Terms and Concepts Related To Business

An economy is defined as a place or a country where resources are managed by a government to bring about
maximum benefits for the entire society.
Caribbean countries are characterized as developing economies. Developing economies are described as those with
their average income earned, rate of literacy and health services lower than industrialized/developed nations. They
are so characterized because they have a high potential for growth and achieving the status of developed countries.
Early Caribbean economies dated from the Taino and Kalinago Indians who lived in simple villages. These villages
were ruled by a leader who organized all economic activities. They hunted, fished and grew crops to provide the
means of survival for their village. Present Caribbean economies are much more sophisticated. For most Caribbean
countries, it is consumer demand that drives the production and distribution of goods and services.
Government manages the economy. They set the laws that govern households and businesses. They provide the
necessary services (road, water, transportation, communication etc.,) so that businesses may operate efficiently.
Households and businesses must in turn pay their taxes.
Households consume the goods and services provided by firms. Households are known as consumers.
Firms produce commodities/goods and services that satisfy needs and wants for its market. They are the producers
in an economy. They obtain and maintain markets through consistent advertising and sales promotion.
Business enterprises are legal entities operating in an economy to provide goods and services at a profit. Profits are
the excess of earnings/revenue over its costs. Profits are an incentive for businesses to continue operating.
Businesses will close down if they are making losses. This is an excess of cost over revenue. If costs are greater than
expenses then a business entity is making a loss.
Whether man lives in a simple economy or in a more sophisticated one he must survive. He is seen as an economic
animal as in order for survival he must be involved in economic activities such as production, consumption and
exchange. He either produces the good he consumes or he is involved with exchange through barter or money
purchases. If he produces his own goods and provides his own services, he is involved with direct production.
However, if he obtains goods by bartering or by purchasing them he is involved in indirect production
Barter is the exchange of goods or services for other goods or services. This system is rarely practiced in modern
economies, but still occurs. For example, a Caribbean Government agreeing to exchange its countrys bauxite for
cars manufactured by an industrialized country. In early economies individuals had to barter goods and services to
obtain those commodities that they did not produce for themselves. Money did not exist and so barter was the only
means of exchange.
There were several problems with the barter system:
1. A common measure of value did not exist. Therefore some persons felt cheated, as what is being exchanged is
more valuable than what is received.
2. A double coincidence of wants may not exist. The wants of both persons wishing to trade must coincide with what
is being offered by each other. That is, an individual may wish to exchange what he produces (e.g. animal skins for
another commodity such as clay pots). However, if the individual who makes the clay pots does not want skins then
no trade will occur. This individual will need to find someone with clay pots who wishes to obtain skins.
Specialization is defined as the division of labour. This is used in production processes in both early and modern
economies to complete tasks more efficiently. In the Taino Indian village, the men would hunt and the women would
tend crops. This is an example of simple specialization. Complex specialization involves the breaking down of tasks
into minute tasks, and assigning each task to an individual or a unit group. For example, in a garment factory, a
single dress will be sewn by several persons, one person will sew the sleeves, and another will sew the collar. Simple
specialization in early economies resulted in the barter system, as man needed to trade to obtain those goods and
that he did not produce for himself.
The advantages of specialization include improved quality of output, and shorter production time, because of the
repletion of a single task. This results in increased efficiency, and reduced costs. However, repletion of a small task
may become boring and de-motivate employees to work efficiently. Therefore quality may decline as well as output.

Instruments of Exchange
The problems of the barter system created the need for a medium that could be used to facilitate trade. Money
solved the problems of the barter system. Money is anything that is acceptable for the purchase of goods and
services. Presently it is in the form of notes and coins. Early forms of money included shells, beads, precious metals
and stones.
The Characteristics of Money
1. Acceptable money is universally accepted
2. Durable long lasting
3. Divisible Can be easily broken down into smaller units. E.g. $100 can be broken down into $10 bills and so
facilitating the purchase of small quantities
4. Homogeneous similar e.g. all $100 bills are the same in appearance
5. Convertible easily exchanged for goods and services
6. Scarce this ensures its value
7. Portable easy to carry
Functions of Money
1. It is a medium of exchange i.e. since money is acceptable by all, persons will not have difficulties to trade
2. A measure of value the price of an item indicates its value
3. It is a store of wealth i.e. money can be easily stored/saved.
4. It is a standard for deferred payments. i.e. it can be used to repay debts over time.
Types of Money
1. Notes and Coins
2. Quasi Money/ substitute money examples are postal orders, soda machine tokens, cheques and credit cards.
3. Near Money assets that can easily be turned into cash, e.g. certificate of deposits, bills of exchange.
Cheques
A cheque is an order to the bank to make payments to the payee stated on it.
Credit Cards/Debit Cards
This allows the card holder to make payments by simply presenting the card to the seller. A credit card facility is
actually a loan given to a customer and thus it is repaid at an interest. A debit card is issued against a customers
account balance and is therefore not a loan.
Money Order
They can be used to make payments locally or overseas, as they are made out in the currency in which they are to be
paid. The payee will cash the money order at his bank.
Bank Draft
A bank draft is a cheque which guarantees payment to the receiver from the issuing bank. Bank drafts can be made
out to a payee in foreign currency and thus used for making overseas payments. Bank drafts are obtained for a fee
from a commercial bank.
Bill of Exchange
This is used to pay for goods bought overseas on credit. It is an order in writing from an exporter to an importer
requiring payments of a certain sum of money at a fixed future date. The time period allowed is normally three
months.
Electronic Transfer
This is a system used to transfer funds electronically rather than paper-based payment methods. Examples include
credit and debit card transactions, remittances (through companies such as Western Union) and money transfers.
Tele-Banking
This system allows a banks customer to simply use the telephone to get his banking services done rather than
visiting the bank. Services include; checking account balances and transaction history, opening a new account,
transferring funds etc.
Internet Banking
This differs form tele-banking in that the internet is used to access the same services. Customers can go on-line to
view their balances and transaction history and transfer funds etc.
Ecommerce
Electronic commerce more popularly called ecommerce is the buying and selling of goods and service using the
internet. It allows for a full range of trading activities over the internet such as advertising, placing orders, delivery
and making payments.

Reasons Businesses Are Established

Starting a business is a lot of hard work. Therefore persons who decide to start a business must be ready to dedicate
a lot of time and energy to its start-up. It is also very costly and therefore capital will have to be identified to inject
into a new business.
Reasons for starting a Business:
1. Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a business would give them
the opportunity to be a successful business person and achieve financial independence.
2. Being your own boss
You are able to make decisions about the direction and operation of the business.
3. To use your skills and knowledge for yourself
The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/fulfillment
Owning and operating a successful business will give a feeling of accomplishment.
5. To create employment for relatives, friends and community members
Business can assist in providing jobs for persons in communities with high levels of unemployment.

Forms Of Business Organizations

An organization is a system that groups people together towards establishing a common goal. Business organizations
are centered on creating goods and services for profit. There are several types of business organizations that one can
start.
Forms of Business Organizations:
Sole Trader
Partnership
Private Limited Liability companies
Public limited Liability Companies
Multinationals
Franchise
Conglomerates
Cooperatives
Nationalized Industries
Local and Municipal Authorities
Government Departments
All forms of business organizations can either be characterized as a part of the private sector or the public sector.
The Private and Public Sector
All privately owned industries, services and other business activities are a part of the Private Sector.
All industries, services and any other business activities that are owned by the state are a part of the Public Sector.
For example, the commercial banks are a part of the Private Sector, and public schools and hospital are a part of the
Public Sector.
The sole trader
The sole trader as the title suggest is a single business owner. This person may employ several other persons to work
in the organization, but he has to make all decisions, acquire all the capital required and other resources needed for
the business on his own.
Advantages
Benefits of operating alone are: all profits are taken by the owner. Consultations are not necessary for decision
making and the legal requirements for start-up is very simple as the proprietor only needs to submit the registration
documents for the business.
Disadvantages
The sole proprietor must work for long hours resulting in little time for family. There is also limited capital to inject
into the business and he alone bears all the risk of the business. He does not have limited liability and therefore if
the business goes bankrupt he may lose his personal assets e.g. house and car. There is a lack of expertise in areas of
business where he is not knowledgeable which may limit success.
Partnership
A partnership business is formed legally by a minimum of two and a maximum of twenty persons in a business.
There are two types of partnership forms:
-Limited Liability Partnership at lease one partner must have unlimited liability
-Unlimited liability Partnership- all partners have unlimited liability.
A deed of partnership must be drafted which set out the terms and conditions of the partnership.
Types of Partners
-Ordinary/General Partners: take an active part in the running of the business.
-Sleeping Partners: invest in the business but do not take an active part in the business.
-Limited Liability Partners: assets will not be lost if the business goes bankrupt.
Advantages
Since more than one person is involved more capital can be raised to inject into the business. There is more
expertise and work load is shared. The risk of the business operation is also shared.
Disadvantages
All partners will be affected by the action of each partner since each person represents the business. Decision
making may be very slow if partners are not in agreement. There are high risks for partners who do not have limited
liability.
Limited Liability Companies
Limited Liability Companies are companies in which shareholders/investors are protected as they will not lose their
personal assets if the business goes bankrupt. They are not liable for the debts of the company beyond their level of
investment. Therefore if a shareholder buys shares in a company valuing $5000 then he will only lose that $5000
invested and his personal assets.
There are two types of limited liability companies.
1. Private Limited Liability Company
2. Public Limited Liability Company
The Private Limited Company only allows friends, relatives and coworkers to purchase shares and to be a part of the
company. Its privacy is also protected by the fact that unlike the public limited liability company, it does not have to
publish its balance sheet in the newspaper. The public limited company allows members of the public to purchase
shares. The shares/stocks of public limited companies are traded on the stock market.
Legally the private limited company can only have a minimum of two and a maximum of fifty persons to join.
Whereas the public limited liability company has a minimum of seven members and there is no limit to the number
of shareholders that can join.
The legal procedures for both these types of companies are lengthy as they must submit the several documents.
The Companies Act contains the laws relating to companies. To comply with certain requirements which were laid
down by the Companies Act, the promoters of the company must present the following documents:
-The Memorandum of Association
-The Articles of Association
-Statutory Declaration
-Certificate of Incorporation
-Certificate of Trading
The private limited company may begin trading after receiving the certificate of incorporation, but the public limited
company must issue a prospectus inviting the public to subscribe for shares before a certificate of trading is issued.
A main advantage of limited liability companies is that their shareholders enjoy limited liability. This type of
business is assured continuity of existence as it has several members. Unlike the sole trading business that comes to
an end if the owner dies or is very ill. These firms can access capital for expansion by selling shares.
The disadvantages however, are that they are not easy to start due to the number of legal procedures required. For
the private limited liability company, shares are not easily transferable as other members must agree to have persons
join the company. However, shareholders in public liability companies are not restricted to sell their shares to
whomever they wish to.
Multinationals
A multinational company is a global organization directed from a main centre or office. Examples of Multinational
companies in the Caribbean are Shell, Kentucky Fried chicken and Digicel.
Some of the benefits of multinationals to the Caribbean are that they provide employment, introduce advanced
technology and provide well needed goods and services.
However, there are disadvantages. Profits earned are repatriated to the main centre in their home country. They may
exploit the workers by paying low wages and having them work long hours. They cause unemployment when they
close down to take advantage of cheaper labour and lower operational cost in another country.
Franchise
Some businesses begin by the owner acquiring a franchise to operate under an already existing business name. A
franchise is an agreement between a franchisee (the person requesting permission to set up business) and the parent
company to allow the franchisee to sell its products or services. Many multinational companies expand into new
regions through franchises.
The franchisee bears the name of the parent company. They must abide by all the rules and guidelines outlined by
the parent company to sell its products. It pays royalties (a fee) to the parent company to operate under its business
name.
Conglomerates
This is a group of unrelated companies (e.g. a restaurant, shoe store a travel agency etc.,) under one umbrella. A
parent company owns a controlling stake in each company which conducts business separately.
Nationalized Industries
Nationalized industries are government owned and controlled businesses. A chairman and board of directors are
appointed by the government to run them. Businesses run by the government in most countries tend to be those
that provide essential services such as water, electricity and transportation. Nationalized industries are beneficial to
a country as they provide essential goods and services at very affordable cost or free. For example, a water company
providing standpipes to rural communities. Although beneficial, they operate at high costs to the society as their
operations tend to be inefficient. They are supported by taxpayers money and do not operate on the basis of making
profits.
Cooperatives
They are business entities owned by their members who purchase shares to join them. They are usually established
because of a need existing among a number of persons who wish to acquire particular goods and services at a
reasonable cost. For example, members of a credit union purchase shares in these entities in order to obtain loans at
low interest rates.
There are several types of cooperative, for example, Retail/Consumer cooperatives and Producer cooperatives.
Shares invested in a retail cooperative are used to buy goods in bulk at a very low cost and then resold to members.
Producercooperatives may include a group of farmers who will obtain raw material at a low cost.
Profits are distributed to members based on the amount of goods that they buy and not on the amount of investment
that they make in the business. At the annual general meeting, shareholders elect their management committees
from among their members and vote on proposals put forward. Benefits of being a part of a cooperative are therefore
obtaining goods and services at low costs and a guaranteed market as members are also customers. A disadvantage
is that its management may be inexperienced as they are chosen from their membership.
Government Departments
These include the government ministries e.g. The Ministries of Finance and Education. A minister is appointed in
charge of each ministry. These departments are very important to the running of government.
Local and Municipal Authorities are government bodies which are run by elected local officials, e.g., the
Kingston and St. Andrew Corporation (K.S.A.C.) in Jamaica. These bodies fulfill local needs and allow for more
balanced local development. They carry out duties such as cleaning gullies and drains and fixing community roads.

Economic Systems
Every economy is faced with a fundamental economic problem. In every economy, whether rich or poor, there are
limited resources and unlimited wants i.e., the resources of a country are not enough to satisfy the wants of all its
citizens. Since the resources of a country is limited and wants unlimited, choices will have to be made. For example,
the government may have to decide whether to spend more money on schools, hospitals, transportation or on road
work. The process of choice begins with a scale of preference. This is a list of all options in order of preference. For
example
Scale of Preference:
-hospitals
-transportation
-schools
-road work
The option to build hospitals being placed at the top of the scale of preference indicates that this choice is most
preferred as it yields the greatest satisfaction from the resources to be spent. Transportation is the opportunity cost
of this choice as it is the second most preferred option that had to be given up to accommodate the building of
hospitals. Opportunity cost is defined as the next best alternative foregone as a result of making a choice.
Economic Systems
An economic system is a programme that a country uses to organize production and the distribution of goods and
services, to maximize the benefits to its society. Economic systems vary worldwide. In this lesson we will discuss four
types. These are the Subsistence, Free Market, Planned and Mixed economic systems. Governments choose
particular economic programmes that will effectively manage their economies, bring about economic growth and
improve the lifestyles of its citizens. The following economic questions must be answered by managers of economies.
1. What to produce?
2. How much to produce?
3. What methods of production are to be used?
4. How will goods and services be distributed?
Answers to questions 1, 2, & 4 will depend on the economic system of each country.
Subsistence Economic Systems
The Subsistence economic system as its name suggests are economies in which just enough is produced by its
citizens for their survival. Since there is no surplus wealth is not created. Subsistence economies exist in many
villages in Africa and South America among peoples who live in simple societies.
Free Market Economic System also called Free Enterprise or Laissez Faire
Private individuals own the greater share of the property and capital resources that are used in the production
process. There is little or no government intervention in the economic activities of the country. The government
may provide essential services e.g. transportation and water. Therefore the private sector provides the majority of
goods and services.
Advantages
-Competition among business will result in increased quality of output and lower prices.
-Competition also leads to innovation i.e. newly invented goods, services and production processes.
-Consumers are free to choose the goods and services that they wish to purchase and therefore production is based
on their demands.
Disadvantages
-Consumer exploitation by suppliers may go unchecked by government as there is little or no government
intervention.
-There is an unequal distribution of wealth as goods are purchased by only those who can afford it.
-In the case of no government intervention public goods such as postal service, streetlights and roads are not
provided
The Planned or Controlled Economic System
Property and capital resources are owned by the government on behalf of the society. The government makes all
decisions concerning the use of the countrys resources and the distribution of its output. Goods and services are
provided through government-owned and run operations. These include factories, telephone services, newspapers,
television stations, etc.
Advantages
-There is a fair distribution of goods and services as the government determines how goods are distributed.
-Citizens in these economies enjoy a least a basic standard of living as the government provides all goods and
services.
Disadvantages
-Resources are inefficiently allocated as consumers are not free to indicate their demand for goods and services.
Therefore resources are not sent to where they are most needed but into industries based on the governments
decision.
-The lack of competition reduces innovation and the motivation to produce quality output.
The Mixed Economic System
The private and public sector are both involved in the production of goods and services.
The economic resources are owned by government and private individuals.
Advantages
-Consumer protection through the regulation of businesses by government.
-Economic benefits of competition coupled with goods and services provided by government for those who cannot
afford to access these through the market system.
Disadvantage
-Public sector companies tend to be inefficient as they are supported by taxpayers money.
-Government regulatory policies may reduce the enthusiasm of the private sector e.g. the setting of prices of goods
and services resulting in the closure of businesses.

Stakeholders And Their Role In Business Activities

Business owners must be aware of the various groups that they interact with for the successful running of the
business.
Owners
A business may be owned by a single individual (a sole trader), partners or by a group of shareholders forming a
company.
Role of Owners
They must provide the resources that are required for the business to operate efficiently. These include the
employment of workers, identifying suitable premise and procuring machinery, equipment and raw materials. They
must make timely decisions to ensure that the business remains profitable. They must motivate employees to
perform well.
Employees
They are employed to carry out assigned tasks to achieve the companys objectives.
Role of Employees
Employees must work efficiently to accomplish tasks assigned. Accomplishing tasks may require teamwork and
therefore employees must have good interpersonal skills. Employees must adhere to the rules and relations of the
company.
Customers
They are the supporters of businesses in the economy. They purchase goods and services to satisfy their needs and
wants.
Role of Customers
They assist businesses in indentifying the goods and services to be produced based on their demands. They also help
business to identify changing trends in the market and so prepare business operators for future demands.
Society
Businesses must be aware of the society as a whole, how its activities affect it and not only those who are customers.
Role of Society
The production process may cause air pollution and discharge of harmful waste into rivers and seas. The society
keeps businesses in check by making them aware of their impact on society. They write letters to the company and
the media and speak on talk shows.
Government
They are the managers of the economy within which the business operates.
Role of Government
Regulate business activities to protect consumers. Government agencies ensure product standards as well as that
various legislations are adhered to ensure the protection of consumers rights.

