Glossary

Question 1

What is Added Value?

Answer 1

It’s the difference between the price of a good or service and the cost of its material inputs

Question 2

What is Cash Flow?

Answer 2

The movement of cash into and out of a business

Question 3

What is a Complement?

Answer 3

Goods and services that are brought together.

For example Cars and petrol or DVDs and DVD players

Question 4

What is the Equilibrium Price?

Answer 4

The price at which quantity demanded is the same as quantity supplied, sometimes called the market clearing price.

Question 5

What is the Break-even-point?

Answer 5

The level of output where neither a profit nor a loss is being made. The point at which total revenue equals total costs.

Question 6

What is Demand?

Answer 6

The quantity of a good or service that consumers are willing and able to buy, at given price and at a given time.

Question 7

What is the Exchange Rate?

Answer 7

The price of one currency expressed in terms of another. It is determined by the interaction of demand for and supply of the currency

Question 8

What are Exports?

Answer 8

Goods and services produced domestically and sold in a foreign country.

Question 9

What are External Costs?

Answer 9

Negative side effects imposed on a third party who is neither the producer nor the consumer.

Question 10

What is an Opportunity Cost?

Answer 10

Represents cost in terms of an alternative to the item actively chosen. Every spending decision has an opportunity cost, which is what was foregone to get the preferred product.

Question 11

What is Market Failure?

Answer 11

This occurs when social costs exceed social benefits. This frequently happens when there are negative externalities.

Question 12

What is a market?

Answer 12

Any medium in which buyers and sellers interact and agree to trade at a price

Question 13

What is Gross profit?

Answer 13

Turnover (Revenue) - Cost of sales

Overheads (fixed costs), interest and tax have not yet been taken into account

Question 14

What is Inflation?

Answer 14

A sustained rise in the general price level or a fall in the value of money.

Question 15

What is the Interest rate?

Answer 15

A payment in percentage terms for the use of a sum of borrowed money. It can be seen as the price of money.

Question 16

What are Fixed costs?

Answer 16

They do not change with the level of output of the business. Examples include rent, interest payments, managers’ salaries and business rates

Question 17

What is Market research?

Answer 17

It’s any kind of activity that gives a business information about its product or service, its customers, its competitors or the market it operates in.

Question 18

What is Market share?

Answer 18

The percentage of the total market buying one firm’s product.

Question 19

What is Operating profit?

Answer 19

The most commonly used measure of business profit, calculated by subtracting all overheads (fixed costs) from gross profit

Fixed costs - Gross profit

Question 20

What is the Operating profit margin?

Answer 20

Operating profit shown as a percentage of turnover.

Question 21

What is Market orientation?

Answer 21

Where the needs of the customer are the overriding priority in the production and marketing of products and services

Question 22

What are the Factors of production?

Answer 22

Land
Labour
Capital
Enterprise

Question 23

What is are Negative externalities?

Answer 23

External costs that have a detrimental effect on the lives of people who neither bought nor sold the product

Question 24

What are Positive externalities?

Answer 24

External benefits that are experienced by third parties but paid for by someone else

Question 25

What is Revenue?

Answer 25

The income of a business raised by selling its goods or services

Question 26

What are Social benefits?

Answer 26

The total benefits of producing goods and services, calculated by adding together the private and external costs.

Question 27

What is Turnover?

Answer 27

Sales revenue I.e. Total income generated by a business selling its goods and services over a period of time.

Question 28

What is Trade credit?

Answer 28

The time allowed by a supplier before a business must make payment. Commonly 30-60 days, it helps the customers cash flow at the expense of the that of the seller

Question 29

What is Product differentiation?

Answer 29

Means giving each product specific design features that will distinguish it from competing products. Branding can be an important part of this.

Question 30

What are Social Costs?

Answer 30

The total costs of producing goods and services, calculated by adding together the private and external costs.

Question 31

What is Taxation?

Answer 31

Payments made to the government by individuals and businesses, top provide revenue government spending. Commonly used taxes include: income tax, VAT, corporation tax and excise duty.

Question 32

What is a Substitute?

Answer 32

A good or service that can be used in place of another, e.g different brands of washing powder or makes of television.

Question 33

What is Retained profit?

Answer 33

An important source of finance for business expansion. It is the profit left after interest, tax and dividends have been deducted from operating profit.

Question 34

What is Sampling?

Answer 34

During market research, a small section or sample of market is chosen as being representative of the whole.

Question 35

What are Shareholders?

Answer 35

They are part-owners of the business. They may have played a part in financing the business directly, or have brought shares from someone else or on the Stock Exchange.

Question 36

What are Variable costs?

Answer 36

Costs of production that vary with the level of output e.g. Raw materials and distribution costs

Question 37

What is Venture capital?

Answer 37

A form of business finance, unsecured funding provided by individuals or specialist firms in return for a proportion of the company's shares

Question 38

What is Under-consumption?

Answer 38

Occurs when products that are socially desirable are too expensive for everyone to cover the costs themselves

Question 39

What is Supply?

Answer 39

The amount of a good or service that producers are willing and able to provide, at a given price and at a given time

Question 40

What is Profit?

Answer 40

The difference between total sales revenue and total costs.

Question 41

What is the public sector?

Answer 41

Industries or services provided or funded by the government and not owned by private individuals.