TOPIC 1

Nature of business

)NTRODUCTION
4HEåFOCUSåOFåTHISåTOPICåISåTHEåROLEåANDåNATUREåOFåBUSINESSåINåAåCHANGINGåBUSINESSåENVIRONMENT

/UTCOMES
4HEåSTUDENT
nå 0åDISCUSSESåTHEåNATUREåOFåBUSINESSåITSåROLEåINåSOCIETYåANDåTYPESåOFåBUSINESSåSTRUCTUREå
nå 0åEXPLAINSåTHEåINTERNALåANDåEXTERNALåINmUENCESåONåBUSINESSESå
nå 0åANALYSESåTHEåRESPONSIBILITIESåOFåBUSINESSåTOåINTERNALåANDåEXTERNALåSTAKEHOLDERSå
nå 0åPLANSåANDåCONDUCTSåINVESTIGATIONSåINTOåCONTEMPORARYåBUSINESSåISSUES
nå 0åEVALUATESåINFORMATIONåFORåACTUALåANDåHYPOTHETICALåBUSINESSåSITUATIONS

3TUDENTSåLEARNåTO
nå EXAMINEåCONTEMPORARYåBUSINESSåISSUES
nå INVESTIGATEåASPECTSåOFåBUSINESSåUSINGåHYPOTHETICALåSITUATIONSåANDåACTUALåBUSINESSåCASEåSTUDIES

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 3TUDENTSåLEARNåABOUT
nå ROLEåOFåBUSINESSå
nå TYPESåOFåBUSINESSESå
nå INmUENCESåINåTHEåBUSINESSåENVIRONMENTå
nå BUSINESSåGROWTHåANDåDECLINEå
"USINESSESåFORMåONEåOFåTHEåMOSTåIMPORTANTåSECTORSåOFåTHEåCOMMUNITYå4HEYåPROVIDEåCONSUMERSåWITHåTHEå
GOODSåANDåSERVICESåTHATåSATISFYåTHEIRåNEEDSåANDåENHANCEåTHEIRåSTANDARDåOFåLIVINGå"USINESSESåALSOåEMPLOYå
MILLIONSåOFå!USTRALIANS
4HISåTOPICåWILLåLOOKåATåTHEåDIFFERENTåTYPESåOFåBUSINESSESåINå!USTRALIAåANDåHOWåTHEYåSEEKåTOåACHIEVEå
VARIOUSåGOALSå4HEåENVIRONMENTåINåWHICHåAåBUSINESSåOPERATESåISåOFTENåSUBJECTåTOåCONSIDERABLEåCHANGEå
4HROUGHåTHEåUSEåOFåCASEåSTUDIESåYOUåWILLåBEåABLEåTOåEXAMINEåHOWåTHESEåCHANGESåIMPACTåONåTHEå
OPERATIONSåOFåAåBUSINESS
"USINESSESåALSOåSERVEåTHEåINTERESTSåOFåVARIOUSåSTAKEHOLDERSåWHETHERåTHEYåAREåSHAREHOLDERSå
CUSTOMERSåCREDITORSåEMPLOYEESåORåSOCIETYå(OWåFAIRLYåTHEYåDOåTHISåWHILEåATTEMPTINGåTOåACHIEVEåAå
BALANCEåBETWEENåWHATåISåCONSIDEREDåGOODåFORåTHEåBUSINESSåBUTåFAIRåFORåSOCIETYåISåOFTENåSUBJECTåTOå
CONSIDERABLEåDEBATE

!TåTHEåENDåOFåTHISåTOPICåYOUåSHOULDåBEåABLEåTO
nå DISCUSSåTHEåGLOBALåEXPANSIONåOFåONEå!USTRALIANåBUSINESS
nå DISCUSSåTHEåEXPANSIONåINTOå!USTRALIAåOFåONEåGLOBALåBUSINESS
nå EXPLAINåHOWåCHANGESåINåEXTERNALåINmUENCESåHAVEåCONTRIBUTEDåTOåTHEåGROWTHåOFåTHEåTERTIARYåQUATERNARYå
ANDåQUINARYåINDUSTRIESåINå!USTRALIA
nå IDENTIFYåPROBLEMSåFORåSTAKEHOLDERSåWHENåCOMPANIESåGOåINTOåLIQUIDATION

