summary of pob topics

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Answers to exam-style questions

1. The nature of business

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

Easy to establish and manage.zz

Decision-making is speedy, since sole zz

traders own and operate their own businesses.Customers receive special attention.zz

Profits are not shared.zz

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

Unlimited liability, that is, all losses and zz

debts incurred by the business must be borne by the owner.Problems in raising capital.zz

Limited managerial skills.zz

Lack of competitiveness. (Discounts, if zz

offered to the sole trader may be small in comparison to big business operations).Lack of continuity, if the owner dies, the zz

business also dies.Long working hours.zz

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

the globe. They specialize in related activities, for example energy production or banking.

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

c Multinational corporations:- Bank of Nova Scotia; British Petroleum (BP); Alcoa

Conglomerates:- Neal and Massy Ltd.; Ansa McCall; Grace Kennedy Ltd.

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

the entrepreneur enjoys the goodwill zz

associated with the franchise and can use an international brand name.there are fewer risks involved than in zz

starting a new business (e.g. in developing markets for products etc.).

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

the entrepreneurial spirit is restricted as zz

the business must follow the regulations of the franchisorthe entrepreneur has to pay a portion of zz

the profits in the form of royalties to the franchisor.

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

Please note that these are not the only possible answers. Most CSEC® Principles of Business examination questions can be answered in many ways, using a variety of different examples.

Areas of difference Private limited company Public limited company

Accounts Accounts may be kept confidential.

Reports and financial information must be made public.

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

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

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

Subsistence economyzz

Market or capitalist economyzz

Planned or command economyzz

Mixed economy.zz


© OUP: this may be reproduced for class use solely for the purchaser’s institute2

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

Areas of differences

Subsistence Economy

Market Economy

Planned Economy

Mixed Economy

Ownership of the factors of production

Individual and family

Private individuals and firms

The state or government

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

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

Individual and family

Consumers’ choices and demand

The state or government

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

Government participation or involvement

No government involvement.

Little or no government involvement.

Total government involvement in all areas.

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

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

Areas of difference Private Sector Public Sector

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

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

Motive of operation Its primary motive for being in business is making profits.

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

Sources of funding (capital)

Loans from local financial institutions.

Personal savings. Loans from family members. Sale of shares to the public.

Taxation. Loans from local and/or international

financial institutions. Sale of Treasury Bills and Government

bonds and securities. Sale or divestment of public assets.

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

Producersz

Consumersz

Savers.z

e One purpose for which a co-operative might be formed for each of the two groups in (d) above are:-

Producers – to ensure that the best price z

is obtained for their products.



Consumers – to obtain goods at higher zz

quality and lower prices.Savers – to encourage savings and to zz

obtain low-interest loans, etc.

3. a Barter is the exchange of goods/services without the use of money.

b Two problems associated with the barter system are:- (Choose any two)

Double coincidence of wants (each zz

person has to have what the other wants).Rate of exchange (deciding how much of zz

one good is exchanged for another).Store of value (can't save goods for use zz

at a future date without spoiling).Divisibility (some goods can't be split into zz

smaller parts without losing its value).

c The four functions of money are:-

Medium of exchange.zz

Standard for deferred payments.zz

Measure of value.zz

Store of value.zz

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

there is no longer a need for a double zz

coincidence of wants to take place. Money is widely accepted for any transaction.Money is divisible, and can be used for zz

both large and small paymentsmoney is portable, and can be used to zz

make payments at any distance.

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

by the use of cheques which are not legal zz

tender but an order to the banker to make the payment to the bearer.by the use of debit cards which is a zz

non-cash transaction at the point of sale. The merchant will receive his/her money from the bank.

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

b Two ways in which a shareholder may benefit from a successful business are:-

the shareholder can receive dividends on zz

his sharesthe shareholder can expand his equity, zz

that is, the value of his shareholdings.

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

to create employment and incomes for zz

people in the society.to maintain and expand its market and zz

the economy.to compete by producing goods and/or zz

services to satisfy the needs and wants of the population.to maintain its social status as a zz

corporate citizen by assisting the community in which it operates.to satisfy the need or desire for making zz

more money by maximizing profits.to take on the risks associated with zz

running a business.

d A stakeholder is any person, group of people, or organisation that has an interest in the business.

e Three groups of stakeholders, and one way in which each may benefit from the successful operation of a business are:-

Owners, from the receipt of profits.zz

Employees, from improved wages and zz

working conditions.Customers, from quality products and zz

reasonable prices.Society, from the funding of community zz

groups and activities.Government, from taxes, both direct and zz

indirect.5. a An entrepreneur is a person who undertakes

the risks involved in establishing and running a new business.



