CSEC Principles of Business Study Guide

By Ronaldhino McLean & Neave-Ven Wong

(Good Luck Tmr Guys <3)

Section 3
Establishing a Business

Section 4
Legal Aspects of Business

Section 5
Production

Section 7
Logistics and Supply Chain

Section 10
Technology and the Global Business
Environment
 Section 3: Establishing a Business
Entrepreneurship - The venturing of an individual into starting a business organisation, with
hopes of making a profit

Entrepreneur - A person who brings together the factors of production to produce goods and
services they believe consumers will buy

Functions of an Entrepreneur
- Conceptualising a business idea
- Registering the business organisation
- Sourcing funds for a startup organisation
- Organising/Assembling land, labour and capital
- Operating/Evaluating business performance
- Taking advantage of market disequilibrium
- Responding to consumer needs and desires

Roles of an Entrepreneur in
- Decision-making: conceptualising, planning, accessing financing, organising the factors
of production, operating the business, evaluating, risk-beaking
- Economic development: collaborating, providing goods and services to satisfy citizens,
creating jobs, contributing to nation-building

Characteristics of an Entrepreneur
- Creative: must be able to find unique, innovative solutions to problems
- Risk-taking: must be willing to take calculated risks, such as expending funds in the short
term for eventual success
- Persistent: must be determined despite the likelihood of failure, especially when new
- Flexible: must be able to adapt to unforeseen disasters, adjust plans to fit them
- Optimistic: must be able to envision a bright future for the business, persuade investors of
their plans
- Goal-oriented: must be focused on specific long, medium and short term achievements

Reasons for Establishing a Business

- Financial Freedom: most entrepreneurs are seeking to become financially independent
- Independence: some people want to be their own bosses rather than work for others
- Increased Income: there are fewer limits on how much more an entrepreneur can make
- Supporting Family: entrepreneurs seek this income as a means of taking care of their
families
 - Self Fulfilment: individuals are often driven to meet their goals and become internally
satisfied

Steps in Establishing a Business

1. Conceptualisation - identify problems, recognize opportunities, think of creative solutions
with a profit-motive
2. Research - confirm problems, explore solutions, analyse the possibility of competition,
analyse the probability of profitability
3. Identification of Resources - locate the factors of production (land, labour, capital)
4. Business Plan - conduct feasibility study, analyse solutions in greater depth, explore the
production, marketing and pricing possibilities, project financial performance
5. Acquisition of Funds - raise money to finance the business, crowdfund online, borrow
from family or banks, locate angel investors or venture capitalists
6. Operation of the Business - begin production, maintain resources, track revenue and
expenses

Sources of Information for Conducting Research

a. Primary Sources: obtaining first-hand information that does not already exist through the
use of questionnaires, interviews, observations and product tests
b. Secondary Sources: using information that already exists, like internet searches,
government publications and brochures

Feasibility Study - A report that investigates the potential of a business for commercial or
financial success, which may be done before a business plan, when a business is newly starting,
on a business that is expanding or on a new aspect of an existing business

Significance of Conducting a Feasibility Study

- To ascertain the viability of a business
- To investigate possible costs attached
- To examine possible sources of finance

Business Plan - A document that summarises the aims and objectives of a business, explores the
possibilities for production, marketing and growth, and projects how the business will do
financially

Reasons for Preparing a Business Plan

- To ensure careful research is conducted in the feasibility study
- To impress or attract potential investors
- To investigate the market and identify existing opportunities
- To source financing and guide the operations of the business
- To convince other firms to form strategic alliances with the business
 - To gain the commitment of board members to committing capital to the project

