IGSCE Definitions - 1.Understanding Business Activity Flashcards
Understanding Business Activity
A need
A need is a good or service essential for living
A want
A want is a good or service which people would like to have but which is not essential for living. People’s wants are unlimited.
Economic Problem
There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity
Factors of production
are those resources needed to produce goods and services. There are four factors of production, and they are in limited supply.
Scarcity
Scarcity is the lack of sufficient products to fulfil the total wants of the population.
Opportunity cost
Opportunity cost is the next best alternative given up by choosing another item
Specialization
occurs when people and businesses concentrate on what they are best at
Division of labour
is 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
Businesses combine the factors of production to make goods and services which satisfy people’s wants.
Added value
is the difference between the selling price and the cost of bought-in materials and components
The primary sector of industry
The primary sector of industry extracts and uses the natural resources of Earth to produce raw materials used by other businesses
The secondary sector
The secondary sector of industry manufactures goods using the raw materials provided by the primary sector.
The tertiary sector
The tertiary sector of the industry provides services to consumers and other sectors of industry.
De-industrialisation
De-industrialisation occurs when there is a decline in the importance of the secondary manufacturing sector of industry in a country
A mixed economy
A mixed economy has both a private sector and a public (state) sector
Capital
Capital is the money invested into the business by the owners
An entrepreneur
An entrepreneur is a person who organises, operates and takes the risk for a new business venture
Capital employed
Capital employed is the total value of capital used in the business
Internal Growth
Internal Growth occurs when a business expands its existing operations
External Growth
External Growth is when a business takes over or merges with another business. It is often called integration, as one business is integrated into another one
A takeover or acquisition
A takeover or acquisition is 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]
A merger
A merger is when the owners of two businesses agree to join their businesses together to make one business
Horizontal integration
Horizontal integration is when one business merges with or takes over another one in the same industry at the same stage of production
Vertical integration
Vertical integration is when one business merges with or takes over another one in the same industry but at a different stage of production. Vertical integration can be forward or backwards.
Conglomerate integration
Conglomerate integration is when one business merges with or takes over a business in a completely different industry. This is also known as diversification.
A sole trader
A sole trader is a business owned by one person.
Limited liability
Limited liability means that the liability of shareholders in a company is limited to only the amount they invested
Unlimited liability
Unlimited liability means that the owners of a business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business
Partnership
Partnership is a form of business in which two or more people agree to own a business jointly
Unincorporated businesses
Unincorporated businesses do not have a separate legal identity. Sole traders and partnerships are unincorporated businesses
Incorporated businesses
incorporated businesses are companies that have separate legal status from their owners
Shareholders
Shareholders are the owners of a limited company. They buy shares, which represent part-ownership of the company.
Private limited companies
Private limited companies are businesses owned by shareholders, but they cannot sell shares to the public.
Public limited companies
Public limited companies are businesses owned by shareholders but they can sell shares to the public and their shares are tradable on the Stock Exchange
Dividends
Dividends are payments made to shareholders from the profits [after tax] of a company. They are the returns to shareholders for investing in the company.
A franchise
A franchise is 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.
A joint venture
A joint venture is where two or more businesses start a new project together, sharing capital, risks and profits.
A public corporation
A public corporation is a business in the public sector that is owned and controlled by the state [government]
Business objectives
Business objectives are the aims or targets that a business works towards
Profit
Profit is the total income of a business [revenue] minus total costs
Market share
Market share is the percentage of total market sales held by one brand or business
A social enterprise
A social enterprise has social objectives as well as an aim to make a profit to reinvest back into the business
A stakeholder
A stakeholder is any person or group with a direct interest in the performance and activities of a business
