BUSINESSES combine factors of production to make products and goods and services that satisfy the consumers wants

and needs.

BUSINESS OBJECTIVES
MAKING A PROFIT a satisfactory level of profits is needed to keep the business running. INCREASE ADDED VALUE should be able to increase prices more than costs. This will mean that the value of the firms output rises, it sells in a more expensive market and has the chance to earn higher profits. Value added is the difference between the selling price of a completed item and the value of the inputs or bought in materials or components. Example: the SP of a new house is $100,000. The value of bought in bricks, wood, cement etc was $15,000. The value added by the builder is therefore, $85,000 but this is not entirely the builders profit. It includes other costs as well. To increase value added, a firm can: Present items in attractive displays. Create a luxury feel. Offer gift wrapping services etc. Add features to a product (eg. zoom lens to a camera). GROWTH this objective may be important for a number of reasons. Make jobs more secure if business is large. Increase salaries and status of managers. New possibilities. Spread risks. Obtain higher market share. Take advantage of economies of scale. SURVIVAL this may be important when: The economy is moving into a recession. A firm is very new/has recently been set up. New competitors have entered the market. A STAKEHOLDER is any group or person with a direct interest in the performance and activities of a firm. Owners Workers Managers Consumers Government Community

ADVANTAGES OF FREE MARKET Consumers free to buy whatever they choose. Competition between businesses keeps prices low.

DISADVANTAGES OF FREE MARKET No merit goods or public goods because of the lack of government intervention. It may encourage monopolies which can result in limited consumer choice.

ADVANTAGES OF COMMAND/PLANNED Eliminates any waste resulting from competition between firms. Almost full employment because the government also employs people.

DISADVANTAGES OF COMMAND/PLANNED Lack of profit motive leads to low efficiency. Government may not produce what consumers want.

IN FAVOUR OF PRIVITIZATION Profit motive encourages efficiency. Competition encouraged so prices may be low. New owners may put in their capital.

AGAINST PRIVITIZATION Services making losses might be closed (external benefits lost). Redundancy Might become a monopoly.

COMPARING BUSINESS SIZES 1. Number of employees. 2. Value of output/sales. 3. Capital employed.