Apuntes Unit 2 PDF

UNIT 2.
Page 1
ECONOMICS 4TH ESO

IES
UNIT 2. Pedro de Luna
BUSINESS Zaragoza
INDEX:
1. What is a business
a. Entrepreneurship
b. Business start-up
2. Types of business
2.1.- Types of business by size
2.2.- Types of business organisation
1. Sole trader
2. Partnership
3. Incorporated: private and public limited companies
4. Franchises
5. Joint ventures
6. Social enterprises: cooperatives
7. Public corporations
3. Corporate Social Responsibility
4. Production and productivity
4.1. Factors of production, labour-intensive production and capital intensive production
4.2. Productivity
4.3. How productivity can be increased?
5. Revenues, costs and profits
a. The break-even
6. Source of finance
7. Taxes
c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

www.iespedrodeluna.es  iespluzaragoza@educa.aragon.es
UNIT 2. Page 2
1. WHAT IS A BUSINESS
http://www.bbc.co.uk/education/guides/zrvb9j6/revision/1
A business is any organisation that makes and provides goods or provides services to safisfy customer
needs that are wants and desires of buyers..
Goods are physical products such as burgers or cars. Services are non-physical items such as
hairdressing.
There are many types of business in the UK. These range from small firms owned and run by just one self-
employed person, through to large companies which employ thousands of staff all over the world.
Nearly half a million businesses start up each year. A business start- up is a new firm operating in a market
for the first time.
The vast majority of businesses are very small and operate in the service sector.

UNIT 2. Page 3
Suppliers, customers and markets
Businesses buy the products they need, INPUTS, from suppliers – firms selling products to other
businesses - and sell their products, OUTPUTS, to customers. The individual who uses the product is called
a consumer. Sometimes the customer and consumer are different people - for example, parents buy a pen
for their child to use at school.
Businesses sell to customers in markets. A market is any place where buyers and sellers meet to trade
products - this can be a high street shop or a website.
Businesses are likely to be in competition with other firms offering similar products.
Adding value
In order to create goods and services, a business buys or hires inputs such as raw materials, equipment,
buildings and staff. These inputs are transformed into outputs called products. These products are the
goods and services used by consumers. Production is the business activity of using resources to make
goods and services.
A business adds value when the selling price of an item produced is higher than the cost of all the
resources used to make it. Think of a pair of designer sunglasses which sell for £100. If the cost of the
materials, employees, marketing and all other inputs used in making one set of sunglasses is just £20, then
£80 worth of value has been added by the firm during production.
Primary, secondary and tertiary sectors
There are three main types of industry in which firms or businesses operate. These sectors form a chain of
production which provides customers with finished goods or services.
 Primary production: this involves acquiring raw materials. For example, metals and coal have
to be mined, oil drilled from the ground, rubber tapped from trees, foodstuffs farmed and fish trawled.
This is sometimes known as extractive production.
 Secondary production: this is the manufacturing and assembly process. It involves converting
raw materials into components, for example, making plastics from oil. It also involves assembling the
product, eg building houses, bridges and roads.
 Tertiary production: this refers to the commercial services that support the production and
distribution process, eg insurance, transport, advertising, warehousing and other services such as
teaching and health care.

UNIT 2. Page 4
The chain of production shows interdependence: firms rely on other businesses in different sectors for raw
materials, components or distribution.
Entrepreneurship
An entrepreneur is an individual who has an idea for a business (a good or a service) and put it into practice,
taking the financial risk of starting and managing the new business.
Characteristics of successful entrepreneurs:
They are innovative, self-motivated and determined, self-confident, multi-skilled, leadership qualities, they
have initiative, they are focused on achieving results, risk-taker and good at networking.
ACTIVITY
Watch the following videos and answer those questions:
WHAT IS AN ENTREPRENEUR?
DOES AN ENTREPRENEUR FOLLOW “The 10 Habits Of All Successful People”?
SELECT A FAMOUS, SPANISH OR FOREIGN, ENTREPRENEUR AND WRITE A SHORT

BIOGRAPHY ABOUT HIM/HER. (How did he/she start in business? What business dis he/she start
and why? What qualification and work experience did he/she have before going into business?
https://www.youtube.com/watch?v=DPR3p3EJADo Entrepreneur - Motivational Video
https://www.youtube.com/watch?v=Dk20-E0yx_s
Business start-up
A newly formed business. They usually start small, but some might grow to become much bigger.
Governments support them because they are important to most economies throughout the word since they
create jobs.