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 CHAPTER

1
The role of business

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 "USINESSå
The nature of a the inputs of cans of Coca-Cola include !NåORGANISATIONåTHATå
business sugar, water, syrup and aluminium cans. ATTEMPTSåTOåSATISFYåTHEå
The finished product is the Coca-Cola soft NEEDSåANDåWANTSåOFåTHEå
Businesses play an important part COMMUNITYåBYåPROVIDINGå
drink available for us to consume. The
in satisfying our needs and wants as GOODSåANDORåSERVICES
inputs into a breakfast radio show include
consumers and provide employment to
the music played and the skills of the )NPUTSå
millions of Australians each year. There
comedy writers and the hosts. The finished 4HEåRESOURCESåSUCHå
are many types of businesses and not all
businesses exist in order to earn a profit.
A business is an organisation that
attempts to satisfy the needs and wants of
the community by providing goods and/or
services.
From this definition of business, we
can see that businesses are responsible
for providing us with the goods and
services that help maintain and improve
our standard of living. But to do this, a
business owner must be able to combine
a variety of resources to produce goods
and/or services. These resources are
known as inputs or raw materials.
Inputs are the resources (such as
labour, finance and equipment) that a
firm uses to create outputs. For example,
ASåLABOURålNANCEåANDå
product is a radio program for listeners.
EQUIPMENT åTHATåAålRMå
USESåTOåCREATEåOUTPUTS
Creating and adding value
to business processes
By combining inputs and raw materials
with human skill and equipment
businesses add value. Businesses take
resources and combine them into a
product that is of more importance to the
consumer than the value of the individual
resources. Products that have value (such
as sugar, milk, cream and flavouring) are
processed using machinery and a variety
of human skills to create ice-cream, which
is a product that to many consumers has
greater worth than the individual inputs.
This process is referred to as value adding.