Functions of a Business
The functions of a business are:
1. To produce high quality goods and services that will satisfy needs and wants.
Entrepreneurs enter business to make profits. They must be very keen in identifying those goods and services that
will create high demand make profits.
2. To create employment
Business will need all categories of workers to carry out the various tasks required to achieve its goals. If the business
is profitable and expands then more workers will be needed for its operations.
3. To make a profit
The reason for the establishment of a business is to make profits. If businesses are not profitable, its owners will not
be encouraged to continue operating. Profits are used to reinvest in the business for its expansion.

Role of a Business within a Community

Corporate citizen is the term used to describe the responsibilities that businesses have within their environment. As
a good corporate citizen business must strive to have a good relationship with their community.
Good corporate citizenship includes:
-Support for the community through community projects, sports and youth clubs.
-Being environmentally aware by reducing pollution
-Providing job opportunities for community members e.g. a holiday work programme

Quiz
Question 1
Explain two ways in which the barter system limited trade in early economies.
Answer
A common measure of value did not exist. It was difficult to ascertain the value of goods exchanged. It therefore
would hinder trade as sometimes persons would not want to feel cheated.
A double coincidence of wants must exist for trade to take place. An individual who wishes to trade must have what
other persons want to trade his goods. If this does not exist then trade cannot take place.
Question 2
State one advantage and one disadvantage of specialization.
Answer
An advantage of specialization is that it increases output.
A disadvantage of specialization is that it discourages quality work because of monotony.
Question 3
Show how two functions of money facilitate trade.
Answer
Money is a common measure of value. Persons can therefore determine the value of commodities and know how
much to accept in exchange for goods and services.
Money is a medium of exchange and therefore accepted by everyone. Persons will not have difficulties to buy or sell
goods and services.
Question 4
Starting a business is a lot of hard work and very costly. Why would an individual want to start a business?
Answer
An individual may wish to gain financial independence. A successful business can earn high levels of profits.
Using the skills and knowledge acquired to operate a profitable business.
Question 5
State the form of business organization that you believe is most advantageous to form. Give two reasons why.
Answer
Choose one of the following:
Sole trader Decisions are made quickly and there is little legal requirement to start the business.
Partnership more capital can be raised, specialization of functions is more efficient
Limited liability Company shareholders are not liable for the companys debts beyond their level of investment,
continuity of existence is assured.
Question 6
State two differences between the Free Market and the planned economic systems.
Answer
In the free market economy the consumer is king i.e. the consumer determines what goods and services are to be
produced based on their demand. In a planned economy the government makes decision concerning the
distribution of goods and service.
Competition in a free market economy leads to efficiency and innovation.
However, in a planned economy, the lack of competition reduces innovation and the motivation to produce quality
output.
Question 7
Explain the roles of two stakeholders in business activities.
Answer
The role of the government is to monitor and regulate business activity to ensure that the consumer is treated fairly.
Employees must work efficiently to create quality goods and services.
Employees must adhere to the rules and relations of the company.
Question 8
Identify a business activity within your community and discuss two contributions of this business to your
community.
Answer
Sallys bakery produces good quality bread in various sizes to meet the requirements of customers. The prices are
also very affordable. The bakery makes it convenient for community members as they do not have to travel a far
distance to obtain this product.
Sallys bakery also employs persons from the community. The bakery is very popular, and so workers are paid an
adequate salary to support their family.
 Functional Areas of Business
Departments in a business organization are structured according to certain functions. The departments of various
organizations will differ depending on the type of business. Below are four main functions that tend to be general to
most organizations.
Production
The production department is responsible for transforming raw materials into finished products. They are also
responsible for quality control to ensure that required standards are met.
Finance/Accounts
The accounts department makes and receives all payments on behalf of the business and records all financial
transactions
Marketing
This department creates awareness for the firm products and motivates consumers to buy. They also carry out
market research to identify customers needs
Human Resources/Personnel
The human resource department recruits and selects staff for the business organization. They are also responsible
for staff training and welfare.

Functions of Management
Planning
All managers must plan, that is, setting out steps for the attainment of future organizational objectives. It involves
formulating the policies and programmes for the firm.

Organizing
Organization reduces cost, time, chaos and conflicts. Managers must obtain all the necessary tools, machinery and
personnel for each task and arrange all tasks so that they are done in the most efficient manner.

Directing
Managers must guide subordinates by giving them instructions to perform the tasks assigned.

Delegating
Delegating duties involves giving others (e.g. supervisors) the authority to have specific tasks completed through the
management of others. Therefore, supervisors will ensure that workers complete tasks assigned. Delegation reduces
the workload of the manager.

Controlling
Managers must continually measure the activities of subordinates, ensuring that all activities conform to plan.
Coordinating
Managers must bring together all the various organizational tasks so that the organization may function
harmoniously.

Motivating
Managers must inspire workers to perform their tasks well.

Responsibilities of Management
Management must be aware of their responsibilities to the various groups that they interact with for the successful
running of the business.

1. To the owners of the business (this also includes shareholders)

Managers are expected to ensure efficiency in all areas of the business.

2. To employees Managers must pay adequate wages and provide good working conditions.

3. To customers Managers must ensure that products are of good quality and are reasonably priced.

4. To the society Managers must find ways to reduce harmful air pollution and the discharge of harmful waste
created by the production process into rivers and seas.

5. To the government Management should adhere to various government legislation and regulation.
 Organizational Charts
An organizational chart is a diagram of the organization of an enterprise. Its pyramid shape illustrates the hierarchy
system that exists in the organization. The most senior position in the organization is placed by itself at the apex.
The pyramid gets wider towards the bottom depicting the greater number of workers at its base.

Those who have the power to issue commands have authority in an organization. In the organization chart above the
sales manager has the authority in the Sales department. All persons with the same level of authority are placed at
the same level on the chart. For example the sales manager and the accounts manager have the same level of
authority in their various departments.
Responsibility is the capacity to accept duties and to carry out their tasks. Both sales supervisors are responsible to
the sales manager.
The chart shows the following:
-each persons position
-the number of levels of managers
-to whom each employee is responsible (reports) to
-the span of or (area) of control for senior staff members.

Types of Organizational Charts

Line or Direct
The line organizational chart depicts a straight line of command. Authority is said to flow downwards only in the
line organization. The line organizational structure is found in schools or in the military.
Functional Organizational Chart
The Functional organization chart is a diagram of an organization that is arranged by its functions. For example,
there is a manager in charge of marketing, and another in charge of production. This type of organization has an
advantage over the Line as experts are appointed to run each department. All managers report to the General
Manager.

The Functional organizational chart combines the straight line of command of the line organization with horizontal
dotted diagonal lines representing functional authority. The dotted diagonal lines in the figure above show the
authority that the Human Resource Manager has over other departments. The Human Resource Manager is allowed
authority in these department over human resource matters only e.g. to hire and fire workers. He therefore cannot
give directives on production or marketing matters.
Line and Staff Organizational Chart
The Line and Staff organizational chart combines the line and functional organization with the addition of staff
personnel. Staff workers assist and advise line workers. Staff workers include consultants, advisors, company
lawyers, executive secretary, auxiliary workers etc. Staff officers do not have authority, that is, the power to delegate
tasks to subordinates in the organization. Their main role is to advise and assist line officers. This is why there are no
vertical lines connecting staff officers to any other member of staff on the chart. They are therefore, placed at the
side directly below the line officer whom they assist or advise.
Committee Organizational Chart

Committees are advisory bodies. They are usually appointed to advise organizations. Examples of committees
include; parent teachers associations and student councils which are committees within a school organization.
Committees usually delegate certain duties to sub-committees. For example, an executive committee may appoint a
finance committee to advise it on financial matters. Note that an element of the line organization exists in the
committee organization as all sub-committees are responsible to the executive committee.
 Characteristics of a Good Leader
A leader is someone who has been given authority over a group of individuals. His job is to motivate the group to
achieve the goals set out for it. Leadership is therefore about influencing or inspiring an organized group towards
the accomplishment of goals. Below are the characteristics of a good leader.

Integrity
It is important for a leader to possess this quality as it makes them trustworthy. They are perceived as honest and
therefore command the respect of their subordinates.

Good communication skills

Leaders should be able to communicate effectively with persons at all levels of the organization. Manager must pass
down directives as well as listen to workers opinions complaints and ideas. This will foster good working relations
among leader and followers.

Intelligent
This is a very important characteristic for leaders. It refers to being rational and having good judgment when making
decisions. Leaders are decision makers and therefore need to be intelligent. This characteristic also refers to
shrewdness and therefore describes someone who is smart, perceptive and wise.

Devoted and Committed

A leader must be a role model for others. He/she should therefore believe in the goals of the group and motivate
others to achieve it. His/her continuous hard work will portray dedication and loyalty to duty.

Leadership Styles
Autocratic
This type of leader makes all decisions and asks members only to be obedient in following orders. He will give
detailed instructions and closely supervise subordinates.
Advantage
Time is not wasted consulting with others to reach a decision.
Disadvantage
Workers must comply with directives given by the leader and therefore the organization will not benefit from
workers initiative and innovative ideas
Democratic
A democratic leader allows the participation of subordinates in decision making. The leader asks for progress
reports at intervals instead of continuous close supervision.
Advantage
Discussion between management and workers leads an improved relationship.
Disadvantage
The variety of opinions to consider may slow down the decision making process.
Laissez-Faire
This type of leader will give minimum directives and allow maximum freedom for workers to make decisions about
completing their tasks.
Advantage
The firm will benefit from the initiative and innovation of workers.
Disadvantage
It may lead to chaos in the organization. This type of style can only be used with persons that are very self- motivated
and disciplined.

Sources of Conflict within an Organization

Unfair treatment of workers
Unfair dismissal
Discrimination

Health related issues

The need for protective clothing
Poor ventilation
Harmful fumes from chemicals

Wages and fringe benefits

Nonpayment of allowances
Underpayment

Methods Used To Gain an Upper Hand during Periods of Conflict

Workers organize themselves to collectively deal with conflicts. This is done through the trade union. A Trade Union
is an organization of persons employed in an industry who have joined together in order to improve their wages and
working conditions.
Methods used by Trade Unions
1. Strikes
2. Sick-out
3. Work-to-rule
4. Go slow
5. Picketing
Methods used by employers during conflicts
Union busting
Union busting is the prevention by management of the formation of a trade union within its organization. The
employer may explicitly state this to workers or covertly discourage its formation.
Lock out
A lockout refers to the refusal by an employer to allow workers into the business place during an industrial dispute.
This is a means of coercing workers to comply with management.
Scab labour
This is a derogatory term used to refer to workers hired to replace workers on strike.

Strategies Used To Resolve Conflicts

Collective Bargaining
Collective bargaining is the process whereby the union representative on behalf of the employees and management,
negotiate the terms of their agreement which are incorporated in the employees contract of employment. It is a
means to reach an agreement between trade unions and employers.
The Role/Function of the Trade Union
1. To ensure better wages and working conditions for workers
2. To protect workers against arbitrary disciplinary actions.
3. To deal with grievances in accordance with the grievance procedures
The Grievance Procedure
A grievance is a complaint of a worker. A worker will have a complaint when:
a. he is treated unfairly. (E.g. cases of discrimination)
b. his health or safety is threatened (e.g. chemicals and dust at work etc.)
c. there is a violation of the collective agreement or work rules. (E.g. if employers have not abided by the agreement
between management and the trade union.)
The grievance procedure is a set of steps which employees can use to solve any grievance that may arise.
STEP 1 - The employee discusses the complaint with his or her supervisor. If the complaint is not satisfactorily
dealt with by the supervisor the employee may take the matter further.
STEP 2 - The employee will discuss the matter with the head of department.
STEP 3 - The employee, along with the union delegate, will discuss the matter with top management.
STEP 4 - If the grievance still exists, the union official will seek conciliation or mediation from the Ministry of
Labour or any independent body, i.e. the friendly intervention of these bodies into the dispute for the purpose of
adjusting the differences.
STEP 5 - The matter is sent to arbitration, i.e. before the court where the judge will make the final
decision. Therefore both parties; employer and employee must accept the judges decision.
 Guidelines: Good Management & Staff Relations
Good management worker relationship is important for efficiency, productivity and the retention of staff.
Communication
Managers should not only give directives but encourage feedback from workers. Regular scheduled meetings should
allow workers the opportunity to voice their concerns and views. Some managers have an open door policy making
them available to all employees.
Motivation
Money is not a motivator for everyone and therefore managers must find ways of encouraging workers to give their
best performance. Other forms of motivation include recognition for a job well done. High performing employees
can be motivated by promotion, and being named employee of the month. Allowing employees to be creative and
bringing their innovative ideas to goods and services is also a motivator.
Fairness
It is very important to handle all workers fairly without showing favouritism. If workers perceive that they are not
being fairly treated or that there is favouritism conflicts may arise among workers and well as between management
and workers.
Compassionate
Managers must show care when dealing with workers daily. Workers are not machines and cannot be treated as
such. Managers should try to understand each worker and their various issues. Workers may have challenges with
illnesses, family, financial etc. which may affect their performance on the job.

Role of Teamwork
Many firms adopt a teamwork approach to complete tasks more efficiently. For example a major Caribbean airline
encourages its workers to work as a team to achieve the main task of having each flight leave on time. Workers
therefore move to various positions if needed, to have each flight leave on time.
Benefits of Teamwork
1. It improves the working relationship among workers
2. It increases communication
3. Skills and knowledge are passed on through the interaction
4. It satisfies the social needs of workers
Groups are formed naturally by persons with similar interest, common goals and similar past experiences in an
organization. The establishment of various clubs, work socials and outings will encourage greater interaction among
workers, better relationships and a teamwork approach to completing tasks.

Strategies for Effective Communication

Communication is defined as a two-way process which involves the conveying of information from (sender) to
(receiver). The need for effective communication is very important when dealing with the human factor from
recruitment to retirement in the organization.
For communication to be effective there must be feedback.
Means of Communication
1. Oral This includes all types of spoken communication, e.g. interviews and meetings.
2. Written This includes all things that are written, e.g. reports and letters.
3. Visual This includes all things which can be seen, e.g., posters and films.
The primary objective of communication in any organization is to get work done.
Types of communication
Formal Communication -These are official methods approved by management.
These includes meetings, announcement on notices boards, memoranda, messages over public address systems,
interviews, performance appraisals, company magazines. etc.
Informal Communication -These are unofficial methods of communication.
These include: rumours and the grapevine, secret signs and gestures as well as casual conversation between
employees.
Barriers to Communication
1. Distortion of messages e.g. rumours or the grapevine can easily distort messages.
2. Inappropriate forms of transmission e.g. a notice of a formal meeting must be conveyed in writing and not by
word of mouth. If this type of meeting is not conveyed in writing it may seem casual and unimportant.
3. Physical barriers e.g. faulty telephone connections, defects in mechanical or electronic equipment, and poor postal
services.

Management Information System

Managers need information to assist them in making important timely decisions and predictions for future plans.
Management information system is a computer based business information system designed to produce information
needed for the successful management of a department or business (Before MIS managers had to rely on manually
prepared reports at intervals). However, with increased global competition firms must be more proactive in the
market place. Information must therefore be at the managers disposal at any point in time when needed.
The manager of a retail store may require at any point in time information on sales volume for particular items so
that decisions on future purchases can be made. A computer programme is then designed to meet the specifications
of the report which the manager will need. The format and the content of each report required will be used to design
the programme. The manager will then be able to receive the information required by requesting the specific report.
The necessary data will be retrieved from the data base, processed and automatically presented in the format
specified.
Benefits
MIS is very cost effective as it reduces the need for labour to compile and analyze data. Once information enters a
companys database, MIS will compile and analyze the data to give managers meaningful information to make
decisions. Data e.g. items sold or stock entering the stock room will be inputted by the various department staff. MIS
will have required reports available in a much shorter time than manual preparation of reports.
MIS is a decision support system used to analyze business activities. MIS at anytime can provide information
required for decision making. This can be used to assess present performance and therefore assist managers to
improve the companys performance so that the firm is more competitive.
Challenges
Although very beneficial and is therefore desirable for businesses MIS is an expensive venture and small firms will
be challenged to set up this system. In addition to the set up cost for MIS business will have to consider the
continuous maintenance costs. The cost of training present employees to interact with the new system must also be
factored in to the total cost.

Personal Needs Satisfied Through Employment

Managers must be aware of the various needs of workers. If these needs are adequately satisfied through work, then
workers will be motivated to improve performance.
Basic Needs
Employment is very important for the economic survival of individuals. If employees receive adequate pay then
these needs will be satisfied. Some employees may also receive allowances and fringe benefits. Once the basic needs
of survival (food, clothing and shelter) are met, employees will be aware of higher level needs.
Security Needs
A job should not only provide adequate pay to satisfy basic needs but it should also give workers security. This need
can be satisfied through the provision of health benefits, insurance and pensions.
Social Needs
The employee spends on average eight hours each day at work. We are social beings and therefore need human
interaction. This need can be satisfied by the establishment of after work activities and through a teamwork
approach to accomplishing tasks.
Self-Esteem Needs
Managers can satisfy this need through promotion and ways of recognizing those who have performed well.
Self-actualizing Needs
This need is satisfied by giving subordinates opportunities to create and pursue innovative ideas so that they can
realize their capacities to the fullest.
 Quiz
Question 1
Explain two important activities carried out by one functional area of a business.
Answer
The marketing department promotes the firms products to encourage sales. Consumers must be made aware of what
is being offered and encouraged to buy. They also conduct market research to identify the needs and wants of
consumers. Companies depend on consumers support for their success, and so ascertaining consumers taste is very
important.
Question 2
Outline two functions of management and say how each is important to the efficient operation of a business.
Answer
Controlling involves the continuous assessment of the work done by subordinates. Poor quality work is a reflection
of the company and so managers must ensure that quality work is done.
Planning involves outlining all future activities that are required to achieve the organizations objectives. Planning
activities involve all the programmes and policies that will guide the firms path to success.
Question 3
Give two examples to show how managers can fulfill their responsibilities to one group of business stakeholders.
Answer
Managers can full their responsibility to customers by proving quality goods and services. A system that ensures
standards should be implemented. Prices must also be affordable. All measures must be taken to operate as
efficiently as possible so that production cost are kept low resulting in affordable selling prices.
Question 4
(a) Draw an organizational chart of your school or business organization.
(b) Identify the type of organizational chart drawn
(c) Identify the span of control of one person in authority on the chart
(d) Identify two persons at the same level of authority.
Answer

(a)
(b) Line organizational chart
(c) The span of control of Vice principal is the head of departments for arts and science.
(d) Two persons at the same level of authority are the heads of department for arts and science.
Question 5
Show how two important characteristics of a good leader can improve the efficiency of a group.
Answer
Good communication skills will foster good working relationships between workers and managers. Workers are
more effective in a comfortable environment. This also encourages feedback from workers.
A devoted and committed manager will lead by example. His commitment to the tasks that are required to achieve
the organizations objectives will inspire subordinates to work hard.
Question 6
Give two differences between the autocratic and the democratic leadership styles.
Answer
An autocratic manager makes all decisions concerning the tasks to be performed by subordinates. All directives
handed down by him must be closely followed. He makes frequent checks on output of workers. The democratic
leader allows the participation of others in decision making. He allows workers some latitude to work on their own
initiative and periodically checks output from workers.
Question 7
Outline the steps for handling grievances in the organization.
Answer
The worker lodges a complaint with his or her immediate supervisor. If worker feels that the complaint was not
adequately dealt with then he may discuss the matter with the head of department. If the worker is still not satisfied
with how the matter is being dealt with, he along with the union representative may discuss the matter with
management. It may need to go a further stage where there is mediation from Ministry of Labour or any
independent body. The final stage is when the matter has to be taken to court.
Question 8
Explain the purpose of the collective bargaining process.
Answer
The purpose of collective bargaining is a means to reach an amicable agreement between management and workers.
Workers bargain collectively through their union representative with management until an agreement is reached.
Question 9
Discuss two ways in which teamwork can improve the efficiency of an organization.
Answer
Teamwork gives workers the opportunity to make collaborative decisions and support each other to accomplish
tasks more effectively.
Teamwork allows for specialization in various parts of a task based on the skill of each team member. Specialization
increases output.
Question 10
Discuss two benefits that a business will derive from using Management Information Systems.
Answer
It reduces labour costs as the computer compiles and analyses all the data. This increases the efficiency of employees
and reduces production costs. It provides timely information that helps the business. This allows for better decision
making as information is available when needed.
 Role of an Entrepreneur
An entrepreneur is one who undertakes the risk of investment to create and market a good or service for financial
gains. He is very perceptive and takes advantage of business opportunities that will generate high
profits. Entrepreneurs can be sole traders, partners in a business or a group of shareholders.
Entrepreneurs are of vital importance to an economy. They are motivated by their own self-interest to make profits
and in so doing provide employment, create goods and services and generate revenue impacting on the economys
level of national income and hence potential for economic growth.
The entrepreneur is a shrewd investor and takes calculated risks i.e. ones that minimize loss when choosing
investment opportunities. The entrepreneur is the conceptualizer of the initial business idea. He must identify the
best resources that suit the business operation and ensure the efficiency of each resource employed. For example,
training workers, using machinery to increase labour productivity, maximizing the use of factory and shop space and
borrowing money at low interest rates. The entrepreneur must continuously evaluate the performance of his
ventures. Information can be garnered from the balance sheets and Management Information Systems.
Personal Qualities of an Entrepreneur
Entrepreneurship requires the following characteristics for success:
1. The creativity to innovate new product and ideas.
2. The drive and determination to be successful.
3. The ability to take calculated risks.
4. The flexibility to adapt to changes in the market and industry.
5. Very goal- oriented to purposely and aggressively accomplish task and meet objectives.