UNIT 2. Page 5
2. TYPES OF BUSINESSES
2 . 1 . - T Y P E S O F B U S I N E S S B Y
S I Z E
In the European Union the criteria for defining the size of a business differs from country to country
but it depends on the following criteria (at least 2 criteria must be accomplished):
1) The number of EMPLOYEES = WORKERS
2) The TURNOVER “CIFRA DE NEGOCIO”
VALUE OF SALES = SALES FIGURE “cifra de ventas”
TOTAL REVENUE “total ingresos” = quantity of good sold * Price
3) The BALANCE SHEET TOTAL = THE CAPITAL EMPLOYED = “cifra de activo”
It is money invested in those productive assets in a firm that help it generate revenue such as
machinery, office buildings, stocks of materials, money held by a firm to pay wages,…
4) MARKET SHARE “cuota de Mercado”
It is the percentage of all the sales made by a company.
For example, in 2008 global consumer spending on fizzy soft drinks was $146 billion. Coca-
Cola sold the most, earning it almost $69 billion in revenue. This means it had a significant
47% share of the global fizzy soft drink market.
ACTIVITY: SMALL AND MEDIUM BUSINESS BREATHE LIFE INTO ECONOMY
Answer the questions and complete the table with the information in the video:
https://www.youtube.com/watch?v=0FXC4DUHEGo

UNIT 2. Page 6
Answer the questions:
a) How are called the Micro, Small and Medium enterprises?
b) Why are they so important?
c) How many SMEs are there in Europe? How many people they employ?
d) What percentage of companies in EU are SMEs? What percentage of turnover do they

generate?
e) What are their advantages?
Complete the table:
Kind of business Features
Number of Turnover Balance sheet total (capital

employees employed or invested in productive
assets in a firm)
Micro ≤ €2 million
≤ €10 million
Small
≤ €43 million
Medium
> €43 million

Large

UNIT 2. Page 7
2 . 2 . - T Y P E S O F B U S I N E S S
O R G A N I S A T I O N
KEY TERMS:
Unincorporated business: a business that does not have legal identity separate from its owners. The
owners have unlimited liability for business debts.
Shareholder: a person or organization who owns shares in a limited company.
Unlimited liability: if an unincorporated business fails, then the owners might have to use their personal
wealth to finance any business debts.
Limited liability: the shareholders in a limited liability company which fails only risk losing the amount
they have invested in the company and not any of their personal wealth.
Private limited company: often a small to medium-sized company; owned by shareholders who have
limited liability. The company cannot sell its shares to the general public.
Public limited company: often a large company; owned by shareholders who have limited liability. The
company can sell its shares to the general public.
Dividend: a payment, out of profits, to shareholders as a reward to their investment.
Equity: the finance that a business receives from the shareholders.
Loan Capital: the finance that a business receives from banks and lenders.
Assets: goods and equipment a business needs to run its activity.
Business organisations in the private sector are defined by their legal structure. They are the following
types:

UNIT 2. Page 8
1. SOLE TRADER
Definition: it is a business that is owned and controlled by just one person who takes all of the risks
and receives all of the profits. They are the most common form of business organization found in
countries throughout the world. There is no a capital needed to set up the business.
Example: a local florist or a plumber. They are common in industries such as agriculture, retailing,
catering and construction.
Reasons to choose to become sole traders:

 To be their own boss and make their own decisions
 To decide when and how many hours to work
 To have a business that uses their skills and interests.
Advantages of a sole trader:

 It is quick and easy to set up.
 The sole trader makes all of the decisions so has complete control over the business.
 The business can often be set up with a small amount of start-up capital. For example,
someone setting up a window cleaning business may only need to buy a ladder, bucket,
detergent and cloths.
 The owner keeps all the profit.