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

Desire for financial independence, and zz

to earn their own money and be financially secure.Self-fulfilment. He may want to be zz

successful and to determine that success.Self-actualisation. It may have always zz

been a dream or goal to own and operate his own business.To improve his status in life, by zz

improving his income, and their economic standing in society.

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

Manufacturers are free to produce what zz

the consumers require, and the consumers in turn are free to spend their money as they see fit.Decision-making is not controlled, so zz

there is greater participation in the decision on what is to be produced to satisfy the needs of the consumer.

Disadvantage:-

Businesses could be exploited through zz

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

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

planning in order to achieve the goals zz

and objectives of the businesssourcing finance for the day to day zz

operations of the businesshiring staff to operate the various areas zz

of the business

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

Pay workers a fair and reasonable wagezz

Provide safe and proper working zz

conditionsTrain workers to perform their tasks zz

effectively and efficientlyPromote workers based on meritzz

2. Organization and management

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

Productionzz

Marketing and Saleszz

Finance and Accountingzz

Personnel or Human Resource zz

Management.

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

Production

sourcing of raw materialsz�

manufacturing of the products.z�

Marketing and Sales

promoting the products (e.g. advertising, z�

sales promotion, etc)selling the products to customers.z�

Accounting and Finance

making and receiving payments on z�

behalf of the companypreparing the financial statements of the z�

company.

Personnel or Human Resource Management

recruiting, disciplining or dismissing staffz�

training, promoting or redeploying staff.z�

c One way in which an increased demand will affect each of the major departments of a sports goods manufacturing company is:-

Production department will have to source more materials to manufacture more equipment.



Personnel or HumanResources manager

Reporting relationship

Lateral relationship

Marketingmanager

Productionmanager

ManagingDirector

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

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

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

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

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

Planning is the process by which a zz

manager prepares for the future. Organizing is the process of pulling zz

together all resources needed, to meet the goals of the organization.Controlling is the process of checking zz

and measuring how activities are being carried out in the business and steering them towards meeting the goals set by the organization. Delegating involves assigning tasks or zz

goals to subordinates whilst at the same time granting them the necessary authority to carry out the tasks.Staffing is the process of selecting, zz

orienting, assigning, training, promoting, and retiring the labour force

as well as matching the right personnel with the right job. Communicating is the process of zz

transmitting information and ideas to people within the various levels of the organization.Directing/Coordinating is the process zz

by which actual performance is guided towards the goals to be met. Evaluating is the process of assessing zz

work performance to determine how well the tasks have been done, and what steps are to be taken to improve future performance. Motivating is the process by which zz

workers are encouraged or influenced to take the right action to get the tasks and jobs done.

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

to provide fair wageszz

to provide safe working conditions and zz

equipmentprotection against unfair dismissalzz

providing opportunities for promotion zz

and growth within the organizationto provide compensation for job-related zz

injuriesto provide proper training and education.zz

d i Lateral relationships exist among people who are at the same level within an organisational structure.



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

b Maslow’s hierarchy of needs are:-

Physiological or basic needszz

Safety and security needs zz

Social and belonging needszz

Esteem needs zz

Self-actualization needs.zz

c Theory X assumes that most workers don’t like work and prefer to be directed, do not like responsibility and focus more on safety than anything else.

Theory Y assumes that the workers like work and are willing and capable of making a positive contribution to the organization.

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

to advise the executive and to assist it in zz

developing policies and procedures for scheduling staff vacations.

Two members likely to be appointed to this committee are

Chairpersonzz

Secretaryzz

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

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

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

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

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

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

Accountsclerks

AccountsReceivable manager

Chiefaccountant

Financialmanager

ManagingDirector

M. D.



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

4. a Four different leadership styles are:-

Authoritarianzz

Democraticzz

Charismaticzz

Laissez Faire.zz

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

Quick decision making which might be zz

essential in a crisis.

Disadvantage:-

No participation from employees in zz

decision-making

Democratic Advantage:-

Participation by employees in decision-zz

making can lead to more effective decisions as employee experience can be useful for managers.

Disadvantage:-

Time must be devoted to involving staff zz

and this can slow down decision-making. This can be a problem when a quick decision is essential.

Charismatic Advantage:-

The charismatic leader inspires zz

employees with personal magnetism and communication skills and this is a motivating factor.

Disadvantage:-

A charismatic leader’s decisions may be zz

accepted uncritically. Unwise or unscrupulous leadership may bring disaster to a business.

Laissez Faire Advantage:-

Gives employees a sense of zz

empowerment, as they are allowed to

use their initiative to complete the tasks required.

Disadvantage:-

Employees could be given too much zz

freedom, to the extent that they begin operating outside of the goals of the organisation.

