Topic One: The Economic and Business Environment

The Nature of the Economy

 The role of consumers, business government, financial institution, and the overseas
sector in the five-sector circular flow model.

The term circular flow of income or circular flow of economic activity refers to a simple economic
model which describes the circulation/ flow of income between producers and consumers. In the
circular flow model, producer is referred to as firms and consumers are referred to as households.
The major exchanges are represented as flows of money, good and services.

The consumer and business sectors:

- The household sector of an economy is made up of consumers, who held economic resources
such as land, labour, and enterprise.
- In simple two sector economic model, the other sector of the economy is the firm’s sector.
People sell their resources to firms (businesses) in exchange for an income.
- Firms then use the resources of households to produce goods and services. This is known
as production.
- Households will then use their income to buy various goods and services. This is known
as consumption
- Consumers and businesses are interdependent on each other.
- This means businesses would not survive without consumers buying their goods and services,
and consumers rely on businesses to provide them with goods and services they demand to
satisfy their needs and wants, and also to provide them with an income.
The financial sector (third sector):

- The financial sector refers to financial institutions such as banks that act as
intermediaries between the savers and borrowers in an economy
- They receive the saving of individuals and businesses and then lend this money to others
who need to borrow money.
- A choice of saving or investment is an important factor within the economy
- Saving (S) refers to putting money away for later use and is a leakage from the circular flow
of income, whereas investment (I) is when money is borrowed and used to expand and grow
a business
- This means investment is an injection into the circular flow of the income

The government sector (fourth sector):

- The government sector refers to local, state, and federal governments and has two significant
roles in the circular flow of income:
1. Taxation (leakage) – the government collects taxes from individuals and businesses
when they earn an income or profit.
2. Government expenditure (injection) – this is when governments spend money raised
through taxation on things sch as infrastructure, welfare payments, education, and
health.

The overseas sector (fifth sector):

- A complete approach to understanding economies occurs when the overseas sector is considered.
- This macroeconomic model details global (macro) influences upon a nation’s economy and
successfully explains the role of trade in helping an economy grow. Trade consist of exports
and imports
o Exports (X) – refers to Australian businesses selling their goods or services to
overseas individuals, businesses, or governments. These are an injection into the
circular flow of income.
o Imports (M) – refers to the buying of overseas good or services by Australians. These are
a leakage from the circular flow of income.
The circular flow of income:

- The circular flow of income is used by economists to measure changes in the level of
economic activity within the economy.
- This is done by adding up the injections into the economy and comparing them to the leakages
out of the economy
- When injections are greater than leakages, economic growth occurs, and the economy will expand
- When leakages are greater than injections, an economy will experience economic decline
- It is the government’s role to try to manage and maintain a balance within their nation’s
economy by altering flows of money and influencing decisions within sectors.

This means… - Leakages (STM)

o S – Savings
- The economy is in EQUILIBRIUM o T – Taxation
when: o M – Imports
o Leakages = injections
- The economy is EXPANDING when: ABBREVIATIONS - Injections (XIG)
o Leakages < injections
o X – Exports
o Injections > leakages o I – Investment
- The economy is contracting when: o G – Government expenditure
o Leakages > injections
o Injections < leakages
  The interdependence between different sectors of the economy, for example the
role of the government in protecting consumers, the role of the financial sector in
facilitating business investment
The role of the financial institutions

Financial institutions act as intermediaries between the savers and borrowers in the economy.
Financial institutions receive deposits and use this money to lend to others who need to borrow
money. Financial intermediaries collect savings of thousands of depositors, and then have large sums
available for businesses to invest in growth.

 Savings and Borrowings: Savings refer to regularly putting aside money that you earn
you’re your own income for future use. Borrowings is an investment used to expand and
grow a business; it is also considered an injection.

Three basic purposes of a bank or financial institution

Keeping money safe
- Individuals and/or
businesses may open
different types of accounts
at a bank (savings
accounts). However, there
are rules and restrictions in
relation to withdrawing this
money at times.
- As part of insurance policies -
in place, banks promise all
individuals/ businesses will
get their money back.
Borrowing money from Lending money to its customers
customers
- When money is deposited in - Banks lend most to their
a long-term savings customers. This is called a
account, banks will use the loan. Individuals may take
money to lend it out to out loans to purchase
other customers – assets. Whereas businesses
individuals and/or may take out loans to
businesses in the form of a expand business operations
loan - Individuals/ businesses
When banks borrow money must repay the money
from their customers, they borrowed. Here, the bank
pay them interest on the will also charge interest.
money borrowed

The role of the government in protecting consumers

ASIC (The Australian securities and investment commission) is responsible for the regulation of the
financial sector. The government’s role in protecting consumers is:
- Monitoring the financial services industry
- Monitoring the provision of financial services such as investment advice
- Providing consumer protection in financial services, including shares, managed
funds, superannuation, insurance, credit, and deposit taking
  The business cycle and its impact on the economy

A business cycle is a period of macroeconomic expansion followed by a period of contraction

The four phases of a business cycle

1) Expansion: a period of economic growth 3) Contraction: a period of economic decline

2) Peak: the height of the expansion 4) Trough: the lowest point of the contraction
 1) Expansion

When an economy is expanding or growing many people have jobs and many goods and services are
being produced and sold. At the peak of the expansion, gross domestic product is as high as it will go
for that particular business cycle.