UNIT 2. Page 9
Disadvantages:
 Unlimited liability for the debts of the business, so he or she risks losing their personal wealth to
pay for these.
 It is often difficult to raise funds to expand the business.
 As small business, it is difficult to compete with larger firms in the same industry.
 Owners often lack some of the essential business skills needed for running a business, such as
financial management. This is one of the main reasons for the failure of sole trader business.
 Sole traders often have to work very long hours to make a living from their business.
2. PARTNERSHIP
Definition: it is a business formed by two or more people who will usually share responsibility for the
day-to-day running of the business. Partners usually invest capital in the business and will share profits.
There is no a capital needed to set up the business.
Example: It is very popular with professions such as accountancy, law and dentistry.
Advantages of a sole trader:

 It is easy to set up. The partners may sign a legal agreement known as a Deed of Partnership.
This document sets out the rights and obligations of each partner.
 Decision-making is shared and can often lead to better decisions.
 Partnerships usually have greater access to finance than sole traders as there is more than one
person investing capital in the business.
 The management and day-to-day running of the business is also shared, which reduces the
workload for individual owners.

UNIT 2. Page 10
Disadvantages:
 The partners must share profits.
 The partners usually have unlimited liability for the debts of the business.
 If one of the partners leaves then the business ceases to exist and will need to be reformed it
the other partners want to continue trading.
 Decisions bind on all the partners, even if they don’t agree to them.
 Partnerships are often fairly small business and, like sole traders, find it difficult to raise
additional finance to expand the business.
ACTIVITY
Chata is a sole trader. He owns a bakery which supplies bread products and cakes to local
supermarkets and independent retailers. His cakes are very popular. In recent months Chata
has had to turn down orders from existing customers because he is unable to produce
enough cakes with the equipment he has available. Chata was discussing his problems with
Juma, an old friend from catering college.
Juma is looking to start his own business making chocolate. He has suggested to Chata
they go into partnership. Chata has $10,000 to invest in the business, which he says can be
used to buy additional equipment for Chata’s bread and cakes, but also for Juma’s
chocolate production.
Discuss the advantages and disadvantages to Chata of entering into partnership with Juma.

UNIT 2. Page 11
3. Incorporated: PRIVATE AND PUBLIC LIMITED COMPANIES
Sole traders and partnerships are unincorporated business, which means that the owners are
responsible for the debts of the business. They have unlimited liability. Another form of business
organisation is the limited company. The advantage of this type of business over a sole trader or
partnership is that the people who run the business are not responsible for the business’s debts. A
limited company is owned by its shareholders. These are investors who invest money in the company in
exchange for shares.
Characteristics:
 Legal documents, including Articles of Association and a Memorandum of Association, must be

completed when setting up the business.
 Shareholders invest their capital by purchasing shares in the company. They are the owners of
the company.
 Profit is shared between the shareholders through the payment of dividends.
 Shareholders vote on major decisions taken by the company.
 Shareholders have limited liability. If the business fails, they risk losing the value of their shares
– that is the amount of money they have invested in the company.
 The business continues even if one or more shareholders die.
 The company can raise finance by selling shares.
 End of year financial statements must be produced and submitted to the correct authorities. The
company’s financial accounts are available for the public to look at.
Differences between private and public limited companies:
Private limited company Ltd Public limited company Plc

Minimum 3,000 € 60,000 €
capital needed
to set up in
Spain
Owners Usually a very small number of Usually a very large number of
shareholders. Often members of the shareholders
same family or friends
Size Usually fairly small Most common, very large
Sale of shares Can only be sold privately, often to Can be offered to the general public
by the family members, friends or employees
company
Sale of shares Often difficult to sell as must be sold Quick and easy to sell as they can be
by privately and with the agreement of offered for sale to the public, so it can be
shareholders other shareholders raised very large sums
Control Ownership is not separated from control Ownership and control are separated.
The Board of Directors appointed by
shareholders at the Annual General
Meeting control major decisions

