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Category: P.O.B Lessons

MAY 17, 2011 P.O.B LESSONS

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QUESTIONS-AND-ANSWERS-%E2%80%93-PRINCIPLES-OF-BUSINESS/

CXC PAST QUESTIONS AND ANSWERS –

PRINCIPLES OF BUSINESS

1) The first question is a compulsory 10 marks question, taken from

May June 2002 past paper (General). Question

1. It involves Economic Systems and Government Control of Business

Activity.

(a) List TWO types of economic systems. (2mks)

(b) Explain the differences between the types of economic systems

listed in (a) above. (4mks)

(c) Suggest two ways by which the government of your country can
control business activity. (4mks)

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Total 10 marks

Before reading the discussion and guidelines to answering the

question, you may wish to plan an answer that you would give to the
question. Remember, there may be other possible answers than the
ones suggested.

DISCUSSION AND GUIDELINES

(a) Any two types of economic systems can be listed, for example, the
free economic system and the planned economic system. This part of
the question does not require any expansion or explanation.

(b) The characteristics or features of the economic systems listed can

be used to show the differences between them.

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Conjunctions such as whereas, on the other hand, while and however

should be used to indicate your reference to the opposite feature for
the other economic system. For example, in the free economy, most of
the scarce resources are owned and allocated by private individuals
and firms while in the planned economy, scarce resources are owned
and allocated by the government.

The marks allotted for this part of the question would indicate that a
minimum of two differences is required.

(c) Governments’ control of business activity can come in many forms

including:

* Legislation The passing of laws that businesses should abide by.

* Price controls Government stated maximum prices for selected

goods and services

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* Nationalisation Direct ownership and control of industries by the

Government, for example, where monopolies are exploiting
consumers.

* Increased taxation To reduce monopoly profits.

Registration and other legal requirements for setting up of businesses.

* Employment of inspectors to monitor the affairs of businesses e.g.

price inspectors and sanitary inspectors.

* Setting up of government agencies such as The Bureau of Standards

to monitor the quality of goods produced and imported.

Remember, you are asked to suggest only two ways.

2) Now let’s move on to another question. CXC past paper May/June

2003 (General), Question 1.

(a) List TWO functions of a business. (2 marks)

(b) Briefly describe TWO of the following types of business

organisations:

(i) Partnership
(ii) Public Limited Company
(iii) Co-operative (4 marks)

(c) State TWO advantages which the Public Limited Company has over
the Partnership type of business. (4 marks)

Total 10 marks.

DISCUSSION AND GUIDELINE ANSWER

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(a) Any TWO functions of a business can be listed e.g.to sell goods and
services to satisfy people’s wants and to provide employment for
people. Expansion on and explanation of the functions is not required.

(b) The TWO types of businesses can be described by defining them

and /or outlining their features or characteristics. For e.g. in describing
the partnership one might say that a partnership is formed with two to
20 members who pool their resources together to run a business with
a view to making a profit.

Partnerships are normally required to sign a Deed of Partnership and

register with the Registrar of Companies.

(c) The advantages which the Public Limited Company has over the
Partnership type of business includes the fact that:

* A larger number of part owners, since the Public Limited Company

has a minimum of seven shareholders and no maximum.

* More capital can be raised than in a partnership since an appeal can

be made to the general public through the Stock Exchange.

* The Public Limited Company is a separate entity from the

shareholder owners, therefore, the individual shareholders cannot be
sued, the company must be sued.

* The Public Limited Company has a Board of Directors elected by the

shareholders.

* These companies may enjoy economies of scale.

* Risk is spread over many shareholders.

Remember, you are asked to state only TWO advantages of the Public
Limited Company over the Partnership.

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3) CXC past paper May/June 2003 (General) Question 5.

The following information appeared in a daily newspaper.

Property Services, No. 56 Newpark Saletown

Public Auction Sale
On January 25, 2002 at 10:00 a.m.
I will offer for sale on the date and at the place mentioned above the
following vehicle: One l999 Toyota Mini Bus
Terms of Sale:

 Strictly cash on the fall of the hammer.

 Vehicle on view on the morning of the sale.
 Vehicle will be sold as is where is.

– John Brown, Auctioneer.

Tom Phillip who lived 20 miles away, drove to the address on the date
specified with the intention of purchasing the minibus.

On arrival, he was told by the auctioneer that the minibus was no

longer available and was removed from the items to be auctioned.

Tom Phillip became furious, threatened to sue for breach of contract

and demanded a refund of his traveling expenses

(a) Define the term ‘contract’. (2 marks) (b) (i) By attending the public
auction
sale, did Tom Phillip accept a firm offer? (1 mark)
(ii) Give ONE reason for your answer in (b)(i) above (2marks)

(c) What do you understand by ‘vehicle will be sold as is where is’? (2

marks)

(d) (i) Define the term ‘breach of contract’. (2 marks)

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(ii) State ONE way in which a court may settle a breach of contract.
(1 mark)

(e) State TWO ways by which a contract can be terminated or

discharged (4 marks)

(f) (i) Should John Brown refund Tom Phillip’s traveling expenses?
(1mark)

(ii) Give ONE reason for your answer to (f)(i) above. (2 marks)

(g) (i) Advise Tom Phillip whether he will succeed in court against John
Brown. (1 mark)

(ii) Give ONE reason for your advice in (g)(i) above. (2 marks)

Total 20 marks

DISCUSSION AND GUIDELINE ANSWER

* (a) You must be careful to define a contract, and not an agreement. A

contract is defined as a legally binding agreement or an agreement
that is created with legal intentions.

If you state that a contract is an agreement without stating any legal

aspect, you may only score half of the marks, since all contracts are
agreements, but not all agreements are contracts.

* (b) (i) The answer to this part of the question is simply NO.

(ii) The vehicle was not offered for sale, therefore, one cannot accept
an offer that was not made. An acceptance MUST be to a firm offer.

* (c) This means that the vehicle is to be sold in the condition that it is
presently in at the place or physical locality that it is at.

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(d) (i) Breach of contract means that a party or parties to the contract
fail to keep their part or parts to the contract.

(ii) The court can rule that the party that has breached the contract be
forced to abide by their side of the contract. Or, with the injured
parties agreement, the existing contract can be terminated and a new
one can come into existence that satisfies all parties.

* (e) There are a number of ways in which a contract can be

discharged or terminated. You are asked to state TWO ways. Some
ways are suggested below:

* By death of either party to the contract

* By bankruptcy, which must be proven in the legal sense.

* By frustration, which means that something, which was possible at

the time the contract was made, now becomes impossible .

* The agreed time for the contract to elapse has passed.

* By agreement of all concerned parties

* By breach. However, in this case the contract can only be terminated

with the permission of the injured party.

* By law. This is when something that was legal at the time the
contract was made now becomes illegal by law. Therefore, the
contract must come to an end.

* (f) (i) No, John Brown should not refund Tom Phillip?s traveling
expenses.

(ii) There was no contract and no breach of contract.

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Tom Phillip took it upon himself to make the journey to the auction and
so the cost of doing so must fall on his own shoulders

(g) (i) Tom Phillip will NOT succeed in court against John Brown.

(ii) There was no contract and there was no breach of contract. He

would win the case if an existing contract had been breached.

4) CXC past paper May/June 2004 (General) question 4.

Tasty Fruit Ltd. is a manufacturer of several types of exotic tropical

fruit juices. Without consultation, Mr. Albert, the general manager,
took a decision that with immediate effect all breaks would be
reduced from 15 minutes to five minutes. He claimed that the change
became necessary to enable the factory to process a larger amount of
fruit juices daily.

(a) What type of leadership style did Mr. Albert appear to be

practising? (2 marks)

(b) (i) Name TWO other leadership styles. (2 marks)

(ii) Describe ONE of the leadership styles you named in (b)(i) above. (2
marks)

(c) Identify TWO situations that can result from the action taken by Mr.
Albert. (4 marks)

(d) (i) State FIVE qualities of a good manager. (5 marks).

(ii) Give an example to show how lack of one of the qualities you
mentioned at (d)(i) above can affect the operation of the factory. (2
marks)

(e) State THREE responsibilities of management to its employees. (3

marks)

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Total 20 marks

DISCUSSION AND GUIDELINE ANSWER

(a) Autocratic/Authoritarian leadership style.

(b) (i) Any TWO of the following can be named: laissez-faire/free reign
leadership style, democratic leadership style, charismatic leadership
style.
(ii) Laissez-faire individuals are given the broad outlines, but left on
their own to carry out the major aspects of the decisions.
Democratic those who will be affected by the decision are consulted
before the decision is taken, though the leader still reserves the right
to make the final decision.
Charismatic the leader leads by virtue of his/her personality or
charisma. Any ONE of the leadership styles can be described.

(c) The following situations may result: poor management-worker

relationship; industrial action may be taken by workers; resignations
by workers; workers may become discontented; poor self-esteem of
workers and reduced productivity of workers. Any TWO situations may
be used.

(d) (i) The qualities of a good manager include: honesty, flexibility,

ability to carry out management functions and responsibilities, show
genuine concern for employees and customers, ability to motivate
workers, be adaptable to various situations, able to work on own
initiative, ability to use Management Information Systems, be
aggressive, but not too aggressive, be reliable etc.
(ii) If for example the manager is unable to motivate his employees,
they will become lax and productivity will fall. The business will end
up loosing profits.
The negative effects of the lack of any of the qualities you listed in (d)
(i) can be explained.

(e) Responsibilities of managers to employees include: to treat them

fairly, to give them safe, clean environment to work in, to allow them
the freedom to join trade unions, to support their desires to be

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educated and trained, to pay fair wages and salaries, to honour leave
entitlement, to give adequate compensation for injury on the job etc.
Any THREE responsibilities can be stated.

5) CXC past paper January 2005, (General) question 5.

Recently, the employees of the telephone company have engaged in

various industrial activities in support of their trade union. The trade
union was involved in ‘collective bargaining’ with the management of
the company for a new three-year industrial agreement for its
members. The management retaliated by taking certain actions
against the employees who charged that their rights were being
violated.

(a) Give FIVE examples of industrial activities which the employees

could have engaged in without striking. (5 marks)

(b) Identify TWO actions the management could have taken in

retaliation against the industrial activities by the workers. (2 marks)

(c) Explain the term ‘collective bargaining’. (2 marks)

(d) List FIVE responsibilities of the management to its employees. (5

marks)

(e) Apart from ‘collective bargaining’, outline THREE other functions of

a trade union. (6 marks)

Total 20 marks

DISCUSSION AND GUIDELINE ANSWER

(a) Examples of industrial action apart from striking include: sick out,
go-slow, sit-in, overtime ban, work-to-rule and boycotting the
company’s products etc.

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(b) The action that management could have taken includes: lockouts,
black-listing, suspensions, termination of work contracts, deductions
of salary etc.

(c) Collective bargaining refers to the trade union function in which the
trade union representing the workers and the employer or employers’
association discuss issues relating to employees with a view to
settlement which is suitable to both sides.

(d) See answer (e) in previous question.

(e) Other functions of the trade union include: securing better wages
and fringe benefits for workers, securing better work environment, job
security, ensuring that workers get the leave they are entitled to,
ensuring that workers are not exploited in any way, education of
members as to the role of trade unions, scholarships to members and
family etc. The THREE points chosen should be expanded on by brief
explanations and /or examples.

6) Past CXC paper May/June 2002, (General) question 7.

Many governments throughout the Caribbean region have been

encouraging persons to become entrepreneurs.

(a) What do you understand by the term ‘entrepreneur’? (2 marks)

(b) Suggest THREE reasons why entrepreneurship is being encouraged

in your
country. (3 marks)

(c) List THREE characteristics of a successful entrepreneur. (3 marks)

(d) Discuss TWO problems an entrepreneur may encounter. (6 marks)

(e) Outline how an entrepreneur may overcome any ONE of the

problems discussed in (c) above. (2 marks)

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(f) List FOUR ways in which governments may assist

entrepreneurs. (4 marks)

Total 20 marks

DISCUSSION AND GUIDELINE ANSWER

(a) The entrepreneur is a human factor of production that is

responsible for organising the other factors of production and bearing
the risks in production.

(b) Among the reasons why entrepreneurship is being encouraged are:

entrepreneurship provides opportunity for self employment, it also
reduces unemployment, it increases the production of goods and
services, increases the variety of goods and services produced, Gross
National Product is increased, makes use of idle skills, and uses up
local raw materials. Any THREE reasons may be suggested.

(c) The characteristics of a successful entrepreneur are many and

varied. They include: ability to work hard, ability to take calculated
risks, ability to make effective decisions, ability to organise, ability to
motivate and the ability to think quickly and clearly in any situation.
Again, any THREE characteristics may be listed.

(d) The problems of the entrepreneur include: problems in sourcing

capital, lack of managerial skills, lack of suitable collateral, inability to
assess market potential, inability to evaluate competition, lack of
appropriate technology and the inability to procure suitable machinery
and equipment.You should expand on the TWO problems you choose
to discuss by explaining them and giving examples.

(e) You should begin this part of your answer by stating the problem
selected and then outline your suggestion for overcoming the problem.
For example, if you select the problem of the difficulty in sourcing
capital, you could suggest that the entrepreneur explore several
sources of capital and that he even combine different sources of
capital, such as his own savings, along with a loan from a bank or
credit union.

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(f) The ways in which governments can assist entrepreneurs include:

providing them with ‘soft loans’ (loans with little or no interest),
providing education and training on enterprise management, giving tax
incentives, providing entrepreneurial consultants to monitor and assist
entrepreneurs, providing factory shells for them to operate their
businesses in, and providing markets for their goods and services. Any
FOUR ways can be listed.

7) CXC past paper January 2001,( General), question 2.

For many years, persons from Caribbean territories have migrated to

Europe and North America. Very often these persons only return for
holidays or upon retirement.

(a) Explain what is meant by migration. (2 marks).

(b) State THREE negative effects of migration on the labour force in

your country.
(3 marks).

(c) Explain TWO positive effects migration may have on your country (4
marks).

(d) Identify ONE measure your country uses to encourage nationals to

return.
(1 mark).

Total 10 marks

DISCUSSION AND GUIDELINE ANSWER

(a) Migration refers to the permanent movement of people from one

area to another within a country (internal movement), or from one
country to another (external movement) for at least one year. The
correct time period of the movement must be included in your
explanation in order to obtain full marks.

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(b) The negative effects of internal or external migration or both may

be given. Internally, the negative effects of migration include: shortage
of labour in one area and surplus of labour in another area,
overpopulation in one area with resulting social disorders, e.g., crime,
etc. External migration results in negative effects such as ‘the brain
drain’, families abandoned and left to fend for themselves by migrants,
lower standard of living, etc. Any three negative effects will be
accepted.

(c) Migration can have positive effects on a country.

This is especially true of external migration which reduces the strain
on the government, in cases where the migrants were previously
unemployed. Also, many of these migrants return years later and
contribute positively to their countries through skills learnt in other
countries and/or through money they bring back.
The points brought out must be explained accurately in order to score
full marks.

(d) Governments may encourage nationals to return by offering

attractive and affordable housing, jobs for those who require them, by
allowing them to return with their personal effects without having to
pay duties, or only requiring them to pay small amounts of duty, by
ensuring that their country is as close to crime-free as possible, etc.
Any one measure properly stated will be accepted.

8) CXC January 2000 paper (General) , question 6.

Rapid structural change is being experienced throughout the world,

bringing with it a growing importance of the contribution of small
firms/businesses to economic development in every country. Many
industries and firms are now buying and selling goods via the
computer through a system called the Internet.

(a) Define the term small business. (2 marks).

(b) Given the following sectors in the Caribbean, indicate which FOUR
are most likely to be dominated by small businesses:
(i) bauxite production

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(ii) retailing
(iii) agriculture
(iv) petroleum refining
(v) finance and banking
(vi) personal services
(vii) fishing. (4 marks).

(c) Discuss FOUR ways through which small businesspersons can use
the Internet to assist them in their business goals. (8 marks).

(d) Suggest THREE reasons why the government of your country

should encourage the growth of small businesses as a way to promote
economic development. (6 marks).

Total: 20 marks

DISCUSSION AND GUIDELINE ANSWER

(a) There are a number of acceptable definitions of the small firm. You
may wish to use any of the three definitions from Trinidad and Tobago,
or any other definition that you are comfortable with. The Trinidad and
Tobago definitions are:

* A firm whose total assets excluding land and buildings does not
exceed TT$500,000.

* According to The Central Statistical Office, a small business is a

business that employs less than 10 workers.

* A firm that employs only one top manager who should manage the
business and perform other functional duties as well.

Generally speaking, a small firm is one with virtually no middle

management, i.e., there is hardly any supervisors or subordinate
managers.

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(b) The FOUR sectors most likely to be dominated by small businesses

are retailing, agriculture, personal services and fishing.

(c) The Internet allows small business persons to: communicate with
others in the same field, get information and ideas that are current in
their field, advertise their products, source raw materials and goods at
reasonable prices, source markets/outlets for their goods and
services, get access to Internet buying and selling which boosts sales,
etc. The points must be discussed fully to show how the small
business benefits from the Internet in order to gain the full eight
marks.

(d) Governments should encourage the growth of small businesses

because:

* They provide healthy competition to larger firms and force them to

sell at more reasonable prices.

* Small businesses reduce unemployment through employing people.

* They produce goods and services that people want and this will
increase standard of living.

* They contribute towards GNP/National Income.

* They use up natural and other idle resources.

* They provide linkages to other firms so they can be certain of their

sources of raw materials and/or their outlets.

* New ideas are usually tried out in small firms.

* Small firms often grow into larger successful businesses, these firms
are flexible and can produce what is required for economic
development. The THREE reasons chosen must be developed properly
in order to gain the full six marks.

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9) CXC (General) paper May/June 1999, questions six and seven.

Let us start with question six:

a) Classify three types of productive activities. (3 mks)

(b) Identify three types of productive activities that are carried out in
the Caribbean and list the country in which each is carried out. (6
mks)

(c) (i) State five factors which determine the location of an

industry. (5 mks)

(ii) Discuss three economic and social implications of technological

developement. (6 mks)

Total: 20 mks

DISCUSSION AND GUIDELINE ANSWER

(a) There are four types of productive activities: extraction,

construction, manufacturing and service activities. Any three of the
four can be used for the answer.

(b) A number of activities and countries can be used for this answer.
Consider the following:

Agriculture Jamaica

Fishing Barbados

Mining Guyana

Construction Trinidad

Manufacturing Trinidad

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Transport St. Lucia

Tourism Jamaica

Communication Barbados

You should note that other activities and countries may be considered,
however, you should identify three different productive activities and
the countries in which the activities are observed.

(c) (i) The factors that influence the location of industry include: land,
nearness to markets, nearness to raw materials, nearness to a
suitable labour supply, nearness to power, climate, infrastructure and
the government.

(ii) The economic and social implications of technological

development include: increased output, improved standard of living or
quality of life, greater speed in producing, improved quality of
production, structural unemploy-ment, physical impairment and stress
and alienation.

Note that the points discussed can be economic or social in nature

and may also be positive or negative. Each implication must be
discussed, not listed, for full marks.

10) Now for the second and final question for this lesson.

(a) Differentiate between the terms ‘market’ and ‘marketing’. (2 mks)

(b) List four marketing activities. (4 mks)

(c) Identify four factors influencing the behaviour of consumers in their

choice of local hamburgers over foreign hamburgers. (8 mks)

(d) Discuss three methods a local business may use to promote local
hamburgers. (6 mks)

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Total: 20 mks

DISCUSSION AND GUIDELINE ANSWER

(a) A market refers to a situation in which buyers and sellers are in

contact for the purpose of buying and selling goods and services.
Marketing, on the other hand, refers to everything that is done to get
goods and services to the right people at the right time and priced in
the most efficient manner, while making a profit.

(b) Any four marketing activities can be listed.

Included are: market research, advertising, sales promotion, branding,

distribution, sales, pricing; public relations, research and development,
marketing mix, etc.

(c) Taste, tradition, quality, price, brand loyalty, income, knowledge of

the owners, convenience, the way the good is advertised, etc.

(d) Methods of promotion that can be used include: advertising, sales

promotions, publicity, public relations and competitive pricing. Each
method should be discussed, e.g., advertising may increase the
demand for local hamburgers. The business will sell more and make
more profit.

11) CXC past paper, January 2001, General Proficiency, Question 6.