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

Benefit:-

creative problem-solving from the zz

inputs of individuals of the team.the pooling of resources, ideas and zz

expertise.motivation of the workers personally zz

and collectively.increases the level of productivity.zz

improvement in the quality of work.zz

fostering a participative approach to zz

work, giving a feeling of belonging and making a significant contribution to the organization.providing for continuity in the carrying zz

out of projects if a member leaves.increase in the efficiency and zz

effectiveness of the negotiation process.

Difficulty:- (Choose any one)

incompatibility of the team members zz

may lead to rivalry within the team.there may be too much rivalry between zz

teams.a team member who is not interested in zz

the particular task may weaken the overall effort.

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

consultationzz

suggestion boxzz

meetings (formal or informal)zz

reportszz

memorandum (a memo)zz

telephonezz

electronic mail (e-mail)zz



letterszz

newsletterszz

interviewszz

manualszz

notice boardszz

speecheszz

courses and seminarszz

intercoms.zz

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

consultation (to have discussions zz

between management and staff on particular issues)suggestion box (to get feedback from zz

workers to improve procedures)meetings (formal or informal) (to discuss zz

issues affecting the organization)memorandum (to inform staff about zz

decisions and issues)telephone (to contact anyone within or zz

outside the organization, usually for informal communication)electronic mail (e-mail) (to transmit or zz

receive information rapidly)interviews (to select the appropriate zz

candidate for a position within the organization)manuals (to provide instructions for zz

particular tasks or jobs)intercoms (to contact a specific person zz

or groups of people).

5. a Management Information System is the development and use of effective information systems in organizations to support monitoring and decision-making by management.

b Two advantages of a Management Information System over a paper-based management system are:-

data can be retrieved and processed in a zz

much shorter time.Less space is needed for storage than a zz

paper-based system.

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

Transaction processing system (TPS)zz

Decision-making support system (DSS)zz

Office automation system (OAS)zz

Executive support system (ESS)zz

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

Transaction Processing System (TPS)zz

it can be used to handle point-of-z�

sale transactionsit is used by the automatic teller z�

machinesit requires quick systems responsez�

it requires the system to be reliable.z�

Decision Support System (DSS)zz

it is used to enhance decision-z�

making, for example on production volume or staff recruitment. it is used to collect and organize z�

information in a less structured environmentit requires adaptability to deal with z�

new requirementsit requires the ability to use many z�

different types of information.

Office Automated System (OAS)zz

it may be used for internal e-mailsz�

it may also be used for z�

teleconferencingit requires flexible, adaptable and z�

stable technologyit requires a local or wide area z�

network system to facilitate its operations.

Executive Support System (ESS)zz

it is used to support management z�

decision-makingit is used to obtain high-level, z�

aggregated and standardised information from many sourcesz�



it must be flexible for use in many z�

different situationsit must be easy to operate for z�

executives with no specific computer training.

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

the cost of setting up and maintaining zz

the system (establishment, maintenance and security)the cost of training workers to operate zz

the systemthe possibility of human error in the zz

input of data.

6. a A leader is one who is able to employ the most appropriate strategies for getting work done in order to meet the goals of the organization.

b Abigail’s former leadership style was laissez faire, because she always allowed people to choose when, and how, they wanted to get the job done as long as it was completed within the timelines set.

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

it gives employees a sense of zz

empowerment, as they are allowed to use their initiative to complete the tasks requiredthe employees’ self-esteem is developed zz

and they feel more involved.

Disadvantages:-

employees could be given too much zz

freedom, and might become lazy and ineffectivethey could begin operating outside of zz

the goals of the organisation.

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

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

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

Go slow, that is taking a longer time zz

than normal to perform a taskWork to rule, that is the workers will zz

only do a certain amount of work and nothing moreSick out, that is staying at home and zz

pretending to be sickStriking, that is withholding their labour zz

entirely and walking off the job.

3. Establishing a business

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

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

b Four qualities of a successful entrepreneur are:-

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



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

Desire for financial independence, and zz

to earn money and be financially secure. Self-fulfilment. The desire to be zz

successful and to determine that success.

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

your own money (personal savings)zz

loans from family or friendszz

loans from financial institutions (Banks, zz

Credit Unions, etc.)Loans or grants from government zz

institutions (e.g. the National Enterprise Development Company in Trinidad and Tobago)

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

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

Providing a blueprint for the operations zz

of the businessIdentifying the likely income and zz

expenditure Giving the entrepreneur a baseline to zz

monitor progress of the businessProviding a guide to the goals of the zz

business and future financial flows for those financing the firmEnabling professional advisers to zz

monitor the progress of the business.

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

market data on who the intended zz

customers are, customer needs, competition, size of market, etc., and proposed marketing strategyfinancial data on how the business will zz

be financed, profit and loss forecasts, cash flow forecast, capital expenditure requirements

management data on the ways in which zz

the business is expected to grow, recording procedures, and methods for monitoring progress.

