1. Understanding Business Activity Flashcards
Need
a good or service essential for living
Want
a good or service which people would like to have, but which is not essential for living. People’s wants are unlimited
Economic problem
exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity
Factors of production
those resources needed to produce goods and services. There are four factors of production and they are in limited supply
Scarcity
the lack of sufficient products to fulfill the total wants of the population
Opportunity cost
the next best alternative given up by choosing another item
Specialization
when people and businesses concentrate on what they are best at
Division of labour
when the production process is split up into different tasks and each worker performs one of those tasks. It is a form of specialization
Businesses
combine the factors of production to make goods and services which satisfy people’s wants
Added value
the difference between the selling price and the cost of bought-in materials and components
Primary sector
extracts and uses the natural resources of Earth to produce raw materials used by other businesses
Secondary sector
manufactures goods using the raw materials provided by the primary sector
Tertiary sector
provides services to consumers and other sectors of industry
De-industrialisation
when there is a decline in the importance of the secondary, manufacturing sector of industry in a country
Mixed economy
has both a private sector and a public (state) sector
Capital
the money invested into the business by the owners
Entrepreneur
a person who organises, operates and takes the risk for a new business venture
Capital employed
the total value of capital used in the business
Internal growth
when a business expands its existing operations
External Growth
when a business takes over or merges with another business. It is often called integration as one business is integrated into another one
Takeover/Acquisition
when one business buys out the owners of another business, which then becomes part of the ‘predator’ business [the business which has taken it over]
Merger
when the owners of two businesses agree to join their businesses together to make one business
Horizontal integration
when one business merges with or takes over another one in the same industry at the same stage of production
Vertical integration
when one business merges with or takes over another one in the same industry but at a different stage of production (can be forward or backward)
Conglomerate integration
when one business merges with or takes over a business in a completely different industry (also known as diversification)
Sole trader
a business owned by one person
Limited liability
the liability of shareholders in a company is limited to only the amount they invested
Unlimited liability
the owners of a business can be held responsible for the debts of the business they own (liability is not limited to the investment they made in the business)
Partnership
a form of business in which two or more people agree to jointly own a business
Shareholders
the owners of a limited company, they buy shares which represent part-ownership of the company
Private limited company
businesses owned by shareholders but they cannot sell shares to the public
Public limited company
businesses owned by shareholders but they can sell shares to the public and their shares are tradable on the Stock Exchange
Dividend
payments made to shareholders from the profits [after tax] of a company, they are the returns to shareholders for investing in the company
Franchise
a business based upon the use of the brand names, promotional logos, and trading methods of an existing successful business. The franchisee buys the license to operate this business from the franchisor
Joint venture
where two or more businesses start a new project together, sharing capital, risks and profits
Public corporation
a business in the public sector that is owned and controlled by the state [government]
Business objective
the aims or targets that a business works towards
Market share
the percentage of total market sales held by one brand or business
Social Enterprise
Has social objectives as well as an aim to make a profit to reinvest back into the business
Stakeholder
any person or group with direct interest in the performance and activities of a business
