in the business.

The Fiscal policy is a collective term for the taxing and spending actions done
by the government to influence aggregate demand in the economy.

b) Consumer protection agencies

This agency stops unfair and fraudulent business practices by collecting complaints
and doing investigations. They also develop rules to maintain fair market prices
and educate consumers.
An example of this is the Consumer Affairs Divisions (CAD) in Trinidad and Tobago.

c) Environmental policies
These are the commitment of organizations or governments to obey laws and
regulations concerning environmental issues. They are policies made to regulate
resource use to reduce pollution and protect both human and welfare, and the
natural systems of the environment.

Local Government Regulation:

• Municipal – where the government derives power to pass laws through a law of
the nation.
• Village councils – are responsible for making the decisions necessary for the
operation of their community.
• Parish councils – are to represent the interests of the whole community, it is a
corporate body and a legal entity. Parish councils are the local authority that makes
decisions on behalf of the people in the parish.

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Objective 14 – Outline the factors that determine the location of a business

Factors that determine the location of a business:
▪ Geographical
▪ Availability
▪ Infrastructure
▪ Power and water
▪ Transportation
▪ Health facilities
▪ Telecommunications
▪ Labour supply
▪ Government regulation

Note: The term “Labour supply” means the number of people in the location available to work.

Objective 15 – Explain the significance of collateral and inaccessible capital

What is collateral?
Collateral is money or property that is pledged as security/guarantee for
repayment of a loan. It is required by lending institutions to act as a safeguard in
case the loan is not repaid by the borrower.

Different types of collateral:

▪ Property – includes real estate, homes

▪ Stocks – secured by your stock or shares

▪ Bonds – use of government bonds through a third party

▪ Money – cash or where your account is based. Cash secured loans

▪ Life insurance policies – the beneficiary becomes the lender

▪ Appliances – assets such as refrigerators or cars or furniture

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The value of collateral:

The value of the collateral is the market value of anything used as collateral to support a
loan. If the asset begins to lose value (depreciate), then the borrower would need to
supply additional assets to either acquire or repay their loans.

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Chapter 4 – Legal aspects of business

Objective 1 – Explain the concept of a contract
What is a contract?
A contract is a legally binding agreement between at least 2 persons which governs
the rights and duties among its parties. A contract is enforceable by law, which
means if either of the parties does not abide by the contract, the other party may
take legal action.

Objective 2 – Identify the type of contracts

There are generally two types of contracts, they are:
1. Simple contracts
2. Speciality contracts

Objective 3 – Describe the characteristics of a simple contract

What are simple contracts?
Simple contracts do not need a written deed. Examples of simple contracts are
such as hiring a taxi or public transport. These are called “implied” contracts. They
may be oral, written or implied.

Characteristics include:
a) Offer and acceptance – The offeror is bound in a contract if someone accepts.
Acceptance is the agreement made to accept the terms and conditions in the
contract.

b) Competence of parties – Parties should be adults of sound mind.

c) Intention to create legal relations – For contracts, the intent is to enter a legally
binding agreement.

d) Consideration – A promise or action made by one party for the promise or action
made by another.

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Objective 4 – Describe the characteristics of a speciality contract

What are speciality contracts?
Speciality contracts must be in writing. Examples are the sale of land, insurance
and mortgages.

The law of contracts requires a deed for the formation of certain agreements such
as the sale of land, the leasing of land for more than 3 years and higher purchase
agreements.
Characteristics include:
a) The contract must be signed by both parties and sealed

b) A deed or contract must be delivered by the offeror

Objective 5 – Explain the conditions under which offer and acceptance are
communicated
An offer can be made to a specific person or the work at large. It can oral, implied or put
into writing.
An offer must be communicated to the offeree. An offer can either be revoked or
withdrawn before acceptance by the offeree.
Should the offeree change the terms of the agreement, this is called a counteroffer and
is equal to a rejection of the original offer and is not a legal acceptance. It is then left up
to the offeror if they will accept the new terms presented in the counteroffer by the
offeree.

The offer and acceptance process:

• An acceptance by law exists when the offeree agrees to all terms and conditions
laid down by the offeror.
• An acceptance must be made in the manner stated by the offeror.
• An offer must be accepted within a stipulated time period.
• An acceptance made through the post office is effective once the letter is posted.

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• An acceptance made through the telephone, fax machine or any modern

instantaneous means of communication is only complete when received. NOT
when transmitted.

Objective 6 – Explain ways by which contracts may be terminated or discharged

What is meant by “termination” of contracts?
The termination or discharge of contracts means that the contract has been
brought to a successful end.

Methods of discharge:
1. Breach – one party breaks the contract by failing to carry out their side of the
agreement.

2. Agreement – both parties agree to cancel the contract before it is completed.

3. Performance – one party is not performing up to standard to their side of the

agreement.

4. Impossibility – if one party was required to do something prohibited by law, then

the original contract was illegal.

5. Lapse of time – by not meeting the deadline, the contract is then terminated.

6. Death – one party might die and cause termination to the contract. However, if
the party’s agent or beneficiaries may be liable to continue the terms of the
contract regardless of the party’s death.

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Objective 7 – Case Studies

A case study is an in-depth study of an event. Let’s follow the situation below and discuss
what occurred.

Mary and Jake have been neighbours for the past 6 months. Mary is occupied at a firm
that is quite a distance away from the neighbourhood and has trouble reaching work. One
day, Jake noticed that Mary waits long to find transportation. Jake then asks Mary if she
would like him to drop her off at her job.

For the past two weeks, Jake has been dropping Mary off at her job as often as he can.
On one Tuesday morning, whilst expecting Jake, Mary did not see him and was not able
to reach work on time.

Mary was furious and decide to complain to Jake, who has been sick for the past few days.
Mary then decided to not pay Jake and take him to court for not abiding by his word.

Questions:
(1) Did Mary have a contract with Jake?
(2) What would happen if Mary took Jake to court?
(3) Differentiate between an agreement and a contract.

Answers:
(1) Mary did not have a contract with Jake, rather she had an offer from Jake which
she accepted and they both agreed on.

(2) If Mary takes Jake to court, more than likely the court will not take up the case as
it’s not a contract that is enforceable by law.

(3) An agreement is a social arrangement between persons, whereas a contract is a

legally binding agreement enforceable by law.

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Objective 8 – Explain why documentation is necessary for business transactions

Documentation is necessary for many reasons. Proper documentation keeps important
records and information that can help ensure efficiency, confidence and expectations.
Some reasons are:
a) For providing a written record between one firm and another between the firm
and its customers or between departments to prevent confusion something in the
future.

b) As proof of activity which can be used in the future as a record that such
transactions didn’t take place.

c) For providing important statistical data for firms to carry out various calculations
for taxation and auditing purposes

d) The government may require proper documentation from a firm to satisfy

requirements for their taxation and auditing process

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Objective 9 – Preparing business documents for various purposes

Business documents include:
1. Pro Forma Invoice
This is a special type of invoice sent by a supplier at the request of a prospective
purchaser.