This question is based on economies and diseconomies of scale and

mechanisation.

Company XYZ Ltd. manufactures and markets a range of candles of

different shapes and lengths. Since its incorporation in 1989, sales
volume has increased tenfold. In order to meet demand, the company
has had to expand its production capacity and support systems
considerably.

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(a) List FOUR internal economies of scale the company might

experience. (4 marks)

(b) Identify FOUR diseconomies of scale the company might

experience. (4 marks)

Expansion has invariably led to increased mechanisation of various

aspects of a business.

(c) (i) Explain FOUR benefits the company might experience because
of mechanisation. (8 marks)

(ii) Discuss TWO negative effects the introduction of mechanisation

might have on the company. (4 marks)

Total: 20 marks

DISCUSSION AND GUIDELINES ANSWER

(a) You will remember that economies of scale refers to advantage to

a firm or company from going into large-scale production. The
economies of scale include:

 Technical economies/economies in the use of factors of

production.
 Managerial economies/economies in administration.
 Research and development economies.
 Financial economies.
 Marketing economies/commercial economies.
 Social economies.
 Risk-bearing economies etc.

Any FOUR economies or advantage may be listed.

(b) Diseconomies of scale refers to the disadvantages to a firm or

company from large-scale production. The diseconomies include:

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 Increased costs, e.g. increased marketing and financial costs.

 ‘Red tape’, which is the elaborate and time-consuming
procedures through which consumers must pass.
 Changing techniques of production may cause expensive
machinery to lay idle.
 Larger businesses often result in loss of coordination and lack
of control, e.g. communication between management and
workers may slow down, wastages of factors, etc.

Any FOUR diseconomies or disadvantages may be listed.

(c) (i) Recall that mechanisation means partially replacing human or

animal muscle power by a machine, e.g., a tailor buying a sewing
machine instead of sewing by hand. The benefits of mechanisation
include:

 Output increases because work is speeded up and more can

be produced in less time.
 Fewer workers are needed as machines can do the work of a
number of persons.
 Costs are saved. These costs that are saved can be
transferred to the market in the form of lower prices to
consumers.
 The quality of output often increases.
 It encourages more skilled workers to enter the workforce,
i.e., workers who can operate specific machinery etc.

Any FOUR benefits can be explained. For full marks, the benefits must
be brought out clearly.

(ii) The negative effects of the introduction of mechanisation on the

company might include:

 Unemployment caused by the fact that less labour is required

than when work is done entirely by hand, therefore, the
excess labour is normally laid off.
 Some machines are of a technical nature and require skilled
persons to operate them. In some cases these skilled persons
are hard to find.

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 When machines are out of service, overhead cost increase.

 Machines may be costly to maintain, as in some cases parts
may have to be imported with the use of scarce foreign
exchange.

As in (c) (i) above, the negative effects of mechanisation must be

properly discussed in order to gain full marks.

12) CXC past paper, January 2001, General, question 8

The Caribbean island of Green Mountain is having problems with its

financial institutions. Customers of some banks are adding to the
problems as many have withdrawn their deposits from the banks. The
government has asked the central bank to do all it can to prevent a
collapse of the commercial banking sector.

(a) State FOUR characteristics of money. (4 marks)

(b) List TWO functions or services offered by commercial banks. (2

marks)

(c) For EACH of the functions mentioned above, explain what benefit
customers obtain from using these functions. (4 marks)

(d) List FOUR features of central banks. (4 marks)

(e) Select THREE of the features of central banks you mentioned

above, and explain how they help to promote smooth operation of the
banking system in your country. (6 marks)

Total marks: 20

DISCUSSION AND GUIDELINE ANSWER

(a) You must be careful not to confuse the characteristics of money

with the functions of money.

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The characteristics of money are the features of money. Money should

be:

 Generally acceptable
 Durable or long-lasting
 Homogeneous
 Divisible into large and small units
 Scarce or limited in supply
 Portable

Any FOUR characteristics may be stated.

(b) The functions or services offered by commercial banks today are

many and varied. They include the following:

 Accept deposits from customers for safekeeping and makes

these deposits available to customers when needed.
 Lend money to qualified customers at interest.
 Allow standing order payments at customers’ requests.
 Make the use of the cheque as a means of payment possible.
 Sell travellers’ cheques and buy and sell foreign currency.
 Give financial advice to customers.
 Help customers to open letters of credit.
 Act as agents in collecting dividends on behalf of their
customers.
 Act as executors and trustees to the written wills of their
customers.
 Allow customers use of the banks’ safety deposit boxes and
night safe facilities etc.

Any TWO functions or services may be listed.

(c) Whichever TWO functions you choose to explain, you must ensure
that you properly explain the benefits of them to the customer. For
example:

The function of accepting deposits from customers benefits the

customers in that it allows them to keep their money in a safe place
instead of keeping it at home. In addition, for most deposit accounts,

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the customer earns interest on his deposits and this encourages him
to save with commercial banks.

Commercial banks lend money to qualified customers by opening loan

accounts, by means of overdrafts and by discounting bills of exchange.
Whatever the method, customers are granted loans and benefit from
large sums of money, which they perhaps could not save for, while
they benefit in being able to pay back loans in small installments.
Customers benefit in getting loans for various purposes including
education, vacation and for purchasing cars and other assets.

(d) The features of the central bank includes:

 Carrying out government’s monetary policies.

 Control and monitoring of commercial banks and other
financial institutions.
 Issuing notes and coins and recalling them from circulation
when necessary.
 Being banker to commercial banks and to the government.
 Negotiating on behalf of the government in international
financial agreements, e.g. with the IMF, etc.

Any FOUR features may be listed.

(e) Again, in explaining the THREE chosen features, you must be

careful to show how they promote smooth operations of the banking
system. For example, in monitoring the commercial banks and other
financial institutions, the central bank ensures that governments’
monetary policies are carried out and that they are not promoting the
opposite policy which would cause chaos in the financial system and
in the country. You must explain THREE features in like manner.

13) CXC past paper, May/June 2005, general, question 9

The question, reproduced below, surrounds the topic of international

trade and balance of payments:

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The following information was taken from the final accounts of

Tropicalo, a country in the Caribee Isles. The figures are quoted in US
($M).

$US

Visible trade

Exports 24 000

Imports 26 000

Invisible (net)

Exports 20 000

Imports 15 000

(a) (i) Differentiate between a country’s terms of trade and its balance
of trade. (3 mks)

(ii) Calculate Tropicalo’s balance of trade using the figures given

above. (2 mks)

(b) Calculate Tropicalo’s current account balance using the figures

given above. (3 mks)

 You are not required to explain the calculations in (a) (ii) and
(b).

(c) Identify two ways in which a country may have a surplus on its
current account. (4 mks)

(d) (i) Explain what is meant by ‘balance of payment’. (2 mks)

(ii) Discuss three ways by which a country would be able to finance

the deficit in its balance of payments. (6 mks)

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Total 20 marks

DISCUSSION AND GUIDELINE ANSWER

(a) (i) A country’s terms of trade refers to the rate at which its goods
and services exchange for the goods and services of another country.
It is calculated as:

Index of export prices x 100

Index of import prices

Whereas, a country’s balance of trade is the difference between the

country’s imports and exports of goods only. To properly differentiate
between the two terms, the candidate should use terms such as ‘on
the other hand’, ‘while’, ‘whereas’, etc.

(ii) The balance of trade in this case is:

24,000
– 26,000

-2,000
US ($M)

(minus 2,000 US($M) )

(b) The current account balance takes into consideration the visible
trade balance and the invisible trade balance. From (a) (ii) we found
the visible trade balance (balance of trade) to be minus 2,000 US ($M).
The invisible trade balance is plus 5,000 US ($M). This is the difference
between invisible exports and invisible imports. The current account
balance is plus 3,000 US ($M).

 (c) Exporting more goods and services than it imports

 Import less than it exports
 If the positive visible balance exceeds the negative invisible
balance

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(d) (i) A country’s balance of payments is its annual record of trading

with other countries in terms of income from exports and expenditure
for imports.

(ii) To finance a deficit is different from correcting the deficit. To

finance the deficit, the country must find ways to make the balance of
payments balance by covering the deficit. This includes:

 Importing the deficit amount on credit

 Loans from other countries
 Loans from international financial institutions e.g.,
International Monetary Fund and the World Bank.
 Debit the foreign reserves account
 Grants from other countries
 Sell gold reserves, etc.

Any short-term solution which results in the amount of money to cover

the deficit, if properly discussed, will earn two marks each.

14) January 2006, General past paper, question number eight

Government has a responsibility to protect consumers as well as to

provide a climate for businesses to survive.

(a) State TWO reasons why consumers need protection. (4 mks)

(b) Identify THREE ways in which the government of your country can
ensure that consumers’ safety and well-being are protected. (6 mks)

(c) Discuss THREE ways in which the government may help businesses
to succeed. (6 mks)

(d) State TWO ways by which the government can ensure that
businesses protect the environment. (4 mks)

Total : 20 marks

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Now, for my discussion and guideline answers. I hope they will help
you in getting a fair understanding of the question.

Discussion and guideline answers.

(a) There are many reasons why consumers need to be protected.

These reasons include the fact that they receive:

 Short change, short weights and short measurements

 Unsafe and poor quality products
 Misleading price reductions and false sales
 False claims about products
 Insufficient goods for their money
 Unfair treatment when faulty goods are returned, etc.

In addition, consumers are not always able to make a good

assessment of the goods they buy. They cannot protect themselves
and therefore need to be protected.

Candidates should state clearly any TWO reasons for consumer

protection.

(b) Some of the ways in which the government can ensure that
consumers? safety and well-being are protected are:

 By setting up consumer protection agencies such the

Ombudsman, the Bureau of Standards and the Consumer
Affairs Commission.
 By educating and advising consumers through pamphlets,
radio and TV programmes.
 Through the introduction of penalties for producers and sellers
who show lack of regard for consumers.
 By passing legislation/laws that ensure consumer protection,
e.g., processed food acts, Public Health Act, The Standard Act
and The Food and Drugs Act.
 By the control and supervision of prices.
 By enforcing fair trading practices.
 By supervising hire purchase and credit control, etc.

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(c) Government can help businesses to succeed by:

 Giving them loans with little or no interest to be paid back.

 Allowing them subsidies and grants which result in the
lowering of costs of production.
 Providing business educational opportunities free or at very
low cost.
 Allowing the importation of essential raw materials duty free.
 Providing free zone areas for the location of businesses.
 Reducing corporation tax which reduces overall costs and
boosts profits.
 Assisting businesses in finding markets and in the marketing
of their products, etc.

For this part of the question, the THREE points selected must be
properly discussed to score full marks.

(d) The protection of the environment has become increasingly

important. The government can ensure that businesses protect the
environment by:

 Introducing a pollution tax.

 Taking over the production where businesses fail to protect
the environment.
 Passing legislation or laws against practices that damage the
environment.
 Having inspectors go around and ensure that practices are not
damaging to the environment.
 Giving warnings which if not adhered to, result in the business
being taken to court or some other action.
 Encouraging the location of businesses in special areas where
their production practices will not harm the environment, etc.

1. The basic needs of man are:

a) land, money, car

b) food, money, land
c) food, clothing, shelter
d) food, shelter, money

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2. The most important principle upon which barter trade depends is

known as:

a) insurable interest
b) indemnity principle
c) utmost good faith
d) double coincidence of wants

3. Mary lives in a country in which the state makes all the decisions
about economic activities. That country has adopted the:

a) planned economic system

b) mixed economic system
c) free economic system
d) Capitalist economic system

4. The most important role of a business in any community is to:

a) pollute the environment

b) earn foreign exchange
c) provide revenue for the government
d) provide goods and services to satisfy the wants of people

5. Consumers are those individuals who:

a) buy their goods from a consumers cooperative society

b) consume all the goods produced by manufacturers
c) provide goods and services for our satisfaction
d) utilise the goods and services provided to satisfy wants

6. The public sector comprises:

a) a body of public corporations, public companies and municipal

undertakings
b) a combination of public companies and public corporations
c) an association of all public companies within the country
d) central and local government organisations and state corporations

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7. Which of the following business organisations belong to the private

sector?

a) municipal authority
b) nationalised industries
c) public corporations
d) public limited companies

8. In a partnership, an investor is a partner.

In a large company, an investor is a:

a) sole trader
b) manager
c) director
d) shareholder

9. What is the maximum number of share holders a private limited

company can have?

a) two
b) five
c) fifty
d) eighty

10. The relationship between the highest level of management down to

the various departments is known as:

a) flow
b) rank
c) staff
d) line

11. If X offers Y a book for $5, but Y says that he can only pay $4.50 for
it, this is an example of:

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a) an offer
b) a counter offer
c) an invitation to treat
d) consideration

12. An item displayed in a store with a price tag is an example of:

a) an offer
b) a counter offer
c) an invitation to treat
d) consideration

13. John buys goods to the value of $150, but is allowed 20% trade
discount on the invoice, plus 5% cash discount. He will therefore pay:

a) $112.50
b) $114.00
c) $126.00
d) $142.50

14. If you received less goods than was ordered and paid for, your
supplier would send you:

a) a credit note
b) an invoice
c) a debit note
d) a bill of exchange

15. When a cheque is crossed, it means that:

a) something is wrong with it

b) it is cancelled and not good anymore
c) the money cannot be withdrawn immediately, but has to be lodged
to an account
d) it can be taken to a bank and the money stated withdrawn at once

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16. Which of the following is the most important characteristic of

money?

a) acceptability
b) durability
c) limited supply
d) portability

17. The only bank which can claim to be a lender of last resort is the:

a) merchant bank
b) central bank
c) commercial bank
d) trustee savings bank

18. The document that has details of the source of goods, the raw
materials from which the goods are made, is called the:

a) shipping note
b) certificate of origin
c) bill of lading
d) bill of exchange

19. Assurance policies specifically refer to:

a) personal life coverage

b) coverage of risks involving cargo transport
c) loss of goods due to hurricane
d) loss of sale of goods

20. A man insured his property for $80,000, but its true value was
$100,000. A fire caused $10,000 worth of damage. The insurance will
pay out:

a) $10,000
b) $8,000

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c) $5,000
d) $6,500

The answers to multiple choice questions:

1.c 2.d 3.a 4.d

5.d 6.d 7.d 8.d

9.c 10.d 11.b 12.c

13.b 14.a 15.c 16.a

17.b 18.b 19.a 20.b.

1. Which of the following is not a factor of production?

(a) food
(b) land
(c) labour
(d) capital

2. Which one of the following will have the effect of reducing the
supply of labour?

(a) a high birth rate

(b) a large population
(c) a high proportion of old people
(d) a low proportion of very young people

3. The labour force of a country is:

(a) all people below retirement age

(b) all persons who are employed or are available for work
(c) the total population
(d) all persons over the school leaving age

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4. The education of the labour force is a major determinant of which of

the
following?

(a) the supply of labour

(b) the labour force as a whole
(c) the mobilisation of labour
(d) the efficiency of labour

5. Which of the following does not have a direct effect on the

efficiency of labour?

(a) the quality of education of the workers

(b) the wages paid to workers
(c) a country’s cultural practices
(d) working conditions

6. Labour is classified as:

(a) size, age, mobility

(b) size and mobility
(c) skilled, semi-skilled and unskilled
(d) skilled and semi-skilled

7. The rewards to the factors of production are:

(a) salaries, wages, profit and interest

(b) wages, rent, profit and interest
(c) rent, capital and profit
(d) profit, capital, rent, wages

8. Occupational mobility of labour refers to the:

(a) ease with which workers are transported to their jobs

(b) frequency with which workers move from one job to another
(c) degree of efficiency with which workers perform their tasks.
(d) willingness and stability of workers to acquire new skills.

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 36

9. Each year, some high school graduates of the Caribbean rural

communities move to the towns and cities to live and work. The
movement of such persons could be described as:

(a) expected migration

(b) external migration
(c) cross-country migration
(d) internal migration

10. People who migrated from the West Indies in the early 1950’s went
to all of the following countries on a large scale except:

(a) Great Britain

(b) Japan
(c) Canada
(d) United States of America

11. Unemployment that results from a ‘slump’ in the economy can be

described as:

(a) frictional unemployment

(b) seasonal unemployment
(c) residual unemployment
(d) cyclical unemployment

12. The ‘4-H’ Club and the Lion’s Club are examples of`
(a) multinational companies
(b) community self-help organisations
(c) monopolies
(d) voluntary chain stores

13. Natural resources may also be referred to as:

(a) capital
(b) labour
(c) land
(d) Entrepreneurial skills

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14. Which of the following is the best example of capital as a factor of

production?

(a) machinery
(b) shares
(c) debentures
(d) money

15. Circulating capital is:

(a) money and inventory used to finance the day to day running of a
business.
(b) Capital that changes from one form to another and back to its
original form
(c) The money paid to workers for maintaining day to day production.
(d) Any man-made item that assists in production.

16. Which of the following is a fixed asset?

(a) A bicycle for private use

(b) A washing machine for resale
(c) A motor car for family use
(d) A truck for delivery of goods

17. The reward to capital is:

(a) profit
(b) interest and dividends
(c) rent
(d) wages

18. The term ‘human resources’ refers to

(a) materials and goods made by human beings

(b) raw materials used in the manufacture of goods
(c) persons available for productive and professional services
(d) capital invested by shareholders in a company.

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19. The ‘Human Resources’ are:

(a) students in tertiary institutions

(b) labour and entrepreneurial skills
(c) monies used by humans in production
(d) resources produced by humans.

20. A person responsible for bringing together and organising the

factors of production is the

(a) entrepreneur
(b) trade-unionist
(c) manager
(d) financier

End of Test

1. The advantages of a sole trader over a partnership form of business

include which of the following?

i) Profits are shared.

ii) Risks are greater.
iii) The sole trader is his or her own boss.
iv) The partners can contribute capital to expand the business.

A) (i) and (ii) only

B) (i) and (iii) only
C) (iii) only
D) (i) and (iv) only

2. In a partnership, an investor is a partner. In a large company, an

investor is a:

A) sole trader.
B) manager.
C) director.
D) shareholder.

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3. A sleeping partner is otherwise known as a:

A) careless partner.
B) active partner.
C) dormant partner.
D) general partner.

4. Which of the following are disadvantages of a private limited

company?

i) It has an independent legal status.

ii) The firm cannot raise capital on the stock exchange.
iii) The firm cannot have more than 50 shareholders.
iv) The firm has too many taxes to pay.

A) (i) and (ii) only

B) (ii) and (iii) only
C) (i) and (iv) only
D) (iii) and (iv) only

5. To comply with legal requirements to register a private limited

company, the firm must provide at least two documents. These are:

A) a prospectus and a certificate of origin.

B) a memorandum of association and articles of association.
C) a certificate of trading and tax file number.
D) a share certificate and a debenture certificate.

6. Those partners who, when their business goes bankrupt, stand to

lose all their personal possessions as well as their investments are
known as:

A) unlimited liability partners.

B) limited liability partners.
C) ordinary partners.
D) sleeping partners.

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7. The form of business where shares are allowed to be sold only to

owners of the business or to their relatives or employees is known as:

A) partnership.
B) private limited company.
C) public limited company.
D) multinational company.

8. The main aim of a co-operative retail society is to:

A) make a profit from its member-customers.

B) buy and sell goods retail.
C) buy goods wholesale and sell them cheaply to its members.
D) organise and plan the running of the society.

9. Company A owns all these businesses: soft drink company, bakery,

shipping company and motor-car assembly company. Company A is an
example of a:

A) conglomerate.
B) multinational.
C) private limited company.
D) partnership.

10. If one company, A, has or owns the majority shares in another

company, B, then company A can best be regarded as being a:

A) holding company.
B) partnership.
C) co-operative.
D) joint-stock company.

Now you can have a look at the answers to see how well you have
done.

1. C 2. D

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3. C 4. B

5. B 6. A

7. B 8. C

9. A 10. A

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FEBRUARY 26, 2011 P.O.B LESSONS

Guidelines for Principles of Business School

Based Assessment (S.B.A.)

For students doing the topic: Establishing a Business: Production

1. Description of business – In this part you are required to give a

brief description of your intended business. The examiner should

(a) The name of your intended business e.g. Xtreme Graphics

production

(b) The type of business e.g. sole, proprietorship etc.

(c) What is the proposed business engaging in? e.g. production of

local fruit juices

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(d) The major aims or aims of your business e.g. To make 100%
profit by ensuring customer’s satisfaction.