Components of a Business Plan

1. Executive Summary - the introduction to a business, an overview of its purpose and aims
and a summary of the business plan
2. Company History - description of when the business was started, its vision and mission,
assessment of its strengths, weaknesses, opportunities and threats
3. Market Strategy - analysis of the current market conditions, market trends and target
market, strategy for uniqueness from the competition, promoting products and attracting
customers
4. Product and Operating Plans - description of the proposed products, costs of production,
sources and suppliers of resources, consideration of copyrights and patents
5. Manufacturing Plan - outline of methods of production, stages of production,
considerations for legal and ethical compliance
6. Management Plan - breakdown of organisational structure, board of directors and
investor roles
7. Financial Plan - outline of sources of revenue, risks and strategies to mitigate them, the
profitability of the project, break-even analysis and estimated cash flow projections
8. Exit Strategy - means by which investors can retrieve their money after gaining profit

Sources of Capital for a Business

- Accumulated Savings
- Loans from Friends and Family
- Forming Partnerships
- Loans from Banks, Financial Companies and Credit Unions
- Debentures
- Venture Capitalists

Factors Affecting Location of a Business

- Geography: must be well-positioned to recruit staff and attract suppliers
- Availability of Raw Materials: must be in close proximity to natural resources to reduce
transportation and production costs
- Infrastructure: must have up-to-date communication systems and warehouse facilities
- Power: must have reliable, low-cost, energy suppliers
- Health Facilities: must have good health facilities to maintain a healthy workforce

Collateral - Assets that have been pledged by recipients as security on the value of a loan, such
as property, vehicles, natural resources, shares and money

Ethical and Legal Issues to be Considered in Business Startup

 - Employees are to be treated fairly, paid livable wages, have access to redress, and face
good working conditions
- Firms are to use technology responsibly, respect employees’ and customers’ privacy and
abstain from industrial espionage
- Business owners are to facilitate environmental stewardship, care for wildlife and their
natural habitats
- Laws like the Adverse Trade Practices Order make false advertising (false impressions of
products), price-cutting (deliberately underselling competitors) and price fixing
(collusion with other firms to keep prices at a given level) illegal
- Laws like the Occupation Health and Safety Act guarantee a healthy and safe
environment for workers, covering insurance for injuries and safety practices

Local, Regional and Global Rules Affecting Business Startup

- Businesses should be registered in Jamaica under the Companies Act so that business
activity can be monitored by the government for tax compliance and legal guidance
- Anyone handling food must possess a Food Handler’s Permit, to ensure safe hygienic
practices
- Business facilities must be inspected by safety and health officials before operation to
ensure they are in keeping with health protocols
 Section 4: Legal Aspects of a Business
Contract - A legally binding agreement made between two or more persons, intended to create
an obligation between them, which comes after an exchange of promises between the parties, one
making an offer (offerer) and another to whom it is made (offeree)

A contract comes about when

- A offers to make a promise, followed merely by B assenting
- A makes a promise to B, for an act to be performed by B
- A offers a promise in exchange for a promise by B

Features of a Contract
1. Offer and Acceptance: an agreement must exist between parties, whether orally, in
writing or by inference
a. an offer is complete only once it reaches the offeree
b. the offer may be revoked at any time where revocation must be communicated to
the offeree
c. acceptance must be unconditional
d. the offer can only be accepted by the offeree
e. acceptance must be within stipulated time and is affected when the letter is posted
2. Form or Consideration: there must either be form, which includes the formalities of a
contract under seal or consideration, which is the exchange of things of value
a. consideration must be real, lawful and not be in the past,
b. consideration may be executed (performed by one party) or executory (promises
benefits or penalties at a point in the future)
3. Capacity of the Parties: parties must have the legal power to bind themselves to the
contract, i.e. of sound mind, above the age of majority, not under the influence of
substances, not afflicted by mental impairment
4. Legality: must be in compliance with the law
5. Possibility: performance of the contract must be deemed achievable within a reasonable
time frame
6. Genuineness of the Consent of the Parties: there must be an agreement to create legal
relations, entered by virtue of the parties’ own free will
7. Good Faith - there must not be undue influence or duress, mistake, fraud or
misrepresentation

Invitation to Treat - a declaration of intention to offer, or invitation to negotiate or enter into a

contract, which does not constitute the basis for a contract
A contract is void if one of the above conditions is not met. A void contract has no legal effect. A
voidable contract remains in force until it is declared void by an involved party. It may be
deemed voidable if it
- Is entered into by a minor
- Is signed by persons under the influence
- Involves fraud or misrepresentation, whether innocent, negligent or fraudulent
- Is entered into by a person with limited mental capacity

Types of Contract
- Simple
- Specialty

Simple Contract - A simple contract or informal contract is the most common form of contract. It
may be in writing, oral or implied by conduct.