Key features:

- Rising levels of production (output)

- Increasing consumer spending
- Rate of inflation may rise
- Wage rates eventually rise
- Interest rates eventually rise
- Level of unemployment falls

2) Contraction

During a period of contraction, more people are unemployed and fewer goods and services are being
produced and sold. Not all contractions are equally severe. The trough is the lowest point of the
contraction

Key features

- Falling levels of production (output)

- Decreasing consumer spending
- Rate of inflation may fall
- Wage rates generally fall
- Interest rates eventually fall
- Level of unemployment rises

3) Recession

Recessions are caused by lack of spending, not the inability of the economy to produce goods and
services. Most goods and services are produced before they are sold. The amount produced depends
on how much the business thinks consumers, other businesses and governments will buy, which in
turn is influenced by the level of economic confidence. By choosing to spend some of your money,
you send a signal to businesses to keep making the products you buy. If, however, some products are
not bought, the business may cut back on production and some employees might lose their jobs and
incomes. This causes total spending to fall even further as people’s confidence in the future is
shaken. In this way, a recession spreads and economic growth is slowed. When a recession becomes
widespread and long- lasting, it is called a depression.

Key features

- Income and production are at their lowest level in the business cycle.
- Unemployment is at a high level.
- Wages and salaries either fall or grow very slowly.
- Consumer demand and, consequently, business sales and profits reach their lowest levels.
- Bankruptcies are everyday occurrences, and the business outlook is bleak.
- Businesses have a lot of unused resources and no incentive to purchase new machinery.
- Interest rates remain low, while investment opportunities are few and the number of
credit worthy borrowers is reduced.
- The inflation rate tends to stay low.

4) Booms – too much spending

The upside of the business cycle is growth and prosperity. Production, spending and employment
rise. Businesses expand, employees are hired, and incomes increase. Consequently, total spending
increases even more. Consumer and business confidence are high. However, the economy cannot
keep producing more goods and services indefinitely. There is a limit. When this happens, additional
spending pushes up prices. Inflation, a general rise in prices, now becomes a major economic
problem and will eventually bring an end to the continued growth.

Key features

- Income and production are at their highest levels.

- There is full employment of labour and all other resources.
- Wages and salaries are relatively high. Employees are now in a strong bargaining position
as businesses compete for scarce labour resources.
- Businesses are operating at full capacity. Increases in consumer demand are met by increases
in prices rather than by increases in production.
- Interest rates are high because loanable funds are in relatively short supply.
- The rate of inflation rises sharply.

Inflation

- An increase in the prices of the goods and services that households buy. Measured by the rate
of change of those prices. Typically, prices rise overtime, but prices can also fall (called
deflation).
- The most well-known indicator of inflation is from the consumer price index (CPI),
which measures the changes in the price of a typical basket of goods and services
consumed by households.
Importance of inflation

- It is important for the rate of inflation throughout an economy to be managed. A low steady rate
of inflation is good for the economy.
- If inflation is too high, the currency loses its value. If inflation increases at a very rapid rate, it
is called hyperinflation.

The reserve bank

- In Australia, ‘inflation targeting’ was introduced in the early 1990s to control the rate of
inflation. The Reserve Bank of Australia is the country’s central bank. One of its many roles is
to keep inflation between 2 and 3 per cent, on average, over time. Economists at the Bank
analyse data to understand what is happening in the economy
- As a central bank, the Reserve Bank doesn’t hold deposits for, or lend money to, people
and businesses. Commercial banks, however, lend money (in the form of loans) to
people and businesses, and accept deposits of savings.

Influencing interest rates (and inflation)

The Reserve Bank of Australia influences the economy by carrying out ‘monetary policy’. It sets
the ‘cash rate’, which influences the interest rates offered by commercial banks to their customers.
Raising or lowering interest rates can stimulate or dampen economic activity if needed, helping
to achieve a low and steady inflation rate.

 Monetary policy the Reserve Bank using interest rates to achieve economic objectives
 Cash rate the official price of borrowing money; the interest rate that applies to the short-
term money market.

Soothing the business cycle

If the economy is expanding too quickly The Reserve Bank is likely to raise the cash rate. Commercial
banks will raise interest rates, making it more expensive to borrow money, and more attractive to
save money. People will tend to save more and borrow/spend less.
Interest rates

If the economy is growing too slowly the Reserve Bank is likely to lower the cash rate. Commercial
banks will lower interest rates, making it cheaper to borrow money. People will tend to save less and
borrow/spend more.
The Nature of Markets Within the Economy

 Factors influencing business decisions, for example technology, business cycle, globalisation

Factors influencing business decisions

- Technology: businesses can increase efficiency and productivity, create new products and
improve the quality and range of products and services. The use of technology (hi-tech robots) in
manufacturing industries is improving productivity and reducing operating costs and eliminating
repetitive tasks. EFTPOS has reduced communication delays and allowed instantaneous
interactions.

- Business cycle:

- Globalisation: Globalisation is the process by which the world is becoming increasingly

interconnected as a result of increased trade and cultural exchange. It involves reducing
the barriers to trade, investment, and labour across national borders.
  The contribution of entrepreneurship and innovation
Entrepreneur:
A person who is willing to take a risk and has the qualities required to turn an idea into a successful
business is called an entrepreneur. For those whose ideas translate into a successful business venture,
the profits are often huge.

An entrepreneur is someone who:

→ has great ideas and do something about them
→ hunts for opportunities to promote their ideas
→ thrives on the challenge of creating their own successful business
→ makes money out of solving problems and selling their ideas
→ usually starts up their own business.

Innovation:
Innovation is a process by which a domain, a product, or a service is renewed and brought up to date by
applying new processes, introducing new techniques, or establishing successful ideas to create new
value. The creation of value is a defining characteristic of innovation.