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

i Finance (Choose one of these)

Capital requirements to start the zz

business (e.g. plant, machinery, stocks) and operate the business for the first six months.Sources of capital, that is, where the zz

entrepreneur can obtain funding to start the business.

ii Legal aspects

Whether the business will be zz

organised as a sole trader, a partnership, a company or another form of organization.

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

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

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

3. a Three steps that John must take before starting his own business are:-

to find a proper location to operate the zz

businessto register the name of the business with zz

the Registrar of Companiesto register the business with the zz

Revenue Authority for taxes.

b Two regulations affecting John’s Burger Palace which would be applied by each of the following are:-

i Local governmentfood handlers licences (food badge) zz

for himself and any employees building regulations for his business zz

premises.



ii National government

registration with the Revenue zz

Authority for the payment of taxesregistering all employees with the zz

National Insurance Board for the payment of NIS

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

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

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

Government tax-free savings bonds.zz

Stocks and shares.zz

Fixed deposit certificate.zz

A loan guarantee from a third party.zz

Land titles or deeds of property.zz

Life assurance policies (cash value).zz

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

the danger of selling substandard goods zz

due to the use of poor quality ingredients improper or misleading advertisingzz

he has to pay all taxes and NIS zz

contributions to the relevant authorities he must properly dispose of all garbage zz

and waste to avoid polluting the environment.

4. Business and the law

1. a A contract is an agreement between two or more parties that is legally binding or enforceable by law.

b The three essential features of a valid simple contract are:-

offerzz

acceptancezz

consideration.zz

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

by breach, that is when one party to a zz

contract fails to carry out their side of the agreementby performance, that is when both zz

parties carry out their side of the contract.by agreement, that is when both parties zz

agree to cancel the contract before it is completedby death, that is one party might die and zz

cause termination. However, in some cases, that party’s agent or beneficiaries may be liable to continue the terms of the contract.

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

financial compensation, or zz

compensatory damages.specific performance for example where zz

the vendor is ordered to complete a sale of land.declaratory relief, in which the courts zz

state each party’s rights and obligations.

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

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

A simple contract can be either oral or implied. It need not z�

be in writingdoes not always need to be signedz�

does not usually need to be witnessed.z�

A specialty contract

is a formal agreement that must be done z�

in writingmust always be signed by all parties z�

agreeing to itin most countries, a deed or specialty z�

contract must be witnessed.



c Three types of specialty contracts and their purposes are:-

Sale of land (deed of conveyance)z

Deed of gift, transferring land or z

property by giftDeed of partnership, setting out the z

rights and duties of each partner.

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

Void contract. These are contracts that z

never came into existence, for example an agreement to break the law.Voidable contracts. These are contracts z

which may be overturned by legal action, for example because they were based on misrepresentation of an important fact, or because one of the parties was under duress.Unenforceable contract or transaction is z

one that is in conflict with the legal rights of one party, for example a contract for the sale of goods which states “no refund, no return”.

3 a The difference between “insurance’ and ‘assurance’ is:-

Insurance is about uncertainty, for z

example insurance against loss by fire.Assurance is about certainty, as in life z

assurance.

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

to provide for a payment after death to z

the beneficiaries (whole life policy)to provide for a payment of a basic sum z

at a certain age or on the death of the insured, whichever comes first (endowment policy).

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

compensates the person from the premiums it has received from its clients.

d Four principles of insurance are:- (Choose any four)

Utmost good faith (the parties must be z

truthful in their declaration and must disclose all relevant facts)Insurable interest (the insured must be z

the one that would suffer financially if an event occurred)Proximate cause (the damage that is z

incurred is caused by the risk insured against)Indemnity (the policy holder is z

compensated for the actual loss incurred)Contribution (if the same risk is insured z

with several insurance companies, each insurer will contribute a percentage towards payment of the claim).

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

liability insurance protects businesses z

against liability as a result of losses or injury incurred by people on the propertycargo insurance protects exporters and z

shippers against the hazards of the sea, or damage or loss of cargo.

4. a The purposes of the following documents are:-

i A bill of lading is for goods transported by ship. It acts as a receipt for the goods, summarizes the shipping contract and transfers ownership to the consignee.

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

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



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

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

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

Telegraphic Money Order (wire transfer). zz

It is a quick way of making payments or transferring sums of money to persons in local or overseas locations. It is part of the electronic banking system.Bill of exchange. zz

It is an unconditional order in writing from the purchaser, addressed to his banker giving instructions to make payment on demand or at a fixed or determinable future time, a certain sum of money to a specific person (supplier) or to a bearer.Documentary credit. zz

It is a facility for paying debts arising from international trade. It allows the exporter to receive ‘immediate payment’ from the importer’s bank as long as documentary evidence of the transaction such as a bill of lading is presented.Bank draft. zz

It can be used when payments for goods or services are to be in foreign currency. It is guaranteed by the bank on which it is drawn (issued) because the equivalent amount was paid when the draft was purchased.

c Two differences between payment by credit card and debit card are:-

Credit cardzz

it is a form of credit facilitated by z�

the bank

interest is charged on unpaid z�

amounts or balances after the end of the monthly billing period.