Reasons Persons Establish Their Own Businesses

1. Financial Independence
Some persons feel restricted financially with the income received from their job. Starting a business would give them
the opportunity to be a successful business person and achieve financial independence.
2. Being your own boss
You are able to make decisions about the direction and operation of the business.
3. To use your skills and knowledge for yourself
The skills, knowledge and experience that you have acquired can be put to work for you.
4. Self-actualization/fulfilment
Owning and operating a successful business will give a feeling of accomplishment.
6. To create employment for relatives, friends and community members
Businesses can assist in providing jobs for persons in communities with high levels of unemployment.
 Steps in Establishing a Business
1. Conceptualization
All business ventures begin with the conceptualization of an idea. At this initial stage the product or service idea is
envisioned. Most Entrepreneurs identify a need in the market i.e. a service that is not being provided or a product
that does not exist. If the product or service already exists then ideas to make improvements may be conceptualized.
2. Research
The entrepreneur is a shrewd investor and takes calculated risks. Before investing money in a business venture a
market research must therefore be done to ascertain the extent of the need for the product or service. This helps to
minimize losses. A market research involves gathering information about a potential market to help an investor
make decisions about entering that market.
3. Identification of resources
What resources are needed to start the business?
If the market research is favourable the entrepreneur must now identify the necessary resources to operate
business. The resources required are land, labour and capital. Land refers to location or place used to set up a
business. This may be bought, rented or family home. Labour employed must be qualified and skilled to efficiently
carry out their duties. Capital includes money, raw material and assets such as machinery and equipment.
4. Creation of a business plan
Preparing a business plan is very important before the start of a business. This will help the business to ascertain
whether or not the business will be profitable. A business plan outlines the goals of a business and the strategies that
will be employed to achieve them. Usually financial institutions require that a business plan be presented when a
loan is requested for business investment.
5. Acquisition of funds
There are several ways of acquiring funds to start a business. There are a myriad of financial institutions that are
willing to assist small businesses once their business plans are deemed workable. The investor must weigh the
advantages and disadvantages of acquiring funds from the various financial institutions. The cost of borrowing i.e.
the interest rate charged and the length of the repayment period are factors to consider.
Funds may be borrowed from friends and relatives that may attract a lower or no repayment cost and a more flexible
repayment schedule. Funds can also be acquired from personal savings. Encouraging partners or selling shares are
ways of avoiding high costs of capital.
6. Operation of a business
A business must be efficiently operated to ensure high quality goods and service. This is important to keep existing
customers and for business growth. Many companies employ an operation manager to design and oversee its
operations. This person develops and manages the various processes used to create goods and services efficiently to
ensure customer satisfaction.
 Functional Areas in the Operation of Businesses
Departments in a business organization are structured according to certain functions. The departments of various
organizations will differ depending on the type of business.
Production
The production department is responsible for transforming raw materials into finished products. They are also
responsible for quality control to ensure that required standards are met.
Finance/Accounts
The accounts department makes and receives all payments on behalf of the business and records all financial
transactions
Marketing
This department creates awareness for the firm products and motivates consumers to buy. They also carry out
market research to identify customers needs
Human Resources/Personnel
The human resource department recruits and selects staff for the business organization. They are also responsible
for staff training and welfare.
The Purchasing Department
This department is responsible for the purchasing of the firms raw material, stationery and goods for re-sale.
Customer Service/ Customer Relations Department
This Department bridges the gap between a business and its customers. It deals with customers queries, advising
and assisting customers to place orders and handling customers complaints.
Legal Department
This department is concerned with legal problems that might arise for the company. For example, compensation for
employees and customers, who have brought lawsuits against the company.
Research and Development (R&D)
This department is involved with research to explore ways of improving the companys existing products, developing
new ones and identifying efficient processes to increase production. This department works closely with the
marketing department as products developed must satisfy consumers needs.

Sources of Research in Establishing a Business

Firms embark on research to uncover information about consumer preferences, the level of competition in the
market, responses to advertisement etc.
Sources of Information
Data may be collected from primary or secondary sources.
(a)Primary Data
Primary data is originally collected data. This data will be obtained by interviewing, observing or distributing
questionnaires to the sample population.
(b) Secondary Data
Secondary data is information that has already been collected by someone else originally. This data will be therefore
obtained from books, newspapers, magazines, libraries and publications of various institutions.

Process between Planning and the Operation of a Business

Managers must continue to plan in order to ensure that its operations meet all long term, medium- term and
short- term goals.
Long- term plans are made for 3 to 5 year periods. Long-term plans determine the direction of the company.
These plans set out the firms overall strategy to move from its present position to where it intends to be. Long-term
plans include expansion plans and plans to create new products and services. Long-term plans are made by the
directors or persons in senior management positions of a company.
Medium-term plans range from 1 to 2 years. They are made by department managers or persons in middle
management positions. Medium term plans include increasing the efficiency of a department in order to increase the
quality and quantity of output. This would involve implementing training programmes for staff and identifying
equipment that would increase efficiency.
Short-term plans are made daily, weekly and monthly by supervisors or persons in lower level management
positions. These plans are centred on meeting daily, weekly and monthly production targets.

Regulatory Practices Instituted By Governments

A business is not considered a legal entity if it is not registered as business in the country where it operates. All
persons desirous of starting a business must first be registered with the government agency authorized to carry out
registration of business in their country.
A sole trader only needs to register his business by meeting the requirements outlined for sole traders by the
registering office and filling out the required documents.
Partnerships are also registered by the completion of a registration document. The names of all the partners must be
listed on the document. Partners in a business are advised to draft a Deed of Partnership. This document sets out all
the rules that govern the partnership and will thus help to prevent conflict among partners.
The formation of public and private limited liability companies involves the preparation of a number of documents.
The Companies Act contains the laws relating to companies. To comply with certain requirements which were laid
down by the Companies Act, the promoters of the company must present the following documents:
1. The Memorandum of Association this document governs the companys relationship with the outside
world. It contains:
(a) The name of the company
(b) The address of the registered office
(c) The objectives of the A statement of limited liability to members
(d) The amount of capital to be raised by the selling of shares and the types of shares to be issued
(e) The number of shares to be taken by the directors
(f) Statement of intent to form a limited liability
2. Articles of Association this document contain the internal rules and regulations which govern the company.
It contains:
(a) The rights and obligations of the directors
(b) The procedures for calling an annual general meeting
(c) Procedures for electing directors
(d) The borrowing powers of the company
In order to effect the registration of a company, the Memorandum and Articles of Association must be prepared by a
lawyer or any person named in the articles as a director or company secretary and sent to the companies registering
office.
3. Statutory Declaration this document states that the promoters of the company have compiled with the
Companies Act. It is a signed statement from each director certifying their willingness to serve.
4. Certificate of Incorporation
Once all three documents above have been submitted and the Registrar of Companies is satisfied that all is in order,
it will enter the name of the company on the register, and issue a certificate of incorporation. The certificate of
incorporation is proof that all requirements of the Companies Act have been complied with. The certificate of
incorporation establishes the firm as a legal body.
5. The Incorporated Company
A company always means an incorporated company. If a company is not incorporated, it is really a large partnership.
Every business that has more than twenty shareholders must be registered as an incorporated company. The
advantage of incorporation is that each members liability is limited. At this stage it is only the private limited
company that may begin trading.
6. The Prospectus
The public limited liability company must first publish its prospects inviting the public to subscribe for shares. This
may be a publication in the newspaper or in another public media. The prospectus will contain information on the
assets, liabilities and profit levels of the company.
7. Certificate of Trading
once the public limited liability company has collected the total amount of share capital stated in the memorandum,
the company will then be issued with a Certificate of Trading. This will allow the company to start trading.

Advantages & Disadvantages: Types of Businesses

Sole Traders
Advantages
Benefits of operating alone are: all profits are taken by the owner. Consultations are not necessary for decision
making and the legal requirements for start-up is very simple as the proprietor only needs to submit the registration
documents for the business.
Disadvantages
The sole proprietor must work for long hours resulting in little time for family. There is also limited capital to inject
into the business and he alone bears all the risk of the business. He does not have limited liability and therefore if
the business goes bankrupt he may lose his personal assets e.g. house and car. There is a lack of expertise in areas of
business where he is not knowledgeable which may limit its success.
Partnership
Advantages
Since more than one person is involved, more capital can be raised to inject into the business. There is more
expertise and work load is shared. The risk of the business operation is also shared.
Disadvantages
All partners will be affected by the action of each partner since each person represents the business. Decision
making may be very slow if partners are not in agreement. There are high risks for partners who do not have limited
liability.
Private Limited Liability Company
Advantage
A main advantage of limited liability companies is that their shareholders enjoy limited liability. This type of
business is assured continuity of existence as it has several members. Unlike the sole trading business that comes to
an end if the owner dies or is very ill. This firm can access capital for expansion by selling shares. This business also
has privacy as its balance sheet does not have to be published.
Disadvantage
The disadvantage is that they are not easy to start due to the number of legal procedures required. For the private
limited liability company, shares are not easily transferable as other members must agree to have persons join the
company. However, shareholders in public liability companies are not restricted to sell their shares to whomever
they wish to.
Public Limited Liability Company
Advantages
A main advantage of limited liability companies is that their shareholders enjoy limited liability. This type of
business is assured continuity of existence as it has several members. Unlike the sole trading business that comes to
an end if the owner dies or is very ill. This firm can access capital for expansion by selling shares. Note that these
advantages are similar to the private limited company. However, added advantages are that shares are easily
transferrable as they may be sold to anyone on the stock market and it provides a means of investment for
shareholders who buy shares at low prices and sell when stock prices rise.
Disadvantage
The disadvantage however, are that they are not easy to start due to the number of legal procedures required and
that the large size of these businesses tend to be difficult to manage.
 Sources of Capital in Setting up A Business
Capital is one of the resources required to set up a business establishment.
Capital mainly refers to those assets that are used to start and continuously operate a business.
Fixed capital includes machinery, equipment and vehicles owned by the company. These assets are so called because
they cannot easily be turned into cash.
Circulating capital includes raw materials, finished and semi-finished, goods, bank and cash balances. These assets
can easily be converted into cash.
Sources of Capital
- Personal savings of the owner or owners
- Assistance from friends and family
- Loan from a financial institution
- Selling shares
The significance of collateral in accessing capital to establish a business
Collateral is anything of value that is used to secure a loan. It is required by financial institutions for the approval of
loans. If the loan is not repaid then the financial institution has the authority to seize the borrowers
collateral. Forms of collateral include: bank balances, motor vehicle, dwelling house, land, machinery and
equipment etc.

Features of a Business Plan

A business plan is a document outlining the goals of a business and the strategies to achieve these goals. It is mainly
prepared by new businesses or by ones making major changes.
Executive Summary
The Executive Summary is a synopsis of the full business plan. It presents the salient points of the plan. It contains
information on the purpose of the business, its methods of operation and future expectations.
History of the business
This section gives full details on previous operations of a business. For a new business it will explain where the idea
came from and the reasons for starting the business.
Mission Statement
The Mission Statement gives the overall goal of a business as well as its values. It serves as a guide to the operation
of the business. For example: providing the highest quality goods and services.
Business goals and objectives
The firms short-term, medium-term and long-term goals and the time in which these are to be achieved is outlined
in this section.
Organization
The business must state the ownership structure and give details of the management team.
SWOT Analysis
Looks at the strength and weaknesses of the business
E.g. Strengths strategic location, years of experience
Weakness Loans at affordable interest rates,
Industry Analysis
How has the industry changed in the past few years and who are the other firms in the industry.
Product /Service Description
Describe clearly the product or service that you will be offering.
Market Analysis
Describe your target market and your competitors.
Marketing Strategy
Explain the various promotional, pricing and distribution strategies.
Operations
Explain how the business will function on a day-to-day basis. For example: Procurement of raw materials, the use of
technology and operating methods.
Sales Forecast
What amount of sales the business expects to make on a monthly basis?
Start up Cost
The total amount needed to start the new business, giving a detailed description of what the money will be used for.
Operating costs
E.g. fixed Costs (rent, insurance and salary) and variable costs (utilities and wages)
Projected Cash Flow
An estimate of how much you expect to earn periodically once you start operating.
Acquisition of Funds
Information on how funds will be obtained e.g. personal savings, borrowing from friends and family, borrowing
from financial institutions or by selling shares

Purpose of a Feasibility Study

It is research done to ascertain the viability/feasibility of a business idea or any other venture. It asses the business
idea in terms of its operational costs, expected revenue flows, level of competition etc. Its main purpose is to find out
if the business idea will be workable. If the business idea is found to be feasible a business plan is may drafted to
obtain financial support.

Ethical and Legal Issues

Business owners are required to obey all legislation concerning the operations of a business. These include, paying
taxes, business registration, obtaining licenses when required etc. Business owners should also operate their
business based on integrity. This involves:
- Environmental awareness reducing pollution and harmful effluents in the rivers and seas.
- Avoiding tied selling (marrying of goods)
- Misleading advertising (untruths about goods advertised)
- Untrue sale price For example, writing the word sale on items for which the price remains the same.
- The use of market dominance to squeeze firms out of the industry- For example large firms may drop the price of
their goods so low that small firms are unable to compete with them.

Consequences of Unethical and Illegal Practices

Illegal business practices will result in legal consequence for business. This may include large fines the loss of the
business. Legislation also protects consumers, competitors and society from unethical practices of a business.

Quiz
Question 1
Explain the importance of encouraging entrepreneurial skills and abilities in Caribbean schools.
Answer
Entrepreneurship is important to Caribbean economies. Businesses create jobs, add to GDP and foreign exchange
earnings. They also provide revenue for government in the form of taxes. Therefore, entrepreneurship skills must be
taught in schools. Our students should be prepared to enter the workplace and to also start businesses. An
investment in a programme that prepares students for entrepreneurship will have longterm impact on a countrys
economic growth and development.
Question 2
Outline and explain the importance of two characteristics required for a successful entrepreneur.
Answer
Creativity is an important characteristic of an entrepreneur. Creativity helps entrepreneurs to innovate new products
and ideas for the success of the business. Entrepreneurs must have the drive and determination to be successful.
Operating a business requires a lot of effort and will to succeed.
Question 3
Three of your past high school friends request your assistance in starting a small business. Advise them on three
important steps that they must take.
Answer
Do a feasibility study to ascertain the viability/feasibility of a business idea. It assesses the operational costs,
expected revenue flows, level of competition etc. Its main purpose is to find out if the business idea is practical. The
business must be registered. This is a legal requirement. Decisions must be taken on the type of business that you
wish to form i.e. either a partnership or a private limited liability company. Identify sources of capital to purchase
machinery, equipment, fixtures and raw materials.
Question 4
James & Sons has been operating as a partnership for five years. They have decided to expand through offering
shares to the public. Outline the steps that must be taken by the owners of James & Sons to establish a public
limited liability company.
Answer
Documents that must be submitted to the registrar of companies are the memorandum and articles of association
and statutory declaration. A prospectus must then be published inviting the public to subscribe for shares. Collecting
the capital required as outlined in the memorandum of association, to be issued with a certificate of trading allowing
the company to start trading as a public limited liability company.
Question 5
Compare two advantages and two disadvantages of a sole trading business and a public liability company.
Answer
One advantage of a sole trading business is that the owner receives all the profits made. However, profits are shared
among members of a public limited liability company.
The sole trader can also implement new ideas quickly as he does not have to consult anyone else concerning
business decisions. However, new ideas must be ratified by the board of public limited entities and therefore may
take much longer to implement.
One disadvantage is that the sole trader must find all the capital to invest into a business.
A public limited liability company raises capital from shareholders. The sole trader will lose all his personal assets if
the business goes bankrupt. Shareholders in a public limited liability company have limited liability and therefore
will not lose their personal assets if the company goes bankrupt.
Question 6
Outline three features of a business plan.
Answer
The executive summary is a synopsis of the full business plan. It outlines information on the purpose of the business,
its methods of operation and future expectations.
The mission statement conveys the overall goals and value of a business. It speaks to how a company operates. For
example: providing the highest quality goods and services.
A SWOT Analysis outlines the strengths and weaknesses of the business. For example,
Strengths low overhead costs and large market share
Weakness difficulty in sourcing raw materials and sourcing skilled workers.
Question 7
Differentiate between primary and secondary data and give two examples of each.
Answer
Primary data is originally collected data. This data will be obtained by interviewing, observing or distributing
questionnaires to the sample population.
Secondary data is information that has already been collected by someone else originally. This data will be therefore
obtained from books, newspapers, magazines, libraries and publications of various institutions.
Question 8
Explain how government may intervene to curtail unethical and illegal practices of business.
Answer
Government uses legislation to guide business practice thus protecting consumers. Laws outlining accepted
standard for manufactured goods and packaging and storing of goods protect consumers. Taxes are also charged to
curb activities such as pollution as a result of production.
Question 9
Explain the importance of a feasibility study to the startup of a business.
Answer
A feasibility study helps individuals to ascertain whether or not a business will be profitable, it also assesses the
possibilities of future income earnings and overall operational costs.
Question 10
List two forms of collateral and explain their importance to the acquisition of funds for a business.
Answer
Collateral is anything of value that is used to secure a loan. It is required by financial institutions for the approval of
loans. If the loan is not repaid then the financial institution has the authority to seize the borrowers collateral.
Forms of collateral include: bank balances, motor vehicle, dwelling house, land, machinery and equipment etc.
 Concept of a Contract
A contract is an agreement that is enforceable by law. A contract therefore has legal implications for the parties who
enter into a contract. A mere agreement is not legally binding and therefore neither of the parties is liable if anyone
breaks the agreement.
What makes a contract different from an agreement?
A contract requires not only an agreement between parties but also something of value must be passed from one
party to the next to make the contract binding. For example, you offer to sell a friend your used text books for
$1000.00. After inspecting your textbooks the friend agrees and pays $1000.00. The $1000.00 paid here is the
consideration i.e. something of value that is passed from one party to the next. Consideration is the price paid for a
promise. You promised to let your friend have your textbooks if he paid $1000.00. This $1000.00 makes the
agreement binding. You are therefore obligated to deliver the books to your friend and cannot decide to sell the
books to someone else or to ask for a higher price.
Your neighbour asks you to mow his lawn after which he will pay you $200.00. You accept this offer and mow the
lawn. The work done here is an act of forbearance. You are giving something of value to your neighbour to receive
payment for the job. The consideration in this case is the work done by you. It is the price that you have paid for the
promise to be paid money for the job. Consideration passes from promise to promise.