UNIT 2. Page 12
Disadvantages It may be difficult to raise additional The legal formalities of setting up ara very
capital as shares cannot be sold to the costly.
general public. Director’s decision-making is sometimes
influenced by major investors who seek to
satisfy their own objectives. For example,
major investors might demand the
directors pay higher dividends than they
had planned. This reduces the profit
available for reinvestment into the
company
ACTIVITY. Chata and Juma – their story continues!
After considering the advantages and disadvantages of entering into partnership with Juma,
Chata decided it was the only way he was going to be able to expand his bakery business.
Juma not only brought much needed capital to the partnership, but also brought many
ideas too. The business, which they now call Chaju Bakery and Confectionery Products
(CBCP), has been very successful, so successful that the partners are considering further
expansion. They plan to open their own retail outlets for the products they currently
produce and new ones which they hope to manufacture when they move to larger premises.
Chata and Juma realize that they need to raise additional finance for the expansion. Chata’s
father and Juma’s sister are both keen to invest in CBCP. However, the two potential
investors are worried about the unlimited liability they will have if CBCP remains a
partnership. Chata and Juma do not want to risk losing the capital their family members are
prepared to invest in the business, so are considering becoming a private limited company.
Identify and explain three possible advantages and three possible disadvantages to Chata
and Juma of CPCP becoming a private limited company
4. FRANCHISES
Definition: It involves an agreement by one company to another business organization to permit the
distribution of its goods and services using its trademark or brand name. To buy a franchise, a
franchisee will have to pay an initial fee to the franchisor and a monthly or annual percentage from
revenues or profits. The bigger and better known the franchise, the higher these fees are likely to be.
Members:
 The franchisor is an existing, usually well-known company with an established identity,
market and brand name for its product.
 The franchisee is a sole trader, partnership or limited company that buys the right to use
the business name, brand name, production methods and promotional materials of the
franchisor.
Example: McDonald’s is one of the largest and well-known franchising companies in the word. It has
more than 32,000 fast food service restaurants worldwide in over 118 countries. Around 75% of its
restaurants are owned and operated by independent local business owners who have bought the right
to advertise, produce and sell McDonalds food products. Others: 100 montaditos, Fotoprix,…

UNIT 2. Page 13
Advantages :
 For the franchisor: It offers a quick and easy way to expand the business, sales and market
share.
 For the franchisee: It reduces the risk of business failure because it is an established product.
Disadvantages :
 For the franchisee: The fees and ongoing payment. Most decisions are taken by the franchisor.
 For the franchisor: If the franchisee fails to maintain a good-quality product and level of service
could damage the reputation of the entire business

UNIT 2. Page 14
5. JOINT VENTURES
Definition: It is an example of cooperation between companies. Two or more business agree to work
together on a project and set up a separate business for this purpose.
Advantages:
 It reduces the risk for each business and cuts costs.
 Each business brings different expertise to the joint venture.
 Market and product knowledge can be shared to the benefit of the joint venture.

UNIT 2. Page 15
Examples:
 Sony Corporation, one of the best known Japanese consumer electronics company, and
Ericsson, the Swedish telecommunications company. Both joined to make mobile phones. The
joint venture brought together Sony’s consumer electronics expertise with Ericsson’s
technological leadership in the communications sector.
 In 2007 Virgin Group announced a joint venture with Tata Group in India. The 50-50 joint
venture combined the large network and customer base of Tata TeleServices with Virgin
Mobile. This enabled Virgin to enter a very profitable mobilie phone market, which was the
fastest growing in the world at the time. As part of the deal, Virgin committed to use its
marketing expertise to target the youth of India, using the slogan “Hop to the Hatke Service” –
Hatke is the Hindi for “different”, “off beat” or “not mainstream”.
6. SOCIAL ENTERPRISES: COOPERATIVES
Definition: A cooperative (also known as co-operative, co-op, or coop) is "an autonomous association
of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations
through a jointly-owned and democratically-controlled enterprise, that means one shareholder one
vote".
Types:
 Consumer cooperative: businesses owned and managed by the people who use their services,
e.g. El Bisaltico, the owners decide what types of goods to stock or sell,…
 Worker cooperative: organisation managed by the people who work there, e.g. La Birosta
 Housing cooperative: organisation managed by the people to whom they provide
accommodation
 Farming cooperative: farmers that have common interests such as buying seeds, selling
products at the best possible price,…, e.g. Cooperativa Virgen de la Oliva in Ejea
Examples: Mondragon Co-operative in the Basque region of Spain. This is an association of co-
operatives which employs about 100000 people. It includes banks, retailers and industrial producers as
well as the University of Mondragon.
ACTIVITY. Video www.mondragon-corporation.com
Answer the following questions:
1) Tell something about its history
2) Which are its main principles?
3) Which companies belong to the group?