Debit cardzz

it is directly linked to the holder’s z�

personal bank accountno interest is charged by the bank z�

as the payments are automatically deducted from the holder’s account at the time of sale.

5. Production

1. a The four factors of production are:-

Landzz

Labourzz

Capitalzz

Enterprise.zz

b i Four natural resources that are found in the Caribbean are:-

bauxitezz

oilzz

beacheszz

gold.zz

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

Bauxite can be found in Jamaicazz

Oil can be found in Trinidad and zz

TobagoBeaches can be found in The Bahamaszz

Gold can be found in Guyana.zz

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

oil – for the manufacture of gasoline zz

and motor oils bauxite – for the manufacture of zz

aluminium Beaches can be used for the zz

development of tourismGold can be used to manufacture zz

jewellery.



c Production is the process of employing labour and capital and other inputs to make goods and services available to consumers.

Productivity refers to how much output can be achieved for each unit of one of the factors of production, for example average production for each worker employed.

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

i The migrant

to be able to obtain a higher salary zz

from employmentan opportunity to gain further work zz

experience and training.

ii The home country

The migrant may send funds home zz

as cash remittances to relativesThe migrant may return after some zz

years with improved skills and accumulated capital.

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

education of the labour force – their zz

skills and competenciestechnology in use – how trained are the zz

workers to use the technologytype of on-the-job training provided for zz

employeesmanagerial systems in place for zz

communicating with employeeshealth and well being of the workers. zz

Attitude of workers is critical, whether or not they enjoy their work and make an effort to perform at their best.

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

location of raw materials, are they zz

available close to the site?location of the market, is it close to the zz

business?location of energy sources, are they zz

available close by?

availability of transportation, is there zz

easy access?availability of labour, are the required zz

skills available?government incentives for locating a zz

firm in a particular area.

3. a Three levels of production are:-

Subsistence production involves zz

producing goods for one’s self and familyDomestic production involves zz

producing goods and services for the local marketSurplus production involves producing zz

excess goods and services for export.

b Three types of production are:-

Primary production involves extracting or zz

gathering the raw materials from natureSecondary production involves zz

converting the raw materials into finished or semi-finished goods, and building constructionTertiary production involves providing zz

services to customers, either directly or indirectly.

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

based in or close to the home of the zz

entrepreneuruses mainly manual labourzz

operates on a small scalezz

uses mainly local raw materialszz

uses family members as labourzz

often produces handicrafts or foods.zz

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

contributes to the GDP of the country zz

by adding (to a small extent) to total productionthe worthwhile engagement of persons zz

by the creation of employment helps the economy by earning foreign zz

exchange, through exports or tourism.



4. a The distinction between a forward and backward linkage, and an example of each is:-

Backward linkage is when one industry or sector joins with another industry that produces its raw materials, to ensure that they will always have access to a ready supply.

Example:- a cheese and butter manufacturer links with a dairy farm for its milk supply.

Forward linkage is when one industry joins with another industry as a market for its finished or semi-finished products.

Example:- a furniture manufacturer links with a department store to sell its furniture.

b The growth of a business may affect:

i Organizational structure the business become more complex, zz

and loses the ‘personal touch’ linking manager and employees in a small business.managing the many business zz

activities becomes more difficult ii Exports

mass production allows for lower zz

costs of productionthis allows the firm to sell its product zz

more cheaply and become more competitive in the export marketThe firm can sell to overseas zz

supermarkets and other customers who require large-volume production.

c Economies of scale are the benefits that are derived by a firm, from engaging in large scale production.

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

the business can afford large-scale zz

machinery and equipment, which reduces the cost of productionThe business can negotiate a discount zz

from its suppliers, if it buys goods and services in large quantities.

5. a The difference between capital intensive and labour intensive is:-

Capital intensive means that the zz

production processes relies more on machinery and equipment than on human labour.Labour intensive means that more zz

human effort is being used than machinery, with the employment of a large number of workers.

b Two labour intensive industries that operate in my country are:- (Choose any two)

banana industryzz

tourism industryzz

handicraft industryzz

sugarcane industryzz

c Mechanization is the replacing of human and animal labour with machines in order to produce more quickly and efficiently.

Automation is use of machines which can complete a task with minimal human intervention.

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

tasks can be completed in a shorter timezz

more dangerous tasks can be safely done zz

by machinesunemployment is created as workers are zz

replaced by machinesnew technology is costly to install and zz

maintain.