Characteristics of a Simple Contract

- Offer and acceptance
- Competence of parties
- Intention to create legal relations
- Consideration

Specialty Contract - A contract dealing with mortgages, sale of goods, sale of land or insurance.

Characteristics of a Specialty Contract

- All conditions necessary for a simple contract
- Must be in writing
- It must be signed by all parties
- It must be stamped or sealed with an official stamp as a symbol of authority
- Attestation by one or more witnesses is customary but not necessary
- A deed must be delivered by the promisor
- Delivery may be made subject to a condition to be performed later. This is also called an
‘escrow’

Discharge of Contract
- By performance: The contract has been fulfilled in every respect
- By breach: If one party breaks his side of the contract then the other party is discharged
by breach
- By renunciation: If one party refuses to perform the contract or after performing it,
refuses to continue further performance
- By impossibility: When both parties acknowledge that the promise is too absurd to be
capable of performance, or where it is obviously impossible, according to the present
 standard of human achievement, no contract can arise; a contract to do something illegal
is void
- By agreement: accord and satisfaction, waiver, release
- By lapse of time
- Merger
- Bankruptcy
- Death

Remedies for Breach of Contract

- Damages
- Rescission
- Restitution
- Waiver
- Limitation of Liability
- Specific Performance
- Liquidated Damages

Business Document - a document that keeps track of activities within the firm and between the
firms and other business entities

Need for Documentation in Business Transaction

- Allows traders/businesspeople to keep track of transactions, including costs and
quantities of goods sold and to whom
- Give information on supplies, types of commodities and price listings
- Provide information for accounting systems, including the credit and debit position of a
business

Examples of Business Documents

- Stock Card: card that monitors information about the inventory that remains in stock
- Purchase Requisition: request from the stock department to purchase goods in specific
quantities
- Letter of Enquiry: letter of introduction from a prospective buyer requesting general
information about goods
- Covering Letter: supplier’s response to a letter of enquiry, highlighting available goods
and services and the terms and conditions for their supply
- Request for Quotation: request to quote for specific goods
- Quotation: detailed amount of price, terms of delivery and costs of supplying a specific
quantity of a good
- Order: request by customer to be provided with some good or service
- Invoice: sent when goods have been dispatched to the buyer or when the seller requires
that the buyer pay before the goods are sent (proforma)
 - Credit Note: sent when a customer has been overcharged
- Debit Note: sent when a customer has been undercharged
- Receipt: document given for cash payment, including Certificate of Origin (issued by
exporter in the country of origin, of the goods being shipped), Bill of Lading (issued by
the supplier as evidence of the contract of carriage and transfer of title), Shipping Note
(note submitted to the port authority that receives goods), Airway Bill (consigns goods
travelling by air)

Insurance - Insurance is based on the probability of an event happening, and the sole purpose is
to make good losses by providing monetary compensation.

Assurance - Assurance is based on a risk that is bound or known to happen, like death

Principles of Insurance
- Pooling of Risks: to provide a common fund to which people will make contributions
which can be used to make good the loss suffered by its members
- Subrogation: to assume compensation in accordance with the assumption of damages
- Proximate Cause: to pay out compensation only if the loss suffered was caused by the
risk covered
- Indemnity: to restore the insured to where he or she was before the loss or damage
occurred, pay fair compensation
- Utmost Good Faith: to disclose all vital facts likely to affect the decision of the insurance
company
- Contribution: to share losses proportionally to the companies liable for them
- Insurable Interest - to collect only the financial interest lost in property that has been
damaged/destroyed