Fig 4.0 An example of a Pro Forma Invoice

2. Stock Card
Once the goods are received, the stock cards are updated or new ones are added.
The stock card provides information and data on the:

• Maximum and minimum levels of items in stock

• Amounts of stock received
• Amounts of stock issued
• Re-order levels

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Fig 4.1 An example of a Stock Card

3. Purchase Requisition
A requisition form helps to control the movement of the stock. It informs the
organization of how the stock is used and by whom they are used.

Fig 4.2 An example of a Purchase Requisition form

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4. Statement of Accounts
A statement of accounts has to be prepared and sent when the payment of goods
is due. The statement is a summary of a purchaser’s transactions with the supplier
over a set time period.

Fig 4.3 An example of a Statement of Accounts

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Objective 10 – Evaluate the principles upon which insurance is based

What is insurance?
Insurance deals with compensation for the loss of property in events such as
natural disasters and vehicle accidents.

What is assurance?
Assurance, on the other hand, refers to events that must happen such as death.

The concepts of insurance:

a) Pooling of risks – To offset the possible effect of loss, all those at risk can
contribute a relatively small sum of money called a premium. This expense is
contributed to a pool operated by the insurance company.
The result of cooperating with others in this way is that risks are spread between
the many people and organizations that have contributed to the pool.
For this reason, insurance is sometimes said to be the “pooling of risks.”

The agreement between the insured and the insurer is known as the policy.

b) Subrogation – This is an aspect of indemnity and means that the insurer takes the
place of the insured. It gives the legal right to a third party to collect debt/damage
on behalf of the insured.
For instance, if your car was completely wrecked in an accident, the insurance
company would compensate you and keep the wrecked car.

c) Proximate cause – This principle states that a claim would only be honoured if the
loss suffered is a direct result of the insured risk happening.
For instance, if a person insures his car against fire only, but it was destroyed by
flood, then he cannot seek compensation from the insured company.

d) Indemnity – This refers to compensation for losses sustained. It is to restore the

person to where they were before the loss. This does not apply to life insurance or
personal accident insurance, since no money can compensate for the loss of a limb
or potential death.

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e) Utmost good faith – This principle states that the insured must give all appropriate
information about the thing or person being insured. By doing so, the insurer can
accurately assess the premium.

f) Contribution – Insurers come together to compensate the insured. They also

ensure that no profit is made by the insured.

g) Insurable Interest – To prevent persons from profiting from insurance, an

insurance company will insure against a risk only if the insured would suffer against
the insured event.

Objective 11 – Explain the various types of insurance policies

There are 2 main categories of insurance:
▪ Life insurance
▪ Non-life insurance

1. Life insurance – this gives protection against loss caused by death.

There are two main types of policies to address this. One is a whole life policy,
where the premium must be paid as long as the insured person is alive or up to the
age of 60
The other policy is an endowment policy for which the premium must be paid for
a stipulated time.

Both whole life and endowment policies may be with or without profits. Premiums
not paid when due cause the policy to collapse and becomes void.

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2. Non-life insurance – insurance non-related to life or death (e.g. cars, ships and
cargo).

The types of policies associated with non-life insurance include:

a) Marine insurance – provides cover for the vessel and cargo in cases of loss
and damage while travelling from one port to another.

b) Third-party motor insurance – a person wishing to drive on the roads must

at least have third party motor insurance. The third party is seen as anyone
who may suffer injury as a result of an accident caused by the vehicle. The
other two parties are the insurance company and the owner of the other
vehicle involved.

c) Comprehensive policy – this covers all risks listed in the policy which
includes damage to the insured’s vehicle, personal injury to the driver and
loss of or damage to personal possessions in the vehicle.

d) Aviation insurance – covers the aircraft against damage by accident and the
operators against claims from injury or death from passengers, crew or third
parties.

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Chapter 5 – Production
Objective 1 – Identify factors in the production of goods and services
Factors of Production:
a) Land – also called natural resources. (e.g. bauxite, oil, gold and diamonds, rivers
and lakes)

b) Labour – also called human resources. Labour is divided as follows:

Skilled – engineer, computer operator, doctor, teacher

Semi-skilled – driver, domestic servant, data entry operator, plumber, mechanic
Unskilled – watchmen, vendor, labourer

Labour-intensive firms use more people and less machinery whereas

capital-intensive firms use more machinery and technology, and fewer people

c) Capital – also called man-made resources. Capital refers to money and all other
assets employed in the process of production such as building, machinery,
equipment and stock.

Capital may be fixed, that is, items that remain in the business for a long time such
as plants and machinery.

Capital may also be in the form of working capital, that is, items that are used in
the day-to-day operations of the business, e.g. raw materials, stock, cash and bank
balances

d) Enterprise or entrepreneurship – owners and entrepreneurs take risks, raise

finance, employ and coordinate factors of production and ensure they are
efficiently used.

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Objective 2 – Identify industries developed from the natural resources of

Caribbean territories

COUNTRY NATURAL RESOURCES RELATED INDUSTRY OWNERSHIP

T&T ASPHALT ASPHALT STATE

OIL PETROLEUM, STATE

PETROCHEMICAL
NATURAL GAS ENERGY STATE &
MULTINATIONAL

SUN, SEA, SAND TOURISM STATE & PRIVATE

CLAY CONSTRUCTION STATE & PRIVATE

COCOA FOOD/COCOA PRIVATE

JAMAICA BAUXITE ALUMINUM STATE & PRIVATE

GYPSUM CONSTRUCTION PRIVATE

MARBLE CONSTRUCTION PRIVATE

GUYANA BAUXITE ALUMINUM STATE

FORESTRY CONSTRUCTION STATE & PRIVATE

GOLD, SILVER JEWELLERY PRIVATE

Fig 5.0 Diagram showing natural resources from each country & their ownership

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Objective 3 – Differentiate between production and productivity

What is production?
Production is the act of creating or manufacturing something.

What is productivity?
Productivity is efficiency. That is how well the business is using all of its resources.
In other words, productivity is the relationship between the amount of human and
other resources used and the amount of output that is produced.

Productivity = Output (goods & services)

Input (workers, money, machines, raw materials)

Labour productivity = Output (goods & services)

No. of employees

Productivity levels must be high if the business is to be profitable and therefore

productivity is very important. When productivity is low, the business will make little
or no profit.

Objective 4 – Explain the importance of productivity

The importance of productivity to:

• Human resources comprise the labour force which is all the mental and physical
efforts used in the creation of goods and services. The higher the labour
productivity, the more efficient the employees are working in a business.

• Value and importance of labour – Human resources are the most important
asset in a company required for accomplishing its goals. The production of goods
and services requires some form of labour. Labour intensive firms use more
people and less machinery whereas capital intensive firms use more machinery
and technology and fewer people. People are mainly used to monitor the
process.