4HEåOUTPUTåHASåGREATERåVALUEåTHANåEACHåOFåTHEåINDIVIDUALåINPUTS

CHAPTER 1: THE ROLE OF BUSINESS 3

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 !CCOUNTABILITYå
Activity 1.1 Comprehension
4HEåPROCESSåWHEREBYå
MANAGERSåAREå Choose one of the following goods:
ANSWERABLEåTOåPARTICULARå
a Bread.
GROUPSåAFFECTEDåBYåTHEå
ACTIVITIESåOFåTHEåBUSINESS b Soft drink.
c Doughnut.
%THICSå
d Ice-cream.
!NåINDIVIDUALSåSTANDARDSå
OFåBEHAVIOURåORå Using illustrations, demonstrate how a business would add value to inputs to produce the good
MORALåPOSITIONåWHICHå you selected.
INmUENCEåTHEåCHOICESå
ANDåDECISIONSåTHEå
Producing goods and services groups in the business environment. Has
PERSONåMAKESåWHATåISå
SEENåASåRIGHTåORåWRONGå Businesses play a key role in our society. additional wealth been created for the
BASEDåONåTHEåVALUESåOFå They are the driving force behind much owners? Can more people be employed?
MANAGEMENTåEMPLOYEESå
ANDåTHEåCOMMUNITYå
4HEYåAREåWHATåSOCIETYå
CONSIDERSåTHEåMOSTå
APPROPRIATEåCOURSESåOFå
ACTIONå%THICSåDETERMINEå
THEå@RIGHTåCHOICEåTOåMAKEå
INåANYåSITUATION
Employment
Income
Choice
4 CAMBRIDGE PRELIMINARY BUSINESS STUDIES SECOND EDITION
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of what occurs in our day-to-day lives.
They provide us with a diverse range of
goods and services, from the fashion items
we choose to wear to entertainment and
leisure activities. Businesses also provide
goods and services that improve our
quality of living. They employ millions of
Australians each year and generously give
to social organisations that seek to assist
those members of the community in need.
The role of business can be examined
from a social and economic point of
view. The economic role of business is
concerned with the financial impact that
the activities of business have on various
Profit
Quality of life
Key
roles of Wealth
business
Entrepreneurship
and risk
Innovation
&IGUREåå+EYåROLESåOFåBUSINESS
TOPIC 1: NATURE OF BUSINESS
© Marianne Hickey, Tony Nader, Tim Williams 2011
Are businesses developing new products
and entering new markets? The social role
of business is focused primarily on the
impact of business on the community.
How does the community benefit from
the activities of business? Do businesses
provide essential services? Are their
actions environmentally friendly? Does
management operate the business in a fair
and just manner?
Issues of accountability and ethics
are also raised in relation to the social
and economic roles of business.
Accountability refers to the process
whereby managers are answerable to
particular groups affected by the activities
of the business. Ethics may be defined
as what is seen as right or wrong based
on the values of management, employees
and the community. They are what society
considers the most appropriate courses of
action. Ethics determine the ‘right’ choice
to make in any situation.
Profit
The profitability of a business is a key
consideration in its long-term survival.
Profit is essential if a business is to meet
day-to-day expenses (such as production
Cambridge University Press
7/7/11 11:38:35 AM
 costs, wages, insurance, electricity and
rent) and provide a return on the owners’
financial investment. It often takes several
years of operation before a business
achieves a profit. As a new entrant into
the market, it may take some time for a
business to recover the amount of money
it has invested to start the business. For
example, although the establishment costs
for Virgin Blue were $10.59 million, it took
only two years for Virgin Blue to recover
all its costs. Clever marketing, an effective
pricing strategy and the withdrawal of two
significant competitors (Ansett and Impulse)
helped Virgin Blue achieve this result.
Business owners will often have
different expectations of what level of
profit is adequate. A business operating
in a very competitive market and located
near many of its competitors would be
unlikely to achieve the same level of
profit as a business with few competitors
spread across a particular market. Small
business owners will achieve lower levels
of profit than their larger, better known
competitors. As a general rule, the level of
profitability within a business is measured
by the return on investment.
The return on investment is the level
of profit an investor receives based on the
amount that the investor has invested. This
can be illustrated through the following
examples:
s Don invested $200 000 in a cafe and
received a net profit of $50 000 in his
first year. The return on investment is
25%.
s Cheryl invested $100 000 in a children’s
clothing store and earned a net profit
of $50 000. The return on investment is
50%.
Although both entrepreneurs achieved
a profit of $50 000, it took Cheryl less
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money to achieve this return. As a result
she has the higher return on investment.
It is important to also compare the return
on investment with that of competing
businesses. The cafe industry is very
competitive and may have an average
return on investment of 12%. When Don’s
profitability levels are compared with
those of his competitors, his business is
performing very well. (This is known as
comparative ratio analysis and is discussed
in more detail in Cambridge HSC Business
Studies Second Edition.)
Employment and incomes
In many cases, the owners of a business
will employ other people to perform
various activities within the business. The
goods and services that business provides
to the community are produced using the
knowledge, skills and effort of human
resources. For this reason, the provision of
employment is a key function in business.
Businesses employ over 11 million
Australians each year. With this labour,
businesses are able to offer the community
a diverse range of goods and services.
In return for their services, a business
will pay a form of income to their
workforce. This allows the workforce to
spend part of its income on satisfying its
needs and wants.
Over the past 10 years the Australian
economy has opened up to increased
competition from global businesses. In
response, many Australian businesses have
reduced the size of their workforce in
order to remain competitive. For example,
since 2000 Telstra has sought to reduce its
workforce by more than 35 000 employees
to face the increasing threat of foreign-
owned challengers such as SingTel Optus
and Vodafone. This has helped Telstra to
CHAPTER 1: THE ROLE OF BUSINESS 5
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7/7/11 11:38:35 AM
 In 2007, Wesfarmers engaged in the largest
ever corporate takeover in Australian business,
through its acquisition of the Coles Group. Since
then, the market capitalisation of Wesfarmers
has more than doubled and sales and profits
have also experienced considerable increases.
As Wesfarmers is a public company, listed on
the Australian Stock Exchange, many ordinary
Australian shareholders have been able to
benefit from this acquisition. Their wealth
through a higher share price, and income,
*USTåAåFEWåOFåTHEåMANYåBUSINESSESåINåWHICHå7ESFARMERSåHASåANå
through higher dividends, has also increased.
INTEREST