(e) If possible you can give example(s) of the goods and/ services
you will be producing.

2. Justification of location– in this part you are required to :

(a) State the location of your intended business, e.g. 152 John
Street

(b) Secondly, you will have to list and explain the factors which
influence your choice of location. (Check your textbook) e.g.
Closeness to raw materials.

3. Selection of appropriate labour– as we already know labour is

an important of production and if you don’t select the most appropriate
type of labour then inefficiency would take occur and productivity will
decline. You are required to”

(a) List the type of labour you will enjoy employ. e.g. cleaner

(b) Then classify them under the three main categories of labour
namely:

– Skilled

– Unskilled

– Semi-skilled

4. Sources of fixed and working capital– Capital refers to money

and all other assets of a person, company or industry that can be
converted into money. PHYSICAL CAPITAL consists of fixed capital
and working or circulating capital. FIXED capital refers to capital that
is of a lasting nature and which does not change its form during the

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course of production, e.g., factory buildings, machines and tractors.

WORKING or CIRCULATING capital changes its form or state during
the course of production, e.g., raw materials and partly finished goods.
You are required to identify the sources of these capitals. e.g. loans

5. Roles of the Entrepreneur– The entrepreneur is a other factors

of production and bear risks. Human factor of production whose main
functions are to organize the other factors of production. The
entrepreneur consciously moves resources from an area of lower
productivity and lower yield to an area of higher productivity and
higher yields. You are required to list and briefly explain the roles of
the entrepreneur. (Check Note book)

6. Type of production- Production refers to the combining of the

factors to create goods and services to satisfy people’s wants and
needs. The types (stages) of production should not be confused with
the levels of production. You are required to state the type(s) of
production your intended business will engage itself in. ( Check Note
Book/ Text book)

7. Levels of Production – The levels of production classify the

amounts of goods and services produced under three different
headings:

 subsistence
 domestic
 surplus or export levels.

8. Quality control measures- in this part you should be able to

define quality as it relates to your business and then you will state the
measures/ ways of ensuring quality in your intended business. E.g.
hiring only trained employees.

9. Use of technology- We all know that technology plays an

important part in any business. If businesses don’t adapts to changes
in technology if ultimately lead to making a loss. You are required to
show how you will employ technology in your operations.

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10. Linkages-. A linkage industry is an industry which is associated

or connected to other industries in such a way that the existence of
one is dependent on the other, or it enhances the other’s production
process. These industries are also referred to as ‘spin-off’ and
‘screwdriver’ industries. You will be required to:

(a.) state the type(s) of linkages your intended business will create
and

(b) Why will you create those linkages?

11. Potential for growth– You are required to state if your business
will grow and how will it grow. E.g. employing more machineries

12. Government Regulations– Governments in any country has

regulations as it relates to the setting up and operations of a business.
You are required state some regulations that are enforced in your
country as it relates to businesses. e.g. require to pay taxes.

13. Ethical Issues– Ethics has to do with right and wrong, good and
bad. You as the entrepreneur should be aware of such issues and its
consequences. You are required to list and briefly explain some of
those issues as it relates to your business. E.g. Avoiding of poor
labeling

14. Communication of information in a logical way using correct

Grammar.

You are required to:

(a) Write in future tense, i.e. the event will occur sometime in the
future

(b) Correct spelling , punctuation

(c) Subject and verb agreement i.e. the verb of the sentence must
agree with the subject.

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E.g. The dog is walking. The subject is dog and it is singular (one) and
as a result will take a singular verb.

(d) Remember this is a report and should be written in paragraphs.

THE END

Prepared by: Raymond Govinda

RGOVINDA Date prepared: 19th July, 2009

AUGUST 27, 2010 P.O.B LESSONS

Marketing Part 2- Market Structures

Market structures

Now, we will consider another aspect of marketing – market

structures. We will start the topic this week and continue it next
week.

Definition

This refers to market classification according to the number of firms in

the industry, types of product, the existence or non-existence of
barriers to entry and the level or degree of competition.

There are four main market structures:

 Perfect competition
 Monopoly
 Monopolistic competition
 Oligopoly

For each market structure the candidate should know the following:

 Definition

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 Characteristics/features
 Advantages
 Disadvantages
 Short-run and long-run profits

ü Perfect competition

Definition: Perfect competition refers to a market structure in which

there are numerous firms in the industry each selling a homogeneous
product. There are no real examples of perfect competition in real life.
However, some markets approach near to perfection. These include
agricultural markets, stock markets and markets for foreign exchange.

Characteristics: Some of the key characteristics of perfect

competition are:

Numerous buyers and firms in the industry: This means that neither
one firm nor one buyer can affect the price in the market. Each is a
price-taker.

The product being sold is homogeneous: This means that there are no
differences in what each firm is selling, whether real or imagined.
Thus, if a firm increases its price, its sales will fall to zero as the
buyers will buy from the other sellers who have exactly the same
product.

Perfect knowledge of the market: Both buyers and sellers know

exactly what is happening in the market. For example, if prices change
they are immediately aware of it.

Perfectly elastic demand curve: This indicates that the firms cannot
control price, but can sell any amount at the ruling price.

Firms are independent: This means that they do not take into
consideration what the other firms in the industry do.

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Very high levels of competition: Competition among firms is due to the

fact that there are numerous firms selling exactly the same product,
each competing for the same consumer demand.

No advertising: Advertising is not necessary since every firm sells the

same thing. In the space of competitive and persuasive advertising
there may be a small amount of informative advertising.

We will now discuss the advantages and disadvantages of this market

structure even though, in the strictest sense, this market structure
does not exist in reality. Bear in mind, however, that the whole
question of good and bad is relative.

Advantages of perfect competition

 All buyers and sellers are treated equally.

 There is only one price ruling in the market at a time and this
price is not determined by any single buyer or seller but by the
market forces of demand and supply.
 Competition keeps prices lower than under other market
structures.
 Since the product is homogenous, sellers do not have to spend
money on advertising.
 Competition between firms also forces them to be efficient.
 Firms under perfect competition respond to changes in
consumer demand, therefore, the consumer is said to be
sovereign or king.

Disadvantages of perfect competition

 Lack of variety because an undifferentiated good is produced.

 They may not be able to afford the technology that allows
them to be efficient.
 The number of firms in the industry makes it impossible for
them to benefit from collusion.
 There may be frequent changes in price as the market forces
of demand and supply change.

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Let us now consider the possible profits that can be earned in the
short run and in the long run under perfect competition.

Short-run equilibrium

In the short run, some of the firms will earn normal profit, some will
earn supernormal profit and some will earn subnormal profit.

Normal profit is that level of profit which is just enough to keep a firm
in the industry. Once they are earning this level of profit, they will not
leave the industry. In this situation, average revenue (AR) is equal to
average cost (AC). This level of profit is often referred to as zero-
economic profit.

If supernormal profits are being earned, this is so because AR is

greater than AC. When AC is above AR or AR below AC, the firm is
earning subnormal profit.

Consult an economics textbook to see how these levels of profit are

illustrated graphically.

Long-run equilibrium

In the long run, all the firms under perfect competition will be in the
situation where they are earning just normal profit AR=AC.

Just how did this come about?

In the long run, all the firms that had been earning subnormal profit in
the short run AR<AC will leave the industry and will go into industries
where they can at least earn normal profit.

When these firms leave, supply will fall and prices and profits will rise.

The firms that are earning supernormal profits AR>AC will attract
other firms into the industry by their attractive level of profits.

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As firms enter, supply will increase and prices and profits will fall. This
rise and fall in profits will continue until all firms in the industry will be
earning normal profit, AR=AC.

When this occurs, there will be no more incentives for firms to either
enter or leave the industry. Thus the industry will be in long-run
equilibrium. Again, the graphical illustration of this situation can be
found in most economics texts.

Well folks, that is it for today. Next week, we will outline another
market structure – monopoly.

You can begin to read up on this structure based on the headings I

gave you in last week’s lesson. We will learn some interesting facts
about this market structure and some common myths will be explained
and dismissed. See you, then.

ü MONOPOLY

Definition and examples of monopoly

A pure monopoly is a market structure where there is only one firm in

the industry, therefore, the firm is the sole supplier of that good or
service. However, in the case where a firm controls approximately 20
per cent of a large market, it is considered a virtual monopoly.

Examples of monopolies in Jamaica:

 The Jamaica Public Service Company

 The National Water Commission

Characteristics/features of monopoly

1. As indicated in the definition, there is only one firm in the industry.

The importance of this is that the demand curve for the firm’s goods or
services will be relatively inelastic, allowing the monopolist to
exercise his monopolistic power and restrict quantity, causing prices

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to rise substantially. Consumers will either have to pay the higher

price or go without the goods or services altogether.

2. There are strong barriers to entry. A barrier to entry is anything that

prevents a firm from entering an industry in the long run. Barriers to
entry in this case would include things such as legal protection and
government restrictions. The importance of strong barriers to entry is
that in the long run, new firms will be kept out of the industry.

3. Monopolies are price-makers or fixers. Since they face downward

sloping demand curves, they can choose what price to charge.
However, they are still constrained by the demand curve in that,
having decided on price, they must allow the demand curve to
determine the quantity. A rise in price will lower the quantity
demanded.

4. The product of the monopolist is unique, therefore, no close

substitute for it is being produced by any other firm.

5. The monopolist may price discriminate, that is, charge people

different prices for the same good and/or charge different unit prices
for successive units bought by a given buyer. Those who price
discriminate do so in order to earn increased profits.

Short-run equilibrium

It is likely that the monopolist will earn super-normal profits in the

short run. Monopoly does not necessarily mean super-normal profits;
some monopolies, at their profit-maximising output, face a situation
where average cost is everywhere above average revenue. Thus, they
are earning sub-normal (less-than-normal) profits.

Long-run equilibrium

Since there are strong barriers to entry, it is likely that if the firm were
earning super-normal profits in the short run, it would maintain or
continue to earn super-normal profits in the long run.

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If the firm had been earning sub-normal profits in the short run, it
would leave the industry in the long run and go into an industry where
it can earn at least normal profits.

Homework

Your homework is the simple task of discussing the advantages and

disadvantages of the monopolistic market structure. Remember, you
can use economics texts to research this area.

You will recall from our last lesson that, in practice, there is no market
which can be classified as perfectly competitive, though I did give
examples of a market approaching near to perfection. Where pure
monopoly is concerned, there are very few markets that can be
classified as such in reality. Most markets, therefore, lie between
these two extremes. In other words, most markets are either under
monopolistic competition or oligopoly.

ü Monopolistic competition

This describes an imperfect market structure in which there are a

relatively large number of producers offering slightly differentiated
products.

Characteristics/features of monopolistic competition

1. A relatively large number of sellers. This makes the market highly

competitive. In addition, each firm’s market share is small and
collusion (coming together to act as a monopoly in order to gain more
profits) is difficult.

2. Independence. Each firm acts independently of the others. That is,

no firm takes into account the reaction of its rival firms.

3. Freedom of entry into the market and exit out of the market. In the
long run, firms will enter and leave the industry due to the lack of
significant barriers to entry.

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4. The product is differentiated. Each individual seller has a product

which is slightly different from the product of the other producers. This
product differentiation is mainly through brand names, but can also be
through physical and chemical differences.

5. Advertising takes place. Each seller seeks to increase brand loyalty

for his/her product and thereby increase profits.

6. Firms are price makers/fixers. Therefore, their demand curve is

downward sloping. It is also fairly elastic because of the relatively
large number of firms in the industry.

Examples of monopolistic competition in the Caribbean: hairdressers,

restaurants, taxi drivers and gas stations.

Short-run profits

The short-run profits situation is similar to that of the perfect

competitor. It is possible to earn supernormal profits. Subnormal and
normal profits are also possible.

Long-run profits

In the long run, the similarity between perfect competition and

monopolistic competition becomes more obvious. Through entry of
new firms and exit of some existing firms, profit will tend towards
normal in the long run for all the firms in the industry.

We move on now to yet another market structure, oligopoly.

Oligopoly

Oligopoly refers to a market structure in which a few firms dominate

the industry in the sense that between them they share a large
proportion of the industry’s output. Some oligopoly firms produce
virtually identical products (for example metals, chemicals, sugar) and
are known as perfect oligopolies, and some produce differentiated

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products (for example, cars, soap powder, cigarettes, electrical

appliances) and are known as imperfect oligopolies.

Duopoly is a special form of oligopoly in which there are only two firms
in the industry.

Characteristics/ features of oligopoly

1. There are only a few firms in the industry. With only a few firms in
the industry, each is big enough to influence price. Firms are,
therefore, price makers/price fixers.

2. Interdependence of firms. Since there are only a few firms in the

industry, each firm will have to take into account the actions of rival
firms in the industry, for example, if one airline announces discount
fares, generally, all the other airlines will try to match the lower
prices.

3. The product is either identical or differentiated. Where the product

is identical, there is no need for advertising or non-price competition.
However, if the product is differentiated, advertising and non-price
competition will take place in order to make consumers believe that
one brand is better than the other.

4. There are barriers to entry. These barriers may not be as strong as

the barriers for the monopolist; however, the effect is still the same.
Barriers will make it virtually impossible for others to enter in the long
run.

5. Prices tend to be stable. This is because firms realise that

decreases in price can lead to ‘price wars’ and they can end up losing
so much profit that they are eventually driven out of the industry. They
also know that raising prices will be of no advantage to them since
others will not copy them.

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6. Firms may be collusive or non-collusive. When they are collusive,

they may, for example, formulate an agreement to set prices for
everyone at a certain level.

7. Oligopolies may price discriminate in order to earn more profit.

Profits in the short-run

Like the monopolist, many oligopolistic firms will earn supernormal

profits in the short run.

Long run

If the barriers to entry are strong, supernormal profits will be

maintained. Where a firm is earning less-than-normal profits in the
short run, it will leave the industry in the long run.

Now for your practice question:

(a) Define ‘monopolistic competition’ and ‘oligopoly’.(4 marks)

(b) Compare the market structures named in (a) above, under the
following headings:

(i) the number of firms in the industry

(ii) the existence or non-existence of barriers to entry

(iii) type of product (6 marks)

(c) Give TWO examples of oligopoly industries and TWO examples of

monopolistic industries in the Caribbean. (4 marks)

(d) “A monopolistic firm is earning supernormal profits in the short

run.” What do you understand by this statement? (2 marks)

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(e) Assume that firms under monopolistic competition and oligopoly

are earning supernormal profits in the short run:

(i) How will their long-run profits differ?

(ii) Give reasons for the differences in their long-run profits. (4 marks)

Total marks: 20

This completes market structures. I urge you to do some reading on

the topic. You will find some interesting facts if you consult texts in
economics.

JULY 31, 2010 P.O.B LESSONS

Marketing
Marketing

It’s good to be with you all again. This lesson begins a new section of
the syllabus: marketing. We will distinguish between the terms
marketing and market, look at marketing activities and describe the
marketing mix. The lesson will conclude with a look at market
research.

What is a market?

A market exists under any conditions where buyers and sellers are in
contact directly or indirectly for the purpose of exchanging goods and
services. The four elements of the market are buyers, sellers, goods
and services, and price. If any of the elements is removed, then the
market will not exist.

The term market is also used to describe the extent of the demand for
a commodity. Hence, a large market means that there is a large
demand for the good or service.

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What is marketing?

Marketing refers to the set of human activities and efforts which is

interrelated and focused on bringing the goods and services to the
consumer. It has to do with getting the right goods to the right people
at the right price and at the right time in the most profitable and
efficient manner.

Marketing activities

These include market research, pricing, packaging, branding, sales

promotion, advertising and distribution.

The marketing mix

This refers to everything a firm can do to influence the demand for the
product. It is a collective term that is used to refer to the whole range
of marketing activities, techniques and strategies that a firm uses to
reach its target market.

The variables of the marketing mix can easily be remembered by

referring to the four Ps: product, price, place and promotion.

 Product – The good or service that the consumer wants.

 Price – Profit is usually incorporated in the price.
 Place – Product must reach the place where the good or
service is required for distribution.
 Promotion – This refers to the ways in which consumers are
made aware of the availability of the product or service and
the qualities it has. Advertising is the most dynamic aspect of
product promotion.

Market research Concept

The marketing concept requires that a firm be aware of customers’

needs to try to meet those needs and to attempt to make a profit in
the process.

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Market research assists the firm to meet the goal of the marketing
concept by helping the process of finding out what the consumer
wants.

Market research investigates what consumers are buying or are likely

to buy in the future. It is normally done before the advertising
campaign. Sometimes, it is carried out after the product is well
established in order to assess and improve advertising and evaluate
product performance.

Reasons for conducting market research

Market research will help in making decisions about:

 where to sell a good or service.

 how to sell it.
 consumer tastes – that is which customers need the product
and exactly what they want and what they dislike
 how to price the product.
 how to promote the product.
 competition – who are the competitors in the market place
and what they are doing.
 what the size of the market is.
 consumer behaviour – how consumers will react to certain
conditions or when faced with certain factors.

In other words, market research helps us to see what influences the

consumer.

Definition

Market research refers to a systematic approach to collecting

information, recording and analysing information collected and
adopting the information to the marketing plan of the business.

Types

Market research includes the following types of research:

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 Advertising or media research

This is research to see the best means of advertising at the lowest

cost. It can also be done after the advertising campaign to test how
successful the campaign was in terms of increasing market share.

 Business and economic research

This is done to study the trends in business, prices and location of

plants and distribution centres. It also studies the changing economic
conditions which affect the business.

 Product research

This tests how consumers will accept new products or changes in

existing products.

 Distribution research

This is used to look at the effectiveness of the channels of distribution

of the product.

 Packaging research

Used to test the design, colour and other physical features of the
package

 Sales research

This tests the potential size and make-up of the target market in terms
of age, sex income, etc.

 Consumer research

Used to find out why consumers prefer some goods and services to
others and to research the size of the market. It also involves research
to see if there are any changes in people’s incomes, tastes or brand
loyalty.

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That’s it for today. Keep safe until next week when I will continue with
topics related to marketing. Bye for now.

Factors that Influence Consumer Behaviour

 Price
Consumers will adjust their demand for particular goods and
services as the prices of them change. Generally speaking,
the lower the price, the greater the quantity demanded.

 Price of substitutes
If the price of substitutes is lower, then consumers will switch
from the relatively dearer goods and services to the relatively
cheaper goods and services.

 Quality
Consumers will gravitate towards the better quality products
and may even be willing to pay more for them.

 Taste
People differ in their preferences for goods and services, so
the marketer has to identify these preferences.

 Tradition
Long-standing traditions and customs may influence demand.
For example, some households purchase Grace products
because their mothers and grandmothers purchased this
brand and they see no reason to stop.

 Income/affordability
The amount of money earned affects one’s ability to purchase
goods and services, therefore, some highly priced goods and
services will only be purchased by the higher-paid wage
earners.

 Spending patterns
Some consumers are accustomed to spending a certain
amount of money. If prices fall, they may not spend any on
those goods and services, because they have already

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established a pattern of spending which they are not willing to

change.

 Brand loyalty
Marketers often try to create loyalty for their products among
consumers. The hope is that the customer will stay with their
existing product because it has satisfied them for sometime.

Customers who are loyal to certain brands cannot be easily wooed or

enticed away from these products since they are satisfied with them.

JUNE 21, 2010 P.O.B LESSONS

Management information systems

Today, we are looking at the concept of management information systems (MIS) in
organisations and the benefits and challenges in using these systems.

At this point, it would be good for us to examine the terms, data and information. Data
refers to raw facts, while information refers to processed data. For example, 2, 4, 6 and 8
may be considered as data or raw facts and, as such, have very little, if any, meaning.
However, if we process these figures by, say, averaging them, we will arrive at 5. The
average has much more meaning and is, therefore, more useful to us.

In the past, managers spent days, even months, waiting for data to be processed into
information in order to make important decisions. This has changed in recent times because
of the availability of information systems.

MIS refers to any computer-based system that provides timely and accurate information for
managers to use in the decision making and management of an organisation.

Benefits of MIS

1. Time, money and labour are saved. Since the computer is used, the time spent in overall
decision making to the actual project completion is normally reduced. It is often said that
time is money, so, if time is saved, money is also saved.

Additionally, labour costs are saved because routine tasks which would, in the past, be done
manually are now done by the computer. Less labour is, therefore, employed, reducing
wages to labour.