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• Factors affecting the labour supply –

Many factors are affecting the quantity and quality of labour available in a
country. These are:
a) Rate of growth of the population – if the population is growing and migration
is constant then the labour supply in the country will increase.

b) The structure of the population – an ageing or very young population would

mean a smaller labour supply.

c) Cultural patterns – if women are not allowed to work the availability of labour
will be adversely affected.

d) Economic conditions–in some countries the family wage may be sufficient and
thus wives may not be required to work.

e) Mobility of labour – the movement of people to another place to work will

affect the labour supply. People tend to move to areas with greater amenities
such as good schools, recreational and shopping facilities.

f) The quality of the labour force – if the population has the appropriate skills
and is healthy this would be reflected in the labour force.

g) Educational policy and health of the nation – if the training period of

individuals is long then a smaller population would be available to form the
labour force. If the government decides to extend tertiary education to more
persons, then fewer would also be available to work. With better health
facilities individuals would spend fewer days away from their jobs because of
illness.

h) Migration patterns – migration has been both internal and external. Internal
migration is the movement of people within a country. For example, from rural
to urban and vice versa. External migration however is the movement of people
from one country to another which is more developed, to experience a
perceived better standard of living or lifestyle such as the United States.

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Methods used to improve the productivity of labour:

▪ Improve education and skills training
▪ Making more employees specialize in a particular skill
▪ Increasing wages and other financial incentives
▪ Improving the management functions such as motivating, instructing and
delegating
▪ Improving the health of workers by providing health care benefits
▪ Improving working conditions

Objective 5 – Explain the role of capital in production

Capital’s use in producing other goods:
Both fixed and working capital is required for production and can be very expensive and
must be used very efficiently.
To undertake production that labour would not complete promptly (e.g. deep-sea
drilling). This requires some form of technology or machinery to get the job done.

Objective 6 – Differentiate amongst types of capital

Types of capital:
a) Fixed capital – items that remain in the business for a long time. (e.g. plant and
equipment, machinery)

b) Working capital – items that are used in the day-to-day operations of the
business. (e.g. stock, cash)

c) Venture capital – a type of financing that investors provide to startup businesses.

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Objective 7 – Classify the different types and levels of production

a) Types of production:

i. Extractive (agriculture, mining, fishing) – Also called primary production is

an activity that involves extracting from our natural resources. It is the first
stage of production.

ii. Construction (building) – Also called secondary production and is the

second stage of production. It involves using raw materials to be converted
into finished goods.

iii. Manufacturing (assembling, refining) – Another form of secondary

production where raw materials are used to assemble products or refine
into finished goods and services.

iv. Service (transport, communication, tourism) – Also referred to as tertiary

production and can be a direct service (serving fish) or commercial service
(transporting fish). This is the final stage of production.

b) Levels of production:

i. Subsistence – Geared towards satisfying basic needs. Most persons are

engaged in agricultural activities and produce just enough for a person and
his family. Production is not very efficient.

ii. Domestic consumption – At this level, surplus goods and services are used
within the domestic or national community. This stage does not involve
any imports or exports.

iii. Surplus – At this level, countries can produce for the domestic community
and still have excess or surplus production. Usually found in countries with
large supplies of raw materials and advanced technology.

iv. Export – At this level trade develops with other countries due to excess
production. The export level should be the aim of all producers due to the
level of foreign earnings that can be obtained.

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Objective 8 – Describe the characteristics of cottage industries

What is a cottage industry?
A cottage industry is a small firm or business that produces a good or service by
using simple technology. This production was traditionally carried out in the home.

Today they are found in community centres, parish halls and small entrepreneurial
estates.
Characteristics of a cottage industry:
• Home-based
• Mainly manual
• Small scale
• Use of local raw material
• Use of family members as labour

Objective 9 – Outline the functions of small businesses

The following are considered when describing a small firm:
▪ The amount of capital invested
▪ The number of employees (usually 1 -10)
▪ The gross sales or receipts (in T&T a small firm with less than $250,000 in gross
annual receipts or sales)
▪ The land space available

Functions of small businesses:

1. Create employment

2. Provide services that large firms are not willing to produce

3. Niche markets (a subset of the market on which a specified product is focused; a

small market segment)

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Objective 10 – Discuss the advantages and disadvantages of small business

Examples of advantages –
• Generate employment and income especially and rural areas and economically
depressed areas
• Increased competition for larger firms
• Introduce new products and ideas

Examples of disadvantages –

• The business lacks expertise in certain areas

• Owners find it difficult sourcing finance from financial institutions
• Limited ability to service customers due to unavailable resources

Objective 11 – Explain how a business grows internally and externally

Examples of internal growth:
a) Opening other outlets

b) Employing more workers

c) Increasing capital

Examples of external growth:

a) Joint ventures (a business arrangement in which 2 or more parties agree to pool
their resources to accomplish a specific task or goal)

b) Mergers (an agreement that unites 2 existing companies into one new company)

c) Takeovers/acquisitions (a takeover is a special form of acquisition that occurs

when a company takes control of another company without the acquired firm’s
agreement)

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Objective 12 – Outline the opportunities for and benefits of developing linkage

industries
What are linkage industries?
Linkage industries are industries that are connected with other industries in which
the output (finished product) of one becomes the input (raw material) of another.
The linkage may be backward or forward. Another word for a linkage industry is a
spin-off industry.

Linkage industries foster stronger economic ties among regional states. They
create more jobs, improve the skills of the people, and encourage economic
growth and sustained development.

Sugar cane Sugar processor Confectionary (candy) producer

(estate/farm) (manufacturer)
Backward linkage Forward linkage
Fig 5.1 Diagram showing the concept of linkage

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Objective 13 – Explain the effects of growth on a business

Growth of a business and effects on:
a) Organizational structure – the structure will change and expand due to more
workers such as managers, supervisors and specialists.

b) Labour – more workers will be employed due to more activities and

responsibilities.

c) Capital – more fixed and working capital will be required and the business may
have to seek other sources of financing.

d) Use of technology – more technology will be required to speed up production and

lower total costs.

e) Potential for export – as sales increase, the business can change from the domestic
level of production to surplus and export.

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Chapter 6 – Marketing
Objective 1 – Explain the concepts of market and marketing
What is a market?
The market is defined as any situation in which the buyer and the seller interact
to exchange various goods and services.

What is marketing?
Marketing is the management process responsible for identifying, anticipating
and satisfying consumers’ requirements profitably. It focuses on satisfying
consumer demands.

New trends of marketing:

• Social media marketing – the use of social media platforms and websites to
promote a product or service.

• Integrated marketing – is a marketing strategy that stresses the importance of a

consistent, seamless, multi-dimensional brand experience for the consumer. This
means that each branding effort (through Television, radio, internet etc) is
presented in a similar style that reinforces the brands’ ultimate message. (e.g.
Apple computer brand)

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Objective 2 – Explain marketing activities

What are the marketing activities?
Marketing activities are things a business owner or business undertakes to boost
sales and to improve its brand.

Market activities:
a) Market research – This is the systematic gathering, recording and analysing of data
about problems relating to a specific marketing situation.
The purpose of market research is to identify consumer tastes, consumer
behaviour and how the competition operates. By obtaining information the firm
can make better decisions about the product.

b) Pricing – This is the process whereby the business sets the price at which it will sell
its products and services.
When the firm is a price taker, price is determined when supply = demand. This is
referred to as the equilibrium point. Price maker however sets its price.

c) Packing – This is how a saleable product is wrapped, displayed and presented to

the customer. It includes the display, the description, safety precautions and
instructions on the use of the product.

d) Branding – This is the name, sign, symbol or design that differentiates the product
of a company from its competitors. A brand name is permanent. A good example
of a brand name is Nike.

e) Sales promotion – Defined as short term incentives designed to encourage the sale
and purchases of goods and services.

f) Advertising – This can be informative, persuasive, comparative or a reminder of a

product on the market.

g) Distribution – This is the process of making a product or service available for the
consumer or business user that needs it. It can be done directly or indirectly with
distributors.