Characteristics of a Simple Contract

There must be offer and acceptance. The offerer is the party that makes the offer and the offeree is the person that
the offer is being made to. There must a clear offer and clear acceptance for a contract to be binding.
Consideration is the price paid by one party for the promise of the other. Thus if one party promises to provide
goods or services, something of value must be given in exchange. This may be in the form of money, goods, services
or it may be an act of forbearance.
The capacity to contract Parties to the contract must be over 18 years, of sound mind, not under the influence of
drugs or incarcerated.
There must be no force, misrepresentation or fraud. Persons should not be forced to sign a contract e.g. blackmail.
They should not be lied to e.g. giving the wrong year of a car. Fraud may involve forging someones signature.
There must be an obvious intention to create legal relations. This is based on the actions of the parties e.g. offer,
acceptance and consideration.
A contract must be legal- thus, agreements made between parties concerning illegal drugs and any other illegal
activity is not a contract.
 Differences between a Simple & a Specialty Contract
A simple contract can be made orally, in writing or by the implications deemed from the actions of the parties. A
specialty contract must be signed by the parties sealed, for example with a company seal and finally it must be
delivered.
Examples of specialty contracts include:
1. Mortgages and leases for over three years
2. Sale of land
3. Contracts of insurance
4. Hire purchase agreements
5. Transfer of company shares
6. Assignments of copyright

Difference between an Offer & an Invitation to Treat

An invitation to treat is not an offer but an invitation to bid or bargain for an item. For example, at an auction
persons may bid on various items presented. An invitation to treat also occurs also when goods are advertised for
sale in the media or in shop windows. Goods in a shop window or goods advertised are not an offer by the owners of
the goods but are technically an invitation for interested persons to make an offer.

Conditions under Which Offer and Acceptance Are Communicated

An offer must be very clearly made. An offer can be made to one person, a group or to the whole world. For example,
offering a reward for a lost wallet is an offer to anyone finding the wallet. In cases where there is a counter-offer the
original offer is no longer valid. A counter offer is an implied rejection of the original offer. For example: John offers
to sell Paula a laptop for $10,000. Paula subsequently offers him $8000.00 as she thought $10,000 was too
expensive. Paula has rejected Johns original offer and has made a counter-offer of $8,000.
Acceptance must also be clear. In the case of a counter offer a clear acceptance to the new offer must be identified.
Contracts may be made orally, in writing or they may be implied.
Oral Contracts
Are based on what the parties said. For example, asking someone to wash your car for payment
Written Contracts
Both offerer and offeree must sign the contract document
Implied Contracts
Implied Contracts are made by the observed actions of the parties involved. For example, someone who sits at a
table in a restaurant and places an order has implied that he will pay for the food that will be served.

Ways in Which Contracts May Be Terminated

Contracts may be brought to an end:
(a) By performance of the parties i.e. each party completing his obligations as stipulated by the contract.
(b) By frustration i.e. an event through no fault of the parties that make one party unable to perform the contract.
For example: if one party suffers a prolonged illness which makes him unable to perform the contract.
(c) By lapse of time i.e. if the time limit set for the contract to be executed by both parties has been passed. For
example, sellers of real estate usually require that the buyers pay the full balance on the property within a certain
time period after the initial down payment has been made.
(d) By the mutual agreement of all parties.
(e)If one of the parties become bankrupt after the contract has been signed.
(f) By changes in law i.e. where a legal contract is rendered illegal through changes in law.
(g) By notice e.g. some firms require that employees give at least one month notice when resigning their positions.
(h) If one party dies.
(I) By breach of contract-When one party defaults on his part of the agreement i.e. he does not perform his part
of the contract.

Validity of Contracts
Mr. Larry was delighted to see a 50% discount on his favourite brand of shoes at a shoe store 15 miles away. He took
some time off from work to travel to the store. When he arrived at the store he was told that that the brand
advertised was sold out but he could choose from other brands available. Mr. Larry was very angry and requested
that he be refunded his travelling expenses.
Is the owner of the store obligated to refund Mr. Larry his travelling expenses?
Answer
The advertisement appearing in the newspaper is not an offer by the store but an invitation to treat. Therefore
readers were being invited to make an offer for items advertised. The owners of the store are therefore in no way
obligated to Mr. Larry.
Hope stopped at a convenience store on her way home to purchase a few items. She handed the cashier he credit
card and was surprised when she was told that it declined. She apologized and explained that she did not know why
her card declined but she will call the bank in the morning. Susan further explained that she had just enough cash
with her to get home and so she could not pay for the goods. The cashier was very angry and asked the manager to
intervene. The manager insisted that she pay for the goods.
Is Sandra obligated to pay for the goods?
Answer
Sandra has entered into a contract with the convenience store. She made the offer at the cashier counter when she
presented the goods to be cashed. The cashier accepted the offer by cashing the goods. In this situation it is up to the
manager of the convenience store to accept Hopes apology.

Why Documentation Is Necessary In Business Transactions

Business documents provide information needed for the business to function efficiently. Information is required for
accounting purposes to ascertain whether profits or losses are being made. Documents are also needed as evidence
for example orders placed for goods and payments made. Documents also provide information on commodities in
stock and prices.

Business Documents for Various Purposes

(a) Letter of Enquiry is sent by persons who wish to be informed of what goods and services and the prices of
these that a company offers for sale.
(b) The company may resend either a quotation or a catalogue
A catalogue is a booklet with a brief description and pictures of articles for sale. Since a catalogue is costly, some
companies opt to send a quotation instead. A quotation lists all the goods in stock along with their prices.
(c) If there is an interest to purchase an item in the catalogue then an order letter is sent requesting goods to be
supplied.

The following three documents (items d, e & f) accompany goods delivered.

(d) Delivery Note must be signed by the person receiving the items ordered. This is proof that goods were
delivered. A copy of the delivery note is given to the buyer.
(e) Consignment note is sent when the firm does not have its own transportation. A transport company is paid to
deliver the goods. A consignment note will be prepared by the consignor (the sender) and given to the transport
company. It contains information about the destination of goods and the name of the consignee (the receiver).
(f)An Invoice is a bill sent with goods delivered. Invoices may also be sent after goods have been delivered.
Terms 5% 30 days A Discount of 5% will be given if the customer pays within 30 days. E & OE means errors and
omissions, i.e. if any mistakes were made on the invoice the company will make the correction.
(g) Pro forma Invoice is a temporary invoice. It is used in cases where funds are being borrowed from financial
institutions to purchase items. The institution may request a pro forma invoice as proof of items to be purchased
when the loan is disbursed. It may also be sent with goods not ordered and in this instance is a form of
advertising. If the customer is interested in the items sent, an actual invoice is sent.
(h) Credit note is issued to a customer when there has been an overcharge on an invoice due to faulty arithmetic,
when goods have been returned because of damage or refunds requested for goods not received. A credit note is
printed in red.
(I) Debit note is sent to a customer whenever there is an undercharge or omission on the invoice.
(j) Statement of Account is a document from a supplier to a customer outlining all the transactions carried out
over a particular period. A statement is usually sent monthly.
(k)A receipt is given for cash payment.
(l) Stock cards are used to keep a record of all stocks entering and leaving the stockroom. This procedure ensures
that stock level do not fall below a minimum resulting in the depletion of stocks.

Information on Transport Documents

a. Import License
This document gives a business permission to import goods into a county. It is used by governments to restrict the
importation or to limit the amount of certain goods imported. Quotas are sometimes used to protect local industries
as they specify the quantity of certain goods importers are allowed to import.
b. Certificate of Origin
This document states the country in which the goods were manufactured. This is important for Caribbean countries
as goods from other Caribbean countries enter duty free. Goods imported from outside the region are taxed.
c. Shipping Note
This document provides details about the goods to be shipped, e.g. type and number of items and the destination of
the goods.
d. Bill of Lading
The Bill of Lading is a contract of carriage between the seller of the goods (exporter) and the shipping company
transporting the goods. It is also a document of title as a copy must be presented by the importer before he can
claim the goods.
It includes the following information: The number of packages, the weight of each piece, the contents, the port of
departure and destination, the name of the ship, the senders name and address and receivers name and address
e. Dirty Bill
If the words dirty are added to the bill of lading, then the goods delivered are damaged.
f. The Airway Bill
This document is used when goods are transported by air. It contains similar information as the bill of lading. It is
not a document of title and the consignee named need not have a copy to collect the goods.
g. Insurance Certificate (Marine Insurance)
This document provides protection for the goods being shipped against loss or damage at sea.
h. Bill of Sight
This document is completed if for any reason the documents required for importing goods are not available. It is
completed giving details of the consignment and method of transportation.

Instruments of Payment
The instrument used to make payments will depend on the sum of money being paid and whether the transaction is
a local or an external one.
Cheques
A cheque is an order to the bank to transfer payments from an individuals account (the
payers/drawers account) to credit another individuals account (the payees account) or to pay the payee on
presentation of that cheque.

Credit Transfer
A customer of a bank may use this system by instructing the bank to transfer money from his account to an account
at any other bank.
Standing Order/Bankers Order
This allows regular monthly payments to be made from a customers bank account to a named payee. The customer
must complete and sign a standing order form instructing the bank to make payments.

Credit Cards/Debit Cards

This allows the card holder to make payments by simply presenting the card to the seller. A credit card facility is
actually a loan given to a customer and thus it is repaid at an interest. A debit card is issued against a customers
account balance and is therefore not a loan.
Postal Order
Postal orders are cheques issued in specific values by a post office. The value of each postal order is printed on it and
a price depending on its value is paid for each. The postal order will be sent to the post office of the payee as
designated by the payer.
Money Order
These can be purchased from a bank or a post office. They can be used to make payments locally or overseas, as they
are made out in the currency in which they are to be paid. The payee will cash the money order at his bank.
Telegraphic Money Order
The sender must first pay the sum to be sent over the counter of the post office. A telegram is sent to the payee
informing him to collect money at his local post office. He must present proof of his identity.
Bank Draft
This is a cheque that is used to make payments overseas. Bank drafts are obtained for a fee from a bank and are
made out to a named payee in foreign currency.
Bill of Exchange
This is used to pay for goods bought overseas on credit. It is an order in writing from an exporter to an importer
requiring payments of a certain sum of money at a fixed future date. The time period allowed is normally three
months.
Letters of Credit/ Documentary Credit
This is a sent from an importers bank to an exporter guaranteeing payment to the exporter for goods to be supplied.
The exporter must present a clean bill of lading, certificate of origin and a certificate of insurance to the importers
bank.
Irrevocable Letter of Credit
Once an exporter receives this letter of credit the importer cannot cancel payments for goods to be supplied without
the exporters permission.

Insurance and Assurance

Insurance is a means of protection from financial loss. Insurance is generic for all types of insurance and
assurance. However, insurance differs from assurance in that insurance covers risks that may occur e.g. theft, fire,
accident etc., and assurance covers events that will occur such as death.
The parties to the insurance contract are the insurer (the company offering protection) and the insured (the person
seeking protection). Payments are made by the insured for this service. The price charged for insurance is called a
premium. The contract is known as the policy.

Insurance Principles
The purpose of insurance is to compensate persons insured who suffer loss. It is based on the principle of indemnity,
that is, to restore the insured to his original position before he suffered loss. Insurance therefore as a principle
neither makes the insured worse off or better off than before loss was incurred. For example, if Mr. Green suffered
damages valuing $500,000 subsequent to a fire at his home, he will be compensated exactly $500,000 to repair his
house.
Principles of Insurance
Indemnity-Restoring the insured to his original position
Insurable interestThe insured must have a vested interest in what is being insured. For example, someone is not
allowed to insure his neighbours house.
Utmost Good Faith -The insured must be truthful concerning the information pertaining to the policy contract.
Proximate Cause - The damage caused must be close or proximate to the event insured against. For example, if
someone has an accident policy that includes death occurring as a result of an accident, this person will not be
compensated if death is caused by disease.
Contribution This principle prevents persons insuring identical risks on the same property with several
companies and thus profiting if they suffer loss. For example, an individual may insure his car with three insurance
companies hoping to be compensated by all three. He will not succeed as the insurance companies will each only pay
a portion of the claim.
Average Clause This clause sets a limit to the size of the compensation, which depends on the proportion of the
true value of the asset paid up by the insured. For example, a homeowner insures his home for $100,000 which is
half the true value of $200,000. His house was partially destroyed by fire on the insurance company for $50,000
worth of damage. The insurance company only paid him $25,000 as he was only insured for 50% of the true value
of the house presently.
Subrogation -This is an extension of the principle of indemnity, that is, the insured should be reinstated to his exact
position before the loss. For example, if a vehicle is totally wrecked and the insurance company pays the insured the
value of the car, the wrecked vehicle will be claimed by insurance company.
How does insurance Work?
How are insurance companies able to pay its clients large sums of money to compensate them for loss? They operate
on the basis of risk pooling. Premiums from large numbers of persons with the same risks are pooled and only those
who suffer loss are compensated. The insurance company can predict the percentage of losses based on past data.
The premiums charged are based on the number of losses predicted plus the cost to operate the business and profits
to be realized. For example, a particular insurance company may insure one thousand persons for risk against car
theft. Only two percent of those insured may suffer lass and therefore the insurance company can afford to assist
those persons.

Types of Insurance Policies

1. Life Assurance
(a) Whole Life Assurance
Payment will be made upon the death of the insured. The beneficiaries of the insured will be paid.
(b) Endowed Assurance
Payments are made at the end of specific periods. The Endowment policies may be paid at the end of twenty or thirty
years or at the age of retirement. If death occurs before the end of the endowment period insured, then the
beneficiaries of the insured will be paid.
2. Term and Business Insurance
(a) Fire Insurance
Covers loss or damages to assets by fire
(b) Burglary Insurance
Covers loss due to goods stolen and damages to property caused by theft
(c) Bad Debts Insurance
Covers debts that cannot be collected
(d) Plats Glass Insurance
covers the replacement of shop windows as well as any injury to staff and customers that may be caused by its
breakage
(e) Fidelity Guarantee Insurance
This protects a firm against loss due to the misappropriation of funds by employee, customers or other persons.
(f) Employers Liability Insurance and Public Liability
Covers injury incurred by staff or visitors on a business location due to the negligence of the firm, e.g., customers
slipping on a wet floor.
(g) Motor Insurance
Third party Only third parties e.g. passengers are covered. The driver and car is not covered.
Comprehensive Covers loss due to damages to the driver and third parties.
(h) Marine Insurance
This policy covers loss due to damages of ships and cargo at sea.

Importance of Insurance to Businesses

Entrepreneurs invest a wealth of resources into the start-up and continuous operation of a business. If the
entrepreneur suffers any form of loss such as fire or burglary etc. the business may take a long time to recover.
Insurance is therefore very important to the business community. The principle of indemnity ensures that an
entrepreneur receives enough compensation to continue the business with minimum effects.