2. Improvement in production and marketing techniques and profit margins. MIS provides
information that will ultimately lead to qualitative and quantitative improvements in

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production, as well as provide informa-tion which will allow for improvements in marketing
techniques, such as advertising and sales promotions. Production and marketing
improvements will, most likely, transfer into increased profits margins.

3. Increased competitiveness. MIS enables managers to access information on their

competitors. They can study their competitor’s techniques with the aim of doing better than
they do.

4. Less likelihood of errors being made. The reason is that it is a computer-based system
which tends to be accurate.

5. It allows for decisions to be made at all levels in the business. Decisions can be made by
top, level and lower-level managers. It is also useful for other employees in the
organisation.

6. Communication within the organisation is improved. This is so since the information is,
most of the time, clear and accurate – two elements of good communication.

7. Managers are assisted in carrying out their management functions, for example,
planning, controlling and directing. It also improves the efficiency of the functional
managers within the organisation.

Challenges of MIS

1. The cost of setting up and maintaining MIS. Since the system involves the purchasing of
costly computers, the maintaining of these computers and the cost of security systems, the
capital outlay is very high and could initially be a hindrance to its use in organisations.

2. The high cost of training. Managers must be trained to use the systems. Therefore, the
overall cost of human resource development increases.

3. Human error. Human error can affect the efficiency of the system. This means that
human error can result in problems which can cause time to be lost and, even-tually, cause
profits to fall.

4. Often, too much information is supplied. Too much information can be just as harmful as
too little.

5. Sometimes, information is not timely. This means that it is not always on hand when it is
needed and information that is provided too late cannot be utilised effectively.

Homework

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Now you can work on this essay-type question.

(a) What is a management information system? (2 marks)

(b) List two groups in an organisation that benefit from MIS. (2 marks)

(c) Explain four reasons why MIS is valuable in an organisation. (8 marks)

(d) Discuss four challenges of a MIS. (8 marks)

APRIL 30, 2010 P.O.B LESSONS

Role of government
Forms of government assistance to businesses

One of the roles of government is to assist businesses. In doing so, these businesses will be
able to expand and produce more. As they produce more and accumulate a surplus, this
excess or surplus can be exported and earn foreign exchange, which will in turn benefit the
country as they will be better able to pay for their imports and, perhaps, have a surplus to
go towards the economic growth and development of the country. Governments assist in a
number of ways.

1. They lend some businesses money/capital. This is especially true if the business is a
small one. Government institutions for lending include the Small Business Association of
Jamaica, MIDAS (Micro Investment Development Agency) and Jamaica Trade and Invest
(formerly JAMPRO). These loans are usually at low rates of interest and, therefore, are
cheaper than elsewhere.

2. They are involved in training and technical assistance. For example, they have
HEART/Trust NTA and the National Youth Service.

3. Governments set up research and information centres to assist businesses in getting

accurate and timely information that may benefit them. For example, the Statistical
Institute of Jamaica (STATIN) and the Jamaica Information Service.

4. Governments also give subsidies and grants to businesses, which helps them to cut the
costs of production and, ultimately, to produce more. Subsidies can be in the form of money
or materials, while a grant is a monetary gift that does not have to be repaid.

5. For businesses that have just been set up, governments may grant tax concessions until
they can stand firmly on their own two feet.

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The impact of social services provided by government

A large proportion of government revenue is used to provide social services for the country.
These social services have a positive impact on the country, in that the welfare or well-
being of individuals, families and businesses is improved. Social services are usually granted
according to the need, that is, to low-income families and families with persistent
difficulties. These services are often regarded as merit goods and result in reducing the
inequalities between the rich and the poor. In welfare states such as Sweden, there is no
extreme poverty. Let us consider some specific social services and the positive impact that
they may have.

(a) Government health care. This results in a larger portion of the population being healthy
as a result of general health, dental, optical and medical care. These are provided through
government clinics and hospitals. A healthy population means a healthy future labour supply
and, ultimately, increased efficiency and increased production.

(b) National insurance scheme. One positive effect is the provision of pensions and security
for the elderly. There are also widow’s benefits, funeral grants and assistance given in cases
of loss of earnings through illness. All of these benefits help to maintain the standard of
living of people and prevent them from falling into a state of poverty.

(c) Education. Government provides public schools and assists them through ministry
grants. The result is that a greater portion of the population becomes informed and literate
than if education was entirely through private means. More persons will be able to get jobs
through being educated and this will reduce the unemployment rate.

(d) Roads and transportation. Improved roads and transportation by government will mean
greater access to goods and services. Greater access means greater standard of living for
persons on a whole.

Questions:

1. (a) Define the term government. (2 marks)

(b) Outline THREE responsibilities of governments in your economy. (6 marks)

(c) Discuss the functions of THREE government agencies involved in the protection of the
environment. (6 marks)

(d) Explain THREE ways in which the government may regulate business activity in your
country. (6 marks)

Total marks: 20

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2. (a) Distinguish between the terms tax and taxation. (4 marks)

(b) Discuss THREE purposes of taxation (6 marks)

(c) Distinguish between a proportional tax and a regressive tax. (4 marks)

(d) Define direct taxes and indirect taxes. (4 marks)

(e) Give ONE example of EACH type of tax named in (d) above. (2 marks)

Total marks 20

APRIL 30, 2010 P.O.B LESSONS

Social accounting and global trade 1

Standard of living

Standard of living refers to the level of living which a person, family or whole
nation maintains, in terms of the various amounts of and kinds of goods and
services consumed. Standard of living varies from person to person, family to
family and nation to nation. It also varies over time. The national standard of
living means the average standard of living of all the persons living in that
country.

Quality of life looks at the extent to which a person, family or nation enjoys the
benefits of its wealth. A country may have a high standard of living in terms of
being able to provide many goods and services for its people, but the quality of life
may be low if the people are not able to access the wealth provided.

Factors indicating standard of living of a country

(wealth of a country)

 The level of consumption of goods and services. Generally speaking, the

greater the amount of goods and services consumed, the higher will be
the standard of living. The counter argument to this is that the quality of
the goods and services may have deteriorated while the level of
consumption increased. The question, therefore, would be, did the
standard of living really increase?
 Average disposable income of the population. Disposable income refers
to net income, the amount of money that is available to be used as one
would like to. In economics, disposable income is either spent on
consumption goods and services or saved. As far as standard of living is
concerned, the higher the average disposable income of the population,
the higher will be the standard of living. The counter argument here is

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that the disposable income may be high, but if it is unequally distributed,

many people may have a low standard of living.
 The level of national ownership of capital equipment. As a country
increases its ownership of capital equipment, it is able to produce more
goods and services and, thereby, increase its standard of living.
However, this means that they will first have to save or reduce
consumption in order to accumulate this capital. During this time, the
standard of living may actually fall.
 Access to modern technology. Modern technology enables a country to
produce more and to produce more efficiently, thereby, increasing
standard of living. However, for developing countries like Jamaica, the
cost and maintenance of modern technology is high which often results
in loss of jobs. This, in turn, means a lower standard of living.
 The level of investment in research and technology. The more a country
spends money in research and technology, the greater will be its
improvements in the level and quality of goods and services and then
the greater will be the standard of living. Again however, cost becomes a
dominant factor as research and technology can be very costly.

Indicators of a country’s quality of life

Quality of life refers to the extent to which the country enjoys the benefits of its
wealth. The factors that affect this include:

 The extent of security enjoyed. The greater the level of security enjoyed
by the citizens, the greater will be the quality of life. High levels of crime
can prevent citizens from accessing the wealth that will increase their
quality of life.
 The availability of health, educational and recreational facilities. Greater
access to these will surely increase the quality of life. Access, however,
may be dependent on ability to pay. Governments can increase a nation’s
access to these areas by subsidising the cost, or by providing them free
of cost.
 Diet and nutrition. The amount of food and drink is not the important
thing as far as quality of life is concerned. If people are not having
balanced meals, then their diet and nutrition will be poor and the quality
of life will fall even if they are consuming more.
 Life expectancy. This refers to the average number of years a person is
expected to live. If people are expected to live longer than before, it will
mean that the quality of life has, in fact, increased.
 The rate of infant mortality. Infant mortality refers to death among
infants. If a country is experiencing reduced death rates among infants,
then their quality of life would be said to have increased. This could be
because of improved research in health and improved health or greater
access to health care.
 Access to public utilities. The greater the access to public utilities such
as electricity and portable water, the greater will be the quality of life. If
only a few persons in a country have access to these utilities then,
generally speaking, the quality of life will be very low.

The distinction between economic growth and development

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Economic growth is a quantitative concept; that is, it deals with numbers or

figures or amounts. It refers to the real growth in or expansion in national output,
and is most often measured in terms of real Gross Domestic Product (GDP).

The concept of economic growth is positive. This means it always refers to an

increase in output. Negative growth, while quantitative, as is economic growth,
refers to a decrease in the national output.

The production possibilities frontier can be used to illustrate economic growth. A

production possibilities curve is a curve showing all the possible combinations of
two goods that can be produced using up all the resources and at a given state of
technology. When economic growth takes place, the production possibilities curve
shifts to the right. The curve may shift to the right and economic growth results if
the productivity of labour or other factors of production improve; if there is an
improvement in technology; or if there is an increase in resources.

Try to find a diagram of a production possibilities curve. Copy it into your

notebooks then shift the curve to the right. The first curve represents production
possibilities for the country NOW, and the second one will represent the
production possibilities at a future date, for example, five years later.

Economic development is qualitative and refers to the process by which the

standard of living and the well-being of the entire nation are improved by raising
real per capita income. Economic well-being is concerned with the quality of
housing, clothing, education, food, health, peace of mind, security, eradication of
poverty and eradication of inequalities in income and wealth, and so on. If any of
these factors increases or improves, there will be economic development.

Human resource development looks at improving the human resources of labour

and entrepreneurship. Improvement of labour and the entrepreneur means that
the productivity of both will increase. In turn, there will likely be an increase in
economic growth and development.

The human resource can be improved through education, training or retraining,

improved health facilities, improved working conditions and an improvement in
the factors of production that they have to work with.

The role of education in economic growth and development

Improved education and training means that labour and entrepreneurship will now
have greater capacity to increase the national output and improve the well-being
of the nation. Through education and training, labourers may learn new and more
efficient methods of production and, thereby, increase the overall output. The
entrepreneur might learn how to better organise and bear risks, thereby, causing
improved output and improved economic well-being. Education, thus, improves
the productivity and efficiency of both of the human factors.

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Now for your homework:

(a) Distinguish between economic growth and economic development (6 marks)

(b) Why is economic growth regarded as a quantitative concept while economic

development is regarded as a qualitative concept? (4 marks)

(c) Discuss TWO factors that might result in economic growth and TWO factors
that might result in economic development (8 marks)

(d) Explain ONE way in which education can cause economic growth and
development (2 marks)

Total marks: 20

APRIL 30, 2010 P.O.B LESSONS

Balance of payments (continued)

THE BALANCE OF PAYMENTS MUST BALANCE

Ultimately, the balance of payments must balance since every export becomes an import
and every import an export. Balancing the balance of payments means that there must
neither be a surplus nor a deficit in the end. A way must be found to finance the surplus or
deficit through external strategies which are shown in the official financing account.

(a) Define the term balance of payments.

(a) What is meant by a country’s balance of trade?

(b) Calculate the BALANCE OF TRADE for the country

shown below:

Visible trade US ($ M)

Exports 26,000

Imports 29,000

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Invisible (net)

Exports 20,000

Imports 15,000

(d) Name TWO items that are regarded as invisibles.

(e) Calculate the current account balance.

THE OFFICIAL FINANCING ACCOUNT

This account shows how the balance of payments is financed; that is, it shows what is done
with the surplus or the deficit on the balance of payments. Let us look at some ways of
financing a balance of payments deficit.

FINANCING A BALANCE OF PAYMENTS DEFICIT

 borrowing from international financial institutions like the International Monetary

Fund and the World Bank
 borrowing locally
 drawing down on the official reserves of foreign exchange
 selling an asset locally or overseas
 borrowing from other countries
 receiving gifts and grants
 rescheduling of the debt
 Importing on credit. Permission must be granted from the exporting country.

What if the balance of payments showed a surplus? This surplus could be financed or used
in the following ways.

FINANCING A BALANCE OF PAYMENTS SURPLUS

 lend money, for example to other countries

 purchase an asset locally or overseas
 increase the official reserves of foreign exchange
 pay outstanding debts
 invest the surplus
 give gifts and grants to other countries

Below is an example of the official financing account. Assume that the balance of payments
figure is US$1,500m.

THE OFFICIAL FINANCING ACCOUNT

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US $M

Foreign currency borrowing +800

Official reserves +700

Total +1500

Now we have balanced the balance of payments by eliminating the deficit of US $1,500m.

What if a country continues to have an adverse balance of payments, year after year? Well,
that country must find ways of correcting that adverse balance of payments. The country
has a balance of payments problem and must, therefore, earn more by: increasing exports
through:

 offering incentives and subsidies to local manufacturers

 encouraging foreign investment
 extending credit facilities
 reducing spending
 improving marketing skills and sponsoring exhibitions
 devaluing the local currency, which makes exports cheaper

Reducing imports by:

 increasing tariffs (duties) on imported goods and services

 setting quotas to limit the physical amount imported
 requiring special licences to import
 devaluation, which makes imports dearer
 foreign-exchange controls, which limit the amount of foreign currency available
to individuals

The questions below will test how much you have grasped of this lessons.

(a) What is the official financing account? (2 marks)

(b)(1) List TWO ways of financing a balance of payments surplus (2 marks)

(11) List TWO ways of financing a balance of payments deficit (2 marks)

(c) A country has a balance of payments of US$ + 300m, draw up the official financing
account to show how this may be financed (2 marks)

(d) Explain TWO ways of correcting an adverse balance of payments.

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Total: 10 marks

APRIL 30, 2010 P.O.B LESSONS

International trade and balance of payments

International trade

When countries buy goods and services from each other and/or sell goods and services to
each other, this is referred to as international trade. International trade is thus trade among
countries.

International trade is the largest scale in the development of division of labour and
specialisation, wherein countries specialise in the goods and services that they can produce
best and at the lowest cost, and then trade with other countries to get the goods and
services that they do not specialise in. However, you may ask, why did international trade
develop? Let us consider the reasons for international trade.

REASONS FOR INTERNATIONAL TRADE

1. Climate and soil type differences. Not all countries have the same climate and soil
conditions. Different crops will grow where the climate and soil types differ.

2. Natural resources. These can only be mined where they are found, for example, bauxite.
Some countries are rich in mineral resources; others have little or none at all.

3. Special skills of the labour force. The type of labour determines what is produced. For
example, France produces fashions (clothes), cologne and various types of cheese because
the labour force has special skills and aptitude in these areas.

4. Lack of quantity and quality of local goods. Very often, countries import goods and
services because what they produce locally is not enough for local needs and/or because the
quality falls short of what is desirable.

5. Increased transportation and communication. These have made trading on a worldwide

scale much easier.

6. Access to a wider variety of goods and services. Wider variety pleases consumers and
results in an increase in their standard of living. The same is true for countries.

7. Foreign exchange. This is gained from exports and is used to pay for imports.

8. World output increases. This allows the problem of scarcity to be reduced

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9. Cheaper goods and services. Countries may import goods and services because they are
cheaper than goods and services sold locally.

Balance of payments

International trade refers to trade among different countries of the world. When countries
trade with each other, a record is kept of the financial transactions between them. This
record is known as the balance of payments. It is a statement of the trade which takes
place between a country’s residents (individuals, businesses and the government) and the
residents of all foreign countries. Therefore, Jamaica’s balance of payments shows all the
payments we receive from other countries and all payments which we make to them.

There are three components of the balance of payments account, the current account, the
capital account and the official financing account. Now we are going to look at each account
in turn. Please note that in all parts of the balance of payments account, exports and
income are given a plus (+) sign and imports and payments are given a minus (-) sign.

THE CURRENT ACCOUNT

This section of the balance of payments is divided into TWO parts: Part (a) the visible trade
account and part (b) the invisible trade account.

The visible trade account records the tangible items – the imports and exports of goods
only. The difference between the money value of goods imported and goods exported is
known as the visible trade balance or the balance of trade. This balance may be a plus (+)
surplus or a minus (-) deficit. If exports exceed imports, the result will be a surplus or a
favourable balance of trade. On the other hand, if imports exceed exports, there will be a
deficit or unfavourable balance of trade.

The invisible trade account records the intangible items – the imports and exports of
services, tourist expenditure and income, income from investments abroad and paid to
investments abroad. The services include shipping, aviation and financial services. The
balance on this account is known as the invisible balance and it will be a plus (+) favourable
if exports (income) of the intangible items exceed the imports. Now you can work out for
yourselves what will result in a minus (-) on this account.

The overall current account balance is the difference between our exports of goods and
services and the imports of goods and services. As with the visible and invisible balances,
the overall current balance may be favourable or unfavourable.

THE CAPITAL ACCOUNT

This account records capital flows – loans and grants to and from other countries and
investments bought and sold. (Note that the income from investments is recorded in the

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invisibles of the current account). As with the current account balance, the capital account
balance may be favourable or unfavourable.

Now we need to consider the overall balance of payments figure. This takes into account the
current account balance and the capital account balance. If, overall, the exports exceed the
imports, the overall balance of payments will be a surplus (+) and if, overall, the imports
exceed the exports, the overall balance will be a deficit (-). This means that the country
spent more than it earned.

JANUARY 14, 2010 P.O.B LESSONS

The small firm – Part 2

Hello again. Do you remember last week’s lesson? I hope so. It dealt
with definitions and examples of the small firm, characteristics of the
small firm and the role of the small firm in Caribbean Communities.
This week, we will concentrate on the reasons why many firms remain
small and the advantages and disadvantages of the small firms.
Caribbean governments recognise the importance of small firms and
try to encourage their existence by charging them less tax or
exempting from certain taxes. In some instances, loans are made
available to small firms at special rates of interest. In Jamaica, there
is the Small Businesses Association of Jamaica (SBAJ) that assists
small businesses in the country, including lending them money at low
rates of interest. But, why do firms remain small?
Reasons for remaining small
• To keep the business in the family. Expansion may require hiring
persons outside of the family.
• Market for the good or service is small. Unless the market grows, the
firm will remain small.
• Some firms are linkages to small- and medium-size businesses.
Unless they expand, these firms will remain small.
• Some firms remain small because they have missed the opportunities
to expand.
• Many firms have not gone into large-scale production because they
do not have the necessary collateral to access loans for expansion.
• The owners of some small firms do not have the necessary
management and/or technical skills needed for a larger business.
• For many firms, the most efficient size is the small firm.
Advantages of small firms
1. These businesses are often strategically placed; that is, they are
located in places that are convenient for customers.

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2. They provide goods and services that are not provided by larger
firms.
3. They normally sell a variety of goods and services and the items
sold are usually unique and customers prefer this to the
standardisation of larger firms.
4. People support small firms because operators of these firms know
their customers well and often offer them credit.
5. The small firm is more efficient where personal services are to be
carried out.
6. The top manager is the sole decision-maker. He/she can, therefore,
make decisions quickly and knows exactly what is going on.
7. Small firms have a small number of staff, therefore, staff problems
can be more easily detected and dealt with than in larger firms.
8. There is clear communication among employees and it is easier for
management to have a good relationship with employees since the
business is small.
9. Because small firms offer certain services, large firms are prevented
from becoming too large.
10. Small firms stay open for longer hours than larger firms, to their
advantage.
11. They are easy to start up and often receive government
assistance.
12. These firms benefit from assistance from small business
associations, for example the SBAJ.
The disadvantages of small firms
1. Owners have to put in long hours, sometimes without holidays in
order to make the business a success.
2. Many of these businesses have limited liability; that is, they may
loose more than they have invested in the business if it should fail.
3. The manager is often bogged down by other tasks which, in larger
businesses, are delegated to assistant managers and supervisors.
4. They suffer because of competition from larger firms. This is so
since the simple, cheap machinery used in small firms may not allow
them to compete equally with larger firms.
5. Prices tend to be higher than those of larger firms.
6. Small firms are vulnerable to changes in the economy; they are
easily affected by the ‘ups’ and ‘downs’ in the economy.
7. They have difficulty in arranging loan financing since financial
institutions are often reluctant to lend them money. When they do lend
them money, the rate of interest is often higher and the loan amount is

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smaller than that of larger firms.