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Objective 3 – Describe the marketing mix

What is the marketing mix?
The marketing mix is also referred to as the “4 Ps of marketing” which are
production, price, place and promotion.

The marketing mix:

1. Production – This identifies the goods and services that should be produced and
the quantity to whom it should be made for and the design of the product.

2. Price – The price is the monetary value of the goods and services.

There are multiple pricing strategies we should look at:

➢ Penetration pricing – setting a deliberately low price to enter the market

➢ Cost-plus pricing – the simplest method of setting a price. Price is calculated

by unit variable cost + fixed costs + markup

➢ Market-oriented pricing – setting competitive prices

➢ Promotion pricing – involves introductory price offers and offers

➢ Market-skimming pricing – involves charging a high price to secure a large

profit (e.g. luxury goods such as Gucci and Louis Vuitton)

➢ Psychological pricing – setting prices just below certain levels so they

appear cheaper to the average customer (e.g. setting a price at $0.99
instead of $1.00)

3. Place – This is the pattern of distribution that the firm uses to get to the customer.
It involves storing and moving products to the customer often through
intermediaries such as wholesalers and retailers and also includes transportation.

4. Promotion – These are the methods used to make consumers aware of the
product. (e.g. through advertising or sales promotion)

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Objective 4 – Describe the factors that influence consumer behaviour

Factors that influence consumer behaviour:
▪ Price ▪ Income
▪ Price of substitute goods ▪ Spending patterns
▪ Quality ▪ Brand loyalty
▪ Taste
▪ Traditions

Objective 5 – Identify factors affecting packaging and presentation of goods

a) Presentation – factors include: size, shape, design, labelling,
(a small tag attached to the product or a complete design within the package)

b) Use of brand names:

▪ It helps in creating customer loyalty
▪ Legal protection for ownership rights is given to companies
▪ Firms can promote the product more easily through advertising
▪ It helps to increase sales

Objective 6 – Describe methods of promoting sales

a) Advertising – Through functions, forms and social media.
Functions:
➢ Highlight unique features of a product
➢ Build a firm’s image around its products
➢ Educate consumers about the product
➢ Highlight special events such as sales and late opening

Forms:
➢ Electronic – radio, television, telephone, telemarketing
➢ Printed media – newspapers, magazines
➢ Other media – posters, billboards

Social Media: Also known as networking advertising, social media includes all
forms of online advertising. Advertisers can take advantage of the users’
demographic information and target their ads properly and appropriately.

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b) Public relations – this is the creation of a favourable image of the business in the
eyes of the employees, the public and the government.

Image formation may take the form of:

• Press releases to draw public attention to products
• Offering special awards
• Sponsorship of community, national or regional events
• Business entertainment

c) Sales promotions methods –

→ Coupons – detachable tickets that entice the holder through the
probability of receiving something

→ Trading stamps – small paper coupons given to customers which have a

minimum cash value

→ Loyalty points – earning for every $1 you spend, encouraging customers

to continue to shop

→ Rebates – an amount paid by way of reductions, return or refund on

what's already been paid for

→ Loss leaders – this is an item with a huge discount used to attract

customers to the store

→ Bundling – a marketing strategy that joins products or services together

to sell as a single unit

d) Personal selling – this involves the salesperson moving from home to home selling
their products. The salesperson has direct contact with customers and receives
instant feedback.

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Objective 7 – Identify the techniques of selling

Techniques of selling:
a) Salesmen – Salespeople use many techniques and approaches to obtain sale

1. Direct selling – goods are sold directly from the producers to the consumers.

➢ Telesales – goods are ordered directly from the company that advertises
on the sales channel
➢ Online shopping – shopping from the comfort of your home via the
internet

2. Product displays – displaying products attractively. Persons trained to do this

are called merchandisers.

3. Samples – given to patrons at shops and malls. Feedback is usually given and
used by a firm to enhance its products.

4. Good after-sales service – reliable and efficient service given to clients.

b) Merchandising and adjusting of pricing policy

Merchandising – The activity of promoting the sale of goods especially by their
presentation in retail outlets.

Pricing policy and discounts – Sellers often adjust pricing policies to encourage
more sales through cash discounts and trade discounts.

c) Methods of retailing
1. Shops – small retail outlets with a variety of goods
2. Department stores – retail outlets that sell several product lines
3. Mail order – use of mail to request purchases
4. E-commerce – use of the internet to purchase items
5. Telemarketing – use of the telephone to entice people to purchase items
usually via a toll-free number
6. Vending Machines – a self-service machine that uses coins and notes

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Objective 8 – Explain the various terms of sale

TERMS OF DEFINITION ADVANTAGES DISADVANTAGES
SALE
Cash Consists of banknotes - Instant payment - Unsafe to move
and coins. around in large
- Buyer able to obtain quantities
cash discount

Credit Payment for purchases is - For the seller, a - For the seller, no
made at a later date. method of moving immediate use of
stock cash

- Buyer enjoys the use - Buyer has to pay

of the goods and interest resulting in
services while still a higher cost
paying

Hire Purchase Short-term credit where - The purchaser has - Very expensive
the company hires the the use of the item form of credit
product to a purchaser
who pays an initial - Movement of stock - goods do not
payment followed by a for the seller become the
series of instalments. property of the
buyer until the last
payment is made

Layaway Purchasers agree to pay - Purchaser can pay - Goods remain with
for goods by instalments. for the goods in small the seller until all
The goods remain with increments payments are due
the seller until all the
payments are made.

Consignment Trading arrangement in - Movement of stock - Seller does not

which the seller sends for the seller have immediate use
goods to a buyer who of cash
pays the seller only as - Buyer only makes
and when the goods are payment after sales
sold.

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Cash & Trade A cash discount is an N/A N/A

discounts amount given to the
buyer for prompt
payment.

A trade discount is given

to merchants and
traders.

A trader can receive both

cash and trade discounts
but the consumer can
only receive a cash
discount
Fig 6.0 Table showing the various terms of sale

A trader or merchant is anyone who buys goods to resell. (e.g. a wholesaler who sells to
make a profit)

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Objective 9 – List the functions of consumer organizations

What is consumerism?
Consumerism is defined as all activities relating to the rights and responsibilities of
consumers.

Most consumer organizations were formed to protect the rights of the consumer.
Functions of consumer organizations:
a) Private organizations (Not for profit)
• Resisting unfair price increases
• Voicing the concerns of the consumer
• Resisting degradation of the environment

b) Government (Ministry of Consumer Affairs, Parliament, Judicial Arm)

• Making laws relating to the environment, road safety and health of the
population.
• Ensuring that laws to protect consumers are followed

c) Bureau of Standards (Quality control organizations)

• Setting minimum standards for producers
• Verification and testing of products
• Educating the public about unsuitable items on the market

d) Ombudsman (A government-appointed person)

• Investigates complaints of loss and damages from the public
• Make recommendations to correct wrongdoing of state agencies

Responsibilities of consumer organizations:

1. To protect the rights of the customer.
2. Seek information about the goods and services that customers wish to purchase.
3. Inform the public about unfair business practices. These practices involve unfair
pricing, unsafe products, misleading advertisements and unhealthy business
practices.