Innovation plays a crucial role in driving economic growth and overall development. It introduces new
ideas, technologies, and processes that improve productivity, efficiency, and competitiveness, leading to
increased output and job creation

It also enables businesses to stay ahead of the competition by continuously adapting and improving.
Through innovation, companies can develop new products, services, and business models that meet
customer demands, enhance user experiences, and create value

Current issues

 A major economic event or development that has affected Australian consumers and
businesses, including causes, impacts, and responses.

The economic impact of COVID-19

What is COVID-19?

COVID-19, also known as coronavirus, is a disease that first broke out in 2019 from Wuhan, China. It
has developed into various strains overtime and affected tens of millions of people. It is like the flu
but more fatal.

What industries can a pandemic, such as COVID-19 impact?

- Households
o Consumers bracing themselves for ‘potential lockdown’ by buying extra needs such as
toilet paper. This caused an extreme price increase in products and grew restrictions on
purchases.
o Bringing forward consumption
o Households forced to stay inside or self-isolate
 o Many workplaces encouraging people to work from home
o Growing concerns, uncertainty, and fear.

- Businesses
o Supermarkets seeing a rush in revenue but are low on stock. Suppliers working around
the clock to get stock out.
o Spending redirected towards staple necessities means less money spent on wants and
luxuries. Retail is missing out. For example, cinemas stadiums, theme, and water
parks.
o Hospitality industries are seeing less people going out to ear.
o Businesses preparing for ‘shut down periods’ and ensuring all staff have what they need
to work from home
o Any suppliers being manufactured or shipped from China have been delayed

- Commodity markets
o China is the largest importer of raw materials, and commodity markets are
consequently feeling the impact as well
o China buys about a third of Australia’s exports. The main ones are iron and coal.
o As factories in China remain idle, the demand for coal and iron are declines.

- Sport
o Many sport matches are being sold ‘behind closed doors’ overseas and
sporting coordinators in Australia are encouraging people not to attend if they
are sick.
o Less people buying tickets to sporting events

- Tourism
o The airline sector is expected to have a loss in revenue rising up to 29 billion US dollars
this year, as demand for air travel declines for the first time in the last 11 years.
o Travel and tourist businesses experiencing extreme loss of profits
o Travelling to certain countries has been banned by the government.

- Education
o Ban on non-resident foreigners entering Australia from China
o Universities have delayed the start of term as it is likely to affect financial standing
because of relatively lower international enrolments and exchange programs.
o Widespread school closures interrupting education

- Share market
o Aussie share market plummets $66 billion in opening minutes as oil price war heats up
o ASX crashes below 6000 with almost $140b wiped off in worst day since global
financial crisis
o Australian share market opens down after global markets stung by oil prices, coronavirus.
Topic 2: Law, Society, and Political Involvement

The Role and Structure of the Legal System

 The nature of laws and the reasons for laws in society in relation to values, morals, and
ethics.

Reasons for laws in society

Values morals and ethics

We develop a sense of what is right and wrong from the moral and ethical values of our society.
Usually, this is reflected from the beliefs, attitudes, and values of religious institutions. For example,
murder is considered a serious crime because our society believes human life is precious and should
be protected.

How do our values, morals and ethical standards influence law reform?

A society’s legal system and its religions are often interlinked; the values found in its religious
teachings are often replicated in the legal system. For instance, it is illegal to kill a person in Australia.
The Old Testament says, ‘you shall not murder’. This means that both our legal system and the
teachings of Christianity value human life. Research the beliefs of another religion such as Hinduism,
Islam, Sikhism, Buddhism or Judaism and identify at least three similarities (or differences) in
relation to the values represented in Australia’s legal system.

 The key features of Australia’s court system, including the high court and
its role in interoperating the Australian constitution

Court hierarchy

Australia is a federation and as a result there are two levels of law that apply:
- Federal law
- State law

As a result, there are separate state and federal jurisdictions, each having their own court
structure. All courts have original jurisdiction, that is, the power to hear certain cases for the first
time. In addition, many courts have appellate jurisdiction. This means that the court has the right
to
hear cases that were originally dealt with by a lower court, but which have been subject to an appeal.
Key terms

- Summary offence – an offence within the scope of a summary court

- Indicatable offence – more serious criminal offences
- Original jurisdiction – a courts power to hear and decide a case before any appellate review.
- Appellate jurisdiction – the power of a court to hear appeals from lower courts

Australia’s court system

- The higher courts, which hear the most serious matters, are at the top of the hierarchy,
and the lower courts, which hear less serious matters, are at the bottom of the hierarchy.
o Each court deals with specific legal matters
- If an individual is unhappy with the ruling of a lower court, they can appeal the decision and
have their case reviewed in a higher court.
o Cost of a trial (a process to determine whether someone committed a criminal act
or caused another person) becomes more expensive.
The local court (bottom tier)

- Deals with minor civil disputes e.g., where people sue other people for damage to property or
for injury claims of up to $100 000.
- Hears summary offences (minor criminal matters) such as stealing, drink-driving,
assault, possession of drugs and Indecent language.
- There is no jury (a group of people (either 12 or six) selected to hear the evidence in a court case).
- Instead, there is a magistrate (a court official who hears cases in the lowest court of law)
who hears the cases, decides the verdict, and sets any punishment.
o Can imprison an offender for up to two years per offence, or a maximum of five years.
o Hears bail (release an accused person who is awaiting trial) applications.
o Issues arrest warrants and search warrants
o Hears applications for Apprehended Violence Orders (AVOs)
o presides over committal hearings [decide whether there is enough evidence to put
a person on trial for an indictable (serious) offence] dealing with indictable
offences (major criminal matters) such as armed robbery, manslaughter, and homicide
to decide if there is enough evidence for the case to go to trial in a higher court.