As usual, I will end with your homework.
(a) Define a small firm. (2 marks)
(b) List THREE characteristics of a small firm. (3 marks)
(c) (i) Explain FOUR important roles of small businesses in your local
community. (4 marks)
(ii) Discuss TWO advantages and TWO disadvantages of small firms. (8
marks)
(d) State THREE reasons why many firms remain small. (3 marks)
TOTAL: 20 MARKS

JANUARY 14, 2010 P.O.B LESSONS

The small firm – Part 1

The small firm – Part 1
Hello again. This week’s lesson will cover definitions and examples of
the small firm, characteristics of the small firm and its role in
Caribbean communities.
Although we have seen that many firms expand and go into large-scale
production, there are some that do not increase their size; they remain
small. In the Caribbean, there tends to be more small firms than large.
These small firms exist alongside large firms.
Definitions and examples of small firms
It is not an easy task to find one appropriate definition for the small
firm, therefore, many persons use various criteria to identify such
firms. According to B.M.C. Abiraj, in his book, Principles of Business
for CXC, several definitions of small firms are used in Trinidad and
Tobago as outlined by the Management Development Centre in Port-of-
Spain. These definitions include:
(a) A firm whose total assets excluding land and buildings do not
exceed TT$500,000.
(b) A definition from the Central Statistical Office. This definition
states that for a firm to be considered small, it should have fewer than
10 employees.
(c) A third definition states that a small firm should employ ONE top
manager who should manage the business and perform other
functional duties as well.
Examples of small firms include direct services such as hair-dressing,
small shops, restaurants, small private schools, private nursing homes

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and so on. You may wish to do some research and add to this list of
examples.
Characteristics of small firms
1. These are firms which cannot easily be divided into departments
since they lack the space and personnel.
2. Workers in small firms do not specialise much, if at all.
3. Many small businesses are family oriented.
4. Small firms do not normally have middle-management personnel.
The top manager performs all the important duties himself.
5. Small firms are often characterised by a wide variety of tasks and
skills.
6. These firms exhibit many of the characteristics of the sole trader.
It would be good if you could revise these characteristics.
The role of small firms in Caribbean communities
1. Small firms provide employment for many, especially in rural areas.
2. They provide services that are either not provided by larger firms or
are not adequately or properly provided.
3. Small firms provide competition to larger firms, forcing them to be
efficient and keep their prices low.
4. These firms serve as a means for persons to supplement regular
income, for example, as farmers, fishermen and so on, especially
where the nature of work is seasonal.
5. Many small firms assist larger ones in ‘breaking bulk’ and in the
distribution process. For example, small-scale retailers.
6. Small firms often try out new ideas and expand to become larger
firms to the benefit of the community.
7. Small firms can manage the demand small communities, whereas
larger firms may see their demand as insignificant and a waste of time.
8. These firms are flexible and, therefore, easily adjust to changes,
including changes in the community demand.
9. Some businesses are difficult to control on a large scale. Therefore,
if it were not for the small firm, these businesses would not exist in
some communities, for example, taxi services.
10. Small firms are often linkages to larger firms in the community,
obtaining materials from them or supplying them.
Now go through this lesson again; do some additional reading on the
topic then write an outline to the following question:
(a) Define a small firm. (2 marks)
(b) Give TWO examples of small firms. (2 marks)
(c) Discuss four characteristics of small firms. (8 marks)

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(d) Explain FOUR important roles of small firms in your local

community. (8 marks)
Total: 20 marks

JANUARY 14, 2010 P.O.B LESSONS

Public limited companies

As we continue our look at private sector businesses in a mixed
economy, you should be able to see clearly the advantages that one
type of business has over the other.
Public limited companies are also known as joint stock companies.
A public limited company has a minimum of seven shareholders, but no
maximum. It may start out as a public company or be formed from a
private company that has ‘gone public’.
Characteristics of Public Companies
1. The company’s name will have PLC at the end of it.
2. In addition to the documents that must be provided to the Registrar
of Companies by the private company, the public company also needs
a Certificate of Trading. This is issued by the Registrar of Companies
when they are satisfied that the business has raised the minimum
amount of capital that will result in the fulfilment of their plans and
objectives.
3. The capital is largely raised through selling shares, selling
debentures (loan capital) and borrowing from financial institutions.
4. Large amounts of capital can be raised.
5. Shareholders do not have much to do with the day-to-day operations
of the business.
6. At the annual general meeting, shareholders elect a board of
directors who are responsible for the decisions of the company. There
is one vote per ordinary share.
7. A share is part of the capital of a company or co-operative. Shares
are sold to the general public through the stock exchange. There are
two main types of shares sold: ordinary shares and preference shares.
You will find it useful to consider the similarities and differences
between these two types of shares.
8 The registrar will approve the issue of a certain number of shares of
a certain par or nominal value.
9 Each public company must have a secretary and must publish their
accounts.

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10. Like the private company, the public company has a separate
identity to its owners.
11. Profits are distributed among shareholders in the form of dividends.
Legal Aspects
These are the same as for the private limited company with the
addition that they are legally allowed to register and use the stock
exchange.
ADVANTAGES
1. They are able to raise large sums of capital.
2. The liability of the shareholders is limited.
3. It is fairly easy for them to borrow money from financial institutions
as they are seen as secure borrowers.
4. Since they are large-scale businesses, they may reap economies of
scale.
5. The public limited company is independent of its owners.
6. Many owners share the risk of the business.
DISADVANTAGES
1. The personal touch which is evident in smaller businesses is often
lost.
2. These businesses are more difficult to manage than smaller ones.
3. Conflicts of interest may arise between managers and shareholders.
4. Too much expansion leads to diseconomies of scale (disadvantages
of large-scale production).
5. Accounts must be published and sent annually to the Trade
Department for inspection.
Your assignment for this week will include some of the information
from the lesson on private limited companies. Here it is:
a) Define, ‘private limited companies’ and ‘public limited companies’. (4
marks)
b) What does the term ‘limited’ in the above question refer to? (2
marks)
c) Outline TWO features of the private limited company and TWO
features of the public limited company. (8 marks)
d) List THREE advantages and THREE disadvantages of private limited
companies(6 marks)
Total marks: 20

JANUARY 14, 2010 P.O.B LESSONS

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Forms of business organisations and

arrangements
The Partnership
Partnerships consist of two to 20 part owners engaged in business
with a view to making a profit.
Examples of partnerships can be found among many professionals,
such as lawyers, doctors, dentists, accountants, stockbrokers and
jobbers, etc.
Characteristics of Partnerships
1. Partners usually run their business based on what is written in their
partnership deed. In the absence of this deed, partners make
reference to the British Partnership Act of 1890. This act, among other
things, states that profits and losses are to be shared equally.
2. Agreement on the conduct of the business is usually by unanimous
vote.
3. Such businesses should be registered with the Registrar of
Companies, which will require information on the business, such as its
name, type of business, names and occupations, if any, of partners,
etc.
Work on this question for your homework.
(a) Define ‘partnerships’ and ‘private limited companies’. (4 marks)
(b) (i) List THREE types of partners. (3 marks)
(ii) State THREE characteristics of partnerships. (3 marks)
(c) List the names of THREE private limited companies. (3 marks)
(d) What is the meaning of the term ‘limited’ in the names of the
companies listed above? (2 marks)
(e) State THREE characteristics of private limited companies. (3
marks)
(f) Give ONE advantage and ONE disadvantage of private limited
companies.
(2 marks)

4. Partners will either share management functions, agree that one

partner should serve as manager or they will employ a manager.
5. When a partner leaves or dies, the partnership is dissolved.
6. There are four basic types of partners: ordinary partners (active or
general partners), sleeping (dormant) partners, limited liability
partners and unlimited liability partners. There must be at least one

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ordinary partner in limited partnerships. Limited partners do not take

part in management.
Legal Aspects
1. Partners have a partnership deed which is normally written up by a
lawyer.
2. The business should be registered with the Registrar of Companies.
Advantages
1. More capital can be raised than in the sole trader type business.
2. Partnerships are fairly easily formed and start-up costs are low.
3. The business benefits from varied ideas and abilities of partners.
4. Specialisation among managers increases output.
5. The partnership is more efficient and a more controlled business
than the sole trader.
6. Workload can be shared. This allows partners to be able to take
holidays.
7. Limited government interference.
8. Partners maintain close contact with employees and customers.
Now let us consider the disadvantages.
Disadvantages
1. Unlimited liability for ordinary partners and for unlimited
partnerships.
2. Lack of continuity.
3. Disagreements often occur among partners.
4. All partners will lose if one partner makes a bad decision.
5. Capital is still limited since there can only be a maximum of 20
partners.
6. Difficulty in finding suitable partners.
Many partners see that they can gain more advantages by turning their
business into companies. There are TWO main types of companies in
the private sector of a mixed economy: the private company and the
public company.
Private Limited Companies
This refers to an association of persons between one and 20 in
number. Private companies may be limited liability companies or
unlimited liability companies. They are usually limited liability
companies. The members of a company are referred to as
shareholders.
Characteristics of Private Limited Companies
1. This type of business is usually a family affair.
2. They must be registered with the Registrar of Companies.

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Registration requires certain information to be provided in a document

known as the ‘Articles of Incorporation’. In Jamaica, there is a New
Companies Act which came into being on February 1, 2005. It would be
good for you to do some research on this act to understand the
formation of private limited companies.
When the registrar is satisfied that all aspects of forming the company
have been complied with, they will issue a Certificate of Incorporation
which gives the shareholders authority to carry on trade.
3. The company is a separate entity from its shareholders. Charges
can, therefore, be brought against the company, but not against
individuals.
4. Finance is usually through private means: borrowing from financial
institutions, government agencies and share and debenture capital.
5. Private companies do not make a public appeal for share capital.
6. The business enjoys limited liability.
7. The private company has, ‘Co. Ltd.’ printed at the end of its name.
8. The life of the company is independent of the life of the
shareholders. If a shareholder dies, the company continues to exist.
Legal Aspects
1. The private company must be registered with the Registrar of
Companies.
2. The business is considered as a separate entity from its members.
Advantages
1. A larger capital base can be obtained than with the sole trader and
the partnership. This means they can expand more.
2. Privacy is retained as the company does not publish its accounts.
3. Continuity. The company may have unlimited life.
4. There is limited liability for shareholders.
5. Most often, the business is restricted to family members.
Disadvantages
1. It is not easy to transfer shares.
2. Capital and, therefore, growth may still be limited.
3. The public issuing of shares is not allowed by law.
4. Annual financial reports must be filed with the Registrar of
Companies.
5. Most often, the business is restricted to family members who may
lack management skills and expertise.

JANUARY 14, 2010 P.O.B LESSONS

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Answers to Past CXC papers 1

DISCUSSION AND GUIDELINES
1. May / jUNE2002
(a) Any two types of economic systems can be listed, for example, the
free economic system and the planned economic system. This part of
the question does not require any expansion or explanation.
(b) The characteristics or features of the economic systems listed can
be used to show the differences between them.
Conjunctions such as whereas, on the other hand, while and however
should be used to indicate your reference to the opposite feature for
the other economic system. For example, in the free economy, most of
the scarce resources are owned and allocated by private individuals
and firms while in the planned economy, scarce resources are owned
and allocated by the government.
The marks allotted for this part of the question would indicate that a
minimum of two differences is required.
(c) Governments’ control of business activity can come in many forms
including:
* Legislation ¬ The passing of laws that businesses should abide by.
2. MAY / JUNE 2003
a) Any TWO functions of a business can be listed e.g.to sell goods and
services to satisfy people’s wants and to provide employment for
people. Expansion on and explanation of the functions is not required.
(b) The TWO types of businesses can be described by defining them
and /or outlining their features or characteristics. For e.g. in describing
the partnership one might say that a partnership is formed with two to
20 members who pool their resources together to run a business with
a view to making a profit.
Partnerships are normally required to sign a Deed of Partnership and
register with the Registrar of Companies.
(c) The advantages which the Public Limited Company has over the
Partnership type of business includes the fact that:
* A larger number of part owners, since the Public Limited Company
has a minimum of seven shareholders and no maximum.
* More capital can be raised than in a partnership since an appeal can
be made to the general public through the Stock Exchange.
* The Public Limited Company is a separate entity from the
shareholder owners, therefore, the individual shareholders cannot be
sued, the company must be sued.

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* The Public Limited Company has a Board of Directors elected by the

shareholders.
* These companies may enjoy economies of scale.
* Risk is spread over many shareholders.
Remember, you are asked to state only TWO advantages of the Public
Limited Company over the Partnership.

* Price controls ¬ Government stated maximum prices for selected

goods and services
* Nationalisation ¬ Direct ownership and control of industries by the
Government, for example, where monopolies are exploiting
consumers.
* Increased taxation ¬ To reduce monopoly profits.
Registration and other legal requirements for setting up of businesses.
* Employment of inspectors to monitor the affairs of businesses e.g.
price inspectors and sanitary inspectors.
* Setting up of government agencies such as The Bureau of Standards
to monitor the quality of goods produced and imported.
Remember, you are asked to suggest only two ways

JANUARY 14, 2010 P.O.B LESSONS

Past CXC Questions part 1

May/ June 2002
1.(a) List TWO types of economic systems. (2mks)
(b) Explain the differences between the types of economic systems
listed in (a) above. (4mks)
(c) Suggest two ways by which the government of your country can
control business activity. (4mks)
Total 10 marks

2. May/ june 2003- Question 2

a) List TWO functions of a business. (2 marks)
(b) Briefly describe TWO of the following types of business
organisations:
(i) Partnership
(ii) Public Limited Company
(iii) Co-operative (4 marks)

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(c) State TWO advantages which the Public Limited Company has over
the Partnership type of business. (4 marks)

DECEMBER 14, 2009 P.O.B LESSONS

A look at Paper 3B
You are required to sit Papers 01 & 02 in common with other
candidates. However, in addition to these two papers, you will also sit
Paper 3B. This paper is often referred to as the ‘alternate paper’ and is
for private candidates ONLY. Paper 3B is done instead of the SBA
(School Based Assessment) Paper 3A.

The ‘alternate paper’ consists of a case study and approximately 14

compulsory questions relating to the Case Study. Please note that you
will NOT be required to submit a project. For the General paper, you
will be awarded a mark out of 40 and for the Basic paper, you will be
awarded a mark out of 30. The weighting of Paper 3B is the same as
the SBA, i.e., 20 per cent of the overall final mark for Basic and
General proficiencies.
FOLLOW GUIDELINES
The key to this paper is to follow closely any guidelines that you may
be given in preparation for the exam and then to practise, practise,
practise past paper questions in order to develop competency in
answering the questions on this paper.
As you work through past paper 3B, you will realise that the questions
do not vary much from one year to the next. However, the answers
that you are expected to give should be in line with the case study
presented and information related to it.
Candidates are instructed to answer ALL questions and to write in the
space provided on the question paper. You are given a total of one
hour and 15 minutes, inclusive of reading time. Writing may begin in
the 15 minutes given for reading.
Read the case study carefully. If you are a quick reader, endeavour to
read it twice before looking at the questions and read the case study
again, this time with the questions in mind. Use your pen to underline
any parts of the case study that will assist you in answering any of the
questions. Be sure to put the number of the question beside the
section you have underlined.
Do ALL parts of ALL questions so that you can have a greater

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opportunity to score highly. However, do not spend time on questions

that pose difficulty for you. Move on to other questions that you can
answer more readily, then, at the end, go back to the questions that
challenged you.
You will notice that the questions fall under proflie headings just like
Paper 02 and the SBA. Before you begin to write your answers in the
spaces provided, think carefully about what you will write and use the
marks in brackets to guide you as to the number of points required
and/or the depth expected.
SPACE RESTRICTIONS
You should endeavour to restrict your answers to the space provided
and you should write legibly. Also, your answers should make sense
and be clear to the examiner. Where you feel that it will enhance your
answer, you may draw diagrams, graphs, charts, etc.
You will not need to cover any additional topics for Paper 3B. The
questions are based on the areas of the syllabus. Therefore, once you
adequately cover your syllabus, you should be able to cope with Paper
3B, using the case study also as a guide to your answers. In addition, I
am suggesting that you have a look at the sub-headings in each profile
of the SBA, as you will be asked questions on these same areas. The
difference is that you will have a business to consider that is
presented to you in the case study.
As with all examinations, ensure that you read the instructions
carefully and manage your tThis week, I will outline the research
activities you should have for each profile in order to master the
alternate paper. The information I will present is taken from CXC
Principles of Business, by Karlene Robinson and Sybile Hamil (2001).
This information was used in the book with the permission of The
Caribbean Examinations Council.
You are being reminded also, that if you are registered to do the
alternate paper, you are NOT required to submit a SBA project.
The research activities for the alternate to the SBA are as follows:
PROFILE 1: ORGANISATIONAL PRINCIPLES
Candidates should be able to:
1. State the type of business enterprise described in the case study.
2. State the objectives of the business enterprise.
3. Describe the type of organisational structure to be put in place,
using appropriate diagrams.
4. Outline the likely management issues that will affect the business
5. Discuss the legal issues to be considered.

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PROFILE 2: PRODUCTION AND MARKETING

Candidates should be able to:
1. Discuss the factors of production to be utilised.
2. Explain the factors which determine the location of the business.
3. Discuss its production and marketing strategies.
4. Comment on its storage facilities and transport arrangements.
PROFILE 3: FINANCE AND INTRODUCTION TO ECONOMICS
Candidates should be able to:
1. Identify possible sources of capital that would be needed in setting
up a business.
2. Consider the insurance needs of the business and comment on their
relevance.
3. Discuss the measures which could be instituted to ensure
profitability.
4. Discuss the type(s) of contribution(s) the business could make to
the economic development of the community/country.
In addition to developing the research listed above, you are also
advised to observe a business in operation as often as you find it
possible. You may wish to attempt to draw its organisational
structure, note its production and marketing strategies and find out its
financial and economic contributions to the community/country. You
may wish to note other points about the business in line with the
research activities outlined above.
Next week, I will present a past paper question or two, so that you can
familiarise yourself with the type of questions asked on this alternate
paper.
In the meantime, begin to look at the activities above with a view to
master them. See you next week.
ime properly so as to avoid panic as the end of the examination draws
near.
CONCLUSION: This section should discuss the question you presented
on your cover and in your abstract. In other words, you should, for
example, be able to come to a conclusion as to the factors that
contribute to the success of ABC Company and be able to discuss
these factors briefly.
* BIBLIOGRAPHY: This must be properly done. There are a number of
accepted styles. You should ensure that you present the chosen style
accurately. The names of the writers of the texts should be in
alphabetical order of the surnames; next should be the full title of the
text (this may be underlined, highlighted, capitalised, or all three); the

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name of the publisher comes next and finally, the last date of
publication of the text.
An example is given below:
BIBLIOGRAPHY
Leunarine Sam, PRINCIPLES OF BUSINESS FOR CXC, Cassell Ltd.
1986.
Waterman Ivan L, PRINCIPLES OF BUSINESS FOR CARIBBEAN
EXAMINATIONS, MacMillan Press Ltd. 1994.
Weber Elsie and Morrison Hopeton, PRINCIPLES OF BUSINESS FOR
THE CARIBBEAN, Longman Group Ltd. 1990.
APPENDIX: As mentioned in a previous lesson, your appendix should
have a clean, unanswered copy of your questionnaire and/or interview
questions. In addition, anything which is not directly related to the
information presented in the profiles should also be placed into the
appendix. The reader must be referred to things placed in the
appendix. The organisational structure and job descriptions, for
example, should not be placed into the appendix, but should be placed
where these issues are discussed.
THE SBA MARK SCHEME AND PROFILE DETAIL
There has been an amendment to the SBA mark scheme.
This amendment takes effect for the May/June 2006 exam. Please note
that the overall marks remain the same (30 for the basic proficiency
and 40 for the general. However, the requirements for profiles one and
three have changed slightly.
PROFILE 1
Organisational Principles
(a) Identify form, objective and structure of the business, with
appropriate diagrams or charts.
BASIC 3
GENERAL 2
(b) Discuss management issues as they relate to the specific business
being studied, for example, planning and control, management and
staff relations, management of time, etc.
BASIC 3
GENERAL 2
(c) Identify legal issues relating to the business, or where lacking,
discuss implications for the business , for example, contracts, job
descriptions, etc.
BASIC 1
GENERAL 3