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Objective 10 – Outline the role of customer service

The role of customer service:
▪ Ensuring conformity and compliance to customer requirements
▪ Adherence to copyrights
▪ Effective communication
▪ Coordinating flow of goods, services and information

Objective 11 – Describe forms of customer service

Forms of customer service:
1. Warranty – promising to repair or place an item, if necessary, within a stipulated
time.

2. After-sales service – all the help and information a company provides to its
customers after they have bought a particular product.

3. Feedback – information about reactions to a product or a person’s performance

of a task that is used as a basis for improvement.

4. Online chat – having conversations with customer representatives concerning a

product(s) to gain knowledge about the product(s) or give feedback.

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Objective 12 – Explain the concept of intellectual property rights

What is intellectual property?
Intellectual property covers any creation of the mind.

Examples of intellectual property are songs, books, designs and other

inventions.
The laws of different countries protect intellectual property through copyrights
and patents as well as trademarks (a distinctive word or image).

Let's look at some terminology:

1. Trademark – is a recognizable sign, design or expression which identifies
products or services of a particular source from those of others.

2. Copyright – this is an inclusive right to reproduce and sell musical, literacy and
artistic work. This is granted by the property rights agency and is valid for a
specified period.

3. Patent – this is the right granted to the inventor of a process, the machine,
technique or formula. A business that wishes to use the invention must seek
permission from the inventor which is in the form of a special licence.

4. Industrial design –production of design applied to products that are to be

manufactured through techniques of mass production.

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Chapter 7 – Logistics and Supply Chain

Objective 1 – Explain the term logistics and supply chain operations
What is logistics?
Logistics is the commercial activity of transporting goods to customers. It is the
management flow of things between the point of origin and the point of
consumption.

What is supply chain operations?

Supply chain operations include the systems, structures and processes to plan and
execute the flow of goods and services from supplier to consumer.

Components of logistics:

▪ Forward and reverse flow of goods (from point of consumption to point of origin)

▪ Storage of goods

▪ Provides services such as insurance and related information between destinations

Activities involved in supply chain operations:

▪ Transportation of natural resources

▪ Movement and storage of raw materials

▪ Processing of raw materials and components into finished goods

▪ Storage of work-in-progress and finished goods

▪ Delivering the finished product from point of origin to point of destination

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Objective 2 – Describe the links in the chain of distribution

The distribution chain:
a) Manufacturer – the person who converts the raw materials onto finished goods or
services.

b) Wholesaler – a middleman who sells finished goods to retailers and agents.

Functions of wholesaler:
• Risk-bearing

• Warehousing of goods

• Repackaging

c) Retailer – a middle man who obtains his goods from the producer or wholesaler
and sells them to the final consumer.

Functions of retailers:

• Repackaging

• Providing credit

• Providing convenience for customers

d) Consumer – the end-user of the products and services.

The Distribution Chain

MANUFACTURER WHOLESALER RETAILER CONSUMER

Fig 7.0 Diagram showing the distribution chain

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Objective 3 – Distinguish between multimodal and intermodal transport

What is multimodal transport?
Multimodal transport is the movement of cargo from origin to destination by
several modes of transport where each of these modes has a different transport
carrier responsible, however under a single contract or bill of lading.

What is intermodal transport?

Intermodal transport is the movement of cargo from origin to destination by
several modes of transport where each of these modes has a different transport
carrier responsible each with its own independent contract.

Modes of transport and their suitability for different goods:

• AIR – (i) Suitable for light and perishable goods

(ii) Expensive
(iii) Quickest form of transport

• RAIL – (i) Quicker than road

(ii) Cheaper for bulky goods

(iii) Inconvenient to transfer cargo from one train to another

• ROAD – (i) Can reach all destinations within a country

(ii) Fast for short distance

(iii) Weight limitations

• MARINE (cruise and cargo) – (i) Cheap method

(ii) Suited for bulky and heavy goods

(iii) Slow form of transport

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• PIPELINE – (i) Convenient for consumer

(ii) Best to transport water, oil or gas

(iii) High installation costs

• DIGITAL DELIVERY – the delivery or distribution of media content such as audio,

video, software and video games

Objective 4 – Interpret information on transport documents

Transport documents:
▪ Import license – an international document given by the government to the
manufacturer or trader, permitting to trade with other countries.

▪ Bill of lading – a document that represents the title of goods while in transit. It is
the receipt for goods shipped. It is issued as evidence of the contract of carriage.

▪ Airway bills – this document is used in the transportation of goods by air.

Objective 5 – Explain the role of transport in marketing

The role of transport in marketing:
1. To fast-track sourcing of commodities

2. Ensure security of supply

3. Cost reduction

Importance of transport in domestic, regional and foreign trade:

▪ It brings the goods from producers to final consumers

▪ It carries raw materials and food to the factory

▪ It increases employment

▪ It makes a variety of goods available to consumers e.g. imported goods

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Objective 6 – Identify advantages and challenges of supply chain operations

Advantages –
• Better quality of life

• Wealth creation

• New and innovative job opportunities including entrepreneurship

Disadvantages –
• Globalisation

• Counterfeiting

• Product complexity (increasing the no. of products and product variants)

• Rapid product obsolescence

• Management blunders (stupid and careless mistakes)

• Changing market conditions

• Natural disasters

• Political instability

Objective 7 – Explain the impact of logistics and supply chain operations on the
competitiveness of business
Impacts of logistics and supply chain operations:
i. Logistics improve competitiveness

ii. Competitive advantage, allows a business to outperform its competitors

iii. Comparative cost advantage outsourcing through:

1. Second Party
2. Third-Party
3. Fourth Party (eg. imported concentrates)

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Objective 8 – Identify the problems likely to be encountered in distribution

Problems encountered in distribution:
▪ Relationship between the availability of airport, harbour, docking facilities and the
efficient distribution of goods

▪ Delayed shipping

▪ Spoilage

▪ Misdirection of goods

▪ Inadequate warehousing facilities

▪ Lack of proper security measures

▪ Industrial unrest

▪ Ineffective communication

Objective 9 – Outline the measures to mitigate problems in distribution

Measures to mitigate problems, including but not limited to:
1. Government intervention – adequate funding for port facilities and improvement
of roadwork

2. Communication network including use of the internet among all parties should be
implemented

3. Insurance to cover losses

4. Selecting the most appropriate channel of distribution based on product

5. Use handling services with a good reputation

6. Avoid handling large stocks

7. Careful labelling and documentation

8. Employing security company, use of security cameras

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Objective 10 – Outline the impact of information technology on logistics and supply

chain operations
Forms of technology:
a) Global Positioning Systems (GPS) – satellite-based navigation system

b) Geographic Information Systems (GIS) – designed to capture, store, analyse,

manage and present geographic data

c) Portnet – for fast and reliable connections

d) Telemarketing, e-commerce

e) Global logistics providers such as FedEx, DHL and Amazon Logistics

f) Logistics hubs such as ones in Jamaica

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Chapter 8 – Business Finance

Objective 1 – Identify various financial institutions
What is a financial institution?
A financial institution is a company that primarily focuses on dealing with financial
transactions such as investments, granting loans and deposits.