Tyes of Insurance Coverage

- Life Assurance
- Health Insurance
- Marine Insurance
- Motor Insurance
- Business Insurance

Section 5: Production
Production - the process of using resources/inputs to add value to a product or service so as to
meet the needs of the consumer

Types of Production
- Primary: involved in extracting raw materials from the earth
- Secondary: involved in turning raw materials into finished goods
- Tertiary: involved in providing services

Caribbean Industries Developed From Primary Production

- Mining (bauxite, limestone)
- Fishing (fishing villages)
- Farming (bananas, cassavas)

Caribbean Industries Developed From Secondary Production

- Construction
- Manufacturing (snack and beverage production)
- Food Processing (meat processing, oil refining)

Caribbean Industries Developed From Primary Production

- Tourism (hotels, beaches)
- Banking (commercial banks)
- Entertainment (music, dance, theatre)

Factors of Production:
- Land: natural resources utilized in the production process
- Labour: human resources employed to work the land and capital
- Capital: money and man-made goods used by the labour to produce
- Entrepreneurship/Enterprise: skill, risk and ownership talent which organises the factors
of production

Rewards for the factors of production:

- Land: rent
- Labour: wages
- Capital: interest
- Entrepreneurship/Enterprise: profit

The labour force is the number of people able and willing to work in the economy and the
supply of labour is the total number of hours that people are willing to work

Productivity vs Production - Productivity of labour is defined as the output per person-hour,

where production is defined as the total output per hour, or per day, or per week.
Importance of Productivity:
- Lowers costs of production
- Lowers costs of goods
- Makes businesses more competitive
- Makes exports more attractive in foreign markets
- promotes a healthy attitude towards work, self-reliance and independence
- Makes local goods more affordable and demanded by consumers
- Stabilizes employment
- Enables higher wages
- Leads to long-term growth

Methods of increasing productivity:

- Good education and training for workers
- Improved working conditions
- Better management and equipment
- Improved compensation (higher wages, fringe benefits, incentives, bonuses)
- Improved transportation mechanisms for workers
- Higher standards of health

Role of Capital in Production

- Used to buy land to build factories, warehouses and equipment
- Used to pay workers
- Used to maintain land and equipment

Types of Capital
- Fixed: assets that will be kept for a long time and used many times in the production
process, like buildings and machinery
- Working: stock of cash needed for the day to day operations of the business
- Venture: finance provided by investors to new or small businesses with the potential for
growth
- Social: public investments through government expenditure (roads, airports, utilities)

Labour intensive production relies on more workers to increase productivity whereas capital
intensive production used more expensive equipment than workers in the production process

Levels of Production
- Subsistence: Geared towards satisfying basic needs. Most persons are engaged in
agricultural activities and produce just enough for a person and his family. Production is
not very efficient.
 - Domestic consumption: At this level, surplus goods and services are used within the
domestic or national community. This stage does not involve any imports or exports.
- Surplus: At this level, countries can produce for the domestic community and still have
excess or surplus production. Usually found in countries with large supplies of raw
materials and advanced technology
- Export: At this level, trade develops with other countries due to excess production. The
export level should be the aim of all producers due to the level of foreign earnings that
can be obtained.

Cottage Industries - A cottage industry is a small business/firm that produces a good or a

service by using simple technology. This type of production was traditionally done in the home.
Modernly they are found in community centres, parish halls and small entrepreneurial estates.