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(d) Evaluative comments and recommendations (should relate to a, b

and c ).
BASIC 2
GENERAL 2
(e) Communicate information in a logical manner using correct
grammar.
BASIC 2
GENERAL 2

Total: BASIC 9
GENERAL 12
PROFILE 2

Production and Marketing

(a) Discuss factors of production, including their suitability.
BASIC 2
GENERAL 2
(b) Identify issues related to suitability of location and assess
opportunities for linkages.
BASIC 2
GENERAL 3
(c) Describe marketing activities and strategies, for example,
advertisements, sales promotions, public relations, etc. as they relate
to the business.
BASIC 2
GENERAL 3

(d) Identify mode of transport, method of storage and consumerism

issues.
BASIC 2
GENERAL 2
(e) Evaluative comments and recommendations.
BASIC 1
GENERAL 2

Total: BASIC 9
GENERAL 12
PROFILE 3

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Finance and Introduction to Economics

(a) Identify capital sources, collateral, terms of repayment for loans.
BASIC 2
GENERAL 3
(b) Discuss insurance as it relates to the business or state why
insurance has not been considered and the implications of this.
BASIC 2
GENERAL 3
(c) Assess profit level and contributing factors.
BASIC 3
GENERAL 4
(c) Discuss the economic contributions of the business including GDP
and GNP.
BASIC 3
GENERAL 4
(e) Communicate information in logical manner using correct grammar.
BASIC 2
GENERAL 2
Total: BASIC 12
GENERAL 16
INSTRUCTIONS
This paper consists of a case study and 14 questions. Candidates must
answer ALL 14 questions. All answers must be written in the space
provided on the question paper.
CASE: SOLSTICE LIMITED
Solstice Ltd. is the name of a supermarket that has just been
registered as a limited liability company. The company, which was
formed by four brothers, plans to sell a wide range of brand and non-
brand products.
When the supermarket opens next month, it will be selling goods,
which will also carry the Solstice brand, as well as other brands.
Depending on the success of this initial venture, Solstice Ltd. Is
considering opening other branches of the supermarket in various
parts of the country over the next five years.
Solstice Ltd. has entered contracts with suppliers, both local and
foreign. It has already recruited staff for the supermarket. It plans to
have a very successful and impressive opening.
In spite of their expectations of success, the owners are anxious
about the state of the economy at the moment. Also, the decline in
tourist arrivals since September 11, 2001, is also cause for concern as

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Solstice Ltd. is opening its first supermarket in a large tourist resort

area.
The owners of Solstice Ltd. expect that the social and economic
policies of the Government will generate more employment. They are
also optimistic that the incidence of crime will fall over the next five
years.
PROFILE 1: ORGANISATIONAL PRINCIPLES
1. (a) What type of business is Solstice Ltd.? (1 mk)
(b) List two features of the business organisation to which Solstice Ltd
belongs.
(2 mks)
2. State four functions which the manager of Solstice Ltd. Is expected
to perform. (4 mks)
3. Outline three benefits which Solstice Ltd. will enjoy if it installed a
management information system in the supermarket chain. (3 mks)
4. (a) What type of industry is Solstice Ltd? (1 mk)
(b) Name ONE other type of business which belongs to the same type
of industry. (1 mk)
Total 12 marks
PROFILE 2: PRODUCTION AND MARKETING
5. List two factors which could influence Solstice Ltd. in deciding
where to set up new branches of the business. (2 mks)
6. Discuss three benefits which the company will enjoy by having a
chain of supermarkets. (3 mks)
7. (a) List three methods which the company might use to promote the
launch of its FIRST branch. (3 mks)
(b) Explain any one of the promotional methods you identified in (a)
above. (1 mk)
8. (a) Discuss one benefit of Solstice Ltd. having its own brand name.
(2 mks)
(b) Outline one difficulty relating to marketing which Solstice Ltd.
might face. (1 mk)
Total 12 marks
PROFILE 3: FINANCE AND INTRODUCTION TO ECONOMICS
9. List three types of insurance which are relevant to Solstice’s
business. (3 mks)
10. Identify two ways in which the company can contribute to the
economy of the country. (4 mks)
11. Give one effect on the business of
(a) an increase in interest rates (1 mk)

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(b) a decrease in interest rates (1 mk)

12. Outline two strategies which Solstice Ltd. might use to raise funds
to expand the business. (2 mks)
13. List two transport documents which Solstice Ltd. is likely to use in
the conduct of its business. (2 mks)
14. Identify three methods of payment which customers may use when
making purchases from the company. (3 mks)
Total 16 marks

DECEMBER 14, 2009 P.O.B LESSONS

SAMPLE PAPER 3(POB)

CASE STUDY: SOLSTICE LIMITED
Solstice Ltd. is the name of a supermarket that has just been
registered as a limited liability company. The company, which was
formed by four brothers, plans to sell a wide range of brand and non-
brand products.
When the supermarket opens next month, it will be selling goods,
which will also carry the Solstice brand, as well as other brands.
Depending on the success of this initial venture, Solstice Ltd. Is
considering opening other branches of the supermarket in various
parts of the country over the next five years.
Solstice Ltd. has entered contracts with suppliers, both local and
foreign. It has already recruited staff for the supermarket. It plans to
have a very successful and impressive opening.
In spite of their expectations of success, the owners are anxious
about the state of the economy at the moment. Also, the decline in
tourist arrivals since September 11, 2001, is also cause for concern as
Solstice Ltd. is opening its first supermarket in a large tourist resort
area.
The owners of Solstice Ltd. expect that the social and economic
policies of the Government will generate more employment. They are
also optimistic that the incidence of crime will fall over the next five
years.
PROFILE 1: ORGANISATIONAL PRINCIPLES
1. (a) What type of business is Solstice Ltd.? (1 mk)
(b) List two features of the business organisation to which Solstice Ltd
belongs.
(2 mks)

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2. State four functions which the manager of Solstice Ltd. Is expected

to perform. (4 mks)
3. Outline three benefits which Solstice Ltd. will enjoy if it installed a
management information system in the supermarket chain. (3 mks)
4. (a) What type of industry is Solstice Ltd? (1 mk)
(b) Name ONE other type of business which belongs to the same type
of industry. (1 mk)
Total 12 marks
PROFILE 2: PRODUCTION AND MARKETING
5. List two factors which could influence Solstice Ltd. in deciding
where to set up new branches of the business. (2 mks)
6. Discuss three benefits which the company will enjoy by having a
chain of supermarkets. (3 mks)
7. (a) List three methods which the company might use to promote the
launch of its FIRST branch. (3 mks)
(b) Explain any one of the promotional methods you identified in (a)
above. (1 mk)
8. (a) Discuss one benefit of Solstice Ltd. having its own brand name.
(2 mks)
(b) Outline one difficulty relating to marketing which Solstice Ltd.
might face. (1 mk)
Total 12 marks
PROFILE 3: FINANCE AND INTRODUCTION TO ECONOMICS
9. List three types of insurance which are relevant to Solstice’s
business. (3 mks)
10. Identify two ways in which the company can contribute to the
economy of the country. (4 mks)
11. Give one effect on the business of
(a) an increase in interest rates (1 mk)
(b) a decrease in interest rates (1 mk)
12. Outline two strategies which Solstice Ltd. might use to raise funds
to expand the business. (2 mks)
13. List two transport documents which Solstice Ltd. is likely to use in
the conduct of its business. (2 mks)
14. Identify three methods of payment which customers may use when
making purchases from the company. (3 mks)
Total 16 marks
the private sector of the mixed economy.
1. (a) Distinguish between a partnership and a sole trader. (4 marks)
(b) Identify TWO advantages and TWO disadvantages of operating as a

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sole trader. (4 marks)

(c) Give TWO reasons why you would want to be a member of a
partnership. (2 marks)
Total: 10 marks
2. Multinational corporations are often criticised for having a negative
effect on a country’s economic development.
(a) Give TWO reasons why you would agree with the above statement,
and TWO reasons why you would disagree. (4 marks)
(b) (i) Define the term ‘nationalisation’. (2 marks)
(ii) Discuss TWO reasons for nationalisation. (4 marks) Total: 10 marks
3. (a) Distinguish between the following:
(i) A conglomerate and a multinational company
(ii) Preference shares and debentures
(iii) Limited liability and unlimited liability. (6 marks)
(b)List THREE sources from which a private limited company may
obtain financial capital. (3 marks)
(c) Explain any THREE co-operative principles. (6 marks)
(d) (i) What is meant by the term, ‘limited liability’ ? (2 marks)
(ii) Name THREE types of business enterprise to which the concept in
(d)(i) applies. (3 marks)
Total: (20 marks)
4. ‘Franchising is one of the fastest-growing sectors of an economy.
Over 20 per cent of retail sales are accounted for by this form of
trading, and the trend is growing each year.’
(a)(i) What is a franchise? (2 marks)
(ii) Give TWO examples of this type of business from your own country.
(2 marks)
(iii) Outline THREE features of a franchise. (6 marks)
(c) Outline TWO of the contents of EACH of the following documents:
(i)Memorandum of Association
(ii)Articles of Association
(c)(i) What do you understand by the phrase ‘lack of continuity’? (2
marks)
(ii) Name TWO types of business which display this feature. (2 marks)
June Palmer holds majority shares in Electronics and More plc. The
company has been using the Stock Exchange for over five years.
(d)(i) What do the letters plc at the end of the company’s name stand
for?
(1 mark)
(ii) For what purpose has the business been using the Stock

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Exchange? (1 mark)
Total: 20 marks

DECEMBER 2, 2009 P.O.B LESSONS

The human resources office

The human resources office is the centre of the organisation which
works closely with other departments.

Its functions include:

* Recruiting employees
* Orienting and training new employees
* Determining how to compensate employees
* Providing incentives and benefits
* Settling complaints and grievances
* Disciplinary procedures
* Appraising performance

RECRUITMENT AND SELECTION OF NEW EMPLOYEES

RECRUITMENT – Advertising —> Post Shortlisting

Interviewing —> Testing —> Selecting

EMPLOYMENT – Letter of Contract Promotion —> Transfer —> Layoff —

> Dismissal

TRAINING – Induction —> Orientation —> In-house

special programmes for individuals

EVALUATION – Performance/Appraisal —> Reports

WELFARE – Pension schemes —> Superannuation Schemes —>

Insurance —> Canteen

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The recruitment of employees can be done either internally or

externally. Internal sources consist of employee referral and
promotions from within, whereas external sources are more varied and
consist of unsolicited applications, advertising, employment agencies,
the grapevine and the electronic media.

The selection process usually involves:

a) Processing of applications

b) Shortlisting (selection of an approved number of applicants for

interviewing)

c) Interviewing (by one or more persons)

d) Testing (if necessary)

e) Notifying successful applicants by telephone and a follow-up letter.

A contract of employment is prepared for the successful applicant. It

sets out the terms and conditions of employment and so a personal file
should be prepared with the following records:

* Application letter or form

* Letter of appointment
* Contract of employment
* Performance evaluation
* Periods of absences/vacation/sick leave
* Medical certificates
* Record of transfers or promotion
* Copies of certificates and transcripts
* Reference or testimonials and résumé.

Orientation

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Orientation is usually undertaken by The human resources office to

help the employee adjust to his or her new environment within the
shortest possible time, and provides information on the following:

* The structure of the organisation

* Policies
* Services
* Wages and salaries
* Working hours
* Benefit plans
* Training opportunities
* Appraisal system

The newly hired employee will be asked to submit:

* National insurance number

* Tax registration number
* Medical record

Induction

The induction programme is planned by the department in which the

new employee will actually commence work so that the employee can
adjust to his new job as quickly as possible. During the induction
programme, the employee is provided with information on:

* Responsibilities of the job

* Specific duties
* The department in which he or she will be employed
* Facilities available
* Promotional opportunities
* Operation of basic equipment

The aim of this training is to familiarise the employee with the

important aspects of the job and safety precautions to follow.

Training

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Organising training programmes is an essential feature of the work of

the human resources department. The programme might be an in-
house one that is done by select staff or it might be one in which
persons from outside the organisation are recruited to undertake the
training programme. The period of training depends upon the
complexity of the training involved.

Training is beneficial to both the employer and the employee. Some of

the benefits of training include:

* Better understanding of the organisation and its goals

* Improved performance and morale
* Improved problem-solving techniques
* Introduction of ideas which can save time and money.

Evaluation of employees

In evaluating an employee, the following factors are considered:

* Scholastic background
* Attendance and/or punctuality
* Job knowledge
* Attitude
* Quantity and quality of work performance
* Reliability
* Initiative
* Adaptability
* Decision-making ability.

Evaluation techniques might vary in different organisations.

NOVEMBER 19, 2009 P.O.B LESSONS

Functional Areas Of a Business

Functional areas refer to specialised departments within a business.
These departments carry out specific functions that assists the
business overall.

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Businesses can vary greatly in size. When a business is small, there

are no definite functional areas evident. This is so because the owner
usually produces and markets his own products, does his own
accounting and personnel work. As the business expands, however,
specialised (functional areas) departments become necessary. Most
large businesses have FOUR functional areas: PRODUCTION, FINANCE,
MARKETING and PERSONNEL.

In very large businesses, there are TWO additional functional areas:

RESEARCH and DEVELOPMENT, and SOCIAL.

We will now take a brief look at what takes place in these specialised
departments.

THE PRODUCTION FUNCTION

In this department, raw materials are combined to produce goods and

services are also provided. Designers make specifications which are
fully developed and tested. Sample products are also made. There will
be no production department however if the business is only engaged
in retailing or wholesaling, since they are buying and selling already
manufactured goods or they are in the service industry.

THE FINANCE FUNCTION

This department is responsible for the accounting procedures and

processes of the business. They are also involved in the investment of
funds in plant and machinery, as well as in the purchasing of the needs
of other departments of the business. Where shareholders are paid
dividends, the finance will make this a reality for them.

THE MARKETING FUNCTION

The marketing function includes market research, publicity,

distribution, selling merchandising and after-sales services,
advertising and sales promotion.

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THE PERSONNEL FUNCTION

This department is sometimes referred to as the human resource

department. The functions and duties of this department concern
mainly the employees of the business. Primary concerns are: planning
and forecasting manpower requirements, recruitment and selection of
employees of the business, job analysis and job description, job
specifications and employee training, etc.

Having looked at the FOUR main areas, let us now spend a few
minutes on the additional functional areas that may exist if the
business is large.

THE RESEARCH AND DEVELOPMENT FUNCTION

The work of this department includes many types of research, e.g.,

consumer research, product research and motivation research.
Feasibility studies and pilot projects are carried out and
communication with research institutes, such as the department of
statistics, takes place.

THE SOCIAL FUNCTION

This may include: trade union negotiations, efforts to reduce pollution

and dumping of waste products, provision of health facilities and
provision of clean, working environments, and the initiation of social
groups in the business, e.g., clubs and credit unions.
That’s it for the functional areas of the business.

Many persons decide to own and operate their own businesses. Some
decide to invest in the business ventures of others. Still, others end up
working in the business. Whatever the case, one needs to understand
the fundamentals of management.

NOVEMBER 19, 2009 P.O.B LESSONS

Functions of a business

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A business or business unit consists of a person or group of persons

engaged in trade or some other commercial activity, with a view to
making a profit. Not all organisations can be regarded as businesses.
A non-profit organisation is not a business. For example, a church
bazaar may be engaged in selling goods, but it is not a business,
because the money made will be given to the church or a charity. This
was their aim in selling the goods; they did not sell with the aim of
making a profit. A private school, run for a profit by its owners, is a
business, but a government school, provided as a service to the
community is not.

The functions of a business

The functions that a business carries out, depends on its aims, goals
and objectives. However, for most businesses there are three main
functions:

1. The production of goods and services to satisfy wants

Goods are made through the use of raw materials and other productive
resources. They are tangible items.
Services are intangible and there are two types, direct or personal and
indirect or impersonal.

2. The creation of jobs

Labour is one of the productive resources used to make goods and

provide services, therefore, businesses employ labour and in doing so,
they create jobs for those seeking employment. They create jobs for
skilled, semi-skilled and unskilled labour, thereby reducing
unemployment.

3. The creation of profit

Businesses aim to make profit. In the private sector, the aim is to

maximise profits and to minimise the use of resources in doing so. In
order to realise a profit, a business must keep its production costs as

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low as possible and sell its product for more than it costs to produce.
Being in business does not, of itself, guarantee that a profit will be
made. Among other things, to be successful, a business must produce
goods and services that people want, at a price they are willing to pay.

Other functions of the business include:

1. Businesses aid in the development of the country in which it is

located.

2. A business helps to upgrade the skills of the workforce and

contributes to the rise in the standard of living.

3. To promote or improve local industry using local raw materials.

Now let us consider the roles or responsibilities of a business.

The roles of businesses

The roles of a business fall under four main headings:

1. Economic roles

These include:

* To sell goods and services of a high quality at prices so the majority

wishing to purchase them can do so
* To give export orders priority and to try to increase these order
* To make a profit
* To improve the good or service
* To contribute towards the improvement of the community
* To create employment

2. Financial roles

These include:

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* To make a profit
* To be in a good financial standing with its bankers
* To plough back profit into the business for expansion
* To pay shareholders
* To invest in other productive areas

3. Political roles

These include:

* To lobby and vote for parties whose policies coincide with their own
wishes
* To donate to the funds of political parties they favour
* To influence government into establishing policies which will benefit
their businesses as well as their country

4. Social roles

These include:

* To develop a good community spirit by donating to charities and

sponsoring educational, health and sporting events
* To promote the well-being of employees
* To take part in community clean-up campaigns
* To maintain homes and community centres

This now completes section one of the syllabus. Next week we will
begin section two:

Internal organisational environment

The first part of this section considers

functional areas of a business and functions and responsibilities of

management

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Before I go, here is your assignment:

(a) What do you understand by the term, ‘business’? (2 marks)

(b) Explain why not all organisations are regarded as businesses. (4

marks)

(c) List TWO of the MAIN functions of a business. (2 marks)

(d) Give THREE roles of a business under each of the following

headings:

(1) Economic roles

(2) Financial roles

(3) Political roles

(4) Social roles. (12 marks)

FEBRUARY 4, 2009 P.O.B LESSONS

National Income Accounting

National Income Accounting: Part I

Now I will look at some important concepts in Unit 12 Social Accounting and International Trade. The topic is
National Income Accounting. Before looking at these concepts, I will state the specific objectives for the topic. The
candidate should be able to:

* define National Income and its variants

* show how National Income may be measured
* discuss National Income as a measure of the standard of living of a community. Objective one will be covered this
week; the other two objectives will be covered in next week’s lesson.

CONSIDER THESE QUESTIONS

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How well is the Guyanese economy performing today? Is it operating at full capacity or are some of the country’s
productive resources idle? Are the country’s productive capacity and actual production growing? If so, is production
growing at a faster rate than the population? These are the kinds of questions that economic policy makers are
constantly asking themselves. In order for policy makers to formulate sound economic policies for maintaining the
nation’s economic health, it is necessary to have accurate measures of the economy’s performance.

National Income Accounting refers to the accounting records that measure the national economy’s performance.
National Income looks at a country’s total income. There are a number of variants/forms of national income. I will
now look at these variants of a country’s Total Income (National Income).

GROSS DOMESTIC PRODUCT (GDP)

GDP is the total money value of the final goods and services produced in a country during a one-year period. It is
important to note that the GDP figure does not include goods and services produced by firms abroad that are owned
by local individuals or the government. GDP therefore takes into consideration what is produced in the country itself
with the resources of the country.

GROSS NATIONAL PRODUCT (GNP)

This is the broadest measure of the economy’s ‘health’. It refers to the total money value of all final goods and
services produced by a country during a one-year period. GNP takes into account not only what is produced locally,
but also what is produced by firms abroad that are owned by local individuals and the government.

NET NATIONAL PRODUCT (NNP)

This refers to the total money value of all goods and services produced by a country during a one-year period after
depreciation is deducted. Depreciation refers to the loss of value because of wear and tear to consumer durables and
producer goods. GNP and GDP do not take depreciation into account. Therefore, the difference between GNP and
NNP (NI) is depreciation.

NATIONAL INCOME (NI)

This is a measure of the total income earned by everyone in the economy. It includes those who use their own labour
to earn an income as well as those who make money through the ownership of the other factors of production.
National Income is equal to NNP minus indirect business taxes such as excise duties and custom duties etc.