Different types of financial institutions:

• Central Bank

• Commercial Bank

• Non-bank financial institutions:

(i) Credit Unions
(ii) Insurance Companies
(iii) Building societies

• Micro-lending agencies

• Government agencies

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Objective 2 – Describe the functions and services offered by financial institutions

Functions offered by financial institutions:
a) Loans/credit facilities
b) Savings and deposits
c) Making payments
d) Investments

Services offered by financial institutions:

a) Night safe deposits
b) Online banking
c) Advisory services
d) Credit and debit cards
e) Deposit boxes
f) E-trade
g) Settlement services
h) ATM/ABM machine services
i) Remittance services

Objective 3 – Describe the role and functions of financial regulatory bodies

▪ Financial regulatory bodies are government organizations such as:
(i) Central bank
(ii) Jamaica Deposit Insurance Company (JDIC)
(iii) Financial Services Commission (FSC)

▪ Role of financial regulatory bodies:

To monitor, control and guide various industry sectors to protect consumers.

▪ Functions of financial regulatory bodies:

To enforce regulations and licences of various financial activities, including
lending, depository, collect and money transmission activities.

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Objective 4 – Describe the relationship between financial institutions and regulatory

bodies
The regulatory role:
a) Central Bank – ways in which a Central Bank may regulate commercial banks:

(i) Variations in liquid assets ratio (a ratio of a business’ cash and liquid assets
to its total liabilities)
(ii) Vary or adjust the bank rate and lending rates
(iii) Changing the minimum reserve requirements (a specified minimum
fraction of total deposits which commercial banks have to hold to reserve)

b) Financial Services Commission – supervises certain financial areas such as

insurance and pension.

c) Supervisor of insurance

Objective 5 – Outline the functions of the Central Bank

The functions of the Central Bank:
1. Responsible for issuing notes and coins to commercial banks

2. Banker directly to the government

3. Banker to commercial banks. This involves holding the cash reserves of the
commercial bank

4. Management of foreign exchange reserves of a country

5. Regulator of the activities of the commercial banks

6. Lender of last resort –

What is meant by the term “lender of last resort” is that the Central Bank will assist
the commercial banks with loans when necessary.

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Objective 6 – Outline ways used by individuals to manage personal income

Ways of managing personal income:
1. Allocation of income relative to commitments through the use of a budget
2. Savings
3. Investment
4. Financial advising

Objective 7 – Differentiate between savings and investments

What is savings?
Savings is known as means of deferred income. It is the difference between
consumption expenditure and disposable income.

Forms of saving:
a) Sou Sou (meeting-turn, partner, box hand)
b) Deposits in financial institutions
c) Short term fixed deposits

What is an investment?
Investment is known as means of being risk bearing to make a profit.

Forms of investment:
a) Stock market
b) Credit Unions
c) Government securities such as bonds and debentures
d) Mutual funds

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Objective 8 – Explain the concepts of short-term and long-term financing

▪ Types of short-term financing:

a) Trade credit

b) Commercial bank loans

c) Promissory notes – written promise to pay a sum at a specified date

d) Instalment credit

e) Indigenous credit or private money lenders

f) Advances from customers

g) Factoring – accounting factoring; sells its invoice to a third party at discount

h) Venture capitalist

i) Crowdfunding – funding a product by raising a small amount from a large

number of people usually through the internet

j) Angel investors – an affluent individual who provides capital for a start-up

business in exchange for ownership or some equity

▪ Types of long-term financing:

a) Loans from government agencies

b) Mortgages, debentures, shares, insurance, investment and unit trusts

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Objective 9 – Identify personal sources of capital for setting up a business

Sources of personal capital:
1. Friends and family
2. Personal savings
3. Bank loans
4. Government grants
5. Equity
6. Venture capital

Objective 10 – Identify purposes of basic financial records for sole traders

Types of bookkeeping systems:
▪ Single and double entry

The purpose of basic financial statements:

▪ Income statement (profit and loss)
- To show how much profit and loss an organization generated during a
period.

- To show the viability of the business for investing purposes.

- For borrowing purposes.

▪ Statement of financial positions (balance sheet)

- Gives investors an insight into a company and its operations.

- Gives an idea of the business financial positions showing what the company
owns (assets) and owes (liabilities).

▪ Statement of cash flow

- To provide information about a company’s gross receipts and gross
payments for a specified period.

- Disclose other information such as the amount of income taxes paid,

interest paid and any significant investing and financing activities which did
not require the use of cash.

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Objective 11 – Differentiate between money market and capital market

What is the money market?
Money market refers to the trading in very short-term debt investments (loans)
between banks and other financial institutions.

What is the capital market?

The capital market is part of the financial system which is concerned with raising
capital funds by dealing in shares, bonds and other long-term investments.

Objective 12 – Discuss the role of the stock market

What is the stock market?
The stock market is a collection of markets and exchanges where regular
activities of buying, selling and issuing of shares of public companies take place.

Concept of the stock market:

Stocks and shares may be bought and sold on the stock exchange, which serves the
stock market. This can be done through a broker.
A certificate shows the type of shares and value stated or name on the share in the
nominal or par value. Whenever the owner sells his or her shares, the price at the sale is
the market value at the time.
The stock market plays an important role in financing companies that rely on it to raise
money. This continued investment allows businesses to grow and create wealth and
employment.
The risk however lies in whether or not the purchase price of the share will increase or
at least remain stable. There is no guarantee it will and therefore the investor will lose
his or her money if the price of shares falls drastically.

Stock market terminology:

• Bull Market – high confidence among investors, motivated to buy shares
• Bear Market – low confidence, motivated to sell shares
• Stag – an investor who buys shares intending to sell them quickly

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Chapter 9 – Role of government in an

economy
Objective 1 – Outline the responsibilities of government in an economy
Responsibilities:
a) Security of the state

b) Protection and general welfare of citizens

c) Job security and severance benefits to workers

d) Protection of the environment

e) Maintenance of a safe environment for investors

f) Regulation of business activity in terms of providing clear guidelines as to how to

set up businesses

Objective 2 – Describe how the government can influence businesses to protect the
environment
Policy or legislation on:
a) Green technology – use solar energy instead of fossil fuels

b) Reforestation – preventing deforestation

c) Proper disposal of waste

d) Zoning laws – these confine business location to specified areas

e) The appropriate use of technology in the production and disposal of wastes

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Objective 3 – State the purpose of taxation

Reasons why the government charge taxes:
• To curb inflation by reducing the supply of money in the economy

• To remove the competition from local goods to protect infant or fledgling

(inexperienced) industries by taxing imports at high rates

• To lower unemployment by encouraging persons to buy local produce thus

encouraging linkages among sectors

• To achieve greater quality in the distribution of wealth and income by taxing the
higher income earners to provide social services for the majority of citizens.

Objective 4 – Distinguish between direct and indirect taxes

What are direct taxes?
Direct taxes refer to those taxes where the burden of the taxes and the payments
of them fall on the same individual. This type of tax is usually applied to income
and capital and is paid by individuals.