Characteristics of a Cottage Industry

- Mainly Manual
- Home based
- Small Scale
- Uses local raw materials
- Uses family members as labour

Small business - a private firm with a relatively low number of employees and sales

Functions of a small business

- Creating employment
- Providing services that larger businesses are not willing to
- Developing niche markets

Advantages of a small business

- Generates employment and income for people in rural and poor communities
- Increases competition for larger firms

Disadvantages of a small business

- Lacks expertise
- Finds it difficult to source finance from financial institutions
- Has limited ability to service customers due to unavailable resources
Linkages - industries connected with other industries in which the output (finished product) of
one becomes the input (raw material) of another

Forward linkages are those in which a sector provides raw materials to another for the production
of a final good and backward linkages are those in which a sector’s demand affects the demand
of those closer to the raw materials stage
Advantages of linkage industries
- Foster stronger economic ties among regional states
- Create jobs
- Encourage economic growth and development
- Reduce dependence on foreign goods

Business Growth - the internal or external expansion of the operations of a business

Opportunities for internal growth

- Opening new outlets
- Employing more workers
- Increasing capital

Opportunties for external growth

- Mergers and acquisitions
- Joint ventures

The effects of growth on a business

- Organizational structure: the structure will change and expand due to more workers
such as managers, supervisors and specialists.
- Labour: more workers will be employed due to more activities and responsibilities.
- Capital: more fixed and working capital will be required and the business may have to
seek
- Use of Technology: more technology will be required to speed up production and lower
total costs.
- Potential for export: as sales increase, the business can change from the domestic level
of production to surplus and export
 Section 7: Logistics and Supply Chains
Logistics - the process of managing how resources are acquired, stored and transported to their
final destination

Supply Chain Operations - The individual processes in the network of links going from the
producer to the consumer

The Chain of Distribution

- Manufacturer → Wholesaler → Retailer → Distributor → Consumer
- Manufacturer → Retailer → Consumer
- Manufacturer → Agent → Consumer
- Manufacturer → Consumer

Forward and Reverse Flow of Goods

- The forward flow of goods is the movement of the product from the manufacturer toward
the end-user/consumer
a. This is the making of the good and the ultimate end location
b. Starts from the Manufacturer and makes its way to the consumer
- The reverse flow of goods is the movement of the product from the end-user/consumer
back to the manufacturer
a. If a product is faulty the consumer would find a way to get it back to the
manufacturer to get it repaired or replaced
b. It starts from the consumer and makes its way back to the manufacturer or
anything back up the chain

.
Activities Involved in Supply Chain Operations
- Raw materials are transformed into products by the manufacturer
- The raw materials come from a source which is then used by the manufacturer and stored
- The manufacturer processes these raw materials into a finished product
- The excess raw materials are stored along with the work-in-progress products and
finished goods
- The products manufactured have to be delivered to the end user through either the
wholesaler, retailer or distributor

Describing the Main Links in the Chain of Distribution

- Manufacturer: The manufacturer converts raw materials into finished bulk
products/goods to be sold ultimately to the end-user, but firstly sells it to the wholesaler
in large bulks
a. Large Manufacturing Companies (Grace Kennedy Limited, Lasco Manufacturers)
- Wholesaler: The wholesaler sells the stored products bought, which are usually in smaller
bulks to the retailer, like supermarkets
a. Subsidiary Organisations (Lasco Distributers, Horizon Limited)
- Retailer: The retailer sells the product rather than bulk, now usually singular, to the
consumer/end-user
a. Supermarkets (Pricesmart, Mega Mart, General Food)
- Consumer: The consumer purchases and consumes the finished product from the retailer
- General Public: (You, the individual, Other Small Companies)

Multimodal and Intermodal Transport

- In multimodal transportation, one contract covers the entire journey, one carrier takes
sole responsibility and ensures door-to-door delivery is completed, even if other carriers
are used in the journey
- In intermodal transportation, there is a separate contract for each individual leg of the
journey