District court (Third Tier)

- Cases are heard by judges (court official who has the power to make decisions on matters
brought before a court of law).
- Deals with more serious civil cases for claims over $100 000 up to $750 000 and all motor
vehicle accident cases.
- Deals with serious criminal matters such as armed robbery and manslaughter.
- Some cases a jury will decide whether the accused is guilty or not.
o If the accused is found guilty, the judge will decide on an appropriate sentence.

Supreme court (Second Tier)

- Highest in NSW and deals with the most serious criminal cases such as murder, treason
and serious sexual assault.
o Located in Sydney and headed by the Chief Justice.
- Deals with the most serious civil cases involving more than $750 000.
- Also deals with appeals from the two lower courts.
o The judgements of the Supreme Court are binding (compulsory) on all lower courts.

High court (Top Tier)

- Located in Canberra, the High Court deals with appeals from the state or territory Supreme Courts.
- Hears cases concerning the interpretation of the constitution; that is the laws of which Australia
is governed by.
- It reads, interprets, and applies the Constitution and, in reaching verdicts, it creates laws that
then affect the powers of parliaments.
- Decisions are final.
- The High Court is a federal court, which means that any decision it makes applies to
the whole country.
 - The High Court consists of seven judges

Other specialised courts

- Other specialist courts on the same bottom level of the court hierarchy as the Local Court
are the Children’s Court (involves the care and protection of young children and deals with
criminal offences committed by children under 18 years) and the Coroner’s Court (inquire into the
causes and circumstances of some deaths).
- Another specialised court is the Family Court assists Australians to resolve more complex
family law matters such as divorce, parenting disputes and the division of property when
couples separate.

 Types of Law
Civil law:
Civil law, is part of private law, deals with non-criminal matters. It allows an individual to bring
actions against other members of the public for a civil wrong done to them.

The two main areas of civil law are the law of tort and contract law. The law of tort includes:
→ negligence — where a person fails to take reasonable care and, as a result, injures another person
→ defamation — where a person injures another person’s reputation
→ nuisance — where a person causes unreasonable interference with another person’s right to quiet
enjoyment of their property
→ trespass — where a person interferes with another person, or that person’s property rights.

Criminal law:
A crime involves behaviour that is considered by the state to be unacceptable, deserving of
prosecution, conviction and punishment. From ten years of age, a person can be prosecuted for
committing an offence. This is considered the ‘age of criminal responsibility’ when the offender
knows the difference between right and wrong.

Serious crimes, such as armed robbery, homicide, child abuse, murder and sexual assault, are called
indictable offences. These offences are heard in the District and Supreme Courts. For these offences,
the guilt of the defendant is determined by a judge and jury.

The purpose of criminal law, which is part of public law, is to protect individuals from others doing
the wrong thing; to make the community feel safe from harm.

Public and Private:

Private law deals with how individuals interact with other individuals; the rights and duties people
have towards each other.

Public law is concerned with regulating people’s behaviour within a society as a whole and protects
the freedom of individual. It also deals with the conduct society expects from its government.

Domestic vs International law:

Domestic laws are those that apply within a specific geographic region. Domestic laws relate to being
a law-abiding citizen of one’s country.

International law is a specific type of law used to regulate relations between countries. Unlike
domestic law, international law is voluntary and countries have the power to choose whether they
wish to be bound by the law. Many countries agreed to international laws because they receive
benefits from participating in them. International laws are called conventions, treaties or
declarations.

Legislations:
→ Local Government Act 1993
→ Statute Law (Miscellaneous Provisions) Act 2020
Topic 3: Running A Business

Being An Entrepreneur

 Discuss the characteristics of an entrepreneur

What is an entrepreneur?
An entrepreneur is a person who runs a business an doing so, receives the profit (or loss) the
business makes in the process. This is considered the return for the risk the entrepreneur takes and
for organising the business activities. 5

Characteristics of an entrepreneur

- Identifies a need and fills it - The ability to see and take advantage of
- Never gives up an opportunity
- No fear of failure - The ability to establish a shared vision
- Takes risks - Demonstrate initiative, innovation,
- Makes things happen and resilience
- Visioners - An appreciation of the role of failure
- Driven by their own ideas in success.

Seeing and taking advantage of an opportunity

- An opportunity is something a person can see as an avenue to success. It is often identified when
a person feels they can provide goods or services in a better or different way from that already
in the market.
- Potential business owners are always searching for opportunities, such as new products,
new customers, and new ways of running a business.
- There are many sources of opportunities for business ideas, including innovation and
entrepreneurship, recognising, and taking advantage of market opportunities, changing
customer needs, research and development, technological development, and global markets

Inspiration for ideas and opportunities can be generated by:

- Listening to people (for ideas on goods and services that may not be readily available)
- Reading magazines and books and researching on the internet
- Visiting displays and exhibitions
- Accessing government statistics and research information
- Identifying a “gap in the market” that is not currently being satisfied
- Determining improvements that could be made to an existing product.

Establishing a shared vision

- Vision refers to the clear, shared sense of direction and allows people to achieve a goal.
- Having a shared vision means everyone in the business works together, as a team, to develop
and then accomplish a goal. When this happens, it is much more likely that staff will
enthusiastically contribute to making sure the vision is realised.
- The most effective way managers can share their vision for the business is through
the organisation’s goals.
- Knowing where the business is headed and what it is trying to achieve helps
employees understand where the manager wishes to take the business.