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

Sue is a well-educated which will benefit zz

her employer and may also relieve a shortage of labour in her destination country.Sue will contribute to the variety of zz

cultural differences in her destination country, and may add to its quality of life.



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

she would have to find a location to set zz

up her businessshe would have to source the funds zz

(capital) to start and operate her businessshe would have to hire workers to zz

operate the business.

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

she would be providing goods and zz

services to the communityshe would be providing opportunities zz

for employment to peopleshe would be providing a market for zz

other local industries producing inputs for her business.

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

it would be easier to raise large amounts zz

of capitalthere will be more capital available for: zz

extensive advertisingz�

research and developmentz�

employing specialist personnelz�

labour-saving machineryz�

mass production allows greater z�

possibilities for specialisation.she would be able to obtain special z�

prices and discounts from her suppliers.

6. Marketing

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

Introduction (development, advertised zz

for sale)Growth (sales and profits increase zz

steadily)Maturity (market established, sales zz

stabilise and competition is faced)

Decline (sales and profits fall, product is zz

either pulled or revived, – some goods never reach this stage. e.g. salt, matches).

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

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

the production department need to zz

know when to begin research and development on new products or improvements to old products.the marketing department need to zz

know in order to develop the appropriate promotional strategies to boost sales, etc.

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

i Design and development is the pre-launch stage

ii Defending and maintaining market share is the maturity stage

iii Developing awareness of the new product is at the introduction stage.

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

advertising – a non-personal sales presentation technique that is used to encourage consumers to buy a product (radio, television or print).

sales promotion – short-term incentives given to customers to encourage sales (free samples or banded offers).

personal selling – a presentation by a representative of a firm to prospective buyers to persuade them to purchase a product.

2. a Two characteristics of perfect competition are:- (Choose any two)

very large numbers of buyers and sellers.zz

no buyer or seller can influence the zz

ruling market price by individual action.



all buyers and sellers have accurate zz

knowledge about the market in which they are engaged.the product is uniform or homogeneous, zz

that is, it is similar in all aspects.in the long run, firms can enter this zz

market or leave when they want to do so.

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

i Perfect competition.

ii A monopoly.

Areas of difference Monopolistic Competition

Perfect Competition (i)

Monopoly (ii)

Market size Competition among many sellers.

Very large numbers of buyers and sellers

Only one firm operating in the industry.

Type of product Product differentiation. The product is uniform or homogeneous, that is, it is similar in all aspects.

The production of a product with no close substitute.

Barriers to entry Free entry into the industry in the long run.

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

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

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

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

At the equilibrium pricedemand equals supply

This

is th

eeq

uilib

rium

pri

ce

This quantityis produced

Pric

e

Demand increases asthe price goes down

Supply increasesas the price goes up

In this area, demand is greaterthan supply. The price is pushed up.

SHORTAGE

Quantity

SURPLUSIn this area supply is greater thandemand. Price is pushed down.

Pric

e


Quantity


This

is th

eeq

uilib

rium

pri

ce

This quantityis produced

Pric

e

Demand increases asthe price goes down

Supply increasesas the price goes up

In this area, demand is greaterthan supply. The price is pushed up.

SHORTAGE

Quantity

SURPLUSIn this area supply is greater thandemand. Price is pushed down.

Pric

e


Quantity

d One pricing strategy which may be used under monopolistic competition is:- (Choose any one)

Predatory pricing. (lowering prices to zz

get rid of unwanted competition).Differential pricing. (different prices for zz

different groups of customers and markets).Promotional pricing (i.e. a low zz

introductory price to encourage sales of a new product)

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

Price of the goods. A low price may zz

encourage sales.Price of substitutes for a particular good, zz

“X”. If substitutes are expensive, then people will buy “X” instead.Quality of the goods. Poor quality goods zz

discourages sales.



Taste of the consumer (likes and styles zz

for a type of clothing or food).Income level of the consumers zz

(affordability). High incomes allow the purchase of luxury goods.Brand loyalty of consumers to particular zz

manufacturers’ products.

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

Product: developing a product which zz

will appeal to the market. This may include market research by gathering, analysing and interpreting information in a systematic way.Pricing, which is the determination of a zz

particular pricing strategy for a product.Promotion, for example through short-zz

term incentives given to customers to encourage sales or through advertising campaigns.Placing the product, for example by zz

choosing distribution channels to get a product to the consumers.

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

giving free samples to customers to try zz

the product giving discount coupons (%-off ) to zz

customers to encourage them to buy more of the product giving premiums (gifts or banded offers) zz

as an incentive to purchase more of a productorganizing competitions to boost sales zz

in a particular productadvertising the product on television to zz

increase public awareness.

