Enterprise, Business and the Economy

What Enterprise, Business and the Economy covers

Enterprise, Business and the Economy is examined in Paper 1, Markets and how they work, and in Paper 3, The economic environment and business. It covers the entrepreneur and creative destruction, adding value, entrepreneurial motives, factors of production, division of labour and specialisation and the wider economic environment and the firm.

The 6 subtopics

Each one has its own page.

• The entrepreneur and creative destructionThe entrepreneur, creative destruction and Schumpeter, its benefits for living standards and cost to workers, the risks of starting a business, the entrepreneur as residual claimant, start-up decisions, organic growth and expansion, entrepreneurs against salaried managers, the opportunity cost of self-employment, and business failure.Open →
• Adding valueAdding value and the formula for value added, calculating it for a manufacturer and a bakery, why value added is not profit, ways to add value through branding and speed of service, adding value without raising price, the value chain, primary producers against manufacturers, and profit margins.Open →
• Entrepreneurial motivesProfit as an incentive and its role in allocating resources, normal and supernormal profit, social entrepreneurs and the aims of a social enterprise, an ethical stance and its commercial risk, independence, home working, why non-financial motives still need a surplus, job satisfaction, and capital gains.Open →
• Factors of productionThe four factors of production, land, capital, labour and enterprise and the reward to each, factors against inputs, fixed and working capital, choosing premises, raw materials against capital equipment, human capital, substituting equipment for labour, and how a shortage of one factor limits output.Open →
• Division of labour and specialisationThe division of labour and Adam Smith's pin factory, its advantages to employers and disadvantages to employees, its hidden costs and vulnerability to disruption, reducing demotivation, the advantages and disadvantages of specialisation to a firm, the size of the market, exchange and money, and regional and overseas dependence.Open →
• The wider economic environment and the firmHow interest rates affect investment and highly geared firms, depreciation of the pound and its effect on exporters and importers, corporation tax, employer National Insurance and VAT, rising unemployment and a firm's recruitment and sales, inflation and costs, and the calculations for each.Open →

What you need to know

Answer each one before you reveal it.

Take Enterprise, Business and the Economy further

The same content, four other ways.

Commonly confused

Pairs that lose marks when they are blurred together.

• Value added vs Profit

  Value added: sales revenue less the cost of the goods and services bought in from other firms. Profit: what remains of revenue once every cost of running the business, including its own wages, rent and energy, has been met.

• Division of labour vs Specialisation

  Division of labour: breaking a production process into separate tasks, each one carried out by a different worker. Specialisation: a worker, firm, region or country concentrating on a narrow range of tasks or products.

• Normal profit vs Supernormal profit

  Normal profit: the minimum return needed to keep an entrepreneur's resources in their present use, which economists treat as a cost. Supernormal profit: any return above the minimum needed to keep resources where they are, which attracts new firms into the industry.

Questions from this topic

Each one with the model answer underneath.

1. 1

   Define an entrepreneur.

   Model answer

   An entrepreneur is the person who organises the other factors of production into a business and bears the risk of the venture.

2. 2

   What is meant by creative destruction?

   Model answer

   Creative destruction is the process by which innovation creates new products and methods that destroy the market position of established firms and the older ways of producing.

3. 3

   Which economist is associated with the idea of creative destruction?

   Model answer

   Joseph Schumpeter is associated with creative destruction.

4. 4

   Give an example of creative destruction in a consumer market.

   Model answer

   Streaming services displaced high-street film and DVD rental, destroying that business model while creating a new one.

5. 5

   Why can creative destruction raise living standards even though established firms fail?

   Model answer

   The resources released by failing firms are redeployed into more productive uses, and consumers gain better or cheaper products.

6. 6

   What is the main cost of creative destruction to workers?

   Model answer

   Workers in declining industries lose their jobs and can face long-term structural unemployment where their skills do not transfer.

What is inside Levo

Six ways to work the same material.

Enterprise, Business and the Economy revision questions

What does Enterprise, Business and the Economy cover in Edexcel A-Level Economics B?

6 subtopics: the entrepreneur and creative destruction, adding value, entrepreneurial motives, factors of production, division of labour and specialisation and the wider economic environment and the firm. Each one has its own page with questions and model answers.

How is Enterprise, Business and the Economy organised?

By the Edexcel 9EB0 specification, subtopic by subtopic, so it matches the order you are taught it in.