Demonstrating initiative, innovation, and resilience

- Initiative refers to the ability to be resourceful and decide, in an independent way, what to do
and when to do it.
o Doing things without being told; you find out what you need to know; you spot and
take advantage of opportunities; and you keep going when things get tough.
- Successful entrepreneurs need to be resilient. Resilience refers to the ability to cope with the
ups and downs, adapt well to change and bounce back from challenges.
- Innovation generally refers to the process of creating a new or significantly improved
product, service, or process (way of doing something).
- An invention refers to the development of something that is totally new, but innovation and
invention both result in the creation of something unique.

Being self-employed

The business owner’s personality, skills and ambitions need to be analysed because the future largely
with the owner. For this reason, people should carefully consider the advantages and disadvantages of
being self employed

Advantages of being self employed Disadvantages of being self employed

o Be your own boss – o Hard work and long hours

independence possibility of o Other “bosses” – customers,
making a profit suppliers, financiers
o Challenge, reward, and satisfaction o Income may fluctuate and be uncertain
o Increase personal wealth o Risk of failure
o Contribute to society o Stress and worry
o Develop own creative ideas o High levels of responsibility
o Overcome unemployment o Constantly solving problems
o Achieve a better lifestyle o Difficulty in selling the business
o Employ family members
o Possible tax advantages

Planning For Success

 Examine the key considerations involved when planning and organising a small
business, including:
  Opportunities to run a small business, e.g., market research, location, demographics,
competition, target markets

1) Market research
- Once a small business opportunity has been identified, market research is required to
investigate various aspect of the business such as location, competition, and demographics.
- Market research could involve talking with or surveying potential customers and competitors.
It could mean contacting trade or professional organisations for advice about the business and
the locations being considered.
- Market research could become as formal as obtaining data from the Australia Bereu of
statistics (ABS) about the demographics of the people in the area and the other business in the
district.
- Market research helps determine:
o What consumers want/need o The ideal price
o If there is any competition o Potential locations and outlets to sell in

 Loyalty cards: Many retailers use loyalty cards to gather market research. Loyalty cards
provide stores with a huge amount of data about their customers, such as their gender, age,
address, and household size. When a customer scans their card, their transaction is recorded,
and over time, the business will be able to create a profile about their buying habits. The
business then uses that data to build a profile of each customer so they can promote their
products in a more effective way.

In order to obtain accurate information, marketers usually follow a three-step approach:

2) Location: A good location can make a difference between success and failure of physical store
businesses. This is important as they need a flow of people walking past the store (visibility).
This will have an impact on profits. Online presence is also important. E-trailers try to gain high
google ranks. The location chosen can affect many aspects of how a business operates, such as
total sales and how expensive it is to run. A good location usually equals higher cost. When
determining a location, a business must consider:
o Cost o Cost
o Closeness to customers o Closeness to competitors
 o Closeness to support serveries o Closeness to suppliers
o Closeness to complementary business o Visibility

3) Target markets: refers to the group of customers which a business intends to sell its product. A
business can have more than one target market. A businesses primary target mark if its main
focus and will be the source of most of the business sales. These are customers who are loyal and
make repeat purchases. A business secondary target market provides an alternative in case there
is a loss of customers for the primary target market. The people that form the secondary target
market purchase products from the business on an infrequent basis.

There are three main approaches to describing a business’s target markets:

i. Mass market: promoted to a large proportion/majority of members of a population
ii. Market segmentation approach: a specific group of consumers with identifiable and
similar characteristics, wants and needs
iii. Niche market: a very specific segment of the market that is targeted due to a
specific characteristic or need

Market segmentations
o Age o Educational o Lifestyles
o Gender background o Family structure
o Income level o Geographical location

4) Competition: An entrepreneur should aim to achieve a sustainable competitive advantage

(having an edge over their competitors) to capture a larger share if the market for a long period
of time

SWOT analysis

One way to look at these questions is through SWOT analysis, or test (SWOT stands for strengths,
weakness, opportunities, and threats). The SWOT test should be conducted on competitors. It
should then be compared with a SWOT test on the business to be established. This exercise
should find the factors that will make the new product sell more than the competitors’ products.

Strengths Weaknesses

Characteristics of a nosiness Characteristics of a business

which give it advantages which make it
over its competitors disadvantageous relative to
competitors

Opportunities to increase profitability

Elements in a company’s
external environment
that allow it to formulate
and implement strategies
 Threats

Elements in the
external environment
that could endanger
the integrity and
profitability of the
business
5) Market segmentation Demographics: marketers break the population into many small parts
to find things that consumers of a product have in common.
i. Demographic characteristics: segmenting a group on the basis of age, family size, gender,
income, occupation, education, religion, or race. It is the most popular and easiest form of
segmenting a market as consumer behaviour is commonly linked to demographics and it
is easy to measure.
ii. Psychographic characteristics: the lifestyle, beliefs and attitudes of consumers will
determine the types of products they buy. This includes their hobbies and interests,
attitudes to social issues. E.g., busier people buy fast-food, active people buy sports goods,
ethical views stop people buying clothing from sweatshops. These are harder to measure
and identify.

Marketers use strategies to sell products to customers. The two main strategies they use are:

1. Product differentiation: occurs when products (goods or services) that are the same or
similar are made to appear different from and/or better than those of their competitors. By
listing the differences between one product and another, a business (seller) is simply trying to
make its product more desirable to consumers. The following factors are often used to
differentiate products:
o Customer service o Being socially/ethically responsible
o Convenience o Price
o Environmental friendliness o Quality
o Value for money o Packaging

2. Product positioning: product positioning refers to the creation of a product image in the minds
on consumers compared with the image of competing products. It aims to create positive
impression.