Quiz
Martha offered to sell her prized orchid for $1000. Joseph telephoned her and expressed his great interest in that
variety of orchid. He however could not pay the $1000 she asked but could manage to pay $800. Joseph then
promised that he will visit her later to pay for and collect the orchid.
Later that day Joseph visited Martha with the money to pay for the orchid. Martha informed him that she had
already sold the orchid for $1000. Joseph was furious and told Martha that it was not only unethical for her to sell
the orchid to someone else but it was also illegal.
Question 1
Did a valid contract exist between Martha and Joseph? Explain the reason for your answer.
Answer
A valid contract did not exist between Martha and Joseph.
An offer was initially made by Martha. Joseph wished to obtain the orchid but could not pay the amount asked by
Martha. He therefore made a counter offer of $800.
Martha did not clearly accept his offer and therefore a contract did not exist. Since a contract did not exist, Martha is
allowed to sell the orchid to whomever she chooses.
Question 2
Differentiate between a simple and a specialty contract.
Answer
A simple contract is legally binding if there are an offer, acceptance and consideration. A specialty contract must
have all these in addition to it being documented, signed sealed and delivered.
Question 3
Outline three reasons for the discharge of a contract.
Answer
If the time for which the contract must be executed is passed, then the contract can be brought to an end because of
lapse of time.
If there is a mutual agreement between the parties of a contract to bring the contract to an end.
A contract may also be discharged if one of the parties to the contract dies.
Question 4
You purchased an item from a variety store and were not given a receipt. The owner explained that he never usually
gives a receipt. Explain to him the importance of not only a receipt but two other business documents to the
operation of his business.
Answer
A receipt is proof of payment for goods or services bought. It not only provides protection for the purchaser but also
is a record of money received by the business. Two other important business documents are an invoice and a
statement of account.
An invoice is a bill outlining the total amount owed by customers for goods or services. It also informs the customer
of deadline dates for payments and any discounts offered. A statement of account informs customers of all payments
made within a specific time period and outstanding balances at the end of that period.
Question 5
Outline two ways of making payments overseas.
Answer
A bank draft is a cheque which guarantees payment to the receiver from the issuing bank. Bank drafts can be made
out to a payee in foreign currency and thus used for making overseas payments.
Letters of credit are used in international trade to make payments for imports. Payments to exporters are
guaranteed through the bank.
Question 6
Explain the importance of the following documents in international trade:
- Certificate of origin
- Import license
- Bill of lading
- Certificate of insurance
Answer
Certificate of Origin
A certificate of origin states the country in which goods imported were manufactured. It informs importing
countries if goods are to be accepted in the case of a ban and if tariffs to be charged.
Import license
Ensures that approved goods and quantities are imported
Bill of lading
Ensures the safety of goods in transit and delivery to receiver
Certificate of insurance
This ensures that there is financial protection for goods during transit
Question 7
You are a business owner in a Caribbean country and wish to export. Explain how you would ensure that payments
are received for items exported.
Answer
Request from the importer an irrevocable letter of credit. This ensures receipt of payments once an order is filled.
Question 8
Explain the purpose of insurance and identify four fundamental principles.
Answer
The purpose of insurance is to indemnify the insured who suffers loss. It ensures that the insured is returned to the
exact position he was financially before the loss occurred.
Four principles of insurance are:
- Utmost Good Faith
- Proximate Cause
- Contribution
- Average Cause
Question 9
Differentiate between Insurance and assurance and give four types of Insurance.
Answer
Insurance refers to the coverage of events that may occur e.g. an accident. Assurance on the other hand covers
events that are inevitable such as death.
Four types of insurance are Bad debt, Plate glass, marine, and employers liability.
Question 10
Show how three types of insurance is beneficial to businesses.
Answer
Bad debt insurance covers any loss that a business might incur if customers do not make payments on outstanding
balances.
Plate glass insurance covers any damage to customers or anyone else due to the accidental breakage of a shop
window. The cost of the window is also covered by the insurance company.
Employers Liability covers injury to staff or visitors on a business location due to the negligence of the company.
 Factors of Production
The term factors of production refers to the resources that are combined in the production process to create goods
and services.
These are:
Land - natural resource
Labour human resource
Capital man made resource
Entrepreneur human resource
Land includes all natural resources such as soil, seas, rivers, forests, minerals, vegetation etc.
Labour is categorized as skilled, semi-skilled, unskilled or professional workers
Capital includes assets such machinery, equipment and vehicle owned by the company. Capital also includes raw
materials, finished and semi-finished, goods, bank and cash balances.
The entrepreneur is the owner and risk taker in a business venture. He is responsible for combining all the factors
of production.

Industries Developed From Natural Resources in the Caribbean

Caribbean countries have been blessed with a plethora of natural resources. The industries developed from these
natural resources have created employment as well as foreign exchange earnings from exports.
Examples:
Crude oil is a natural resource of Trinidad. The petroleum industry employs nationals and earns foreign exchange
for the country.
Clay is found in abundance in Barbados. Pottery making is a large industry in Barbados.
Bauxite is found in abundance in both Jamaica and Guyana. The Alumina industry is an important foreign
exchange earner. Alumina is exported to be further processed to make aluminium products.
Guyana also has very large forest areas and has developed a very vibrant lumber and timber industry. Lumber is
used in the construction industry.
Lime stone is processed to make cement in Jamaica.

Difference between Production and Productivity

Production is the process of combining units of inputs (natural, man-made and human resources) to create output
(goods and services) capable of satisfying human needs and wants.
Productivity is the increase of output from each unit in the production process. There are several ways of achieving
productivity. These include the training of workers and the introduction of machinery and equipment into the
production process.
Importance of Productivity
Productivity increases output. High productivity results in lower cost per unit of output resulting in higher levels of
profit for a business. For example, a factory worker can produce 10 items in an hour and he subsequently produces
20 units in the same hour after some training. His productivity has doubled and the business will benefit from a fall
in unit cost as more units are being produces at the same costs of production.
Higher profits for the firm will mean more funds available for its expansion, new business ventures and community
support. It may also wish to pass on the benefits of lower costs to consumers in the form of lower prices.

Effects of Migration
Migration is the permanent movement of workers from one location to the next in search of better opportunities.
Internal Migration
Migration within a country e.g. Rural urban migration. This is migration of persons from rural communities to the
city areas.
External Migration
Migration of persons from one country to another For example, the migration of Caribbean people to developed
countries such as the United States and England.
Effects of Migration
Internal (Rural Urban migration)
-The loss of persons from rural areas impacts on the level of output and development of these areas.
-It also impacts negatively on the level of commodities available for export form these regions.
-The influx of workers in urban areas increases competition for jobs, houses, health facilities, schools etc.
External Migration (Caribbean to developed countries)
-Professional and skilled workers who migrate reduce the level of skills available in their countries resulting in a
brain drain effect. This will impact on growth and development.
-They increase competition for jobs, houses, health facilities and schools in their new territory.
-Money earned by Caribbean nations in foreign countries is sent home to support their families reducing poverty
and making foreign exchange available for their respective countries.
-Caribbean professional and skilled workers contribute to the growth of developed countries

Role of the Entrepreneur: Decision Making Process

The entrepreneur organizes the factors of production to create goods and services. The most suitable location,
qualified workers, and the right equipment and machinery will ensure efficient production. It is therefore important
for him to make the right decisions concerning the employment of the required resources for his business. He must
also make decisions on systems and processes to be applied in the production process.

Role of Capital in Production

Capital refers to assets such as machinery, equipment, inventory and cash that are used to start and continuously
operate a business.
Fixed capital includes machinery, equipment and vehicles owned by the company. These assets are so called
because they cannot easily be turned into cash.
Circulating capital includes raw materials, finished and semi-finished, goods, bank and cash balances. These
assets can easily be converted into cash.
Tools and machinery are necessary for products to be fashioned from raw material e.g. Mineral mining, oil drilling
and lumbering. These assets also increase productivity for example sewing with a machine as opposed to sewing by
hand. Venture capital is needed for business start-up. The business owner will need equipment, funds for
promotion etc. to start the business. Working capital is the cash available for the daily operation of the business.
It is used to pay workers, utilities and purchase raw materials.

Levels of Production
Subsistence
This is the lowest level of production. Subsistence productions refers to output from the production process that is
just enough for the survival. This amount of production is therefore not adequate to meet all needs and wants of a
family, community or a country. For example, subsistence farming involves the production of crops to feed the
family and for survival. Wealth is not created as whatever is produced is consumed.
Domestic Production
Domestic production refers to production that is more than survival level. It provides output that is enough to satisfy
domestic needs and wants. Excess is not available for export. However, production is adequate to supply local
demand.
Surplus or Export
This level of production is adequate to supply local demand and for export. Large industries can produce large
quantities of output to satisfy local consumption and earn foreign exchange from export, for example, the sugar and
banana industries.

Types of Production
Primary Production
This includes all kinds of extractive industries such as agriculture, mining and fishing.
Secondary Production
This includes manufacturing such as assembling, refining and construction (building) industries.
Tertiary Production
This includes all kinds of service industries such as transportation, communication and tourism.

Cottage Industry
Cottage industry is a generic term for any type of homebased production business. The term is specifically used to
describe industries of a craft nature e.g. basket weaving, carving and pottery. This type of homebased business is
not difficult to start as it requires little capital to purchase tools and employs family members. These small scale
businesses are important to an economy. They utilize local raw materials such as clay for pottery, wood for carving
and straw for baskets. They earn foreign exchange from selling to tourist at craft markets and fairs.
 Linkage Industries
This refers to industries that are connected because they depend on each other to obtain or to sell raw materials.
Forward Linkage
If the final product or finished products of one industry is used in another industry as its raw material then a
forward linkage occurs. For example, sugar produced from a sugar factory is used by a bakery to make pastries.
Sugar is therefore the end product of one industry and used as raw material in another. Other examples include
agriculture and canning, lumber and construction and cattle farming and meat processing.
A backward linkage occurs when the demands of an industry leads to the establishment of other industries to
produce for the needs of this industry. For example, the establishment of several multinational fast food restaurants
in the Caribbean has led to new businesses being established to supply these restaurants with raw materials
(vegetables, ground provisions, meats and paper based products).

Factors That Determine Business Location

The location identified for the operation of a business will impact on its success or failure. An unsuitable location can
result in high operational costs or low sales volume. Business owners must therefore consider the following factors
when choosing a location.
The proximity to customers
It is important that business owners give customers easy access to goods and services. Shopping plazas in very
central locations are very popular locations for businesses. Many companies now opt for selling online and therefore
do not need to be centrally located.
The proximity to raw materials
It is more cost effective for a business that uses raw materials that are heavy and or bulky to locate close to the
source of raw material. For example, bauxite processing plants are located close to mining areas and sugar factories
are located close to sugar fields.
Availability to suitable labour supply
A business will need adequate number of workers who possess the skills suitable for the creation of its goods and
services.
Adequate Infrastructure
Firms will locate where there are adequate supplies of water, lighting, airports, seaports, good roads, transportation,
and communication facilities.

Functions of a Small Business

Supplying goods and services that satisfy demand
Identifying a particular need in a market and developing a product that will supply that market need improves
standard of living and increases the overall revenue (GNP) earned in a country. Small businesses have the advantage
over large businesses to identify changing market trends as they are closer to the customers. They are also able to
produce unique products to suit the needs of each customer.
Creating employment
Small businesses account for a large percentage of total employment in Caribbean economies.
Making profits
The main purpose of starting and operating a business is to make profits. Profit makes it worthwhile for the
entrepreneur to continue business. Profit earned may be reinvested to expand the business.

Effects of Growth on a Business

Small businesses that are efficient, creative and are cognizant of changing market trends are poised for
growth. Growth impacts on the business organizational structure and the business operations.
The creation of new posts and departments as a result of specialization and expansion will change the organizations
structure. More workers will also be employed resulting in greater specialization or division of labour (more workers
will mean that tasks can be subdivided into smaller tasks).
There will also be an increase in the internal communication systems (telephone, mail etc.) to accommodate this
expansion. More factory and office space, equipment and furniture will be required to facilitate expansion.
As the business expands it can take advantage of economies of scale. Economies of scale refers to the benefits that
firms are able to enjoy because of expansion.
Internal Economies of Scale
This refers to the benefits enjoyed by a firm because of its own expansion. These include:
-Technical Economies of Scale - Expanding businesses will need to purchase machinery and equipment to
supply the level of output required. With the use of machines productivity will rise and the firm will experience
technical savings as unit cost of production will decline.
-Marketing Economies Expanding businesses can take advantage of bulk buying and receive discounts on raw
materials.
-Financial Economies -Larger firms will access loans more easily and at a cheaper interest rate than small firms
since they already have established reputations and adequate collateral.
-Managerial Economies -The employment of experts who will specialize in various management functions such
as marketing, personnel, accounting and production will increase efficiency and thus output.
External Economies of Scale
External economies refers to the benefits enjoyed by a business because it is part of a well-organized industry and
not because of its own expansion. Thus any businesses whether large or small can reap these benefits as long as it is
part of an industry enjoying these benefits. Benefits include; government subsidies offered to particular industries,
tax holidays and reduced duties on items imported.
Diseconomies of Scale
A diseconomy of scale refers to the disadvantages arising from the expansion, such as:
1. High Advertising Cost: This becomes a diseconomy when the percentage increase in a firms advertising cost is
much greater than the percentage increase in its revenue.
2. High maintenance cost for machinery and equipment.
3. Increased difficulty in controlling the organization.
 Economical and Social Implications of Technological Development
Technological development increases the quality and quantity of output. This results in the lowering of unit cost of
production which may be passed on to consumers in the form of lower prices. When goods and services become
more affordable the standard of living of citizens will rise.
Developing countries employ both labour and capital intensive methods of production. Labour intensive industries
include banana and craft and capital intensive industries include petroleum and bauxite.
There are three methods of production:
Labour Intensive Production
This method of production utilizes mainly manual labour along with a limited amount of machinery
Capital Intensive Production
This method of production utilizes mainly machinery along with a limited number of workers.
Automation
Automation is the further stage of mechanization. This production process is carried out automatically with little or
no human involvement. For example, the automated teller machine (ATM).
Computer Aided Design (CAD)
Computer aided design is a computer software used in the product design process to produce designs with greater
accuracy, speed and flexibility. Its powerful computer graphics allow product designers to produce 3-dimensional
objects, which can be fully examined and tested before they are implemented.
Advantages include:
-accuracy
-speed
- it is easier to make adjustments since changes are made on the computer
-reduces cost of the design process
Mechanization and automation results in increased output but reduces the amount of labour required in the
production process. This creates unemployment in Caribbean countries. Workers must be retrained for new
developing industries such as information technology. New industries will absorb the fall out of workers from other
industries.

Quiz
Question 1
Discuss the importance of one natural resource to the survival, economic growth and development of your
Caribbean country.
Answer
Bauxite is a natural resource found in Guyana and Jamaica. The bauxite industry provides employment for
thousands of workers. It is also a main export product and foreign exchange earner. The growth of this industry will
impact on the growth and development of these countries.
Question 2
Explain the importance of productivity to a business organization and state two ways by which productivity can be
achieved.
Answer
Productivity is measured by the output of each worker. If workers are very productive, output will rise and unit cost
of production will decline. This will result in higher profit margins for a business. Workers can be made more
productive by training to improve skill and by the introduction of machinery and equipment to increase output.
Question 3
State one positive and one negative effect of external migration.
Answer
External migration deprives Caribbean countries of nationals who are professionals and those who possess a high
level of skill. However, an advantage of external migration is that foreign exchange is remitted to Caribbean
countries.
Question 4
Discuss the importance of two factors of production to the production process.
Answer
Capital is very important to the production process. Machinery, tools and equipment are needed for production as
they increase the efficiency of workers.
Labour as a factor of production is also important. Labour combines raw materials and machinery to create goods
and services. Methods applied to increase the productivity of labour will increase output.
Question 5
Differentiate between subsistence and surplus levels of production and explain the importance of surplus level
production to an economy.
Answer
Subsistence level of production refers to a level of output that is just enough to ensure survival. However, surplus
production refers to a production level that is greater than what is demanded locally.
Surplus production is important as it allows countries to export and earn foreign exchange. Foreign exchange earned
can be used to import goods and services that are not produced locally.
Question 6
Give two examples of items made by cottage industries in your country and explain how these activities contribute to
your economys growth.
Answer
Handcraft jewellery and T-shirt are popular cottage industry products in my country. Both these items are sold
locally in many popular boutiques and therefore provide income for producers and retailers. They are also sold to
visiting tourists and thus contribute to foreign exchange earnings. Output from cottage industries contributes to the
GDP of the economy and thus economic growth as these industries expand to meet rising demand.
Question 7
State three factors to be considered when identifying a suitable location to set up a new business and give a reason
for each.
Answer
Proximity to ones customers A new business should be located where it will be seen by its most likely customers.
Available supply of labour- A new business will require the best quality workers to ensure that it makes a positive
impact on the market.
Adequate infrastructure- A new business will need to be located in an area that is supported by infrastructure such
as good roads, communication and transportation services so that customers and suppliers will have easy access.
Question 8
Differentiate between a forward and a backward linkage and give one example of each in your country.
Answer
A forward linkage refers to the industries that are linked in such a way so that the finished product of one becomes
the raw material of another. For example, lumber from saw mills are used in the construction of houses and
furniture.
A backward linkage refers to industries that are established to meet the needs of other already
established industries. For example, hotels will backward link to the entertainment and transportation industries.
Question 9
Explain the importance of mechanization for the growth of small businesses in the Caribbean.
Answer
Mechanization is the use of mainly machinery in a production process. Machinery increases output. This will mean
lower cost of production and therefore higher profits. Small businesses owners should endeavour to mechanize in
order to increase output and be more competitive with large and medium sized business.
Question 10
What are the social and economic implications of mechanization and automation on Caribbean countries?
Answer
Mechanization increases the productivity of workers. High productivity as a result of machinery may cause job losses
as fewer workers will be needed to produce the levels of output required. Automation also results in job losses as this
process involves little human intervention.
 Difference between Market and Marketing
A market is any space within which trade takes place between buyers and sellers for a well-defined product. This
space can be a produce market, a shop, internationally between countries or over the internet.
Marketing is all those activities that facilitate trade. These include activities that identify consumers needs such as
market research and those activities that satisfy consumers needs e.g., packaging and distribution. Marketing
activities therefore support the marketing of goods and services.

Marketing Activities
Market research the process of gathering information about potential customers.
Packaging creating a suitable package for product usage and for advertising
Branding - differentiating the product of a company from other brands and establishing loyal customers.
Pricing - identifying the right price that will encourage sales
Advertising methods used such as the media to inform and encourage the purchase of goods and services
Sales promotion short-term methods used to encourage consumers to buy during a specified period
Distribution - methods used to make the product available to consumers. For example wholesale, retail or internet.

The Marketing Mix

The marketing mix also referred to as the 4 Ps of marketing, categorizes all the various strategies used in the
marketing of goods and services. These categories are product, promotion, pricing and place.
(1) Product this includes product designing, packaging, labelling and branding.
(2) Promotion advertising, public relations and sales promotions.
(3) Pricing includes various pricing strategies and methods.
(4) Place distribution of products.

Market Research
Market research is the gathering, recording and analyzing of data to address the marketing problems of a business.
Market research must be specific to the problem of a business. The marketing problem must therefore be clearly
identified so that the appropriate market research may be conducted.
Types of Market Research
Consumer Research garners information on consumers feelings, thoughts and reactions towards a companys
good or service.
Product Research determines customer acceptance of the product.
Distribution Research used to identify the most suitable channel of distribution for particular products.
Advertising Research- Identifies the most suitable media to present the advertising message.
The Marketing Research Process
This consists of five steps:
1. Identifying or defining the problem.
2. Developing information sources.
3. Collecting the information.
4. Analyzing the data by using charts and graphs
5. Presenting the findings.
Reasons for Conducting a Market Research
Market research provides managers with current, relevant, accurate and reliable information concerning
competitors, advertising, distribution and potential and loyal customers. This information assists managers in
making decisions about packaging, product design, pricing, distribution and advertising.