Modes of Transportation and Their Suitability for Different Goods

- Air - Plane and Helicopters - Air is suited for smaller goods to reach the destination faster
over a long distance. (More Costly, Efficient, Fast, Smaller Goods)
- Rail - Trains and Trams - Rail is suited for the transport of abundant raw materials or
large produce over a long distance on land (Efficient, Fast, Larger Goods/Raw
Materials)
- Road - Cars and Trucks - Road is suited for transporting smaller goods across a short
distance (Cheaper)
- Marine/Sea - Cruise and Cargo Ships - Marine/Sea is suited for large and or small
products to be transported between countries and or regions at a substantially lower cost
 than air but tends to be slower in delivery (Slower, Cheaper, Larger Goods/Raw
Materials)
- Pipeline - Underground Pipes - A pipeline is used in the petrochemical industry to
transport natural gas and oil between places (Specific)
- Digital Delivery - Netflix, Hulu, Spotify - Digital delivery is suited for delivering digital
goods over the internet, for shows, games, and music. Essentially anything digital instead
of using the physical counterpart (Fast, Efficient, Cheaper)

Transport Documents
- Import Licenses - issued by a national government authorizing the importation of certain
goods into its territory.
- Bill of Lading - used for the transport of goods via sea, acts as a type of receipt for the
goods, summarizes shipping contract and shows freight costs, transfers ownership to the
consignee
- Airway Bills - used for Transport of Goods via Air

The Impact Of Logistics and Supply Chain Operations on The Competitiveness of Business
- Gives companies comparative advantage
- Improves security of transportation
- Improves speed of transportation
- Improves cost of production
- Makes company more attractive to customers

Problems Likely Encountered During Distribution

- Delayed Shipment, Spoilage, Misdirection of Goods, Inadequate Warehousing Facilities,
Lack of Proper Security Measures, Industrial Unrest and Ineffective communication.
- These problems can be encountered due to the unavailability of airport, harbour and
docking facilities causing the less efficient distribution of goods and or damage to
products.

Measures to Mitigate These Problems

- Government Intervention - Regulations/Legislation against praedial larceny
- Communication network including use of the internet - Tracking packages etc
- Insurance - If a good is stolen insurance would cover it etc
- Selecting the most appropriate channel of distribution based on the product - If you are
transporting expensive goods air would be more suitable due to it being faster resulting in
less time for it to be stolen and also a lower chance of it being stolen
- Use handling services with a good reputation - Using a handling service with a bad
reputation can lead to all types of different issues whether in transit or in the actual safety
of the product
 - Careful labelling and documentation - Ensuring the bill of lading or the airway bill, etc,
are properly filled out to ensure that everything is documented correctly.
- Avoid holding large stocks - Large perishable stock may spoil and large stock, in general,
being held in a place for a long time increases the risk of theft as well.
- Employing Security Companies and use of Security Cameras - Employing these
companies will result in the protection of goods from external threats and security
cameras also increases the security of goods.

Forms of Technology
- Global Positioning Systems (GPS) - Enables the tracking of products with the date and
time of the exact location in which they are located.
- Geographic Information (GIS) - Gives information about the geographical details of the
area to help provide you with added information to see if you should swap modes of
transport.
- Portnet
- Telemarketing, E-Commerce
- Global Providers - Fedex, DH and Amazon Logistics
- Logistics hubs - Jamaica Logistics Hub

Impact of Information Technology

- Increased security of goods, increased efficiency and speed and creating a competitive
aspect with the speed of delivery and transportation

Section 10: Technology and the Global

Business Environment
Business Technology - The applications of science, data, engineering, and information and the
organisation of technology for business purposes

Roles of Information Communication Technology (ICT) in Business:

- Customer communication
- Protection of financial information
- Transmission of digital data
- Storage and Retrieval
- Improvement of Production Capacity

Features and advantages of ICT in banking:

- Automatic Teller Machines (ATMs) and Automatic Banking Machines (ABMs):
customers are able to visit remote bank locations at any point during the day for deposits,
withdrawals and cheque lodging
- Online Banking: customers are able to conduct wire transfers and access banking services
like bill payments, insurance and investments easily
- Telebanking: customers are able to make use of banking operations like loans and
financial transactions over the telephone with the aid of automated oral instructions
- Advantages of ICT in banking include convenience (24/7 operation), comfort, freedom

E-business - The internal organisational processes that employ technology to improve efficiency,
productivity and cost savings, including inventory management and risk management,