DISPOSAL INCOME (DI)

Although this is the smallest measure of income it is an important indicator of the economy’s ‘health’, because it
measures the actual amount of money people have to spend. DI is also known as personal disposable income. It is
the amount of money that individuals have available for spending after personal taxes are paid. These taxes are
subtracted from personal income. DI may also be regarded as the income available to an individual for immediate
purchase of goods and services and for savings. For the most part, DI is equal to the amount of money received from
an employer after taxes and other deductions such as social security. Individuals have a choice as to how to allocate
their disposal income. Most of disposal income is spent for personal consumption, and that portion not spent for
consumption is called personal savings.

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PERSONAL INCOME (PI)

This is the total amount of income going to households/individuals before taxes are subtracted. PI can be derived
from NI through a two-step process. Firstly, corporate income taxes, profits that businesses put back into their
businesses to expand and social security contributions made by employers are all subtracted from NI. These are
subtracted because they represent money that is not available for businesses to spend. Secondly, transfer payments
(i.e. welfare and other supplementary payments such as unemployment compensation) are added to NI. These
transfer payments add to an individual’s income. However, they are not in exchange for any current productive
activity that has been done by an individual. The resulting total is the final measure of personal income.

Next week’s lesson will look at how National Income can be measured and the uses of National Income data.

Now you can check your understanding of this week’s lesson by explaining the following to your friend:

(1) the term National Income Accounting

(2) three of the six forms of a country’s National Income
(3) (i) the difference between GNP and NNP
(ii) the difference between personal income and disposal income.

National income accounting (Part 2)

HELLO EVERYONE! Last week’s lesson looked at the terms ‘national income accounting’ and ‘national income’,
and then discussed the variants or forms of
national income.

This week’s lesson will outline the methods of measuring national income and the uses and limitations of national
income statistics.

THE MEASUREMENTS OF NATIONAL INCOME

In order to assess how fast an economy has grown, we must have a means of measuring the value of the nation’s
output. The measure of national income that we use to do this is known as Gross Domestic Product (GDP). Last
week, GDP was defined as the total money value of the final goods and services produced in a country during a one-
year period. Remember that this figure does not include goods and services produced by firms abroad that are owned
by local individuals or the government. It takes into consideration therefore only what is produced in the country
with the resources of the country.

There are THREE methods of measuring GDP. All the three methods should result in the same GDP figure:

* The first method of measuring GDP is to add up the value of all goods and services produced in the country. This
is known as the Product/Output Method.

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* The second method of measuring GDP is to add up all the incomes in the form of wages and salaries, profit, rent,
and interest. This is known as the Incomes Method.

* The third method focuses on the expenditure necessary to purchase the nations production. This is called the
Expenditure Method.

Since the value of what is sold is also the value of what is produced and these must be equal to the value of the
expenditure, all the three methods must yield the same result, i.e.,

NATIONAL PRODUCT/OUTPUT = NATIONAL INCOME = NATIONAL EXPENDITURE. In reality, however,

the figures may differ slightly and the difference is made up by use of an accounting procedure known as the
margins of error or statistical discrepancy.

Before we look at the uses and limitations of national income statistics, let us consider the factors that influence
national income.

INCOME OF A COUNTRY

The major factor affecting national income of a country is the degree of economic growth. This in turn is influenced
by the following:

1. The availability of natural resources and how effectively these natural resources are used by the country The
greater the availability of natural resources, and the more effectively they are used, the greater will be the country’s
economic growth and therefore the greater will be its national income. In Jamaica, our natural resources include
bauxite, limestone and sand.

2. The quality of the country’s labour force also affects economic growth and ultimately its national income In
considering the quality of labour, factors such as size, its health and the skills it has are of utmost importance.

3. The degree of industrial development of the country’s industries The more equipped and technically advanced
they are, the greater will be the country’s economic growth and by virtue of its economic growth, its national
income.

4. Economic activity should be spread over a wide range of industries in order to achieve high levels of national
income.

5. Political stability is important to economic growth If there is political unrest, investment will be adversely
affected and economic objectives will not be achieved.

USE OF INCOME STATISTICS

Now, having compiled the necessary national income statistics, what does a country do with them? We will now
look at this and then move on to the limitations in the use of these statistics.

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THE USES AND LIMITATIONS OF NATIONAL INCOME STATISTICS

1. The statistics allow us to compare output of one country with another.

2. The figures can be used to compare economic growth of countries at a particular time and over a period of time.

3. The statistics serve as a tool or instrument of economic planning, i.e., the statistics help government to determine
how to plan for a country and these plans are included in their budget.

4. One of the most important uses of these statistics is its use in comparing the standard of living of one country with
another, i.e., an increase in the National Income statistics usually an increase in standard of living.

However there are a number of limitations in using these statistics as an indicator of standard of living because of:

(a) Problems of measuring national output where there are instances of unrecorded items. This occurs where:

I.There are non-marketed items e.g. babysitting

II. Where underground economies exist.

(b) Total GDP/GNP figures ignore the distribution of income.

(c) Problems in using National Income statistics to measure welfare since:

I. Production does not equal consumption

II. There may be high human costs of production
III. Externalities are ignored. There are costs and benefits to parties external to the production or consumption of a
good or service.

(d) National income statistics is recorded in money terms. The value of money is constantly changing and therefore
inflation can cause it incorrectly to appear as if a country’s national income is increasing. Deflation would have the
opposite effect. What is important therefore is the REAL increase in the national income and to arrive at this,
allowances must be made for changes in the value of money.

FEBRUARY 4, 2009 P.O.B LESSONS

Effective Study Skills

This web page on study skills is designed to help you improve your
learning and understanding, and ultimately your grades.

No two people study the same way, and there is little doubt that what
works for one person may not work for another. However, there are

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some general techniques that seem to produce good results. No one

would argue that every subject that you have to take is going to be so
interesting that studying it is not work but pleasure. We can only wish.
Everyone is different, and for some students, studying and being
motivated to learn comes naturally. If you are reading this page, it’s
likely that you are not one of them, but don’t despair, there is hope!
Your success in high school and college is dependent on your ability to
study effectively and efficiently. The results of poor study skills are
wasted time, frustration, and low or failing grades. It’s your life, your
time, and your future. All I can say, upon reflection of many.

This guide is designed to help you develop effective study skills. It is

not a magic formula for success in preparing for tests, or written or
oral assignments. Studying any material requires work!

Effective Study skills are about more than understanding

Effective study skills must be practiced in order for you to improve. It
is not enough to simply “think about” studying; you have to actually do
it, and in the process use information from what you do to get better.
This is the central idea of this page. All that follows depends on this
single concept. There is a saying that goes like this: “Practice doesn’t
make perfect; perfect practice makes perfect.” If you want to be an
achiever, take this saying to heart.
The value of a schedule

Before you even begin to think about the process of studying, you must
develop a schedule. If you don’t have a schedule or plan for studying,
then you will not have any way of allocating your valuable time when
the unexpected comes up. A good, well thought out schedule can be a
lifesaver. It’s up to you to learn how develop a schedule that meets
your needs, revise it if necessary, and most important, follow it.
A schedule saves time
All schedules should be made with the idea that they can be revised. A
good schedule keeps you from wandering off course. A good schedule,
if properly managed, assigns time where time is needed, but you’ve got
to want to do it!
Making every hour count
A schedule should take into account every class, laboratory, lecture,
social event, and other work in which you engage. There are givens

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such as classes and so on that have to be incorporated. You must

focus on the other “free time” available and how you will use it. Make
a weekly schedule and block off the 24 hour day in one hour
increments. Indicate times for classes, labs, lectures, social, and work
time. Also block off a period for sleeping each day. With what is left
over, plan time for study. This gives you a rough road map of the time
available. Of course, you can revise your schedule as circumstances
warrant.
When to study
The problem of when to study is critical. A good rule of thumb is that
studying should be carried out only when you are rested, alert, and
have planned for it. Last minute studying just before a class is usually
a waste of time.
Studying for lecture courses
If your study period is before the lecture class, be sure you have read
all the assignments and made notes on what you don’t understand. If
the study period is after the lecture class, review the notes you took
during class while the information is still fresh.
Studying for recitation courses
For classes that require recitation, such as foreign language, be sure
to schedule a study period just before the class. Use the time to
practice. Sometimes, practice with others can help sharpen your skills
in a before-class study period.
Making and revising a schedule
Don’t be afraid to revise your schedule. Schedules are really plans for
how you intend to use your time. If your schedule doesn’t work, revise
it. You must understand that your schedule is to help you develop good
study habits. Once you have developed them, schedule building
becomes easier.
The Process of Study
How to use your time Page

Time is the most valuable resource a student has. It is also one of the
most wasted of resources. The schedule you develop should guide you
in how to allocate the available time in the most productive manner.
Sticking to your schedule can be tough. Don’t dribble away valuable
time. Avoiding study is the easiest thing in the world. It’s up to you to
follow the schedule you prepared. A good deal of your success in high
school or college depends on this simple truth.
Where to study

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You can study anywhere. Obviously, some places are better than
others. Libraries, study lounges or private rooms are best. Above all,
the place you choose to study should not be distracting. Distractions
can build up, and the first thing you know, you’re out of time and out of
luck. Make choosing a good physical environment a part of your study
habits.
Strategies
Thinking skills
Everybody has thinking skills, but few use them effectively. Effective
thinking skills cannot be studied, but must be built up over a period of
time. Good thinkers see possibilities where others see only dead-ends.
If you’re not a good thinker, start now by developing habits that make
you ask yourself questions as you read. Talk to other students who you
feel are good thinkers. Ask them what it is they do when they think
critically or creatively. Often times, you can pick up valuable insights
to help you become a better thinker.
The SQ3R method
The SQ3R method has been a proven way to sharpen study skills.
SQ3R stands for Survey, Question, Read, Recite, Review. Take a
moment now and write SQ3R down. It is a good slogan to commit to
memory to carry out an effective study strategy.
Survey – get the best overall picture of what you’re going to study
BEFORE you study it an any detail. It’s like looking at a road map
before going on a trip. If you don’t know the territory, studying a map is
the best way to begin.
Question – ask questions for learning. The important things to learn
are usually answers to questions. Questions should lead to emphasis
on the what, why, how, when, who and where of study content. Ask
yourself questions as you read or study. As you answer them, you will
help to make sense of the material and remember it more easily
because the process will make an impression on you. Those things
that make impressions are more meaningful, and therefore more easily
remembered. Don’t be afraid to write your questions in the margins of
textbooks, on lecture notes, or wherever it makes sense.
Read – Reading is NOT running your eyes over a textbook. When you
read, read actively. Read to answer questions you have asked yourself
or questions the instructor or author has asked. Always be alert to
bold or italicized print. The authors intend that this material receive
special emphasis. Also, when you read, be sure to read everything,
including tables, graphs and illustrations. Often times tables, graphs

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and illustrations can convey an idea more powerfully than written text.
Recite – When you recite, you stop reading periodically to recall what
you have read. Try to recall main headings, important ideas of
concepts presented in bold or italicized type, and what graphs charts
or illustrations indicate. Try to develop an overall concept of what you
have read in your own words and thoughts. Try to connect things you
have just read to things you already know. When you do this
periodically, the chances are you will remember much more and be
able to recall material for papers, essays and objective tests.
Review – A review is a survey of what you have covered. It is a review
of what you are supposed to accomplish, not what you are going to do.
Rereading is an important part of the review process. Reread with the
idea that you are measuring what you have gained from the process.
During review, it’s a good time to go over notes you have taken to help
clarify points you may have missed or don’t understand. The best time
to review is when you have just finished studying something. Don’t
wait until just before an examination to begin the review process.
Before an examination, do a final review. If you manage your time, the
final review can be thought of as a “fine-tuning” of your knowledge of
the material. Thousands of high school and college students have
followed the SQ3R steps to achieve higher grades with less stress.
Reading
A primary means by which you acquire information is through reading.
In college you’re expected to do much more reading than in high
school. Don’t assume just because you’ve “read” the assignments that
is the end of it. You must learn to read with a purpose. In studying, you
may read the same assignment three or four times, each time with a
different purpose. You must know before you begin reading what your
purpose is, and read accordingly.
Getting the Main Idea
Getting the main idea in reading is central to effective studying. You
must learn what the author’s central idea is, and understand it in your
own way. Every paragraph contains a main idea. Main ideas are
perfect for outlining textbooks. Make it a habit to find the main idea in
each paragraph you read.
Extracting Important Details
Extracting important details means that you locate in your reading the
basis for main ideas. There is usually one important detail associated
with every main idea. The more important details you can identify, the
easier it will be to review for examinations because you have made a

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link between an idea and information that supports it. The more links
you can make between details and ideas, as well as ideas themselves,
the more powerful will be the efforts of your study.
Don’t Read Aloud to Yourself
Generally, reading aloud to yourself does not help you study more
effectively. If you move your lips while you read, you’re not reading
efficiently. If you read aloud or move your lips while you’re reading,
you are reading slowly, so stop moving your lips. Try putting a finger
over your lips. Your finger will remind you not to move your lips. Make
an effort to read faster and retain more – after a while, you’ll be
surprised how little effort it will take.
Taking Notes
Like reading, note-taking is a skill which must be learned and refined.
Almost invariably, note taking, or the lack of it, is a constant
deficiency in the study methods of many high school and college
students. Learning the ingredients of good note taking is rather easy;
applying them to your own situation depends on how serious you are in
becoming a successful student.

FEBRUARY 4, 2009 P.O.B LESSONS

The entrepreneur and entrepreneurship

The entrepreneur is a human factor of production whose main functions are to

organise the other factors of production and bear risks.

The entrepreneur consciously moves resources from an area of lower productivity

and lower yield to an area of higher productivity and higher yields.

The entrepreneur may also be seen as one who creates a new business in the face of
risk and uncertainty, for the purpose of achieving profits, by identifying opportunities
and assembling the necessary resources to capitalise on them.

Entrepreneurship is the process or the act of organising resources and acceptance

of risk and uncertainty for the purpose of capitalising on opportunities with the aim
of achieving profit.

Role of the entrepreneur

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1. Conceptualising: The entrepreneur must formulate ideas regarding the type of

business and the type of product that can be put on the market. He must also think
of the size of the production in order to make a profit.

2. Planning: This means that the entrepreneur will consider the future and what is
to be done in the future with regard to what has been conceptualised. The
entrepreneur will make short-term as well as long-term plans. Overall, policies and
organisational structure will have to be worked out. Planning also includes outlining
the duties of managers and setting targets to be met, for example, production and
sales targets.3. Accessing funds: The entrepreneur is responsible for raising funds or
finances before production begins and whenever the business needs additional
capital for expansion. This does not mean that the funds must come from the
entrepreneur’s own pocket. Apart from savings, the entrepreneur can use other
sources of finance, including:

 Borrowing from friends and relatives

 Attracting foreign investors
 Acquiring partners
 Financial institutions.

4. Organising: This involves bringing together the other factors of production in

order to ensure efficiency, maximum output and maximum profits.

5. Operating: Once the entrepreneur has chosen the right form of ownership, made
short-term and long-term plans and organised resources, including time and money,
he may begin to operate or run the business. Operating the business will involve the
functional areas of production, marketing, finance and personnel. Operation of the
business results in the production and sale of a good or service with the view to
making a profit.

6. Evaluating the performance of a business: One of the functions of managers is

evaluating. This is done at the end of the production process to see if the entire
process has been successful and to see if the goals of the organisation have been
met. Problems and failures are reviewed and suggestions are made and put in place
to avoid these in the future.

7. Bearing risks: A risk is a chance. There are two types of risks: a) insurable and b)
non-insurable risks. It is the responsibility of the entrepreneur to take out policies
against those risks which can be insured, for example, the threat of theft, fire,
flooding, etc. Those risks which cannot be insured against must be borne on the
shoulders of the entrepreneur. Such risks are referred to as uncertainties, for
example, a sudden change in the demand for the product. Entrepreneurs must be
willing to take risks or chances in order to make profits.

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8. Reaping profits or the bearing of losses: The entrepreneur’s reward for organising
the factors of production and bearing risks is profit. To gain profit, the entrepreneur
must sell the good or service for more than it costs him to produce. That is, average
revenue must be greater than average cost. If he sells for less than it costs him to
produce, he will make losses. In the long run, he will leave the industry and go into
one where he can, at least, make normal profit.

In some forms of operations by entrepreneurs, profits and losses are shared, for
example, partnerships. In other forms, for example, the sole trader, profits and
losses belong to the owner of the business.

Your task for this week is to do some research on what should be the characteristics
of the typical entrepreneur. Write a few sentences on each characteristic.

The entrepreneur and entrepreneurship (part 2)

Yvonne Harvey, Contributor

Last week I left you with the task of reading and making notes on the characteristics
of the typical entrepreneur. What did you come up with? Compare your notes with
what I have provided in this lesson and bear in mind that these characteristics help
to make a successful entrepreneur.

An entrepreneur should be:

1. Creative. This means being able to use the imagination to invent something
different or original.

2. Innovative. In other words, be able to find new methods or ways of doing things
and to make changes where necessary. It also involves bringing in new ideas.

3. Flexible. This means to be easily adaptable. In this rapidly changing world, the
entrepreneur must adapt to changes in technology and changes in demand. Rigidity
often results in failure.

4. Goal-oriented. Whatever the entrepreneur does should be towards achieving the

goals or objectives of the business. He or she should not be sidetracked into doing
things that have no bearing on the aims and objectives of the business.

5. Persistent. The entrepreneur should be able to continue firmly in a certain course

of action despite difficulties. This does not mean, however, that there should not be
changes where necessary. Remember, we have already said that the entrepreneur
should be flexible. However, being persistent means not giving up on an idea or

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project at the first sight of problems. Efforts should be made to ‘iron out’ the
problems and continue the projects, resulting in the achievement of the goals and
objectives of the business.

6. Highly committed. If the entrepreneur has a high degree of commitment, then hard
work and perseverance should pay off.

7. Able to take calculated risks. This means that the entrepreneur should be
someone who has a sense of searching for opportunities and is willing to take
chances based on the fact that the person has studied what is involved and feels
that there can be success and achievement of the well-defined goals of the business.
Thus, the entrepreneur will spot and capitalise on opportunities.

8. Able to handle uncertainties. The risks that cannot be insured against are referred
to as uncertainties. These risks must be dealt with by the entrepreneur.

Entrepreneurs often have the desire to start up a business. What are some of the
reasons that he will want to do so? This question brings us to our next subheading:
Reasons for wanting to start a business. Let us begin by defining a business.

A business refers to an individual or a group of individuals involved in some

commercial activity, such as producing or selling goods and services, with the aim of
making a profit. Where persons are engaged in such activities but not with the aim of
making a profit, then they cannot be regarded as a business.

There are two main reasons for wanting to set up or start a business:

(i) Desire for financial independence

(ii) Self-actualisation/self-fulfillment

Let us now expand on these two reasons.

Desire for financial independence

Some people set up businesses in order to gain money so that they will not have to
rely on others for money for food, clothing and shelter. Financial independence, in
this case, is realised through making a profit. Where an entrepreneur sees that a
product can be sold for more than what it costs to produce, there will be motivation
to set up business, so as to not have to depend on others.

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Self-actualisation (self-fulfillment)

Often, businesses are set up because of the need to realise one’s potential because
of the need to express creativity, because of the need to achieve and to be able to
recognise one’s limitations or shortcomings and to be able to make improvements.

Business owners are able to achieve what is important to them. Entrepreneurs want
to be their ‘own bosses’, and they set up businesses to bring their desires to life.
Businesses allow for self-expression, an opportunity to do what you enjoy.

Some persons see businesses as an opportunity to contribute to society and be

recognised for their efforts. They gain trust and recognition from customers who
have served them faithfully over the years.

Now, revise the last two weeks’ lessons in order to attempt this question.

(a) Define the terms entrepreneur and entrepreneurship. (4 marks)

(b) Discuss THREE roles of the entrepreneur. (6 marks)

(c) Outline THREE vital characteristics of the typical entrepreneur. (6 marks)

(d) As an entrepreneur, you are thinking of establishing a business in your

community.

Explain TWO reasons you may wish to do so. (4 marks)

Total marks: 20

Well, that’s it for now. Next week I hope to look into the steps to be taken when
establishing a business and the functional areas of a business. Keep safe. Bye-bye.