 Key features of organisational structures, e.g., sole trader, partnership, private

company, and incorporated association

Unincorporated: Businesses which are not legally separate from their owner. When the owner dies so
does the business entity. This is most common legal structure in Australia, as it is the easiest and
cheapest to establish.
Incorporated: refers to the process companies go through to become separate legal entity from the
owner/s. this means the business exists in its own right and its own legal entity. Regardless of
what happens to individual owners (shareholders) of the company, the business continues to
incorporate.

Five main legal structures of privately owned businesses

 Sole Trader

- Unlimited liability
- Simplest and cheapest structure to establish
- The sole trader receives all the profit and suffers all the losses.
- A sole trader is a business that is owned and operated by one person. Most common in AUS.
- This means he or she can be forced to sell personal assets such as the house of car to pay
for business debts.

Advantages
o Keep all the profit
o Relatively easy to establish
o Their own boss
o Provides a sense of personal satisfaction
o Work the hours they choose to work
Disadvantages
o Unlimited liability
o Limited access to finance to ‘grow’
the business
o The life of the business is limited
o Pay income tax rather than company tax
o It is difficult to take time off

 Partnership

- A partnership is a business owned and operated by between two and 20 people, called partners
- Partnerships also have all the owners are personally responsible for the business’ debts
- The partners share their profit and losses. It is common for people with similar skills, such
as doctors and solicitors, to form a partnership.

Advantages
o Partners share any losses
o There may be more capital to establish
the business
o The work is shared between partners,
giving each a chance to specialise
o Partners keep all the profit
o There are more people to make decisions
o It is easier for a partnership to
borrow money
Disadvantages
o Partners must share the profit
o Possibilities of disagreements
among partners
o All partners are responsible for the
action of ant other partners
o Partners have unlimited liability
o If a partner leave or a new partner join
the business, the partnership agreement
must be renegotiated.

 Private (proprietary) company

- Private companies usually have between two and 50 private owners called shareholders
- These businesses tend to be small to medium in size.
- Often family-owned
- Shares in private companies are offered only to those people the business wants as part-
owners (which is why it is called a private company).
- Private companies have the words ‘propriety limited’, abbreviated to “Pty Ltd”, after its name.
- Main advantage of a private company is that shareholders have limited liability. This means that
if the business cannot pay its debts, a shareholder generally loses only the money she or he has
invested in the business.

Advantages
o If anything happens to the company, its
members are not personally affected
(limited liability); members are only
liable for unpaid shares.
o Tax advantages – private companies pay
corporation tac on their taxable profits
and tend to be exempt from higher
personal income tax rates
o Private limited companies enjoy
permanent succession because the
company is its legal entity. Shareholders
and employees act as agents of the
company, and therefore, it does not
affect the company if they leave.
o Large profits
Disadvantages
o Shared profits
o Private limited company’s must pay
taxes and insurance for their
employees
o Shareholders in primitive limited
company are not able to sell of
transfer their shares to the general
public
o Starting a private company can be
complect meaning that lawyers and
accountants almost always need to be
involved in the private limited
company from the start, which can be
costly
o Lack of privacy – even though shares in
a private limited company cannot be
publicly traded, information
concerning
the company is made public.

 Public company

- A public company can have an unlimited number of shareholders.

- The shares for public companies are listed on the Australian Securities Exchange (ASX), and
the general public may buy and sell shares in those companies.
- Most public companies are large.
- Shareholders in public companies have limited liability.
- A public company must have the word ‘Limited’, abbreviated to ‘Ltd’, after its name.

Advantages
o More capital (supplied by
shareholders) is available
o Borrowing money is easier
o The liability of shareholders is limited
o It is a legal entity
o Specialised people and shareholders
can be employed to run different
elements of the business
o Ownership and control can change
Disadvantages
o Many governments regulation must
be considered
o Limits are placed on the board of directors
o Owners (shareholder) do not always
have control over the decisions made
o It can be expensive to set up,
maintain, organise, and wind up
o The company may become too large
and inefficient
frequently without new o The company’s financial affairs
agreement are available to the company
being entered into
 • Incorporated associations

- A group of five or more people may form an incorporated association in New South Wales by
registering with NSW Fair Trading. Incorporated associations are small-scale, non-profit and
non- commercial in nature. They can only conduct business in the state in which they are
registered.
- An incorporated association has its own legal identity separate from its members, which
provides protection to members. Small community groups such as sports clubs and art groups
usually choose to register as incorporated associations.
- The incorporated association structure can be mjore effective for these types of organisations
as they are generally simpler and more affordable than a company structure.

 the range of options for financing a business, e.g., the preparation of a loan application or
a simple prospectus

Businesses need money to be able to operate and this money can come from one of two sources:

1. Equity finance – from within the business itself where the owners or shareholders provide the
capital needed to run the business from their own funds or using profits already earned. Sources
of owner’s equity are therefore:
 the owner’s savings or assets
 retained profits of the business

2. Debt finance – funds borrowed from external parties (such as banks) that need to be repaid with
interest. Sources of debt finance include:
 Term Loans – loans for a fixed period of time to purchase assets such as machinery,
computers, cars or inventory
 Mortgages – the borrower provides property as security for a loan
 Bank Overdrafts – a business has permission to overdraw the funds in their accounts up to a
specified limit to help finance everyday payments
 Credit Cards – issued by financial institutions to allow purchases to be made for payment at a
later stage.
 Trade Credit – businesses buy goods and services on credit to the business where it will be
paid back by a specified date in the future. It allows a business to sell the goods before they
have paid for them.