UNIT 2. Page 16
7. PUBLIC CORPORATIONS
Definition: They are business owned and controlled by the state.
Characteristics:
 They are financed mainly through taxation.

 Many times they have social objectives rather than profit objectives.
 The services provided are often free or at a low price.
Social objectives:
 To provide a service to the public and meet the needs of the less well-off in the population.
 To make sure that important activities that affect the whole nation are carried out well.
 To preserve jobs.
 To provide services to locations where it is not economical to provide them, such as water
supplies to areas of water shortage.
 To reduce wasteful competition, for example, the government might provide the only electricity
or water supply using one set of cables and pipelines. It exists as a result of the high fixed or
start-up costs of operating a business.
Examples:
 Municipal water company

 Aena
 Renfe
 British Broadcasting Corporation (BBC)
 Indial Railways
Privatisation vs Nationalisation
 Privatisation: selling a public corporation to shareholders.

o Advantages: better management?.
o Disadvantages:
 Future loss of revenues for the state.
o Example: Telefónica
 Nationalisation: when a business or industry is taken over by the government

o Advantages: public control of the service
o Disadvantages: The lack of competition can lead to higher prices
o Example: Repsol YPF in Argentina
ACTIVITY. According to the text, answer the following question:
1) Why do you think Indian Railways is run as a public corporation rather than as a private
sector business?

UNIT 2. Page 17
3. CORPORATE SOCIAL RESPONSIBILITY (CSR-RSC in

Spanish)
Nowadays, many business take an interest in social, ethical and environmental issues and the
impact that their decisions and activities may have on employees, customers, the community and
the environment.
Consequences: Businesses that ignore their social responsibility run the risk of bad publicity because
the greater awareness of social, ethical and environmental concern among consumers. Also because
possible legal action. Both can affect the reputation, sales, revenue and profits of business.

UNIT 2. Page 18
SOCIAL:
Non-toxic materials
Safety
Community and labour benefits
CSR ENVIRONMENTAL
Packaging
Recycle
Sustainable
ETHICAL:
No animal testing
No labour explotation
Fair-trade
Business activity can have costs and benefits such as:
SOCIAL COSTS SOCIAL BENEFITS
ENVIRONMENTAL COSTS: e.g. pollution from TAXES on business’ profits help pay for
industry can lead to anything from a local government services like schools, hospitals,..
nuisance to climate change
NON-RENEWABLE resources: e.g. oil, coal, JOBS that business provide

iron,.. If these run out, there’s no way we can
replace them
HARMFUL TO PEOPLE’S HEALTH: e.g. tobacco ESSENTIAL SERVICES that business provide to
and alcohol, chemical products that can provoke society such as transport services, electricity,
cancer heath, security, happiness,…
ETHICAL questions such as EXPLOTATION AND

CHEAP LABOUR or ANIMAL TESTING

UNIT 2. Page 19
ACTIVITY: CSR Starbucks
According to the link: https://www.youtube.com/watch?v=Nly_OdvORQY answer the following

questions:
1) In which year did Starbucks start?
2) How many partners started the company?
3) In what country was he inspired to reformulate the company when he joined the company?
4) When was the company public (a Public Limited Company)?
5) How many stores are there today, in how many countries and how many costumers?
6) Is it the same logo, the same coffee and the same experience in different countries?
7) What areas does Starbucks buy coffee?
8) What is the coffee capital today and they have placed a company that buys coffee?
9) What aspects of CSR does Starbucks work?
10) What is the main cause of the crisis in the coffee industry?
11) What is buying program about?
12) Are profitability and social responsibility exclusive?
4. PRODUCTION AND PRODUCTIVITY
4.1.- FACTORS OF PRODUCTION, LABOUR-INTENSIVE PRODUCTION AND CAPITAL

INTENSIVE PRODUCTION
Remember, factors of production are labour, land, capital and enterprise. There are combined to
produce goods and services. The objective of any business will be to maximize output and to minimize
cost and how this is actually done may vary from one industry to another.
The combination of the factors, specially labour and capital, depends on a number of influences,
especially the availability of different factors, their cost and their relative efficiency or productivity.