FEBRUARY 4, 2009 P.O.B LESSONS

Regulatory practices in setting up businesses

Hello everyone. I trust that you are all enjoying principles of business and that you
have began to review what you have been learning. Remember that time is very short
and, before you know it, exam time will be here. Remember too that ‘the early bird
catches the worm’.

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Today, I take pleasure in presenting a lesson on some of the regulatory practices

that persons must abide by when setting up businesses. The regulatory practices
governing the establishment of businesses refer to the rules and regulations by
which people who wish to establish a business should be guided. The regulations
differ according to the type of business.

As far as the sole-trader type business is concerned, there are very few regulations
in the setting up of the business. In fact, many sole- trader type businesses do not
have any requirements to satisfy at all. A few might be required to have permits or
licences in order to operate businesses. For example, those involved in handling
food, say at a restaurant, are required to have a food-handlers permit. They are also
required to take a medical examination to satisfy the authorities that they are in
good health as, otherwise, they could spread diseases.

Visit the premises

Public-health inspectors will also visit the premises to ensure that sanitary
conditions apply. For those who are selling alcohol or spirits, a licence authorising
them to do so is required. Taxi operators are considered to be illegal operators if
they do not have the correct transport documents, including a licence to carry
passengers.

They are also given regulations regarding the number of passengers they should
carry in their passenger vehicles. Hairdressers and barbers will be licensed to
operate once it is proven that they are qualified and that they have hygienic places
to operate in. Sand miners also need a licence to remove sand from riverbeds.

The partnership should have a minimum of two partners and a maximum of 20. In
setting up a partnership, a partnership deed or deed of partnership should be drawn
up. This document includes the name of the business, name and other occupation of
partners and statements as to how profits and losses will be shared. The document
may be drawn up by a lawyer, but it is not mandatory. The deed of partnership should
be taken to the Registrar of Companies who will give permission for them to operate
the partnership, if everything is in order.

If a partnership is set up and there is no partnership deed, then the partners will
make reference to the British Partnership Act 1890 which indicates that all profits
and losses should be shared equally.

Required to register

Private and public limited companies are required to register with the Registrar of
Companies and to present the documents required. Included is the very important
document, articles of incorporation, which has replaced the memorandum of

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association and the articles of association. A private company may be formed with
one person, or may have up to 50.

For the public company, the minimum number of shareholders is seven and there is
no maximum. Public companies are required to publish their accounts and may sell
shares to the general public, via the stock exchange. The private company is not
allowed to sell shares to the general public and, therefore, is not allowed to use the
stock exchange.

In the case of professionals, for example, doctors, lawyers, accountants and so on,
the requirement is that they register with their professional association. Their
associations are permitted by the Government to play a major role in overseeing the
professional conduct of their members.

Licences

Persons who are engaged in trades, such as electricians and plumbers, must be
licensed. Some are required to sit and pass examinations which qualify them to
receive their licences and practise unsupervised.

Cooperative societies should register with the Registrar of Cooperative Societies.

They are required to pay a small fee. They should operate the cooperative based on
the five cooperative principles.

Now let us talk a little about the various sources of venture capital for the business.
You may recall that we defined venture capital as capital used to start the business
or capital required for a special project within the business. The various sources of
capital available to the business depend on the type of business.

The sole trader normally uses private means of raising capital. He may use his
savings, his inheritances or he may borrow from friends and relatives. Financial
institutions are not normally a source of capital for the sole-trader type business
since they are normally very small and, as such, are not competitive when it comes
to qualifying for loans. However, financial assistance may be given to them from the
Small Businesses Association of Jamaica.

Pooling of money

Partnerships rely on the pooling of money by each of the partners, and they also
borrow from financial institutions, such as commercial banks. Private- and public-
limited companies and cooperatives get their capital mainly from selling shares. In
addition, public and private companies may sell debentures. Debenture holders lend

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money to companies at interest. Depending on their size, they may also qualify for
loans from financial institutions such as commercial banks.

I will leave you to consider how public sector businesses (Government-owned) raise
capital. See you next week when we will discuss collateral and other forms of
security.

Take care until then.

The significance of collateral

Today we will consider the significance of collateral in accessing capital to establish

a business then move on to explain the purposes of a feasibility study.

Last week, we looked at some of the ways in which businesses can raise venture
capital. Included among these ways was the borrowing of money from financial
institutions. In many cases, a financial institution will not grant a loan to an
applicant unless the applicant is able to supply adequate collateral.

Collateral is anything of value that can be sold quickly and the money used to cover
amounts that a loan recipient has defaulted on. A number of items can be used as
collateral, including:

 House titles
 Land titles
 Motor vehicle titles
 Titles for the businesses
 Investment documents (such as share certificates and debenture
certificates)
 Antique furniture
 The cash value of insurance policies
 Gold, silver and other valuable jewellery
 Rare and valuable works of art

The value of collateral

The value of collateral lies in the fact that:

1. It is something that can be sold so that the financial institution can recover the
outstanding money on the loan. The collateral is signed over to the financial
institution. This is done when the loan applicant signs a letter of hypothecation.

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2. Collateral or guaranteed loans are cheaper, in terms of rates of interest, since

there is less risk for the financial institution.

3. A collateral loan is also easier to obtain than a non-collateral loan.

Some loans may not require collateral. A guarantor may be required to sign on behalf
of the borrower. This person signs with the intention that if the borrower defaults on
the loan, he or she will have to repay what is owing. This is another form of secured
loan.

A few institutions may grant unsecured loans. In these instances, neither collateral
nor a guarantee is required.

The feasibility study

Let us first find out what is meant by the term feasibility study. This is a detailed
investigation to determine whether a business idea or project is technically,
financially and economically viable, and if it will be successful before committing
large sums of money to it. It is a screening exercise and is often described as a
likelihood study.

To some, the feasibility study is a way of determining if a business idea is capable of

being achieved. The question is asked: can it work and produce the level of profit
necessary?

Factors relating to a feasibility study

 It is done before the business plan and usually after a series of business
ideas have been discussed.
 It includes cost-benefit analysis.
 It results in the development of a feasibility report.
 Small teams of experts from marketing, production, finance and
development produce this estimate.
 Past information is used to produce trends.

Purpose of feasibility study

A feasibility study:

 Determines if a business opportunity is possible, practical and viable.

 Enables one to take a realistic look at both the positive and negative
aspects of the business opportunity.

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 Identifies the reasons not to proceed; therefore saving time, money and
heartache later on.
 Ensures that the business venture chosen will generate adequate cash
flow and profits, withstand risks, remain viable in the long run and meet
the objectives of the founders.
 Helps to frame and flesh out or shape specific business alternatives so
they can be studied in depth.
 Outlines and narrows down the business alternatives.
 Provides quality information for decision making.
 Helps to increase investment in the business.
 Provides documentation that the business venture was thoroughly
investigated.
 Helps in securing funding from lending institutions and other sources.

Homework:

(a) What is collateral? (2 marks)

(b) List THREE items that can be used as collateral. (3 marks)

(c) Your friend has decided to apply for a loan to start a small business. Advise him
or her of TWO advantages of seeking a collateral loan. (4 marks)

(d) Define feasibility study. (2 marks).

(e) List THREE factors relating to a feasibility study. (3 marks)

(f) Discuss THREE reasons why a firm might produce a feasibility study. (6 marks)

Total marks: 20

See you all next week. Keep safe.

FEBRUARY 4, 2009 P.O.B LESSONS

Steps in establishing a business

Steps in establishing a business

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As usual, it is a pleasure to be with you all again. I am sure you will all agree that in
establishing a business, it is important to do things in the right order. Therefore,
today we will look at the logical order that should be followed in setting up a
business to ensure its success.

Let us begin with step number one. Conceptualisation. The person who desires to set
up the business must come up with ideas regarding the product, type of business,
size of business, etc.

Step number two is market research (market probe). This is done in order to be
aware of customers’ needs, which the business will attempt to satisfy, with the aim
of making a profit. Market research is a systematic approach to collecting
information, recording and analysing the information collected and adopting it to fit
the marketing plan of the business. The aims of market research are:

 to find out what the public wants

 to assess the likely volume of demand
 to discuss what will influence consumers, for example product name, style
and colour of packaging, price, etc.

Identification of resources

Step number three is identification of resources. Resources refer to the factors that
will be utilised in producing the good or service. A decision must be taken as to the
type of resources and where they will come from. These resources include the
financial resources, man-made resources (capital) human resources (labour and
enterprise) and the natural resource (land). Time is also a resource that must be
considered.

Step number four is the very important step of creating a business plan. A business
plan is a written summary of an entrepreneur’s proposed business venture. It
includes its operational and financial details, its marketing strategies, its
management skills and abilities, etc.

The plan serves as an entrepreneur’s road map on a journey towards building a

successful business. It describes the direction the business is taking, what its goals
are, where it wants to be and how it is going to get there.

A business plan is also used to attract lenders and investors and serves as a sales
tool.

Step number five is the acquisition of funds. Having already decided how much funds
will be required for the business, the future business owner must decide how the

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funds will be obtained. Will it be by public means or from a financial institution? If it

will be from a financial institution, the financial requirements and the terms of
repayment for the loan must be taken into consideration

Finally, step number six, operation of the business. You are now ready to begin
producing or selling your goods and services. For this to happen, an organisational
structure must be in place and each department of the business must realise its role
in the successful operation of the business.

In establishing your business, you must ensure that you have the required functional
areas of the business. These refer to specialised departments within a business.
These departments carry out specific functions that assist the business overall.

Businesses can vary greatly in size. When a business is small, there are no definite
functional areas evident. This is so because the owner usually produces and markets
his own products and does his own accounting and personnel work. As the business
expands, however, specialised (functional areas) departments become necessary.
Most large businesses have four functional areas: production, finance, marketing and
personnel. In very large businesses, there are two additional functional areas:
research and development and social.

We will now take a brief look at what takes place in these specialised departments.

The production function

In this department, raw materials are combined to produce goods, and services are
also provided. Designers make specifications which are fully developed and tested.
Sample products are also made. There will be no production department, however, if
the business is only engaged in retailing or wholesaling, since they are buying and
selling already-manufactured goods or they are in the service industry.

The finance function

This department is responsible for the accounting procedures and processes of the
business. Its staff are also involved in the investment of funds in plant and
machinery, as well as in the purchasing of the needs of other departments of the
business. Where shareholders are paid dividends, this department will make it a
reality for them.

The marketing function

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The marketing function includes market research, publicity, distribution, selling,

merchandising and after-sales services, advertising and sales promotion.

The personnel function

This department is sometimes referred to as the human resource department. The

functions and duties of this department concern mainly the employees of the
business. Primary concerns are: planning and forecasting manpower requirements;
recruitment and selection of employees; job analysis and job description; job
specifications and employee training, etc.

Having looked at the four main areas, let us spend a few minutes on the additional
functional areas that may exist if the business is large.

The research and development function

The work of this department includes many types of research, for example consumer
research, product research and motivation research. Feasibility studies and pilot
projects are carried out and communication with research institutes, such as the
Department of Statistics, takes place.

The social function

This may include trade union negotiations, efforts to reduce pollution and dumping of
waste products, provision of health facilities and provision of clean working
environments and the initiation of social groups in the business, for example clubs
and credit unions.

That’s it for the functional areas of the business. Next week we will be looking at the
sources of information for conducting research into the establishment of businesses.
Take care.

The link between planning and operating a business

Hello friends. It is a pleasure to once again present another lesson to you. The
specific objective of this lesson is to help you to be able to identify sources of
information for conducting research into the establishment of businesses. Also, to
help you explain the relationship between planning and the operation of a business.

Sources of information

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The research plan can call for the gathering of primary data, secondary data or both.

Primary data, also known as field research, is research that collects original or new
data using various techniques. These techniques include:

 Questionnaires. The questionnaire is the most common survey method. It

may be written or orally administered. It is designed specifically for the
task and is normally completed face to face, by telephone or through the
post or email.
 Test marketing. A potential new product is marketed on a small scale
regionally to gauge people’s reaction to it, before committing the firm to
production and national launch.
 Consumer panels. A panel consisting of a small number of consumers is
set up. They receive the product and comment on it.
 Interviews. These may be formal or casual. They may be conducted on an
individual or a group basis.
 Observation. People’s reactions are quietly watched or noticed while they
shop. This provides information from the marketplace.

Sampling in primary or field research

If primary research is to provide relevant information, it must use a representative

sample, that is, consumers forming the sample must represent the market as a
whole. The researcher must also decide how the respondent will be chosen and how
large the sample will be.

Sampling methods

(a) Random – This is where everyone in the population has an equal chance of
selection, since no special criteria for selection are used.

(b) Stratified – A subgroup of the population is selected, for example using age, sex,
occupation, etc. Only those in the subgroup will be in the sample.

(c) Where a quota is set. Data is collected until the target quota is met.

The larger the sample size, the more expensive and time consuming it is to collect
the data.

Desk or secondary research

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This type of research uses existing information, such as information in the firm’s own
records. This may include:

 sales records
 official publications
 statistical and newspaper reports
 government publications
 trade association studies
 university journals
 websites
 textbooks, etc.
The major advantage of this type of research is that the information is
readily available and can be stored for the future. Among the
disadvantages is the fact that it is sometimes out of date and the research
is more time consuming than the primary type of research.

Planning and operation of a business

The link between the planning and operation of a business is that the planning stage
is the first stage and the operation stage is the last stage. Between these two
important steps there are a number of other steps which include research and the
acquisition of funds for the business. The plans are short term, medium term and
long term. The long-term plans are the overall plans of the business.

However, in order to achieve these plans, interim or short-term plans and medium-
term plans must be established in line with the long-term or overall plans. In other
words, once the interim or short-term plans and the medium- term plans have been
achieved, the long-term or overall plans would have been achieved.

The short-term and medium-term plans are the stepping stones to the long-term
plans. If the entrepreneur tries to achieve long-term plans without short-term and
medium-term plans, he is likely to fail in the achievement of such plans. Without
proper planning, operation of any business is not likely to succeed.

Next week we will outline some of the regulatory practices required by the
Government in establishing a business and also look at sources of capital for setting
up of a business. See you then.

The business plan 1

We are still on section three of the syllabus: Establishing a Business. This week we
will discuss the business plan. For the examination, you should be able to outline the

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various features of the business plan, including the executive summary. In addition,
those of you doing the school-based assessment (SBA) will find the information very
useful, since you are required to do a part of the business plan, that is, the
production plan, the marketing plan or the financial plan.

A business plan is a written document indicating an entrepreneur’s proposed

venture. It shows its proposed production, marketing and finance. The business plan
is the entrepreneur’s ‘road map’ on the journey towards building a successful
business. It describes the direction the business intends to take, its goals, where it
wants to be in the future and how it is going to get there. Some regard the business
plan as a document that tells the entrepreneur’s story by looking at the vision,
current status, expected needs, defined markets and projected results of the
business.

Functions of the business plan

1. It guards the operations of the business by charting its future course and devising
a strategy to get to the end of that course. It gives managers and employees a sense
of direction.

2. It is used to attract lenders and investors.

3. It is used as a sales tool.

Who are the users of the business plan?

1. Lending institutions. Commercial banks, for example, may require the business
plan as part of the processing of loan applications.

2. Strategic partners or investors. Such persons would want to assess the viability of
the business of which they will be stakeholders.

3. Landlords. They need to ensure that the activities of the business will be viable so
that tenants will be able to make their regular monthly rent payments.

Sections of the business plan

A business plan usually has four main sections:

1. The executive summary

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2. The production plan

3. The marketing plan

4. The financial plan

The executive summary

This is the first part of the business plan, but it is usually done last. It summarises all
the necessary points of the proposed venture. If there is a financial request, it should
explain the purpose of the financial request, the dollar amount required, how the
funds will be used and how the money (loan) will be repaid.

The executive summary is useful in instances where individuals are too busy to read
the whole business plan, but need some vital information about the proposed
business.

The executive summary includes:

1. The name of the business

2. The type of business

3. Information about the owners, for example, their names, addresses, qualifications
and work experience

4. A description of the product (detailed)

5. A statement of the financial needs. This includes how much is needed, what the
funds will be used for and what will be the proposed means of repayment.

6. An overview of the planned strategic actions to ensure that the business is a

success.

The production plan

Information that may be included in the production plan:

 The production process

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 Type of production (primary, secondary, tertiary, etc)

 The level of production (subsistence, domestic or export/surplus level)
 Use of technology (state the processes that the machines will be used for
(sewing, cutting, dyeing, etc)
 Whether the fixed assets will be rented, leased or bought
 The expected life of the fixed assets if they will be bought
 Maintenance of the fixed assets (for example how much will it cost per
year)
 Sources of equipment (places where they can be obtained and the costs)
 Planned capacity (how much they will be able to produce)
 Terms of purchase of assets (cash or hire purchase)
 Location and layout of machinery (time may be lost if machines are far
apart)
 A list of the raw materials needed
 Labour – number needed, cost (wages), statement of availability, skills and
experiences needed
 Overheads – all expenses
 Production cost (this plus mark-up [profit] equals final price)

I will stop here for today. I hope that those of you who will be doing the SBA have
already decided on the plan that you will be doing. Next week I will continue with the
business plan by looking at the marketing plan and the financial plan.

The business plan (part II)

As promised, this week we will complete our look at the business plan. The final two
sections are the marketing plan and the financial plan. In addition, there are some
ethical issues to be considered when one is about to embark on any type of
business.

The marketing plan

This plan may include:

 A description of the good or service and a statement of what makes it

different from others already on the market
 Justification of the location of the business
 Market area
 Main customers
 Total demand
 Market share
 Selling price (note current price (competitors), customers’ ability to pay
and advertising costs)

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 Sales forecast over a set period of time

 Promotional activities
 Marketing strategies, including advertising, sales promotions, etc.
 Potential buyers – who they are, what their motivation to buy will be,
expected annual purchase, whether the product will be seasonal and, if so,
what times of the year the product will be purchased.

The financial plan

This part of the business plan may include:

 A statement of how much capital is required, how it will be obtained and

the terms of repayment, if any
 Security for loan if one will be sought
 How the funds obtained will be used (a budget can be created)
 Cash-flow statement
 Projection of operation costs
 Profit-and-loss statement
 Balance sheet
 Break-even point (estimate about how long it will take to reach there)
 Return on investment (percentage projected)

Ethical issues

Ethics has to do with right and wrong, good and bad. The ethical issues include:

 Ensuring that if a licence, permit or registration is required for the

operation of the business, everything is taken care of. If there is no proof
of the legality of the business or if the business has not been given
approval to proceed, the Government can shut it down.
 Refraining from money laundering. This is when money from illegal or
underground economy is used in the legal business, for example to
purchase assets. When this is done, it distorts the national economy.
 Steering clear of cartels, example wine and drug cartels and OPEC. These
restrict quantity and increase prices.
 Reporting extortion, which is illegal.
 Making sure there is no document falsification, in terms of figures or
information
 Avoiding of poor labeling
 Resisting price gouging. This is the practice of increasing prices when the
supply is low and the demand is high, for example in times of natural
disaster. At such times, the supplier has the upper hand.
 Using standard accounting procedures.
 Paying all required taxes. Tax evasion is illegal and cheats the
Government of much-needed revenue.

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 Disposing of waste properly. Dumping waste in rivers and seas causes

pollution and ill-health.
 Providing quality materials. Inferior raw materials must not be used as
they can result in poor quality and, perhaps, dangerous goods that may
shorten lifespan or cause accidents.
 Adhering to business standards set by the Bureau of Standards Jamaica
and the Government
 Broadcasting misleading advertisements. They should be fair, truthful and
should not prejudice any group of persons.
 Making truthful declarations. False declarations must be avoided, for
example saying juice is 100 per cent natural, contains 100 per cent vitamin
C, with no preservatives, when this is not so.
 Avoiding double ticketing, that is, putting new, higher price tags on
products already priced.
 Falsely writing cheques for money not in the bank. These cheques will be
dishonoured and the business’ credibility will be lessened.

Consequences of unethical and illegal practices

Misleading advertisements – Unfair and fraudulent practices on the population.

Withholding of tax – Cheating the Government of revenue

Unethical disposal of waste – Pollution and ill-health, even death

Money laundering – Distortions in the national economy

Make a list of some of the other unethical and illegal practices and the possible
consequences, as done above.

See you all next week, when we will outline the regulatory practices instituted by
the Government for the establishment of different types of businesses.

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