Businesses will often lease equipment or buy equipment through a hire purchase agreement to avoid large
upfront costs. There are advantages and disadvantages associated with each source of finance. For
instance, the main advantage of debt financing is that the owner does not have to sell any ownership in the
business to raise funds. Also, debt financing has certain taxation advantages. For these two reasons, debt
financing is the most popular source of finance used by business people when starting a new business.
Equity has an advantage over debt because it does not have to be repaid unless the owners leave the
business. It is also cheaper than debt finance because there are no interest payments.

Loan Application:
Loans are typically used for specific purposes — e.g. for a car, house or to start a business. A loan is an
agreement to borrow a set amount of money that needs to be repaid within a certain period of time. This
is called ‘the term’. The term of the loan can vary. Anyone that borrows money will need to pay interest on
the amount they borrow. This interest may be at a fixed rate, where the interest rate is locked in for the
term, or a variable rate, where the interest may go up or down over the term. While a fixed rate loan offers
the benefit of set repayments, if you want to make extra payments from time to time, you will usually have
to pay an additional fee.

A loan may be secured or unsecured. A secured loan is where the borrower offers an asset as security,
such as a car or a house, for the loan. If they don’t repay the loan, the lender may sell that asset to get their
money back. Secured loans offer a lower interest rate but run the risk that the lender may have the right to
sell the security if the borrower can’t pay.

With an unsecured loan, the borrower does not need to have an asset to offer as security, but the interest
rate is usually higher. A person wishing to get a loan will need to consider carefully which type of loan best
suits their needs.

Prospectus:
As a general rule, if a public company offers securities for sale (for example, shares or debentures) then
they must provide a disclosure document to potential investors. A prospectus is the most common type of
disclosure document. A prospectus is a legal document issued by companies that are offering securities for
sale.

Typically, a prospectus must contain all the information that investors and their professional advisors
would reasonably require to make an informed decision about the following:
- the rights and liabilities attached to the offered securities; and
- the issuing company’s assets and liabilities, financial position and performance, and their profits and
losses.

Although the Corporations Act contains a general disclosure test for a prospectus, it does not set out a
‘checklist’ with all the information it should contain. In practice, a prospectus typically includes
information about the following:
- history of the business
- the company’s business model
- risks
- description of management
- how the company will use the proceeds
- financial information
- details of the offer.

The role of the prospectus is to make investors aware of the risks of an investment. Without this
information, they would basically have to make investments ‘sight unseen’. This disclosure also protects
the company from future accusations that it did not fully disclose enough information about itself or the
securities in question.
  the establishment of a new business or purchase of an existing business, e.g.,
franchising, staffing, equipping premises, identifying an appropriate location, obtaining
realistic valuations
There are 3 main ways of going into business
1. Setting up a new business from scratch
Advantages
o The owner has the freedom to set up
the business exactly as he or she
wishes.
o The owner’s objectives can be matched
more closely to the business.
o The owner is able to determine the pace
of growth and change.
o The owner has more flexibility to select the
location, target market, range of products
and level of customer service.
o There is no goodwill for which the owner
has to pay.
o If funds are limited, it is possible to begin on
a smaller scale.
2. Purchasing an existing business
o Sales to existingAdvantages
customers will
generate instant income.
o A good business history increases
the likelihood of business success.
o Stock has already been acquired and is
ready for sale.
o Equipment is available for immediate use.
o Existing employees can provide
valuable assistance.
Disadvantages
o There is a high risk and a measure
of uncertainty.
o Without a previous business
reputation, it may prove difficult to
secure finance.
o Time is needed to develop a customer
base, employ staff and develop lines
of credit from suppliers.
o If the start-up period is slow, then
profits may not be generated for some
time.
o Potential customers may be more
difficult to attract than initially expected
or unforeseen competition may appear,
especially if the level of planning was
inadequate.
o The existingDisadvantages
image of the business may
be difficult to change, especially if the
business had a poor reputation.
o The success of the business may have
been due to the previous owner’s
personality and contacts which may be
lost when the business is sold.
o It may be difficult to assess the value
of goodwill with the likelihood of
paying more than the business is
worth.
o Some employees may resent any change
to the business operation.
 3. Purchasing a franchise

Advantages Disadvantages

o Products, equipment, premises design o The franchisor usually controls

and marketing are usually established.
o The franchisor often provides training.
o There is less need for the franchisee to
have previous business experience.
o The investment risk may be lower.
o There is immediate benefit from
the franchisor’s goodwill.
everything to do with price, suppliers and
health regulations.
o Profits must be shared with the franchisor.
o The franchisor often charges a service
fee for advice.
o Contracts may be biased in favour of
the franchisor.
o The franchisee may merely feel like an
employee, but without the benefits
and security.
o The franchisee has to deal with day-to-day
operations and they are legally
accountable

Business Operations
 examine key considerations involved in running a small business

Once someone has made the decision to start their own business, there are a variety of factors that
need to be considered. Some of these considerations include:
 Regulations that affect the business’s operations.
 Marketing strategies that can be used to promote the business.
 Ethical decision-making and corporate social responsibility.
 Organizations that provide support and advice to small businesses.

 Appropriate marketing strategies for promoting a business and selling products or services

Promotion

Promotion refers to methods used by a business to inform, persuade, and remind customers about its
products. Some of the main forms of promotion include:
 Personal selling: involves the activities of a sales representative directed to a customer in
an attempt to make a sale.
 Relationship marketing: refers to the development of long-term, cost-effective, and
strong relationships with individual customers.
 Sales promotion refers to activities or materials used by the business to attract interest and
support for the good or service — e.g., free samples, coupons, and point-of-purchase
displays.
 Publicity: refers to any free news story about a business’s products.
 Public relations: those activities aimed at creating and maintaining favourable relations between
 a business and its customers.
 Advertising: where print or electronic mass media are used to communicate a message about
the product.