Examples of direct taxes:

i. Income tax – this is paid as a proportion of an individual’s gross pay after certain
allowances have been deducted. It is levied on earned income.

ii. Corporation tax – this is the tax that companies pay as a percentage of their profit.

iii. Capital gains tax – this tax is levied on a gain arising from the increase in the value
of assets. (e.g. the sale of homes, land, property)

iv. Capital transfer tax – these are levied on the transfer of property that may be a
gift or legacy.

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What are indirect taxes?

Indirect taxes refer to those taxes where the burden and payment of the taxes fall
on different individuals. This type of tax is levied on goods and services and is
usually paid by the manufacturers or importers.

Examples of indirect taxes:

i. Custom duty – a tax levied on goods entering the country

ii. Excise duty – a tax levied on goods produced in the country

iii. Purchase tax – a tax levied on certain items at the retail outlet. (e.g. petrol,
furniture)

iv. Stamp duty – paid by the consumer for legal transactions. (e.g. purchase of
property)

v. Consumption tax such as VAT – levied on goods and services at each stage of
production and distribution

Objective 5 – Describe the forms of assistance offered by the government to

business
Forms of government assistance include:
1. Lending capital and technical assistance – provision of easy credit and low-interest
loans from different agencies

2. Training and human resources development

3. Research and information centres

4. Subsidies and grants especially for small businesses

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Objective 6 – Discuss the social services provided by the government

Social services provided by the government are:
a) Healthcare – provided through hospitals, clinics and health officials.

b) National Insurance – both employees and employers contribute to this. It provides

sick benefits, maternity benefits and old-age pensions.

c) Education – the government offers free education in public schools and pays the
wages of the teachers. An informed and literate population is more productive and
capable of greater entrepreneurial activity.

d) Roads and transportation – the government tries to ensure a comfortable and

affordable transportation system for the labour force and children to get to their
jobs and school on time by offering public transportation. Roads and highways are
built to link towns and allow easier movement to and from work, and to get easier
access to raw materials and finished goods.

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Chapter 10 – Technology and the global

business environment
Objective 1 – Explain the concept of business technology
The concept of business technology:
Business technology refers to applications of science, data, engineering and information
for business purposes such as the achievement of economic and organizational goals.
The main element of technology is the idea of change and how it can affect business and
society.

Objective 2 – Explain the role of information communication technology in business

Role of technology in business:
Information communication technology (ICT) is considered to be all new uses of digital
technology that exist to help individuals, businesses and organizations to use information.
Information communication technology is therefore concerned with the storage,
retrieval, manipulation, transmission or receipt of digital data. Additionally, it is also
concerned with the way these different uses can work with each other.

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Objective 3 – Describe ways in which technology has influenced banking and

commerce
Technology and its influence on banking and commerce:
1. ATMs and ABMs machines

Technology has influenced banking by the introduction of automated teller

machines (ATMs) and automated banking machines (ABMs). These machines
facilitate the deposit and withdrawal of funds, as well as other services without
having to go into a bank to access teller services.
The location of ATMs in hotels, petrol stations, supermarkets and malls add to the
customer’s convenience, who can transact without having to wait in line at the
bank.

2. Online banking

The practice of online banking enables customers to access their accounts from
home and other locations using personal computers or smartphones. This facility
enables customers to check their balances from the comfort of their homes and
permits easy and convenient payment of utility and other bills.
Customers with more than one account can also use this facility to transfer funds
from one account to another.

3. E-commerce

Through electronic commerce (e-commerce), the use of the internet helps

individuals and businesses to be able to make business transactions via the world
wide web (WWW) without having to visit a physical store. E-commerce has given
rise to many online stores which permit customers to browse for products and pay
for them electronically.

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Objective 4 – Describe types of information communication technology used in

business
Traditional:
a) Productivity tools, for example –
• Word
• Excel
• Database software (Access)
• Presentation software (PowerPoint, Prezi)
• Graphic designing software (Adobe Photoshop)

b) Specialist applications –
• Accounting (QuickBooks, Peachtree)

• Computer-Aided Design (CAD) –

The use of computers or workstations to aid in the design, creation or
modification and analysis of a design.

• Management Information Systems (MIS) –

Information systems that are used for decision making and coordination,
control, analysis and visualization of information in an organization. The
study of MIS involves people, processes and technology.

Digital communication technologies:

• Internet
• Mobile

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Objective 5 – Distinguish between e-commerce and e-business

The ‘e’ in these terms stands for ‘electronic networks’ and describes the application of
electronic network technology including the internet and electronic data.
What is e-commerce?
E-commerce covers outward-facing processes that touch customers, suppliers and
external partners including sales, marketing, order taking, delivery, customer
service, purchasing of raw materials and supplies for production and procurement
of indirect operating expense items such as office supplies. It involves new
business models and the potential to gain new revenue or lose some existing
revenue to new competitors.

What is e-business?
E-business includes e-commerce but also covers internal processes such as
production, inventory management, risk management, product development,
finance knowledge management and human resources.
E-business strategy is more complex, more focused on internal processes and
aimed at cost savings and improvements in efficiency, productivity and cost
savings.

Objective 6 – Identify ways in which information communication technology can be

used to improve the efficiency of business operations
Ways in which technology can improve business:
1. Speed and time

2. Easier storage management

3. Improved sharing of information

4. Automation – the use of a wide range of technologies that reduce human

intervention.

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Benefits of technology to businesses:

1. Reach more potential customers and develop business relationships with
potential customers

2. Provide better service to customers

3. Streamline operations, reduce costs, improve efficiency, maximise profits, and

minimise wastage

4. Allow customers to better guide the business

5. Support better relationships with key partners

Objective 7 – Discuss the ethical implications of the use of information

communication technology in a business
Consequences of unethical use of ICT:
a) Security
b) Privacy
c) Intellectual property infringement
d) Impact on humans
e) Distraction

Objective 8 – Outline the factors that determine a country’s standard of living and
quality of life
What is the standard of living?
Standard of living refers to those factors that indicate a country’s wealth.

Indicators of a country’s standard of living:

▪ Level of consumption of goods and services
▪ Average disposable income of the population
▪ Level of national ownership of capital employed
▪ Access to modern technology
▪ Level of investment in research and technology

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What is the quality of life?

Quality of life refers to the extent to which the population of the country enjoys
the benefits of its wealth.

Indicators of a country’s quality of living:

▪ The extent of security enjoyed
▪ Availability of educational, health and recreational activities
▪ Diet and nutrition
▪ Life expectancy
▪ Access to public utilities such as electricity, potable water, technology
▪ Rate of infant mortality

Objective 9 – Explain national income and its variations

Definitions:
National Income (NI) – The total monetary value of all goods and services.

Gross Domestic Product (GDP) – The total monetary value of goods and services
produced within a country’s borders in a specific time period.

Gross National Product (GNP) – The total monetary value of goods and services produced
using ONLY the resources owned by residents of a country, regardless of wherever these
resources are located.

Per Capita Income (PCI) – Average income earned per person in a given area.