remain competitive. This process is known
as downsizing. Downsizing occurs when
fewer staff are required to work in the
business. The staff whose services are
no longer needed are retrenched. The
retrenched employees are said to be
redundant. Often technology replaces
these employees.
Choice
A primary function of business is to
produce goods and services for consumers
to satisfy their needs and wants. Most
Australian businesses operate in a
competitive market environment. This
means there are a large number of
competitors offering similar goods and
services. For example, if a teenager sought
to purchase a pair of brand-name sports
shoes there would be a variety of brands
to choose from and a number of different
retail stores to purchase the shoes from.
This choice presented to consumers
encourages businesses to provide goods
and services at the lowest possible price
with the highest quality. The ways in
which the product is promoted will
also influence the brand that consumers
will buy and where they will choose to
purchase the product.
Choice encourages business to be
innovative and to be different from
their competitors. A business will seek
to develop new products, improve
product features and/or use different
marketing strategies to ensure that when
the consumer does make a purchasing
decision, the decision is to purchase that
business’s product.
Wealth creation
Many businesses seek to achieve a profit
from their activities. The production and
provision of goods and services is the
means by which businesses fulfil this
goal. By increasing sales and developing
strategies to promote brand awareness and
sales, the management of a business hopes
to increase the value of the organisation.
This, in turn, will increase the value of the
funds that owners have invested in the
business.

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 to contribute more than $60 billion in $OWNSIZEå
Ethical issue
company tax to the government in the 4OåDECREASEåTHEåSCALEåOFå
Do employees have the right to know 2010–2011 financial year. In the same year, OPERATIONSåFORåEXAMPLEå
the true financial performance of the the federal government spent over $210 THROUGHåTHEåREDUCTIONå
business employing them or should this INåTHEåNUMBERåOFåSTAFFå
billion on such services as health, defence,
EMPLOYED
information be restricted to management education, border protection, social
and shareholders? security and recreational and cultural 2ETRENCHMENTå
facilities. 7ORKERSåAREåDISMISSEDå
RETRENCHED åWHENåTHEIRå
Not all businesses create long-term SERVICESåAREåNOåLONGERå
wealth for shareholders. During the late Innovation NEEDEDåBECAUSEåTHEå
1990s, many stocks related to internet Innovation can be defined as the process BUSINESSåTHEYåWORKåFORå
activities experienced a massive upswing of improving the features of a product. HASåDOWNSIZEDåCLOSEDå
in their share price. Unfortunately, this It could apply to the production process AåDIVISIONåORåOUTSOURCEDå
AåFUNCTIONåANDåTHEREFOREå
upswing was followed by a very sudden where improved methods of production
REQUIRESåFEWERåWORKERS
downfall, with many investors losing are implemented. The new production
considerable amounts of money. methods may make use of fewer resources 2EDUNDANCYå
Businesses also generate increased and result in increased output. Innovation 7ORKERSåAREåMADEå
wealth for the community. Profits may also be evident in products that offer REDUNDANTåWHENå
THEIRåLABOURåISåNOå
generated by business are taxed by improved and/or advanced features.
LONGERåNEEDEDå
the government. The government uses Technology has played a key role in
4HEIRåEMPLOYMENTåISå
this taxation to fund essential services; developing new methods of production TERMINATEDå4HISåMAYåBEå
improve educational, health and transport that require less labour. It has also AåRESULTåOFåTHEåBUSINESSå
facilities; and employ emergency staff, facilitated the development of improved INTRODUCINGåTECHNOLOGYå
such as police, fire brigade and ambulance features in many of the products that we TOåPERFORMåTHEåWORKERSå
officers. According to the 2010–2011 use in our day-to-day lives. For example, ROLE