E-commerce (electronic commerce) - The outward-facing processes that connect customers,

suppliers and business partners in the buying and selling of goods and services electronically,
and the transactions necessary to facilitate them

Advantages of E-commerce:
1. Improves production speed and turnaround/delivery time
2. Improves customer service operations and customer flexibility
3. Substitutes physical interaction during pandemics and natural disasters
4. Widens customer base
5. Reduces maintenance costs for brick-and-mortar stores
6. Makes businesses more scalable

Types of ICT used in business:

a. General-purpose productivity tools: Microsoft Office (Word, Powerpoint, Excel, Access)
Google Suite (Docs, Slides, Sheets), Adobe Acrobat,
b. Specialist applications: Accounting (Quickbooks), Graphic Design (Photoshop, Canva,
Illustrator, Premiere Pro), Computer-Aided Designs (Autocad), Management Information
Systems (MISs)
 c. Digital communication technology: browsers (Google Chrome, Mozilla Firefox,
Microsoft Edge), social media (Instagram, Tiktok, Youtube), mobile technology
d. Computer systems: personal computers, laptops, smartphones, monitors, scanners,
printers

Ways ICT improve business efficiency

- Simplifying storage
- Improving sharing of information
- Streamlining operations
- Increasing automation

Ethical implications of the use of ICT:

- Security: ICT makes valuable business and customer information prone to data loss,
security breaches and malicious attacks such as industrial espionage, hacking and viruses
- Intellectual Property: ICT makes the reproduction and republishing of patented,
copyrighted and trademarked work easier
- Unemployment: ICT fast-tracks the automation of key ‘blue-collar’ jobs like factory
work, putting people out of business
- Distractions: social media platforms engage employees during work, distracting them
from their jobs

Standard of Living - A quantitative measure of the financial wellbeing of a country and its
population, as seen by their level of income/national wealth

Quality of Life - A qualitative evaluation of the happiness and wellbeing that exists within a
country

Indicators of Standard of Living:

1. Level of consumption of goods and services
2. Average disposable income of the population
3. Level of national ownership of capital
4. Level of investment in research and technology
5. National Income growth

Indicators of Quality of Life:

1. Extent of national security
2. Availability of social services (health, education, housing)
3. Availability of recreational facilities (parks, beaches)
4. Availability of public utilities (electricity, water, internet access)
5. Level of diet and nutrition
6. Life expectancy rate
 7. Infant mortality rate

National Income - A measure of the value of a nation’s total output

Variations of National Income (and ways to calculate):

- Gross Domestic Product (GDP) - The value of goods and services produced within an
economy, by residents or foreign companies
a. Expenditure Method - GDP = C + I + G (X-M) - Consumer Spending +
Investments + Government Spending + Net Exports (Exports minus Imports)
b. Income Method - GDP = wages + rents + profits + interest
c. Output Method - GDP = sum of value added at each stage of production by each
firm
- Gross National Product (GNP) - The value of goods and services produced by a country’s
residents, whether within or outside its borders
a. GNP = GDP + NFIA (Net factor income from abroad)
- Net Domestic Product (NDP) - Gross Domestic Product adjusted for depreciation
a. NDP = GDP - capital consumption (depreciation)
- Net National Product (NNP) - Gross National Product adjusted for depreciation
a. NNP = GNP - capital consumption (depreciation)
- Per capita income - National income divided by the total population
National income
a.
Total Population
- Real per capita income - Per capita income adjusted for inflation
Real national income Money national income
a. , real national income = x 100
Total Population retail price index

Economic Growth - the quantitative increase in a country’s real, per capita gross national product

Factors affecting economic growth:

- Discovery of new resources
- Efficient utilisation of current resources
- Improvement in technology
- Government fiscal and monetary policies
- Technical training
- Foreign direct investment

Economic Development - the improvement of a country’s living standard and quality of life,
through changes to its economic and social structure

Factors affecting economic development:

- Economic model (capitalist, mixed, socialist)
 - Market structure (monopoly, monopolistic, oligopolistic)
- Government action (taxes, subsidies, laws)
- Quality of infrastructure (roads, buildings)

Globalisation - the increase in interaction, integration and interdependence of countries,

facilitating the emergence of a single world market, fosetered by improved technology,
communications and free trade

International Trade - the exchange of goods and services across international boundaries

Reasons for International Trade:

1. Climatic differences: different countries exist within different climates in which different
crops can thrive, so the exchange of these goods, which different countries need, is vital
2. Inequality of resources: not every country has access to the same natural assets, minerals
and human resources, making access to them dependent on global trade
3. Technological know-how: some countries have a relative advantage in the production of
certain products, by virtue of their technological advancement, and can share them
through trade
4. Foreign exchange potential: there exists the potential for foreign currency earnings and
foreign direct investment through international trade

Advantages of International Trade:

- Provides a greater range of products and services to countries
- Allows countries to specialise in particular areas of production
- Encourages competition, which lowers prices
- Allows countries to develop comparative cost advantages

Disadvantages of International Trade:

- Creates countries’ dependency on other countries
- Fastracks local unemployment
- Encourages tax evasion
- Allows exploitation of cheap labour

Balance of Payments - A summary of the payments and receipts of transactions between a

country and the rest of the world for a given year

Barriers to trade:
- Tariffs/Custom duties: a tax levied on imported goods
- Quotas: a numerical limit on goods entering country
- Embargoes: an official ban on trade with a country
- Licences: import or export obtained for the trade of a commodity
 - Exchange controls: a ban on the free exchange of foreign currency among residents

Stages of economic integration:

1. Preferential Trading Area: trading bloc giving preference to goods from certain countries
2. Free Trade Area: trading area which has eliminated barriers to trade
3. Customs Union: free trade area with a common external tariff
4. Common Market: customs union with shared regulations
5. Economic and Monetary Union: single market with a common currency
6. Complete Integration: economic union with a complete merging of trade policies

Major Economic Agreements, Institutions and Systems:

Free Trade Associations - protect and promote integration among countries
1. Caribbean Community (CARICOM)
2. Caribbean Single Market Economy (CSME)
3. European Union (EU)
4. The organisation of Eastern Caribbean States (OECS)
5. African Caribbean and Pacific (ACP)
6. Organisation of Petroleum Exporting Countries (OPEC)
International Institutions/Development Banks - provide risk capital to developing countries for
economic development
7. International Monetary Fund (IMF)
8. World Bank
9. Caribbean Development Bank (CDB)
10. Inter-American Development Bank (IADB)
11. International Bank for Reconstruction and Development (IBRD)
Customs Agreements - establish mutual economic interest between signees
12. Caribbean Basin Initiative (CBI)
13. Free Trade Area of the Americas (FTAA)
14. North American Free Trade Agreement (NAFTA)
15. Caribbean Basin Initiative (CBI)
16. Caribbean-Canada Trade Agreement (CARIBCAN)

Economic problems in the Caribbean:

1. High unemployment and underemployment: members of the labour force are unable to
find good paying jobs or jobs at all
2. Debt Burden: governments have taken on large burdens of national death, due to
economic malfeasance and historical colonial ripple effects
3. Sourcing of capital and raw materials: there is no abundance of natural resources,
economic opportunities are unattractive to many foreign investors
4. Economic dualism: countries develop two separate sectors, one technologically advanced
and one technologically undeveloped
 5. Migration: young, skilled core of the labour force leaves for employment opportunities in
wealthier countries
6. Proneness to natural disaster: countries are forced to face the results of an tropical,
atlantic region, including hurricanes, floods and earthquakes
7. Population density: people are forced to live in metropolitan areas due a lack of
widespread residential and commercial community development

Solutions to economic problems in the Caribbean:

- Development of human resources
- Subsidies for local production
- Development of the manufacturing sector
- Better education and training
- Foreign direct investment

Foreign Direct Investment - investment of an entity in a company within another country, in the
form of controlling shares