4. a Consumerism refers to protection of consumers as they engage in the process of exchange to satisfy their demand for goods and or services, while exercising their rights and responsibilities.

b Three rights of a consumer are:- (Choose any three)

redress – if something is wrong you can zz

get it solved

consumer education – to be informed zz

about your rights and responsibilitiessafety – to be safe from harmful productszz

be heard – to be given the opportunity zz

to voice ones dissatisfactionbe informed – to be told about the pros zz

and cons of a product before purchaseto choose – to be able to make an zz

independent choice on the purchase of a product.

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

Be alert and aware of the safety of zz

products before purchaseCollect all information and facts about a zz

productMake decisions independentlyzz

Speak out and express needs and zz

expectationsComplain and seek redress if treatment zz

received is not fair and ethicalShow respect for the environment and zz

thus avoid waste, littering and contributing to pollution.

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

though the passing of consumer legislationzz

by providing consumer education zz

programmes through the establishment and zz

operations of government agencies e.g. Bureau of Standards, Department of weights and measures, etc.

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

Consumer Affairs Divisionzz

Office of the Ombudsmanzz

Regulated Industries Commissionzz

Bureau of Standardszz

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

i Long distance transport of oil or natural gas.

Pipeline – because it will be cheaperzz



ii Raw sugar transported by sea.

Bulk carriers – because they can zz

carry heavy loads, which gives economies of scale.

iii Consumer goods transported in large quantities by sea.

Containers – because the handling zz

costs and theft are reduced.

iv Bread transported from a bakery to supermarkets.

Road – because it can be transported zz

by van which is cheaper and allows for more flexibility.

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

delays in the delivery of goods due to zz

poor scheduling or port congestionloss of cargo as a result of improper zz

documentation, misdirection of goods and theft.

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

proper scheduling of deliverieszz

improved port facilitieszz

careful documentation and routing zz

of cargoproper security measures and frequent zz

checks at port perimeter and gates

6. a A market is a situation in which buyers and sellers come into contact and interact for the purpose of exchange.

Marketing is the management process responsible for identifying, anticipating and satisfying consumers’ requirements and profitably selling a product.

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

to identify consumers’ taste and zz

behaviour for a particular productto determine how to price the zz

productto identify the target market for zz

your product

to determine the best way to zz

promote the productto identify who are the competitors zz

in the market-place and what is the size of the market.

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

sample survey using telephone zz

interviews trying out a new product with a zz

small focus group to gauge their responseobserving how consumers behave zz

in the market place, e.g. how they respond to shop layout and displays.

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

customerszz

investorszz

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

developing a good relationship with zz

news and communications media sponsorship of the sporting and cultural eventsbusiness entertainment of selected zz

clientsspecial awards to staff and customers in zz

recognition of the part they played in the success of the business.

7. Business finance

1. a Two functions of a commercial bank are:- (Choose any two)

to keep money for customers in zz

chequing and savings accountsto encourage savings (by giving zz

interests on deposits)to lend money for investment and zz

capital purchasesto provide services, such as purchase zz

and sale of foreign currency.



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

provides cheques for customerszz

collects payments on the customer’s zz

behalfmakes payments on customer’s behalf zz

through standing ordersmakes loans to customerszz

provides foreign exchange facilitieszz

automated banking facilities to withdraw zz

funds from accounts and make depositsproviding safety deposit facilitieszz

credit facilities such as credit cardszz

acts as trustees and executors for zz

customers.

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

by charging fees for the various services zz

that they provide for customersfrom the spread between interest rate on zz

loans and depositsfrom the spread between buying and zz

selling rates for foreign exchange.

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

by selling shares zz

by obtaining a loan from a development zz

bankby issuing bonds for sale to investors.zz

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

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

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

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

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

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

Bank deposits – saving money in a zz

fixed deposit the bankInsurance policies – purchasing an zz

endowment policyMutual fund or Unit trust – buying zz

units in the different funds availableShares – buying shares in public zz

companiesBuying bonds issued by the zz

government or other organizations in public or private sector.

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

Bank depositszz

interest is receivedz�

may not always have access to your z�

money when needed (fixed deposits), or a penalty is paid for early withdrawal.

Insurance policieszz

provides funding for the futurez�

it earns very little in the first few years z�

and a penalty is paid for withdrawing fund before the policy matures.

Mutual fund or Unit trustzz

receives dividends or regular z�

paymentsmay lose when selling units, as the z�

market price may be lower than the original purchase price.

Bonds, stocks and shareszz

receives interestz�

If bonds are sold before maturity, they z�

may not fetch the original price paid.

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

The government bank – it manages the zz

national debt and government accounts.



The commercial bankers’ bank – it is the zz

banker to all commercial banks, which must by law keep an account with the central bank.The note-issuing authority – it is the zz

only authority to issue bank notes.The lender of last resort – it helps zz

commercial banks and other financial institutions by lending them money.Maintaining foreign exchange reserves – zz

it keeps the country’s foreign currency reserves.Financial agent for the government – it zz

deals with international financial agencies on behalf of the government.