federal government Budget Papers, mobile phones were once large and bulky )NNOVATIONå
Australian businesses were estimated with limited uses. Today, mobile phones 4HEåPROCESSåOFåIMPROVINGå
THEåFEATURESåOFåAåPRODUCT

Established in the late 1990s, the Australian business Davnet sought to provide organisations with communication
services in such areas as videoconferencing, the internet and voice recognition facilities. In July 1999, Davnet was
trading at $0.31. Within two years, the share price had increased by over 1000 per cent, peaking at $6. This rise was
staggering – many financial advisers say a good investment is one that will return 7 to 10 per cent each year. Twelve
months later, shareholders in Davnet saw $0.06 flash across the financial news screens. Later that year the company
had ceased trading and many investors in Davnet had lost thousands of dollars.

Activity 1.2 Comprehension

Describe how businesses encourage wealth creation within society.

CHAPTER 1: THE ROLE OF BUSINESS 7

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 are compact and offer the consumer the
Activity 1.3 Comprehension
ability to access the World Wide Web, take
Outline the benefits to an economy of
photos and send images to other users.
promoting innovation.
In the modern commercial
environment, innovation is crucial for
a business to maintain its competitive
advantage over other businesses. Business
managers must continually seek new
product ideas, consider the possibilities
of expanding into new markets and,
where necessary, modify their products to
revitalise sales. An innovative business is
one that stands out in the marketplace. It
is seen as better than its competitors.
4HEåAVAILABILITYåOFåAåWIDEåSELECTIONåOFåBREADSåTHATå
CATERåTOåAåDIVERSEåRANGEåOFåHEALTHåNEEDSåIMPROVESå
OURåQUALITYåOFåLIFE

Quality of life
Have you ever been reluctant to go to the florist to buy flowers In the early 1980s consumers would
for your boyfriend or girlfriend, fearful that the florist will laugh not have imagined being able to take
at your sweet message? This was a problem that young Sydney photographs using their phone or talk to
entrepreneur Jonathan Barouche encountered while at high their friends via computer. Through the
school. His solution was to start an internet-based florist that variety of products and services provided
would allow people to order flowers and write messages online, by business, the quality of life for all
from the comfort and privacy of their own home. The business Australians has improved.
fastflowers.com.au was created and Barouche’s company is now Business research and development
one of the most respected online florists. Its clients include has also contributed to a significant
Qantas, Telstra and Visa. improvement in our quality of life. Each
year governments, research councils
and pharmaceutical companies, for
example, spend millions of dollars on
research and development. According
to the Commonwealth Department
of Industry, Tourism and Resources,
Australian businesses spent over $17
billion on research and development in
the 2009–2010 financial year. Part of this
expenditure is used to develop products
that will help consumers maintain a
healthy lifestyle. For instance, there are
a growing number of different types of
*ONATHANå"AROUCHEåISåANå!USTRALIANåENTREPRENEURåWHOåWASåABLEåTOåå
DEVELOPåANåIDEAåINTOåAåVERYåSUCCESSFULåANDåINNOVATIVEåCOMPANY bread catering for consumers’ diverse
range of health issues and concerns.