Since each promotional strategy has different benefits, it’s important for businesses to use a mix of
these strategies in order to cater to the needs of everyone in their target market.

 The importance of ethical decision-making and corporate social responsibility

Ethical decision-making and corporate social responsibility

 Concerned with what is morally right or wrong.

 Socially aware business owners recognise the importance of planning business objectives
that incorporate corporate social responsibility.
 Corporate social responsibility (CSR) refers to the way that a business considers the
financial, environmental, and social impacts of its decisions.
 A socially responsible business will attempt to achieve two goals simultaneously: increasing
profit as well as providing for the greater good of society.

Benefits of ethical decision making and corporate social responsibility

 Improved business reputation

 Increase sales
 Increase employee satisfaction and productivity
 Marketing opportunities if the business receives publicity in the media
 Attracting better employees who want to work for organisation that are socially responsible
 Helping business achieve a sustainable competitive advantage

Socially responsible approaches to business

Maintaining Financial Records

  explain the importance of maintaining financial records and minimising risk

Financial records enable business owners to manage their cash flow. Accurate financial records allow
business owners to see how much money they have available and whether or not with this will be
sufficient to meet their obligations when they fall due

 the ways businesses respond to changing economic conditions

the Australian economy experiences economic ‘boom’ and ‘bust’ cycles. These periods of high anf low
economic activity are referred to as the business cycle. After a period of prosperity, business activity
gradually slows down until a recession or depression is reached. Eventually, business picks up again
until prosperity is restored. This completes the cycle

economic forces have an enormous impact on both business and customers. They influence a
businesses’ ability to compete and a customer’s willingness and ability to spend.

The ways businesses respond to changing economic conditions is summarised in the table below:

Business responses to peaks Business responses to troughs

o Increase employees’ wages and salaries o Keep employees’ wages and salaries
o Increase production to take advantage at current levels
of an increase in sales o Decrease or maintain production
o Hire more staff at current levels
o Increase prices o Decrease the size of the workforce
o Expand business o Keep prices at the same level
o Invest in new equipment, technology, o Put a stop to expansion or possibly
or assets chose some locations
o Maintain current equipment,
technology, or assets.

There are four main key business functional areas – operations, marketing, finance, and human
resources. Some of the key issues, processes and strategies related to running a business have been
categorised under these functional areas and are summarised in the following graphics.
Topic 4: Promoting and Selling

The selling process

 outline key features of the selling process, including:

 how businesses differentiate products
 the social, ethical, and environmental considerations involved when promoting
products

What is product differentiation?

When products that are same or similar are made to appear different and/or better than those of their
competition. Examples include:
o Jeans from Target v Levies Jeans
o Coca Cola soft drink v home brand soft drink
o Apple smart watch v a G-shock watch
o Mercedes Benz car v Toyota Corolla

Factors which differentiate products

1) Customer service

- Consumers expect a high level of customer service. Ore-ales and after sales service are
very important to consumers purchasing expensive items such as cars or electrical
appliances
- Services may also include the presentation of the premises, the atmosphere, or the range
of products that set a business apart and capture the consumer’s interest.

2) Convenience

- Consumers are busy so they will often select products that are convenient to use such as
prepared meals as they have no time for their own meal preparation.
- Food manufacturers have developed a range of convenience good products. The packaging
an cooking requirements are designed to make the preparation as convenient as possible.

3) Environmental issues

- Businesses that create pollution may risk losing customers, whereas businesses that adopt a
‘green’ philosophy and produce environmentally friendly products may see their sales
increase.
- For example, the body shop us committed to producing products that are sensitive to
environmental concerns. It sells all its products in reusable or recyclable containers, many
of which are reifiable.

4) Social and ethical issues

- A growing number of consumers are becoming more ethically minded and will actively
purchase products or brands that they believe do not exploit workers, producers, or the
environment.
- Ethical consumerism provides a business with opportunities to satisfy the demands of
this growing number of consumers. For example:
 o in response to the dislike of genetically modified (GM) foods by some consumers,
various producers are labelling their products as GM-free
o the Fairtrade Certification system is gaining influence, with more consumers choosing
to buy products carrying the FAIRTRADE Certification Mark, ensuring minimum prices,
fair labor practices, sustainable production, and an additional premium for community
development
o the cosmetic industry is delivering more natural products that are not tested on animals.

5) Value of money
- As a consumer, you want the best value for your money. To satisfy this requirement, sellers
will offer and promote a range of products at different process.

Product positioning

- Closely tied to product differentiation is the practice of product positioning. This refers to
the creation of a product image in the minds of consumers compared with the image of
competing products.
- Some brand names, such as Rolex, Ferrari and Louis Vuitton, can immediately suggest an image
of the product’s quality. This image gives the product its position within the market.
- In highly competitive markets, businesses will attempt to create an image that differentiates
their product.

 the nature of product promotion, eg the role of gender

Role of gender in product promotion

- Males and females are frequently portrayed in advertising in ways that appeal to certain
sections of the population.
- Often this reinforces existing ideas about the sexes and their relationships.
- This occurs because advertising often involves the use of stereotypes- exaggerated pictures
or images of particular groups.
- Stereotypes are often applied to the sexes.
- For e.g.
o In childhood, all girls love dolls and all boys love toy cars and guns.
o Women are portrayed as beautiful, tall and thin. Men are portrayed as wealthy,
good looking, well dressed and athletic.