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Objective 10 – Explain how each of these concepts affects growth and development
and impact standard of living and quality of life
What is economic growth?
The economic growth of a country may be seen as an increase in the productive
capacity of the economy. It provides a means of achieving higher living standards
as more goods and services are provided
It is a quantitative change in the goods and services that are available for
consumption.
What is economic development?
Economic development may be seen as the reduction and eventual elimination of
unemployment, underemployment, poverty and inequalities in the distribution of
wealth and income.

It is a qualitative change. This could be done by achieving growth and increasing

the standard of living

Now that we know the terminology, think about this –

During a boom, unemployment is reduced, output and investments are high. There may
be upward pressure in prices and a balance of payments deficit as imports increase due
to high levels of demand.
In the recession period, the output is at least not rising or may even be falling.
Unemployment may be prevalent as there is no increase in capital.

Now we will look at factors that affect the growth and development of a country.
Factors affecting growth and development:
• Rate of investment
• Rate of increase in the working population
• Technical training and education
• Migration
• Government expenditure

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Objective 11 – Describe the role of education in economic growth and development

How education can improve the workforce leading to increased output:
1. It helps to improve the knowledge and skills of the workforce.

2. Better educated people are more able to adapt to changes that are necessary for
a developing economy.

3. Education makes people more literate, which is important for communication

skills.

Objective 12 – Outline the reasons for international trade

Reasons why countries trade with each other:
1. A country may not be able to produce the goods and services they need in
quantities or of the quality that they require.

2. One country may not be endowed with certain assets or have the natural resources
such as land, labour, capital or enterprise to produce the goods that they need.

3. A country may not have the climate to grow certain foods and have to depend on
trade to get them. (e.g. Wheat in the United States, Apples in Canada)

4. International Trade allows for foreign investment allowing one country to invest
money in foreign companies and other assets.

Objective 13 – Identify the functions of major economic institutions and systems

a) Caribbean Community (CARICOM)
▪ CARICOM is a group of 20 countries, 15 member states and 5 associate
members.

▪ It came into being on July 4th 1973, with the signing of the Treaty of
Chaguaramas in Trinidad and Tobago.

▪ Its objective is to promote economic integration and cooperation among its

members, to ensure that the benefits of integration are equitably shared
and to coordinate foreign policy.

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▪ Functions include: to improve the standard of living; working for

coordinated and sustained economic development.

b) Caribbean Single Market Economy (CSME)

▪ It is an arrangement among the CARICOM states for the creation of a single
enlarged economic space through the removal of restrictions resulting in
the free movement of goods, services, capital, and technology.

▪ CARICOM national has the right to establish a business in any participating

CARICOM member states.

c) Caribbean Development Bank (CDB)

▪ The CDB is a financial institution that helps Caribbean nations finance social
and economic programmes in its member states.

▪ The headquarters is located in Barbados.

▪ It has a membership of 28 countries which consists of 19 regional borrowing

members, 4 regional non-borrowing members and 5 members from outside
the region.

d) International Bank for Reconstruction and Development (IBRD)

▪ The IBRD is an international financial institution and the largest
development bank.

▪ The bank aim is to reduce poverty in middle-income and creditworthy

poorer countries by giving development through loans, guarantees and risk
management products.

▪ It was founded in 1944, with its headquarters being in Washington D.C., U.S.

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e) World Bank
▪ The world bank is an international financial institution that provides loans
and grants to the government of low and middle-income countries to
pursue capital projects.

▪ It was founded in 1944, New Hampshire, U.S.

▪ It is headquartered in Washington D.C., U.S.

f) International Monetary Fund (IMF)

▪ The International Monetary Fund is an international organization that aims
to promote international financial stability and monetary cooperation. It
also facilities international trade and helps to reduce global poverty.

g) World Trade Organization (WTO)

▪ The WTO is the only international organization that deals with the global
rules of trade. Their main objective is to ensure that trade flows as
smoothly, predictably and freely as possible.

▪ It was founded on January 1st 1995.

▪ It is headquartered in Geneva, Switzerland.

h) Organization of American States (OAS)

▪ The OAS is primarily focused on promoting democracy, coordinating
security and law enforcement operations, providing technical and financial
assistance for development projects, and monitoring human rights through
the inter-American legal system

▪ It consists of 35 members, 21 being original members.

▪ It was founded on April 30th 1948.

▪ It is headquartered in Washington, D.C., U.S.

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Objective 14 – Explain how economic institutions and trade agreements impact the
Caribbean
The impact that each of these institutions/agreements can have on the Caribbean:
1. Lead to economic growth and development by providing a single space for the
production of competitive goods and services.

2. It can attract investment opportunities.

3. Access to more affordable raw materials or goods and services.

4. Better chance of developing at a faster pace by sharing expertise and resources.

5. Cooperating in areas of health, education and technology.

Objective 15 – Identify major economic problems in the Caribbean

Major economic problems in the Caribbean:
a) Unemployment – in some cases even underemployment.

b) Population density – is the number of individuals per unit geographic area.

c) Migration – the movement of people to foreign countries.

d) Debt burden – external debts incurred by the government of developing countries.

e) Sourcing Capital and raw materials

f) Economic dualism – where some countries are more technologically advanced

while others are technologically retarded.

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Objective 16 – Outline appropriate solutions to major economic problems in the

Caribbean
Possible solutions to economic problems:
1. Access to Foreign Direct Investment (FDI) – when foreign investors setup up a
business in the country.

2. Development of human resources – training and education.

3. Development of manufacturing, distribution and export sectors

4. Development of technology to generate economic activity

Objective 17 – Explain the role, benefits and impact of foreign investment

Foreign investment can be split up into two main types:
Foreign Direct Investment – an investment in the form of a controlling ownership
in a business in one country by an entity based in another country.

Foreign Indirect Investment – involves corporations, financial institutions and

private investors buying stakes in foreign companies that trade on a stock
exchange.

It includes not only equity instruments such as stocks, but also debt instruments
such as bonds

Positive impacts of foreign investment in the Caribbean:

• Helps reduce the unemployment rate
• Increases government’s revenue through taxation
• Helps to improve the balance of payment
• Increases capital

Negative impacts of foreign investment in the Caribbean:

• Most of the profits are sent to the foreign country
• In the long run, the balance of payments will deteriorate
• Foreign investment has the potential to create a dual economy
(Two separate economic sectors in one economy, divided by different levels of
development and technology)

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Objective 18 – Explain the terms “balance of trade” and “balance of payment”

What is the balance of trade?
Balance of trade (BOT) is the difference between a country’s total imports of goods
and services for a period. It is an important element of the balance of payments.

➢ When the export is greater than import, it is said to be favourable as a

surplus has been experienced.

➢ When the export is less/imports are greater than exports, the difference is
said to be unfavourable or adverse and a loss or deficit has been
experienced.

What is the balance of payments?

Balance of payments (BOP) is a tabulation of all credit and debit transactions of the
country with foreign countries during a specific period.
The balance of payments is a statement recording the difference of all payments
made to foreign countries and the total payments received from them.

The balance of payments includes:

i. Current account – this records the trade in goods and services.

ii. Capital account – this records flows for investment and saving.

Correcting an unfavourable balance of payments:

▪ Drawing on the IMF
▪ Soliciting loans from abroad
▪ Borrowing from another country
▪ Selling assets
▪ Devaluation
▪ Drawing on reserves
▪ Import control
▪ Quotas

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