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 Entrepreneurship %NTREPRENEURå
take risks by developing strategies for
their ideas to come to fruition. Through !NåINDIVIDUALåWHOåHASå
An entrepreneur is an individual who
DEVELOPEDåCERTAINåIDEASå
has developed certain ideas and is business, entrepreneurs are provided with
ANDåISåWILLINGåTOåTAKEåAå
willing to take a risk to implement these an avenue to transform their ideas into RISKåTOåIMPLEMENTåTHESEå
ideas through a business. Entrepreneurs actual goods and services. IDEASåTHROUGHåAåBUSINESS

In 2001, an English company known as the Daily Mail and General Trust Group spent
$150 million on the right to be able to operate Nova 96.9 FM, a new Sydney-based FM radio
station. The company believed that Sydney radio listeners would react positively to a radio
station that covered a broad spectrum of music tastes, including rock, pop and dance styles.
Advertisements would be restricted to two per slot and radio announcers would have a
minimal role in the programs. Music would become the centrepiece of the station.
The concept of developing a music playlist that appeals to a number of different groups
has proved highly successful. In 2011, Nova 96.9 FM is the second most popular radio station
among the key 18–39 years age group. The $150 million risk that the Daily Mail and General
Trust Group took has begun to pay off.

CHAPTER 1: THE ROLE OF BUSINESS 9

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 Chapter summary
s A business is an organisation that attempts to satisfy the needs and wants of the community by
providing goods and/or services.
s To provide goods and services to the community, businesses make use of inputs or raw
materials.
s By combining inputs with equipment and human skill, businesses add value.
s The roles of business include:
– Profit: Profit is essential if a business is to meet day-to-day expenses (such as production
costs, wages, insurance, electricity and rent) and provide a return on the owners’ financial
investment.
– Wealth creation: By increasing sales and developing strategies to promote brand awareness
and sales, the management of a business hopes to increase the value of the organisation.
This, in turn, will increase the value of the funds that owners have invested in the business.
– Employment: With this labour, businesses are able to offer the community a diverse range of
goods and services. In return for their services, a business will pay a form of income to their
workforce. This allows the workforce to spend part of its income on satisfying its needs and
wants.
– Innovation: This is the process of improving the features of a product.
– Quality of life: Business research and development has also contributed to a significant
improvement in our quality of life.
– Choice: A primary function of business is to produce goods and services for consumers to
satisfy their needs and wants. This in turn provides consumers with choice.
– Entrepreneurship and risks: Entrepreneurs take risks by developing strategies for their ideas
to come to fruition.

Chapter revision task

All exercises throughout this text are available in Word format on the Cambridge Preliminary
Business Studies website.
Print out the word search on the following page and complete.

10 CAMBRIDGE PRELIMINARY BUSINESS STUDIES SECOND EDITION TOPIC 1: NATURE OF BUSINESS

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 .ATUREåOFåBUSINESS

, 4 4 9 3 . % , 7 , / 3 0 % # ) . ! / % % 3 4 4 /
( % % % - ) 3 / , ! # / ) # 3 / " ' % ) ! % 9 % 2
6 . ) - : % . 4 % / 2 5 3 6 5 # - 8 . # . / 5 % !
- # , . ) ) . & . 9 ! 0 % 4 5 ! 4 - 4 . 4 ) 4 3 #
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, 3 4 % 9 ! ) - $ ' 0 0 9 % 4 , - / - 6 3 ' ) # .
) / ! ! . ! 4 4 2 5 ! 5 3 ) 3 % 9 0 ( 3 4 + ) 9 $
3 $ 4 3 ) 4 % ) ! ) 2 4 , % . % / . 5 % 3 - . 4 )
3 ) / 0 2 % 2 4 / 3 4 ) ) 4 & 2 2 % 9 . + & & . /
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3 " # # # 2 0 , 0 ! 3 5 ! 2 . 3 ) ! / 3 . 5 4 ) .
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4 . . , # 3 4 ) . 5 / # 5 5 , . 2 2 . . ' ) - ) )
, ! $ # 0 . / $ % 5 4 % . # 2 8 3 ! ) . 3 4 % 3 5
% 4 ! $ . - / % % 3 0 0 5 2 5 4 , 3 3 . & 4 ) . &
2 . 5 ! % # % / 4 % . 0 % ! / , 5 % ) / . ( . 2 .
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0 2 5 . / 3 - . 6 . 9 % / 3 % ) 3 3 ) % % 5 - ) 4