Factors That Influence Consumer Behaviour

The following factors will cause consumers to either increase or decrease their demand for a product.
-The price of a commodity
Consumers can afford to buy more of a good when its price falls and less when its price rises.
-The prices of other goods and services (substitutes and complements)
Substitute products are those that can be used alternatively as they satisfy the same need for a consumer. For
example, a weekly shopper may decide to purchase fish instead of chicken because the price fish has fallen
significantly less than the price of chicken. Therefore either fish or chicken will be adequate for dinner. If by the next
week the price of fish rises and becomes more expensive than chicken then the consumer will opt for chicken.
Complements are goods that are used together e.g. bread and butter. If the price of butter rises then its demand will
fall and so will the demand for bread. Conversely if the price of butter falls, its demand will rise and so too will the
demand for bread.
Income of consumers
As income level rises consumers will demand more goods and services
-Taste and Preferences
A change in consumers taste for goods and services will impact their demand... For example, changes in fashion will
result in a drastic decline in demand for an outgoing fashion and a rise in demand for what is trendy.
-Expectations of a future Rise in Price
If consumers expect the price of a commodity to rise in the near future, they will try to purchase more now, before
the price increases.
-Brand Loyalty
Brand loyalty will ensure a continuous demand for a product regardless of changes in its price or the prices of other
goods and services.
-Spending Patterns
Consumer spending surveys compile information on consumer spending patterns based on income levels. This
informs businesses of what goods and services are in demand.
-Changes in the size of the population
A population decline will cause demand to fall in a particular region. One reason for a population decline in a region
is migration.
 Types of Market Structures
The term market structure refers to the level of competition experienced by businesses in an industry. This factor
determines the nature of the product sold, how easy it for new businesses to enter that industry and the amount of
information available concerning that industry.
Monopoly
A monopoly exists when only one supplier has control over an entire market for a particular good or service.
Examples of monopoly in Caribbean countries are a single electricity and water supplier which may be owned by the
government or a private company... The monopolist sells a product for which there are no close substitutes. The
monopolist controls the market because it is difficult for other firms to enter such industries. The challenges include
high start-up costs and difficulty in obtaining strategic raw materials or information regarding business operation.
The monopolist has great market power and can therefore set the price of products sold in the market.
Oligopoly
Oligopoly describes a market structure in which there are few large firms. They offer the same product for sale and
compete aggressively for market dominance. Examples of firms in this market structure are telecommunications and
petroleum companies. Entry into this industry is also difficult as start-up costs are very high, there is control of
strategic raw material and information is not easily available.
Perfect Competition
This market structure is characterized by many buyers and many sellers of a product. The product is not unique as it
is available from many sellers. Firms in this market structure are price takers as they cannot sell above the price of
their competitors. Firms must accept the markets price as there are several competitors. There is perfect knowledge
about the business and there are no barriers of high start-up cost and control of strategic raw materials.
Monopolistic Competition
Similar to perfect competition this market structure involves many sellers. However, this market structure differs
from perfect competition in that each firm sells a branded product. Firms in this market structure are a monopolist
for their brand. There is freedom of entry and exist into the industry as there are no barriers such as strategic raw
material, very high start up cost and lack of information.

How Price Is Determined

The price of a good tells us the value of that product in terms of money. A rational consumer will try to get the
greatest value for money spent on goods and services. He will therefore weigh and compare the prices of
commodities before making a decision to purchase.
Prices in a market economy are determined by the level of demand and the level of supply for each particular
product.
The demand for a particular product is the amount that consumers are willing and able to buy at a given price. The
law of demand states that when prices are high demand will fall and when prices are low demand rises ceteris
paribus (meaning all other things remaining unchanged.).
The supply of a particular commodity is the amount that firms are willing and able to supply at a given price. When
prices are high supply will rise and when prices are low supply fall. Suppliers are willing to sell more at higher prices
as profits will be high, and unwilling to sell large quantities when prices fall because of low profit margins.
The equilibrium price in a particular market is the price at which consumers and suppliers are willing to trade a
certain quantity of a commodity. For example, consumers are willing to buy 55 litres of milk at $3 and suppliers are
willing to supply 55 litres at that price. If the price increases to $4 there will be a fall in demand to 30 litres as some
consumers are not willing to buy milk at this price.
Illustrating Price Equilibrium

The demand and supply curves are drawn from the demand and supply schedules. Price is measured on the vertical
axis and quantity on the horizontal axis. The demand curve slopes downwards from left to right and the supply
curve slopes upwards from left to right. The intersection of the two curves indicates the equilibrium price and
quantity.
 Packaging and Presentation of Goods
Packaging refers to designing and producing the container that holds the product. A good package must identify,
protect and advertise the product. It must also make the product convenient to use. Therefore products such as
toothpaste are best packaged in a tube as it has to be squeezed out. Milk must be poured from its container. Egg
containers are so shaped to hold them securely.
A package must also sell the product. It must first attract customer to buy. It must provide information about the
product i.e. ingredients, amount of contents, price, the name and address of the manufacturer and instructions for
usage. The brand name is also displayed on the package.
Branding
A brand is any identifiable feature of a product which makes it different from its competitor. A brand may be a
name, term, symbol, design or combination of these. Examples of brand names include: Avon and Colgate. A brand
symbol e.g.

represents the Nike brand. A branded product will increase the value of the product in the eye of the consumer.

Copyright, Patent & Trademark

Copyright is a form of intellectual property right that legally protects the creators and innovators of original works.
Copyright protects creators expressions such as music, painting, movie, photograph, writings etc. Individuals who
wish to use works that are copyrighted must request permission from its creator. Copyright law allows creators of
original work to be paid for them. Other forms of intellectual property rights are patents and trademark.
Patent protects innovation. It excludes others from making and selling that invention for a number of years.
Trademark legally protects brand names. It gives the seller exclusive rights to use a particular brand name

Methods of Promoting Sales

Promotion includes all forms of advertising, public relations and sales promotion.
Advertising is the paid presentation of goods or services through the media for the purpose of encouraging consumer
patronage. The media refers to television, radio, magazines, newspapers, billboards, websites etc.
The Purpose of Advertising
-to attract attention
-to inform customers
-to increase sales
Sales Promotion
Sales promotion is a marketing strategy that is used to induce customers to buy immediately.
Examples of sales promotion methods are:
a. A sale on items.
b. Bargain packs, e.g. two for price of one.
c. Coupons. These are printed in the daily newspaper or magazines. The holders of coupons are allowed a discount
on the items bought.
d. Games, e.g. guessing riddles
e. Contest. Purchasers may receive a prize if they are the winners of a contest.
f. Trading Stamps. These are given to purchases with each item bought. Booklets filled with these stamps may be
returned by customers for goods, services or money in exchange.
g. LossLeader. A loss-leader is a product that is in high demand and is therefore used to attract consumers to a
business location by cutting its price very low. The business uses a loss leader to attract large number of persons to
its location so that other items will be sold. The profits lost on this product will be made up on the high sales
turnover of the other products that will be bought along with the loss-leader.
Public Relations
Public relations activities are aimed at creating a favourable impression of a business in the eyes of the public. Public
includes its customers, its suppliers, the government and the surrounding community. Public Relations activities
include sponsorship of local sporting events, press conferences, and donations to charity.

Techniques of Selling
These are methods used to sell products more effectively by focusing on each customers personal needs. Selling
techniques include:
1. Personal Selling
2. After-sale services such as warranty and installation
3. Merchandising
4. Good Customer Relations
Personal Selling
This is the use of sales persons to present and sell goods and services of a firm. Sales persons promote a firms goods
directly to a specific consumer. They locate new customers, provide display services, demonstrate the use of
products, deliver goods, collect payments and provide the firm with feedback
After Sales Services
Customers are entitled to these services once they have made a purchase. They include delivery, installation and
warranty. These services are free and therefore usually encourage consumers to buy.
Merchandizing
Merchandizing refers to self-service methods of sale. This is used in supermarkets and department stores. It allows
for a better display of goods and creates a more comfortable shopping environment.
Good Customer Relations
Building good relationships with customers ensures customer satisfaction, repeat customers and recommendation to
new customers. The sales staff must be trained in the principles of good customer relations. This entails, listening to
customers being helpful and polite.

Terms of Sale
A business establishment may offer its customers various terms to settle accounts.
Cash
This is preferable by most businesses and therefore customers are encouraged to make cash payments. They are
usually offered a lower payment amount for goods bought for cash.
Credit
Customers are allowed to pay at intervals over a short- term, usually one to three months to settle outstanding
balances.
Hire Purchase
Hire-purchase is a long term payment plan e.g. 24 36 months. Interest is charged to the customer increasing the
amount owed.
Cash Discount
A cash discount is a reduction in the price of a good that is paid for immediately or over a short period of time by a
customer. For example, if a an appliance store offers 5% discount on items bought for cash then 5% of the sale price
would be deducted from the actual bill
Trade Discount
A trade discount is the reduction in the price of a good given by a manufacturer or a wholesaler to a retailer to allow
the retailer to make a profit or to encourage bulk buying. Thus if an appliance manufacturer offers 10% trade
discount to retailers then 10% of the catalogue price or the quoted price would be deducted from the retailers actual
bill.

Consumer Organizations
Consumerism is defined as the education and the protection of consumers to prevent their exploitation.
Consumer exploitation includes:
-overcharging
-offering poor quality goods and services
-short measurements and weights
Consumerism is practiced by various groups in the economy: the government, private institutions, and private firms.
Consumerism practiced by the government
This is done through various government agencies. These include:
1. The Consumer Affairs Commission This institution was set up to disseminate information about consumer
rights and responsibilities as well as provide consumers with an avenue for redress if they are exploited.
Consumer Rights
-The right to safety
-The right to be informed
-The right to choose
-The right to be heard
-The right to redress
-The right to consumer education
-The right to a healthy environment
Consumer Responsibility
-The responsibility to beware
-The responsibility to be aware
-The responsibility to think independently
-The responsibility to speak out
-The responsibility to complain
-The responsibility to be an ethical consumer
-The responsibility to respect the environment and avoid waste, littering and contributing to pollution.
2. The Fair Trading Commission This agency was set up to administer the fair trading act. It is concerned with
matters such as; Tied selling (marrying of goods), misleading advertising (untruths about goods and services
presented for sale), untrue sale (an announced sale for which the price of items remain the same).and the use of
market dominance to squeeze firms out of the industry (For example, large firms may drop the price of their goods
so low that small firms are unable to compete with them.)
3. The Bureau of standards -The bureau carries out regular checks on business enterprises to ensure that goods and
services offered for sale meet the standards stipulated by this institution.
4. The Ombudsman
The Ombudsman is a government official who protects the rights of citizens who may suffer any kind of injustice
from dealing with a government agency or a government official. For example, the Ombudsman will investigate the
death of a loved one due to the negligence of a public hospital.
Consumerism practiced by private Institution
-Local consumer groups
-Radio talk show hosts listens to consumers complaints
Consumerisms practiced by private firms
-Offering warranty/guarantees on items sold
-Labels carry information on ingredients, nutritional content and health risks that may be associated with the
product.

Links in the Distribution Chain

Manufacturers must find the most efficient ways of getting the goods manufactured into the hands of consumers.
The channels/chains of Distribution
Channels of distribution refer to the means by which commodities reach the hands of consumers from the plant of
manufacturers. This may be done directly from the manufacturer to the consumer or indirectly through middlemen
such as wholesalers and retailers.
Types of Channels
1. Direct Channel Manufacturer Consumer
Goods are bought directly from the producer e.g. purchasing furniture from a manufacturer.
2. Indirect channels (a) Manufacturer Retailer Consumer
Goods are bought from a middle man e.g. a retailer. Retailers display goods, sell in small convenient quantities and
offer credit. They therefore aid manufacturers in moving goods quickly.
3. Indirect channel (b) Manufacturer Wholesaler Retailer Consumer
The wholesaler is a second muddle man/link on the chain. The wholesaler purchases in bulk from the manufacturer
and stores them in large warehouses. They therefore assists manufacturers by moving large amounts of items from
plant Retailers purchase goods from wholesalers and sell them in smaller quantities to consumers.

Methods of Retailing
There are several methods by which retailers can offer items for sale.
Community Shops and Convenient Stores
These locations tend to serve a particular community. Opening hours include all weekend days, holidays and very
late in the evenings. Costs for some commodities that are not government controlled tend to be higher than other
types of retail outlets. Community shops in particular cut and shape products to suit customers and offer credit.
Department Stores
These stores carry a several lines of goods under one roof. A department store may feature a clothing department,
household items, stationery, hardware etc. It provides convenience to customers who can pick up several items in
one place, and allows the businessman the cost effectiveness of operating several business entities in one location.
Mail Order
Companies that retail through mail order benefit from reduced operational cost of location and staff. Since display
areas are not required only an office and storage facility are necessary for the operation of this business. Orders are
made from catalogues and goods are delivered by courier or mailed to customers. This saves time and effort of
consumers to visit shopping locations.
E-commerce
Orders are made by customers over the internet from the websites of businesses. Payments are also made over the
internet. Packages are delivered by mail or courier.
Tele- marketing
Tele marketers introduce the companys goods and try to obtain orders via the telephone.
Vending Machines
These self-service machines are placed at various locations by their owners. Customers are required to place the
required funds inside these machines and are then instructed on how to make their choice. The machine then
dispenses the product. This type of business is very cost effective as owners may only pay a fee for locating the
vending machine.

Forms of Transportation
Transportation is an integral part of the daily commercial and industrial activities of a country. Transportation
moves raw materials from source to manufacturers and finished goods to consumers. It also makes possible overseas
trade and thus foreign exchange earnings for an economy.
There are various modes/forms of transportation that can be used to transport goods. Commodities may be
transported by land, air, sea and pipeline. The mode of transportation will depend on weight and size of the
commodities being transported, as well as the urgency for delivery and the transportation costs.
Modes/Forms of Transportation
-Land
->Road
->Rail
-Air
-Sea
-Pipeline
Land-Road
Types of transportation include trucks, vans, cars etc. It is the most popular mode of transport as all types of goods
can be transported by road. Road transport is affected by bad roads, traffic congestion and challenging terrain.
Lengthy delays can affect perishable goods such as farm produce being transported from rural areas to cities.
Land-Rail
This is a cheap form of transportation over long distances. Trains are suitable for heavy and bulky things such as
bauxite. Trains are a very slow mode of transportation.
Air
Types of transportation include cargo planes and helicopters. Because of the high cost involved with air
transportation it is suitable for important documents and expensive items e.g. jewellery.
Sea
Cargo ships and barges are some of the types of transportation used for transporting goods by sea. Goods such as
oil, bauxite and cars are transported by sea.
Pipeline
Pipelines are used to transport commodities such as water and gas. High costs are involved in laying pipes initially.
However overtime it becomes very economical.

Problems of Distribution
Distribution locally is challenged by poor road conditions and difficult terrain especially in the rural areas. Spoilage
of perishable goods is very costly and therefore types of transportation used must be equipped to carry perishable
goods.
Problems encountered in Overseas Transportation
The challenges faced in transporting goods internationally will impact foreign exchange earnings. These challenges
include:
-misdirection of goods goods mistakenly sent to the wrong destination
-flight delays
-strikes by airport and ship port workers.
-narcotics found in containers
-Pilferage- goods stolen in transit.
Measures to mitigate problems of distribution
-careful checks before loading packages for shipment
-contingency plan when strikes occur
-public awareness on the consequences of narcotics found in containers
-making persons responsible for any goods lost in their care

Quiz
Question 1
Outline three marketing activities.
Answer
Advertising
Advertising is used to make customers aware of goods and services being offered by suppliers. It usually involves
messages that persuade consumers to buy.
Branding
Brands are created to differentiate a product from its competitors. Branded products are created to develop a loyal
following.
Distribution
Distribution channels move goods from producers to consumers. A business can either sell directly to consumers or
sell goods and services through middlemen such as retailers and wholesalers.
Question 2
Explain what is meant by the marketing mix.
Answer
The marketing mix refers to four categories of marketing activities. These categories are:
-product which includes the product design, package and brand
-place which refers to the distribution channels
-promotion which includes advertising and sales promotional method
-pricing includes various methods used to suit the target market e.g. penetration pricing.
Question 3
Outline two factors that influence consumer behaviour.
Answer
Consumers purchase products to a large extent based on their prices. Consumers seek value for money and therefore
will purchase a substitute for a product if its price increases.
Consumers taste and preferences will also determine what products they buy. Taste and preferences will depend on
culture, religion and changes in fashion.
Question 4
Differentiate between monopoly and monopolistic competition.
Answer
A market that is controlled by one supplier is a monopoly. The monopolist produces a unique product for which
there are no close substitutes. Monopolistic competition differs from monopoly as it involves several suppliers in a
market of a similar product, but each supplier sells a particular brand. Therefore, although competition exists each
supplier has a monopoly over his own brand.
Question 5
(a) Define the term demand.
(b) Define the term supply.
(c) Explain the role these play in determining price.
Answer
(a) The demand for a particular product is the amount that consumers are willing and able to buy at a given price.
(b) The supply of a particular commodity is the amount that firms are willing and able to supply at a given price.
(c) In a market economy the demand and supply of particular commodities determine their prices. Consumer will
demand increasing amounts at lower prices and decreasing amounts at higher prices. However, producers are
willing to sell more at higher prices and less at lower market prices. The market price at which both buyers and
sellers wish to trade at is the market equilibrium price.
Question 6
Differentiate between copyright, patent and trade mark.
Answer
Copyright is a one form of intellectual property right that protects creators expressions such as music, painting,
movie, photograph, writings etc.
Patent protects innovation by excluding others from making and selling an invention for a number of years.
Trademark legally protects brand names by giving the seller exclusive rights to this name.
Question 7
Outline three methods of sale promotion.
Answer
Loss Leader: This form of sale promotion is used to attract customer to a location that offers a product for sale at
an extremely low cost. The business will lose profits on this loss-leader but it is expected that this will be made up on
the high sales from other products
Bargain packs offer consumers free products or discounted products if a particular item is purchased.
Coupons allow discounts to customers on particular items when presented at a particular business location.
Question 8
Show how two selling techniques can be used to increase sales.
Answer
Good customer relations will encourage customers to purchase a companys goods and services and also make
recommendations to other customers. This involves being very helpful, efficient and polite when dealing with
customers.
Offering after sales services will encourage customers to buy and they will not incur this extra cost after buying the
product. These services include: delivery, installation and warranty.
Question 9
(a) Outline two ways in which consumers may be exploited.
(b) Discuss how consumers might seek redress for each way mentioned above.
Answer
(a)Consumers are exploited when they are sold poor quality goods and services. They are also exploited when they
are not given the correct weight or measure for products as stipulated on the package or what was asked for.
(b)To seek redress consumers may contact the offending firm concerning the complaint and require compensation.
The Fair Trading Commission may be contacted if the offending firm does not compensate the consumer. Radio talk
shows have also been very effective to obtain redress from offending firms for consumers.
Question 10
Discuss the importance of transportation to the distribution of goods from manufacturer through middle men to
consumers.
Answer
Transportation is integral to distribution. Transportation must efficiently move goods from manufacturers through
middlemen to consumers. Goods may be transported by road rail, sea or air. The choice of transportation is
determined by the type of product, for example heavy and bulky products are transported by rail or sea. Perishable
products are transported by sea or by road in a speedy manner.
 Role of Commercial Banks
-Commercial bank accepts money deposits and therefore provides a safe place for saving money.
-Offering loans and overdraft to persons who need financial assistance.
-Assisting customers to easily make payments through standing orders, current accounts and debit cards.
Services offered by Commercial banks
-Commercial banks provide advisory services to clients who wish to borrow a loan to make investments and persons
who wish to purchase securities.
-Safety deposit boxes at the bank are used to store safely items that individuals deem as highly valuable.
-Selling travelers cheques.
-Credit cards allows persons to purchase items by using funds that the bank makes available. There is a limit to how
much the bank makes available to credit card holders.