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

open market operations by intervening zz

in the financial market as both buyer and seller of bills, securities and other credit instruments in order to control the money supplythrough the reserves and liquid asset zz

requirements, the Central bank can control the money supply within the economy by adjusting the percentage of their deposits which Commercial banks are required to hold with the Central bank changing the interest rate which the zz

Central bank charges on its loans to Commercial banks as lender of last resort, in order to influence the cost of borrowing.

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

all commercial banks must hold a zz

banking licence from the Central bankThe Central bank monitors lending by zz

commercial banks, to ensure that depositors’ funds are not put at risk.the lender of last resort. It helps zz

commercial banks and other financial institutions through their liquidity problems by lending them money and as such controls and monitors their recovery.

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

when purchasing shares you have to do zz

it through a stock broker to begin savings in a commercial bank zz

you can open account yourselfa person can receive dividends on their zz

shares if the company is profitablea person will receive zz interest on the balances in their savings account

8. Business and government

1. a Two ways in which a government may benefit the citizens of a country and two ways it may benefit private sector businesses are:- Citizens

security of the state – by maintaining z�

law and order and ensuring that all persons receive just treatment social services – by providing services to z�

the public such as education, health care, sanitation, welfare, etc.

Businessestrade promotion – by providing various z�

forms of assistance to encourage export trademaking grants and loans for small z�

businesses through agencies such as the Jamaica Business Development Corporation.

b The four principle of taxation described by Adam Smith are:-

equityzz

certaintyzz

conveniencezz

efficiency.zz

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

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



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

Examples:- customs duties, and value added tax

For example, with value added tax, the customer pays the cost (the ultimate burden) but the store owner makes the actual payment to the government.

d One way in which the government may use the tax system to

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

ii Encourage investment-by giving tax exemption for investment spending on capital goods

9. Social accounting and global trade

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

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

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

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

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

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

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

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

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

Growth involves change, which benefit zz

some but harm others. Social change may create discontent. For example the use of technology may cause people to lose their jobs. Economic growth may render some jobs redundant. This can lead to technological unemployment. In other cases, rapid economic growth may create a labour shortage, or cause a rapid increase in property prices.It can lead to environmental destruction. zz

For example, landscape is damaged, flora and fauna are destroyed, air and water quality are damaged by pollution.Growth may exploit finite resources and zz

in the long run this could be detrimental to the economy. If non-renewable resources are used up economic growth will not be sustained.

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

by helping to improve the knowledge zz

and skills of the workforce through the educational system and on-the-job training.By improving the health of the general zz

population and the labour force, controlling diseases such as malaria and providing a clean water supply.

d Economic growth may be promoted by investment in new industries and new technology.

For a country which depends on tourism for its foreign exchange earnings, there will be negative growth it there is a decline in the international demand for tourism.



10. The regional and global business

environment

1. a (Choose any four)

Caribbean Single Market and Economy zz

(CSME)to provide free movement of capital, z�

labour (skills) and investmentto ensure an open market for goods z�

and services within region.Organisation of Eastern Caribbean zz

States (OECS)to encourage reasonable and z�

workable trading arrangements among membersto facilitate the use of a single z�

currency (EC dollar).Caribbean Community (Caricom)zz

to encourage growth and z�

development among members statesto facilitate trade among member z�

states free of duties.World Trade Organization (WTO)zz

to settle trade disputes between z�

member countriesto administer and monitor z�

multilateral trade agreements among member countries.

International Monetary Fund (IMF)zz

to finance temporary Balance of z�

Payment needs of membersto provide member countries with z�

technical advice and training.Inter-American Development Bank zz

(IDB)to provide loans for development z�

projects in member countriesto invest in programs and activities z�

that expand economic opportunities for the low-income majority of the region’s population.

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

Debt zz

In many countries, government debt is so high that much of the government’s revenue is used for interest payments.

There is not enough revenue to pay for improvements to schools, health care and other services.Unemployment zz

Unemployment means that there is spare capacity in the economy. In the Caribbean this arises from a number of different factors such as a lack of demand for local products, etc.Economic dualism zz

Economic dualism refers to the existence of two separate, largely independent economies within a single national economic framework. One economy is based on modern industry that uses state-of-the-art-technology, while the other is based on traditional or old-fashioned businesses and agriculture or even subsistence living.

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

Debt zz

The government may seek debt forgiveness or restructuring from foreign creditors, and be careful to restrain expenditure so that additional borrowing is not needed.Unemployment zz

Government might stimulate economic activity through extra spending, so that businesses take on additional staff.Economic dualism zz

Governments could try to narrow the gap between the two sectors by investing more in agriculture and the traditional sector, so that hey become more productive, and in turn making their country more self-sufficient.

summary of pob topics

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