BUSINESS INPUTS ACCOUNTABILITY ETHICS

DOWNSIZE RETRENCHMENT INNOVATIONå ENTREPRENEUR
SOCIETY INTERNAL EXTERNAL INmUENCES
STAKEHOLDERS PLANS CONDUCTS INVESTIGATIONS
CONTEMPORARY ISSUES COMMUNITY EMPLOY

CHAPTER 1: THE ROLE OF BUSINESS 11

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 Multiple-choice questions
1 What do business ethics relate to?
(A) Fair and appropriate conduct within the business environment
(B) The process whereby managers are responsible to a particular group affected by the
operations of the business
(C) The legal regulations that owners, employers and managers are expected to follow
(D) The values and judgements of managers in relation to their conduct regarding the
operations of the business
2 Annie has taken an active interest in the growing health food industry. She decides to open a
health food store in her local neighbourhood shopping centre. In business terms, what would
Annie be known as?
(A) A manager
(B) An entrepreneur
(C) A business operator
(D) An employee
3 Which of the following best describes the concept of a business?
(A) An organisation that operates to serve the interests of the community
(B) An organisation that is developed to achieve a financial return to its investors
(C) An organisation that provides various goods and/or services to cater for the needs and
wants of the community
(D) An organisation that is owned and operated by the government to provide essential
services to the community
4 Which of the following is an important motive for people to invest their funds in a business with
the aim of achieving an increase in its value?
(A) Employment
(B) Wealth creation
(C) Innovation
(D) Entrepreneurship
5 What is the name given to the process of combining a range of inputs to develop an output?
(A) Value chain analysis
(B) Value adding
(C) Value benefit analysis
(D) Value creation
6 How does increased competition in the business environment benefit consumers?
(A) Through greater choice between the goods and services offered by businesses
(B) By providing increased employment opportunities
(C) Through an improvement in quality of life and standard of living
(D) By developing improved features in the goods and services produced

12 CAMBRIDGE PRELIMINARY BUSINESS STUDIES SECOND EDITION TOPIC 1: NATURE OF BUSINESS

ISBN 978 1 107 40226 3 © Marianne Hickey, Tony Nader, Tim Williams 2011 Cambridge University Press
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 7 An Australian pharmaceutical company has released medication that would assist in the
treatment of arthritis. Which of the following business roles is this an example of?
(A) Wealth creation
(B) Choice
(C) Quality of life
(D) Employment
8 X-Part Plastics Pty Ltd has developed a new form of production that would improve the quality
of its plastics. Which of the following business roles is identified here?
(A) Entrepreneurship
(B) Quality of life
(C) Employment
(D) Innovation
9 Not all businesses achieve profitability within their first year of trading. What would be an
important reason for this?
(A) The low number of competitors in the marketplace
(B) The costs of establishing the business, resulting in a delay in achieving a return
(C) The skills and training of the entrepreneur
(D) The location of the business
10 A company’s decision to release a new range of foods aimed at higher-end consumers would be
seeking to fulfil which of the following roles?
(A) Choice
(B) Profit
(C) Quality of life
(D) Employment

Short-answer questions
1 Businesses create wealth for individuals and for the community. Explain how these two types of
wealth creation differ.
2 (a) Define the term entrepreneur.
(b) Describe how entrepreneurs act as facilitators of choice and innovation in the community.

Extended-response question
Businesses exist not to serve the community but to maximise the financial investments of
their owners. With reference to this statement, discuss the roles of business and evaluate why
entrepreneurs pursue different roles as part of the operation of the business.

CHAPTER 1: THE ROLE OF BUSINESS 13

ISBN 978 1 107 40226 3 © Marianne Hickey, Tony Nader, Tim Williams 2011 Cambridge University Press
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