Functions of the Central Bank

-The Central Bank has the sole authority to issue notes and coins.
-The Central Bank is a banker to the government as it keeps the government accounts.
-It manages the national debt.
-It is a banker to all banks as commercial banks must keep an account with the central bank.
-A lender of last resort-The commercial banks and all other financial institutions can count on the central bank for
financial assistance.
-It is a financial agent for government. The government uses the Central Bank to carry out its economic policies.
These policies are known as monetary policies.
Monetary policies
These are policies used to affect the level of the money supply to bring about high employment, price stability and
sustainable economic growth. The money supply is composed of notes and coins in circulation plus deposits in
commercial banks. If this supply is too high then inflation will occur. If the supply is too low the economy may
experience an economic depression.
Decreasing the money supply
When the money supply is too high monetary policies such as high interest rates, selling certificates of deposits and
treasury bills and increasing the cash reserve ratio are used to discourage borrowing and spending.
Increasing the money supply
To increase the money supply the opposite must be done. Monetary policies such as low interest rates, buying
securities from other financial institutions and decreasing the cash reserve ratio are used to encourage borrowing
and spending. When interest rates are lowered citizens will borrow funds and reduce savings to purchase assets and
consumption items. This will increase the money supply in the economy. The government may wish to increase the
money supply to boost an economy when there is an economic decline. As the money supply rises demand for goods
and services will rise resulting in the expansion of the business sector and the level of employment.
 Relationship between the Central Bank and Commercial Banks
The Central Bank is the head of the financial system. All financial institutions including commercial banks are
regulated and monitored by the Central Bank.
All commercial banks must keep an account with the Central Bank. These balances are used for cheque clearing
purposes between banks. Payments for cheques between banks are set off at the Central Banks clearing house. The
Central Bank can also demand commercial banks to deposit a certain percentage of their total deposits with the
central bank in order to control the money supply.
The Central Bank is a lender of last resort and will aid commercial banks when needed. The Central Bank dictates
the interest rate that commercial banks can offer by setting the bank rate. This is the interest rate set by the Central
Bank and the rate at which commercial banks and the Central Bank do business, e.g. loans offered by the Central
Bank to commercial bank.

Strategies to Manage Personal Income

Subsequent to the deduction of taxes and other statutory payments the income earner must manage his money to
maximize its use. He must exercise and develop habits of careful spending and saving techniques. A good money
manager will budget.
A budget outlines how much of an individuals income is to be spent on his various expenses; it disciples an
individual to live within the constraints of his personal income. The process of preparing a budget involves the
record keeping of past expenditures, and making decision based on these about future expenditures. Priorities must
be set to meet basic needs and a systematic plan for savings to achieve future goals.

Sources of Short & Long Term Financing

Short-term capital may be accessed through the money market. Institutions in the money market include
commercial banks, merchant banks, credit unions and discount houses. Borrowers are required to repay within a
short-term e.g. 1 to 5 years.
Long term capital may be accessed through building societies, the stock exchange, unit trust companies and
development banks. Borrowers are given a much longer repayment periods e.g. up to 20 years.
 Savings and Investments
Savings is defined as money set aside or not spent from ones personal income. Money saved is most effective in an
interest bearing facility such as a commercial bank to keep up with inflation which reduces the value of money over
time. Other forms of savings include, the credit union and partner (meeting turn, sou sou, box hand).
Investment is defined as methods of increasing wealth. It differs from savings as it involves risks. Earning from
capital invested is usually a much higher than interest earned on savings. Forms of investments include: unit trust
companies, the stock exchange and starting a business.

Stock Market
The stock market facilitates the trading of stocks/shares between buyers and sellers. The Stock Exchange is the
governing body that overseas and regulates the activities of the stock market. Companies that wish to obtain capital
to expand may offer shares for sale on the stock market. It is therefore essential to the expansion of businesses in an
economy. It provides a form of investment for persons who are very speculative and will buy stocks for resale at
higher anticipated prices.
Types of speculators/stock market investors
Bears
These are speculators who sell securities because they expect the price to fall soon. A bear market is a stock market
that is slow moving i.e. investors are not keen on buying stocks.
Bulls
These are speculators who buy securities because they think the price will rise soon. A bull market that is very active
with high interest in the buying and selling shares.
Stags
Stags are short term speculators. They are also known as day traders. They carefully watch the movement of stock
prices and buy stocks with the intention of quick resale for profits.
Cross List
Cross listing occurs a company lists shares on more than one stock exchange. It not only lists stocks for sale on the
exchange in the country which it operates but also on other exchanges.
Stock Broker
This is someone who is authorized to buy and sell shares. Persons wishing to buy or sell shares must contact a stock
broker who will buy or sell shares on their behalf
 Quiz
Question 1
Explain the importance of two functions of the commercial bank to business.
Answer
The commercial banks offer loans and overdrafts to the business sector. Loans are required for start-up capital and
for business expansion. Overdrafts assist business to bridge finance so that liquidity may be maintained to continue
operation.
Commercial banks also provide a safe place for business to keep money. A business only needs to keep enough cash
on location that is required for its daily operations.
Question 2
Explain the benefits of two services of commercial banks to customers.
Answer
It sells travelers cheques to customers who are travelling overseas. Travelers cheques are a safe way of traveling with
funds overseas. They give financial advice to customers. This advice will help customers to make informed decisions
concerning investment.
Question 3
Outline two functions of the central bank.
Answer
The Central Bank is a banker to other banks. All commercial banks must keep an account with the Central Bank.
These balances are used for cheque clearing purposes between banks. The Central Bank can also demand
commercial banks to deposit a certain percentage of their total deposits with the central bank in order to control the
money supply.
The Central Bank is responsible for designing printing and issuing the countrys currency. It has the sole authority to
issue notes and coins. Any other forms of printing money is counterfeit money and illegal.
Question 4
Explain how government is able to control inflation through the Central Bank.
Answer
The government can control inflation through the Central Bank. When the money supply is too high monetary
policies such as high interest rates, selling certificates of deposits and treasury bills and increasing the cash reserve
ratio are used to discourage borrowing and spending.
Question 5
Explain the term money management.
Answer
Money management refers to methods used to efficiently manage ones income. Preparing a budget will ensure that
an individual lives within his means and save to achieve future goals.
Question 6
Give two reasons for drafting a budget.
Answer
A budget is outlines how much of an individuals personal income is to be allotted to various living expenditures. It
provides a record of past expenditures so that the individual can analyze his expenditures and make more efficient
spending decisions. It ensures that priorities are taken care of and that a system for savings can be developed to
meet future goals.
Question 7
Distinguish between long and short-term financing.
Answer
Short-term financing involves loans that require repayment up to five years. Short-term loans can be accessed
through commercial and merchant banks and credit unions. Long-term financing involves loans that allow a longer
payment period. Building societies and development banks require repayment of to 20 years.
Question 8
Distinguish between savings and investment.
Answer
Savings is defined as money set aside or not spent from ones personal income. However, investment is defined as
methods of increasing wealth. It differs from savings as it involves risks. Examples of investments include, starting a
business and purchasing shares.
Question 9
Discuss the importance of the stock market to an economy.
Answer
The stock market provides a means of financing for firms. Firms that need capital to expand may offer shares for
sale. The stock market also provides an opportunity for investment. Individuals who buy shares may resell them
when the stock prices rise.
Question 10
Differentiate between two types of investors on the stock market.
Answer
Bears are speculators who sell securities because they expect the price to fall soon. Bears wish to prevent losses by
selling their shares before prices fall. However, bulls are speculators who buy securities because they think the price
will rise soon. They purchase shares as they expect to make profits as soon as stock prices increase.
 Responsibilities of a Government in an Economy
Governments are appointed by citizens to manage the affairs of their country. Their responsibilities include:
-Ensuring the security of a state- Government must maintain law and order internally. This is realized through
legislation, the court of justice and the police force. Externally the armed forces protect citizens against external
threats.
-Protection and general welfare of citizens - Government is responsible for the general health and education
of citizens. Welfare programmes must be provided for those who are very poor and vulnerable.
-Management of the economy Governments are appointed by citizens to efficiently manage the economy to
bring about growth and development. This includes: encouraging local and foreign investment, controlling inflation,
maintaining the foreign reserve (NIR), curbing balance of payments deficits and achieving high levels of
employment.
-Protecting the environment Sustaining the environment is important to the well-being of citizens. Ways of
protecting the environment include: legislation to prevent further degradation, zoning to protect wildlife areas from
disruption by development of factories, shopping and residential areas and taxation to reduce the level of pollution
by firms.

Ways in Which Businesses Protect the Environment

1. Business owners must adhere to the various legislation set out by government and reduce pollution in rivers, seas
and the atmosphere.
2. Establish business in the zones legally allocated to reduce the impact of noise and air pollution in residential
areas.
3. Being part or initiating environmental projects such as beach cleanup and planting trees.
Ways by Which Government Regulates Business Activities
Consumers must be protected from business owners who are eager to sell without taking into consideration the well-
being of customers. Consumers must be protected from overcharging, poor quality goods and services and short
measurements and weights.
Consumers are protected by legislation delegated to various government agencies. These agencies include:
1. The Consumer Affairs Commission- aids consumers with redress
2. The Fair Trading Commission- investigates cases of tied selling and misleading advertising.
3. The Bureau of standards set standards for goods and services to be sold on the market.
4. The Ombudsman- investigates injustices suffered by citizens from dealing with a government agency or official.
Consumer Protection Laws
-The Food and drugs Act
-The Standards Act
-The public Health Act
-The weights and measures Act
-The processed food Act
-The hire purchase Act
Hire Purchase Law
Buyers and sellers must sign the hire purchase contract. The seller must state the cash price, down payment and
monthly instalments and total to be paid. Goods cannot be repossessed by the seller once the buyer pays up to three
quarters of the hire purchase price.
Price controls
Price controls are levied on certain good and services to prevent suppliers from increasing prices. For example basic
food items such as corn meal, flour, rice and sugar.
Zoning Laws
These laws protect the environment by identifying certain wildlife areas that should not be disrupted by
development. Therefore, areas are designated for factories, shopping centres and residential, away from protected
wildlife.
Taxation
Firms that pollute the atmosphere, rivers and seas are charged a tax for the harm caused to the environment. This
forces firms to find methods to reduce pollution to avoid this penalty.

Purpose of Taxation
Taxes are mainly used to finance the expenses incurred by government to manage an economy. These expenses
include: health care, education, garbage collection and operating government business entities. Taxation is also used
by government for several other purposes.
a. To reduce pollution by taxing offending firms
b. To discourage unhealthy lifestyle e.g. a tax on cigarettes
c. To protect local and infant industries by taxing imports
d. To achieve greater equality of wealth and income. Revenue from taxation is used to help the very poor e.g.
providing food stamps.
e. To improve the balance of payments (BOP) by increasing the duties charged on imported goods.
f. To control spending in an economy thus reduce inflation

Direct and Indirect Taxes

Direct taxes are paid by individuals directly from income earned or on the value assets owned to the income tax
department.
Types of Direct Taxes
Income Tax This is a tax on earned income- individuals pay a percentage of their income.
Corporate Tax
This is a tax on the profits of companies
Capital Gains Tax
This is a tax on the proceeds resulting from the sale of assets, e.g. houses, land etc.
Capital Transfer and Estate Duties
This is a tax on the transfer of property (gifts) and on legacies (death duties)
Other Direct Taxes
These include: stamp duties, motor vehicle duties land taxes, etc.
Indirect taxes are paid to the income tax department through the suppliers of goods and services. These taxes are
levied on consumption and therefore are paid by individuals when purchasing commodities.
Value Added Tax (Ad Valorem Tax)
This is the tax levied on goods as each stage of production. This tax generally is known as a General Consumption
Tax (G.C.T.).
Purchase Tax
This tax is placed on specific goods at retail outlets. These include gasoline, tobacco, rum etc.
Excise Duties
A tax placed on goods manufactured within a country. This tax is paid by the manufacturer of the product.
Customs Duties
This is a tax on imports i.e. goods entering the country.

Regressive, Progressive and Proportional Taxation

Progressive Taxation
A progressive tax system levies a higher percentage of tax on high income earners compared to lower income
earners. This ensures that higher income earners pay a larger proportion of their income than lower income earners.
Regressive Taxes
A regressive tax system levies a smaller percentage of tax on higher income earners compared to lower income
earners. This results in higher income earners paying a smaller proportion of their income in taxes than lower
income earners. For example, a purchase tax of 10% charged on a commodity which values $100 is bought by a high
income earner who receives $10,000 weekly and also by low income earner who receives $1000 weekly. Both
income earners will pay $10.00 in taxes. This $10 represents a much higher percentage of the lower income earners
pay which is .01% than the higher income earner which is only .001% of his income
Proportional Taxation
Under this system all taxpayers pays the same proportion of their income in taxes. The same percentage tax is levied
on both high and low income earners. Therefore if the percentage tax charged is 10% of income then each person
will pay that proportion of their income.

Government Assistance Offered To Businesses

The survival and growth of the business sector will reduce unemployment, increase GDP and foreign exchange
earnings. This sector must therefore be support and encouraged by government.
Financing
Government assists local businesses by providing loans at low interest rates.
Protecting local industries
Custom duties charged on imported goods to protect local producers
Tax concessions
Reduced tax rates or tax holidays offered to industries will encourage production.
Subsidies
The cost of production is subsidized to reduce this cost to producers. For example, a subsidy offered on fertilizer to
farmers.
Promotion
Local and international trade shows as well as general advertisements promoting business locally and overseas, for
example, advertisements encouraging tourist to visit the region.
Training
Government agencies set up to provide technical and managerial training.

Social Services Provided By Governments

These services are provided by government to ensure the well-being of all citizens.
Education
An effective national education plan will ensure that the innate skills, talents and abilities of individuals are
harnessed and developed to their fullest potential. High levels of literacy and numeracy will increase productivity.
Health
The economic development of any nation is dependent upon its population being physically and mentally
healthy. For someone to be productive he or she must be in good health.
Roads and Transportation
Proper Infrastructure such as roads, railways, sea and airports coupled with an efficient transportation system are
important to a countrys economic activities. Roads and transportation facilitate trade of goods and services.
National Insurance Scheme
National Insurance Schemes protect the elderly and other categories of vulnerable persons within a society. The
elderly have contributed to the development of a nation and must be adequately provided for when they no longer a
part of the labour force.

Quiz
Question 1
(a) Identify two responsibilities of government to an economy.
(b) Show how the government of your country carries out these two responsibilities.
Answer
(a) Protection and general welfare of citizens, and protecting the environment.
(b) The government of my country protects vulnerable citizens through welfare programmes. These include food
stamps and cash grants.
The government of my country protects the environment by legislation to prevent degradation of wetlands and the
extinction of certain species.
Question 2
Give two reasons why government should be the chief guardians of the environment.
Answer
For the well-being of citizens; health issues can be a consequence of pollution. This is very costly for the economy.
Eco-tourism is a market niche that can earn foreign exchange for an economy.
Question 3
Discuss two consequences of unregulated business activity in an economy.
Answer
If businesses are not regulated by government agencies then consumers may receive poor quality goods and
services. Acceptable standards are outlined by government agencies which business must abide by.
Businesses may also overcharge for goods such as basic food items. If basic food items are unaffordable to the very
poor and vulnerable, the consequence might be malnutrition.
Question 4
List two consumer protection laws.
Answer
The Standards Act and The weights and measures Act.
Question 5
Identify two purposes of taxation and discuss the importance of each.
Answer
Taxation may be used to discourage behaviour. Taxing firms that pollute the atmosphere, rivers and seas will reduce
pollution. Also taxing the consumption of harmful goods such as cigarettes will reduce its consumption.
Taxation can also redistribute income by providing welfare programs and cash grants to the very poor and
vulnerable in the society.
Question 6
Differentiate between direct and indirect taxes and give two examples of each.
Answer
Direct taxes are paid by individuals directly from income earned or on the value of assets owned to the income tax
department. Examples of direct taxes are: income tax, corporate tax and capital gains tax. Indirect taxes differ from
direct taxes as they are paid to the income tax department through the suppliers of goods and services. These taxes
are levied on consumption and therefore are paid by individuals when purchasing commodities. Examples of
indirect taxes include: value added tax, purchase tax and excise and custom duties tax.
Question 7
Distinguish between progressive and regressive taxation.
Answer
A progressive tax system levies a higher percentage of tax on high income earners compared to lower income
earners. This ensures that higher income earners pay a larger proportion of their income in taxes than lower income
earners. However, a regressive tax system allows higher income earners to pay a smaller proportion of their income
compared to low income earners who pay a higher proportion of their income in taxes.
Question 8
The regressive tax system is unfair and places a greater burden on the lower income earners. Discuss.
Answer
An examples of a regressive tax is a value added tax where each person pays a fixed percentage on the cost of a good
or service. Therefore, if $10 is the tax amount to be paid for a particular item charged, a high income earner who
receives $1000 will pay 1% of his income in taxes while another income earner who receives $100 will pay 10% of his
income in taxes. The regressive tax system is unfair as low income earners will pay a higher proportion of their
income in taxes than a high income earner.
Question 9
Outline two ways in which governments provide assistance for businesses.
Answer
Governments assist small businesses with soft loans. They provide loans at low interest rates through financial
institutions and government agencies.
Governments also provide information, training and advice through various agencies for small business.
Question 10
Discuss the importance of the provision of one social service by a government.
Answer
Education is a very important social service. High levels of literacy, numeracy, and skills will increase productivity. A
highly skilled workforce is also attractive to international investors who seek new locations to expand their
businesses.

Factors That Determine a Countrys Standard Of Living

The standard of living is defined as the level of wealth experienced by a county which is indicated by the average
disposable income of the population, ownership of capital equipment, the level of research and access to modern
technology and the quality and quantity goods and services enjoyed by citizens.
Level of goods and services available: goods and services are needed to satisfy the needs and wants of a society.
Average disposable income: per capita GNP reveals the average amount of earnings of each person in an economy.
Ownership of capital equipment: Capital goods/investment goods are used to create consumer goods and services
locally and for export.
Research and technology leads to innovation and increases production.
Whereas the standard of living is measured by physical quantity, a countrys quality of life is determined by the
quality of goods and services enjoyed by citizens. These include: safety (low crime rates), good diet and nutrition,
environmental quality, quality of health and educational facilities, life expectancy, rate of infant mortality and the
access to public utilities such as water.