UNIT 2. Page 20
LABOUR-INTENSIVE PRODUCTION
It employs a high proportion of labour in the production

process. For example, much of the textile industry in
Bangladesh is labour-intensive. This is largely because
there is an abundance of labour and so the cost of
labour is relatively cheap.
Labour-intensive production can be very flexible

because production can be increased through the use of
overtime and/or employing temporary staff. If production
has to be decreased, workers can be laid off for a
certain period of time.
Labour-intensive production is particulary associated with countries which have a large population, such
as China (1.4 billion), India (1.2 billion), Indonesia (230 million), Brazil (200 million), Pakistan (190
million), Bangladesh (170 million) and Nigeria (160 million).
CAPITAL-INTENSIVE PRODUCTION
It employs a high proportion of equipment and

machinery in the production process. There is likely
to be a high level of automation, with production on a
relatively large scale and use the division of fabour.
Automated factory machines are able to produce a
large output at a lower unit cost.
The Japanese car industry is an example of a highly

capital-intensive production process.
This is usually a sign of the development of an

economy, with labour being replaced to some extent
by machinery and equipment, leading to a more efficient and productive process of productions.
Machines are able to work 24 hours a day, 7 days a week, they don’t become ill, they don’t go on
holiday,…
Capital machinery and equipment is generally seen as a long-term investment, but over a period of time
the machinery and equipment will wear out and will need replacing. This wearing out of capital is
knowns as depreciation.
DID YOU KNOW? In 1963, nearly 30,000 workers worked at the car factory in Cowley, Oxford. Fifty
years later, in 2013, only 6,000 workers were employed and yet the 6000 workers were able to produce
more in 2013 than the 30,000 workers in 1963. This is due to the very capital-intensive nature of the
production process, such as the use of robotic welders.
ACTIVITY: Video “El motor de Aragón”, UNIDAD MOVIL. ANTENA ARAGON
Watch the video in the link: https://www.youtube.com/watch?v=eCipJM7L61U&t=164s and write

a short composition about the main ideas developed in the documentary.

UNIT 2. Page 21
4.2.- PRODUCTIVITY
Definition: It is a measure of the output (goods and services) that can be obtained from a given amount
of input (land, labour and capital resources).
Pay attention PRODUCTION ≠ PRODUCTIVITY
Example: If 10 employees can produce 100 units of output in an hour, the productivity is 10 units per
employee/hour.
Formula
Productivity = Output / Input
Increase of productivity = ( P1 – P0 ) / P0 * 100

(P1 : productivity year 1, P0 : productivity year 0)
Working with old machinery Working with new machinery

Number of employees 10 10
Hourly output 100 200
Productivity per employee in 10 20
real terms (per hour)
Increase of productivity = ( 20 – 10) / 10 * 100 = 100%
Exercise
1. Ten workers can produce 120 units of a product in an hour. If the output of the workers
increases to 150 units per hour, what will be the impact on productivity?
2. Calculate the labour productivity for Company A and company B according to the following
figures:
COMPANY A COMPANY B
Units produced per week 8,000 9,600
Number of workers 25 40

UNIT 2. Page 22
4.3.- HOW PRODUCTIVITY CAN BE INCREASED?
CONCERNING THE LABOUR:
1) Thanks to the division of labour: each worker specializes in carrying out one particular task or
operation in a production process.
Henry Ford created the taylorism. In the early days of the

motor car industry one employee would put together an entire
engine. Then Henry Ford decided to divide up the work
involved into 84 varied operations, so that 84 employees were
needed to build a whole engine instead of just one person.
However, it meant many more engines could be built each day.
2) Training workers to improve their existing skills and

learn new skills.
3) Rewarding increased productivity with performance-related pay and bonus payments.
4) Encouraging employees to buy shares in their organization => improved productivity will help to
raise profits and pay higher dividends on shares.
5) Increasing job satisfaction, for example by improving the working environment, making jobs
more interesting, introducing more team working, involving workers in business decision making
and giving regular feedback on performance.
CONCERNING TECHNOLOGY:
1) Replacing old plant and machinery with new, more efficient machines and tools for workers to
use. Speed, quality will increase and waste will be reduced
CONCERNING ORGANISATION:
1) New methods and management to reduce times, to help to produce more, better and more
quickly.