National Income
The national income of a country is the total income earned by that country from the production of goods and the
provision of services in a given year after deducting depreciation. It therefore measures the level of economic activity
of a country within a year. Note depreciation of assets is taken into account when measuring national income.
Gross Domestic Product (GDP)
GDP is the total money value of all output produced within a country over a year. The word domestic refers to
income earned from local production only.
Gross National Product (GNP)
GNP is the total money value of all output produced over one year, both within a country and from its overseas
investments.
Therefore GNP = GDP + overseas earnings by nationals
Net National Product (NNP) or National Income (NI)
NB: The definition for national income includes adjustments for depreciation.
National Income (NI) = GNP- depreciation
Since GNP figures do not accurately measure the standard of living, the following indices may be used.
Per capita GNP
This is calculated by dividing a countrys GNP by its total population. That is,
GNP
Total population
Thus if a countrys GNP is $40,000,000 and its total population is 5,000, its per capita GNP would be $8,000.
40,000,000 = 8,000
5000
Thus each citizen enjoys on an average $8,000 worth of goods and services.

Economic Growth and Development

Economic growth is the expansion of national income. The rate of expansion is usually measured from one year to
the next. Economic growth can be achieved if countries increase their capacity to produce.
Economic Development is sustained economic growth accompanied by policies that bring about structural changes
such as increase in exportation, decrease in importation, lesser dependence on foreign aid and important
infrastructural development. These changes will allow for higher levels of national income.
Investment in education is important for a countrys economic growth and development. Education increases
productivity as individuals who are trained and knowledgeable will be more efficient. Education is the process of
imparting knowledge, skills, beliefs and cultures to empower and influence behaviour.
The long-term returns to investments in human capital will reduce poverty.
International Trade
It is an advantage for countries to be self-sufficient, but there are reasons why trade must take place between
nations.
Reasons for International Trade
(a) Lack of certain natural resources to produce essential goods. Oil which is important to economic life must be
imported into countries that do not possess that natural resource.
(b)Lack of capital, technology and specialist labour to manufacture certain goods on a large scale. For example,
Caribbean countries import machinery equipment and vehicle.
(c)Differences in climatic conditions, e.g. many tropical countries import grapes and strawberries as these produce
need cool climates to survive.
(d)Differences in the cost of production between countries. This reason is based on the principle of comparative
advantage which states that benefits will be gained from trade if countries produce goods in which they have a
relative advantage. Therefore, if two countries both produce cars and coffee but each is more efficient at producing
or produces either at a lower opportunity cost either car or coffee, then trade can take place. The country that is
more efficient at producing coffee should put all its resources into coffee and import cars from the other country that
is efficient in producing cars.

Balance Of Trade & Balance of Payment

A countries balance of payments account records all the flow of money between residents of that country and the
rest of the world. A countrys balance of payments thus shows the difference between the receipt for goods and
services exported and payments made for goods and services imported and movements of capital in and out of the
account. The two main parts of the balance of payments accounts are the current account and the capital account.
The current account records payments for imports and exports of goods and services. The balance of trade or visible
balance records imports and exports of physical goods only. The current balance includes both the balance of trade
and net invisible trade balance. A negative balance is a deficit balance and a positive balance is a surplus balance. In
the table below there is a balance of trade deficit for 2001 (-800) and in 2002 (-1000). There is a current account
surplus of US$200MN in 2001 but a deficit of US$300MN in 2002.
Example BOP for Country X (US$MN)

Balance of Trade/Visible balance = Export ($) Imports ($)

Invisible balance = Net transportation +net interest & profits + net government
Net figures are arrived at by subtracting payment from the receipt for each service. For example, subtracting the out
flow of money spent by locals on trips overseas from payments received from visiting tourist, will give a net figure for
tourism.
Current Balance = visible balance + invisible balance
The capital account
The capital account or financial account shows the flows of capital between countries i.e. Flows of capital into a
country and flows of capital leaving a country.
The Balance of Payments Accounts must balance
The sum of the current account and the capital account must be zero. A firms balance sheet shows its financial
position after one year of trading. The balance of payment similarly shows the countries financial position on a
yearly basis. Similar to a firms balance sheet the balance of payments account must balance, since a debit or a credit
balance must be covered in some way.
Credit items are- Inflows /receipts
Debit items are- outflows /payments

Balance of Payment Problems

If a country continues to experience deficits in its visible and or invisible balances it will affect its level economic
activity. Deficits mean there is not enough money to purchase the goods and services required by citizens.
Methods of Correcting Balance of Payment Problems
1. Tariffs (taxes on imports)
Taxes increase the cost of items imported and therefore will discourage imports. This may encourage the purchase of
cheaper local imports.
2. Import licenses
Only holders of this license can import particular goods and services. Government can restrict the importation of
certain goods and services e.g. those that compete with local goods.
3. Quotas
Restrictions on the quantity of a type of commodity to be imported.
4. Total ban of certain commodities.
5. Exchange Control
This is various forms of control by government on the purchase and sale of foreign currencies by citizens and
foreigners. Example: limiting the amount of foreign exchange that residents can leave the country with, banning the
use of foreign currencies locally and having a fixed exchange rate.
6. Encouraging export
Incentives given to exporters.
7. Devaluation the price of foreign currency is increased against the local currency thus discouraging its purchase.
8. Special Drawing Rights -Drawing on the resources of the International monetary fund
9. Importing on credit Purchasing on credit delays payments in the short term
10. Accepting gifts from other countries This reduces the need to spend foreign exchange.
11. Borrowing from other countries This represents inflows into the Balance of payments accounts
 Quiz
Question1
Explain the difference between a countrys Gross National Product and National Income statistics.
Answer
GDP is the total money value of all output produced within a country over a year. National Income figures includes
(GDP + income from nationals abroad) Depreciation. Therefore net National product/NI adds overseas earnings
to earnings from local production. Depreciation is subtracted to give final National Income figures.
Question 2
What is the standard of living?
Answer
The standard of living a country is determined by level of goods and services available, ownership of capital
equipment and access to modern technology.
Question 3
Outline two methods that can be used to achieve economic growth.
Answer
Economic growth is the expansion of national income. Two methods to increase the productivity of industrial and
commercial activities include: a training of human resources and the introduction of technology.
Question 4

Differentiate between the balance of trade and the balance of payments

Answer
The balance of trade is the difference between earnings from exports and payments for imports. The balance of
payments is a summation of the balance of trade, net invisible earnings and capital flows.
Question 5
The balance of payments always balances. Explain this statement.
Answer
The balance of payments account is governed by accounting principles. For every debit entry there is a
corresponding credit entry. Outflows are matched by inflows. The summation of the current and capital account is
zero.
Question 6
State three measures used to correct balance of payments problems.
Answer
Balance of payment problems may be corrected by tariffs, quotas and export incentives to encourage local
production for export.
Question 7
Explain the term per capita GNP.
Answer
Per Capita GNP is the value of a countrys output from local production divided by its population. Per capita GNP
figures give an idea of the average income enjoyed by each individual in a country.
Question 8
Distinguish between visible and invisible trade.
Answer
Visible trade is the export and import of physical goods and services for example, sugar, coffee and bauxite. Invisible
trade refers to the trade of services for example, tourism and shipping.
Question 9
Explain two reasons why countries engage in international trade.
Answer
Countries engage in international trade to obtain goods that they lack the necessary raw materials to produce.
Countries also engage in trade to obtain goods for which they do not have a comparative advantage.
Question 10
Differentiate between economic growth and economic development.
Answer
Economic growth refers to an increase in national income and economic development is sustained growth that is
accompanied by policies established to ensure continuous growth. These include an increase in exportation,
decrease in importation, lesser dependence on foreign aid and important infrastructural development.

Economic Institutions and Systems

Caribbean Community Common Market (CARICOM)
A common market is an association of countries that have joined together to bring about the harmonious
development, continuous economic expansion and increased stability of the countries involved. CARICOM was
formed in July 1973 when Barbados, Trinidad and Tobago, Jamaica and Guyana signed the treaty of
Chaguaramas. Since then the following Caribbean countries have joined: Antigua and Barbuda, Belize, Dominica,
Barbados, Suriname, Grenada, Montserrat, St. Kitts & Nevis, St. Lucia, St. Vincent and the Grenadines and Bahamas
and Haiti.
Associate members of CARICOM are Anguilla, Bermuda, British Virgin Island and Turk and Caicos.
Objectives of CARICOM
-Improved standard of living.
-Expansion of trade.
-Joint negotiations internationally.
-Co-ordination on foreign and economic policies.
-Full employment of labour and other factors of production.
-Economic integration.
Caribbean Single Market and Economy (CSME)
The CSME was established in 2006. It seeks to transform the common market into a single market and economy. It
was established to deepen the integration among Caribbean states and to respond effectively to the challenges and
opportunities globally.
Objectives of CSME:
-Deepening economic integration.
-Free trade of services.
-Free movement of capital, labour and the freedom to establish business enterprises anywhere within CARICOM
states.
-Widening of membership.
-A common currency/single currency.
Caribbean Development Bank
The CDB is a regional financial institution. It finances regional projects that contribute to the economic growth and
development of the region. Sectors financed by the CDB includes: infrastructure, tourism, mining and refining,
agriculture, agriculture, manufacturing, health and education.
The objectives of the Caribbean Development Bank are:
-Supporting regional and local financial institutions
-Assisting borrowing member countries to optimize the use of their resources
-To mobilize financial resources regionally and internationally
-To support capital markets
-Stimulating growth
-Supporting business activities
The World Bank
The aim of the World Bank is to reduce poverty worldwide. It therefore assists developing countries by providing
loans for projects such as housing, infrastructure and industry. The World Bank provides long term loans for
developmental purposes. It is used interchangeably with the International Bank for Reconstruction and
Development (IBRD). However, the IBRD is only one of the five agencies of the World Bank.
The five agencies of the World Bank are:
-International Bank for Reconstruction and Development (IBRD)
-International Development Association (IDA)
-International Finance Corporation
-Multilateral Investment Guarantee Agency (MIGA)
-International Centre for Settlement of Investment Disputes (ICSID)
Inter-American Development Bank (IADB)
The IADB was established in 1959 for the purpose of assisting Latin American and Caribbean countries. It offers
loans, lines of credit and technical assistance to member governments for social and economic development. Areas
of assistance include: agriculture, industry, mining health, tourism and infrastructure.
The Organization of Eastern Caribbean States (OECS)
OECS was formed in 1981 for the purpose of promoting cooperation among member states. These countries include
Montserrat, Anguilla, Antigua, Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent, Anguilla and the
British Virgin Islands are associate members.
Eastern Caribbean Common Market (ECCM)
The objectives: Creating a single financial and economic space
Organization of American States (OAS)
The OAS was established for the main purpose of increasing interdependence and solidarity, and promoting regional
co-operation and the peaceful settlement of disputes among the member countries. These countries include: North
and South America, Canada and the Caribbean.
Economic Commission for Latin American Countries (ECLAC)
The ELAC was established in 1948 for the main purpose of integrating Latin American countries for their
development. Caribbean countries were later included in the ELAC. Their objectives include:
-Guaranteeing equal rights and opportunities
-Economic integration of Latin American and Caribbean countries.
-Reinforcing economic ties among countries of Latin America and other nations of the world
-Economic development of Latin America
Association of Caribbean States (ACS)
The ACS was established in 1994 to promote cooperation among Caribbean countries. Its objectives include:
-The strengthening of regional cooperation and integration
-Preserving the environmental integrity of the Caribbean Sea
-Promoting the sustainable development of the Caribbean
The European Union (EU)
The European Union is an economic and political partnership between its 27 member countries. It is a single market
economy with the euro as its common currency.
These countries include: Spain, Luxemburg, Britain, France Portugal, Italy, Greece, Belgium, Germany, Denmark,
Finland, Sweden and Switzerland.
Their objectives include:
-Free movement of people services and capital
-Removal of customs duties and quotas among members
-Establishment of common policies for agriculture and transport
-Establishment of a common tariff and common policies towards other countries
-Economic cooperation
-Promoting equal rights
-Fighting climate change
World Trade Organization (WTO)
The WTO is an international organization that monitors and regulates trade among the nations of the world based
on trade agreements by member states. The WTO replaces the General Agreement on Tariffs and Trade (GATT).
Their main aim is to encourage the free flow of trade among nations.
Their objectives include:
-discouraging unfair trading practices e.g. export subsidies and selling products below cost to gain market share
-settling disputes among members
-environmental protection
-monitoring and reviewing the trade policies
-reducing trade
Caribbean Basin Initiative (CBI)
CBI allows certain Caribbean and Central American products duty free entry into the United States. Products
exported include chemicals, manufactured goods, fresh fruits and vegetables.
Oil Producing Exporting Countries (OPEC)
OPEC is an organization of 12 oil exporting countries. This organization was established in 1960 for the purpose of
unifying the petroleum policies of member countries.
Objectives include:
-Regular supply of petroleum products on the world market
-A steady income for producers
In 1976 OPEC established a special fund to provide financial assistance to developing countries.
OPEC countries: Kuwait, Venezuela, Iran, Iraq, Angola, Saudi Arabia, Algeria, Ecuador, Libya, Nigeria, Qatar,
United Arab Emirates
CARIBCAN
The agreement allows preferential duty free access to the Canadian market for almost all imports from
Commonwealth Caribbean Countries.
Its main objectives are:
-to enhance the Commonwealth Caribbeans existing trade
-improve economic development prospects of the region
-promote new investment opportunities
-encourage economic integration and cooperation within the region
-to encourage long term investments through development projects.
North American Free Trade Agreements NAFTA
This agreement allows duty free entry of goods among Canada, United States and Mexico.
Free Trade Area of the Americas (FTAA)
The FTAA is an expansion of NAFTA. It is an organization of 34 countries of the Americas including North and
South America, Canada and the Caribbean except for Cuba. Its objectives include economic prosperity, free market
of goods and services and democracy.

Economic and Social Problems in the Caribbean

Unemployment
Globalization has contributed significantly to unemployment in the Caribbean. With the removal trade barriers,
some industries have not been able to compete globally. The lack adequate skills that are required for the new
industrial paradigm for example, information technology skills have also contributed to the problem of
unemployment.
A high level of unemployment among the young people of the Caribbean may results in various social problems, as
survival may depend on illegal activities.
Reasons for unemployment
-firms e.g. multinationals closing down
-lack of investment to create new businesses
-lack of skills training
Population density
Population density Refers to the average number of people living on every square kilo meter in a country. The
formula used for calculating population density is:
Density of population
= Total population
Area (sq. km.)
Very high population densities can indicate overpopulation. This occurs when the facilities in a location, are not able
to serve the number of persons in that location. This will cause heavy competition for jobs, schools, health facilities
etc.
Migration
Caribbean people migrate to first world countries in search of opportunities such as employment and
education. When skilled and professional workers migrate, Caribbean countries may experience shortages in critical
areas such as health care. Loss of skilled workers from industry will also retard growth and development. Social
problems may arise when children are left in the care of grandparents and other relatives who have challenges to
discipline them.
Debt burden
Many Caribbean countries have high debt- to-GDP ratios. This ratio is the amount of national debt of a country as
a percentage of its Gross Domestic Product. High debt-to-GDP can stifle an economy as a large portion of its GDP is
consumed in debt payment and very little is left for investment in the economy. A very low debt- to- GDP ratio is
desirable for economic growth and development.
Sourcing Capital and raw materials
While the Caribbean might be rich in certain natural resources such as bauxite, oil and gold the region lacks other
very important resources such as capital and entrepreneurial skills. Capital is important as it increases production
through the use of machinery, equipment and money invested. The spirit of entrepreneurship is necessary for the
creation of new business ideas and entrepreneurship skills are important for the successful running of the
businesses.
Economic dualism in the region
Economic dualism occurs in countries where there exist two opposite economic sectors. One sector is characterized
by development, capital intensive industries, large scale farming and technological advancement, and the other
sector is characterized by subsistence farming, labour intensive industries, handicraft industries and simple trading
means of survival.

Possible Solutions to Economic and Social Problems

Access to Foreign Direct Investment (FDI)
Foreign Direct Investments refers to capital investments into factories, machinery and equipment by a foreign
company or an individual. FDI is important for the development of Caribbean economies as they are challenged by
their high debt- to-GDP ratios and increased global competition for export earnings. Attracting foreign direct
investment is a way for Caribbean countries to obtain capital for growth and development.
Benefits of FDI include:
-Employment for nationals
-Increased access to global markets
-Introduction of advanced technologies and processes
-Improvement in human resource skills
Development of human resource
Investment in human resources is imperative for Caribbean economies to compete globally. Improving the value of
human resources through education and training will increase the productive capacity of Caribbean countries.
Development of manufacturing sector
The manufacturing sector creates value added products which increases export earnings for Caribbean economies.
Developing the manufacturing sector therefore will impact on the potential economic growth of a country.
Methods of developing the manufacturing sector:
-Encouraging Foreign Direct Investment
-Retooling
-Research and development
-Technological advancement

Quiz
Question 1
List three objectives of CARICOM.
Answer
Three objectives of CARICOM are:
-joint negotiations internationally
-economic integration of the region
-improved standard of living for the region
Question 2
Explain how the CSME differs from CARICOM.
Answer
This transforms the common market into a single market and economy. It establishes a single currency for the
region and the free movement of human and capital resources throughout the region.
Question 3
Outline the main objective of the World Bank.
Answer
The World Bank provides long-term loan for developmental projects. Its main aim is the reduction of poverty in
worldwide. Loans are provided for purposes such as infrastructure and industry.
Question 4
(a) Identify two economic problems that affect Caribbean countries.
(b) Discuss one method that can be used to solve one of these problems.
Answer
(a) Two economic problems that affect Caribbean countries are unemployment and high debt burdens.
(b) High debt burdens can be reduced by methods that increase foreign exchange earnings and reduce dependency
on imports. Support for local industries in the form of tax holidays, duty free imports and low interest loans will
reduce cost of production and thus encourage output. Lower market prices will encourage local consumption and
increase the competitiveness of products on the international market.
Question 5
Explain the role of the Caribbean Development bank.
Answer
The Caribbean Development bank was set up to finances regional projects that contribute to the economic growth
and development of the region. For example: providing funds for roads, education and business development.
Question 6
Give two methods that can be used to increase FDI.
Answer
Caribbean government can encourage FDI incentives with methods such as tax holidays, affordable operating costs
(labour and utility) and availability of human and natural resources.
Question 7
What is the role of the WTO?
Answer
The WTO was set up to monitor and regulate trade among nations of the world based on their collective agreements.
Question 8
List three international trade agreements.
Answer
Three international trade agreements are:
-The Caribbean Basin Initiative (CBI)
-CARIBCAN
-North American Free Trade agreement (NAFTA)
Question 9
Outline one trade agreement that involve Caribbean countries and explain the long term benefits of these
agreements to the Caribbean.
Answer
CARIBCAN gives Caribbean countries duty free access to markets in Canada. It ensures a steady market for
Caribbean products and thus long-term development of local industries. Other benefits include: employment and
linkage industries.
Question 10
Write brief notes on ECLAC.
Answer
The ELAC is an organization of Latin American and Caribbean countries. They aim to reinforce economic ties among
the countries of Latin America and the Caribbean