UNIT 2. Page 23
5. REVENUES, COSTS AND PROFITS
Producing goods costs money. A business enterprise, for example, needs to buy materials, pay wages
and spend money on marketing the finished product.
Costs are divided between fixed and variable.
FIXED COSTS are costs that have to be paid whether the business is producing nothing or thousands
of units.
They include items such as rent, rates and interest on money borrowed, which are not related to how
much is produced.
VARIABLE COSTS increase directly as output increases.

They include costs of raw materials,…
ACTIVITY 1: Khaliq, the owner of the Casual Shoe Company (TCSC) knows that it is important to
classify costs properly when making business decisions. He has asked you to help him classify the
following costs.
FIXED VARIABLE FIXED VARIABLE
Factory rent Advertising
Leather used in Production

making shoes workers’ wages
Machinery Safety equipment

maintenance
Electricity used to Operation

power machinery Manager’s salary

UNIT 2. Page 24

UNIT 2. Page 25
ACTIVITY 2: The following are the costs of the Casual Shoe Company at different levels of
output. They sell any pair of shoes at $30. Complete the table
OUTPUT (pairs of FIXED VARIABLE COSTS TOTAL AVERAGE PROFIT

shoes) COSTS ($3 per pair of COSTS COST
shoes)
0 2,000
1,000
2,000
3,000
4,000
ACTIVITY 3: EasyAir is a budget airline operating internal flights in Tanzania. One of its most
popular routes is Dar es Salaam to Kilimanjaro. Each aircraft used on this route has a capacity
for carrying 140 passengers. The average price for a one-way ticket is $220. All passengers,
adults and children, must pay the same ticket price. EasyAir’s fixed costs for a single journey
are $14,000. The variable cost per passenger is $10.
The number of flights and the passengers carried by EasyAir on this route during the first two
quarters of 2013 is shown in the table below.
Number of flights Total passengers

carried
January-March 25 1,925
April-June 38 4,408
1. What is meant by “fixed costs”
2. Calculate the average number of passengers per flight for the first quarter of 2013
3. The average number of passengers carried on a flight in the second quarter was 116.
Calculate:
a. The total variable cost per flight
b. The total cost per flight
c. The average cost per passenger per flight
d. The benefit per flight
THE BREAK-EVEN
UNIT 2. Page 26
Definition: It is the level of output which, if sold, will generate a total revenue that will exactly equal total
cost. So at this level of output a business will neither make a profit or a loss.
Quantity in which total revenue = total cost => no profit or loss
Example:
Geoff Watt has a production and sales target for Bright Lights of 6,000 light bulbs per month. He wants
to know if this level of output will be enough to cover his costs and make his business a healthy profit.
He would also like to know what is the minimum number of light bulbs he must produce and sell each
month if things go wrong, so that he can just cover his costs and stay in business. To do this he must
use break-even analysis.

UNIT 2. Page 27
ACTIVITY: BREAK-EVEN
6. SOURCES OF FINANCE

UNIT 2. Page 28

UNIT 2. Page 29
ACTIVITY: SOURCES OF FINANCE. c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635
Complete the following tables.
UNIT 2. Page 30
Firms need finance to:
1)
2)
3)
COMPLETE THE TABLE SMALL BUSINESS
Name in Short/long Source of start- Who gives money Features

Spanish term of up finance
debt
Subvención GRANTS EU, local and No cost

national
They don’t have to be
government,
repaid
charities,…
COMPLETE THE TABLE LARGE BUSINESS
Name in Source of start- Who gives money Features

Spanish up finance

UNIT 2. Page 31
Reservas RETAINED The own firm Some profits must plough back into
PROFITS the business (minimum 10% legal
reserve). The rest of profits:
dividends or more reserves.
A company needs DIFFERENT SOURCE OF FINANCE depending on several FACTORS:
FACTOR EXAMPLE
7. TAXES
Taxes are used by governments to pay for investments they make in public services such as education,
health or infrastructures. Businesses pay different taxes such as:

UNIT 2. Page 32
1. Direct tax: they are taxes charged on the profit made or on their properties. The burden can’t
be shifted by the taxpayer to someone else.
Examples of direct taxes payed by businesses: Income tax, corporation tax or property tax.
Taxes charged on profits:
 Sole traders pay INCOME TAX, IRPF in Spanish. The amount of income tax rate
charged depends on the amount of income or profit made by the sole trader. The higher
income, the higher income tax rate, so it is progressive.
 Incorporated companies pay CORPOTATION TAX, IS in Spanish. It is the tax paid by

business on the profits they make. The corporation tax rate is the same for every
company.
Taxes charged on properties:
 PROPERTY TAX, IBI in Spanish. It is paid only if the business owns a property such a
factory, a building, an office, etc
2. Indirect tax: they are taxes charged on the price of goods and services, whichis added to the
price of goods and services before they are bought.
Examples of indirect taxes payed by businesses: Income tax, corporation tax or property tax.
Taxes charged on the price of goods and services:
 VAT (VALUE ADDUED TAX), IVA in Spanish. Although consumers bear the weight of
the tax, it is collected by business, so they are businesses who deposit it into the tax
office. They are different tax rate depending on the kind of product.

UNIT 2. Page 33
ACTIVITY: TAXES: LOW RATES AND TAX AVOIDANCE.
WORLD REPORT BUSINESS -- BBC WORLD SERVICE
APPLE’S $14,5 BILLION TAX BILL (until minute 7)

Complete the following tables.
1) Who has decided the penalty?
2) Who is the penalty against? Why?
3) Which is the official rate of tax in Ireland? Which rate has paid Apple in the recent years?
4) In the enquiry, the higher profit of Apple has been made in which headquarter ?
5) Tell if the next statements are True or False:
a. The Irish government says that the agreement with Apple is perfectly legal
b. The American government is very happy with this fact
6) Which American companies are involved in tax avoidance?
7) Why this fact is not going to damage investment in Europe?
8) Are you for or against tax avoidance?


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UNIT 2.

ECONOMICS 4TH ESO

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

Suppliers, customers and markets

Primary, secondary and tertiary sectors

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

Characteristics of successful entrepreneurs:

Watch the following videos and answer those questions:

DOES AN ENTREPRENEUR FOLLOW “The 10 Habits Of All Successful People”?

SELECT A FAMOUS, SPANISH OR FOREIGN, ENTREPRENEUR AND WRITE A SHORT

https://www.youtube.com/watch?v=DPR3p3EJADo Entrepreneur - Motivational Video

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1) The number of EMPLOYEES = WORKERS

2) The TURNOVER “CIFRA DE NEGOCIO”

VALUE OF SALES = SALES FIGURE “cifra de ventas”

TOTAL REVENUE “total ingresos” = quantity of good sold * Price

3) The BALANCE SHEET TOTAL = THE CAPITAL EMPLOYED = “cifra de activo”

4) MARKET SHARE “cuota de Mercado”

It is the percentage of all the sales made by a company.

ACTIVITY: SMALL AND MEDIUM BUSINESS BREATHE LIFE INTO ECONOMY

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

Answer the questions:

a) How are called the Micro, Small and Medium enterprises?

b) Why are they so important?

d) What percentage of companies in EU are SMEs? What percentage of turnover do they

e) What are their advantages?

Complete the table:

Kind of business Features

Number of Turnover Balance sheet total (capital

> €43 million

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

Shareholder: a person or organization who owns shares in a limited company.

Dividend: a payment, out of profits, to shareholders as a reward to their investment.

Equity: the finance that a business receives from the shareholders.

Assets: goods and equipment a business needs to run its activity.

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Reasons to choose to become sole traders:

Advantages of a sole trader:

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Advantages of a sole trader:

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

3. Incorporated: PRIVATE AND PUBLIC LIMITED COMPANIES

 Legal documents, including Articles of Association and a Memorandum of Association, must be

Differences between private and public limited companies:

Private limited company Ltd Public limited company Plc

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ACTIVITY. Chata and Juma – their story continues!

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c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

6. SOCIAL ENTERPRISES: COOPERATIVES

ACTIVITY. Video www.mondragon-corporation.com

Answer the following questions:

1) Tell something about its history

2) Which are its main principles?

3) Which companies belong to the group?

c/ Universidad 2-4  50001 Zaragoza  tfno 976290249  fax 976203635

Definition: They are business owned and controlled by the state.

 They are financed mainly through taxation.

 Municipal water company

 Privatisation: selling a public corporation to shareholders.