Section 1 Flashcards
Free trade
No restrictions or trade barriers exist that might prevent or limit trade between countries
Tariffs
Taxes imposed on imported goods to make them more expensive than they would otherwise be
Quotas
Limits on the physical quantity or value of certain goods that may be imported
Voluntary export limits
An exporting country agrees to limit the quantity of certain goods sold to one country
Protectionism
Using barriers to free trade to protect a country’s own domestic industry
Globalization
The increasing freedom of movement of goods, capital and people around the world
Multinational business
Business organization that has its headquarters in one country, but with operating branches, factories and assembly plants in other countries
Privatization
Selling state owned and controlled business organisations to investors in the private sector
External growth
Business expansion achieved by means of merging with or taking over another business, from either the same or a different industry
Merger
An agreement by shareholders and managers of two businesses to bring both firms together under a common board of directors with shareholders in both businesses owning shares in the newly merged business
Take over
When a company buys more than 50% of the shares of another company and becomes the controlling owner of it
Synergy
A whole is greater than the sum of parts, a larger business will be more successful than two separate businesses
Monopoly
A situation in which there is only one supplier, but this is very rare, for government policy purposes this is usually redefined as a business controlling at least 25% of the market
Social audit
A report on the impact a business has on society, this can cover pollution levels, health and safety records, sources of supplies, Customer satisfaction and contribution to the community
Information technology
The use of electronic technology to gather, store, process and communicate information
Innovation
Creating more effective processes, products or ways of doing things in a business
Computer aided design
Using computers and IT when designing products
Computer aided manufacturing
The use of computers and computer controlled machinery to speed up the production process and make it more flexible
Environmental audits
Assess the impact of a business activities on the environment
Pressure groups
Organisations created by people with a common interest or aim who put pressure on businesses and governments to change policies so that an objective can be reached
Economic growth
An increase in a country’s productive potential measured by an increase in its real GDP
Gross domestic product (GDP)
The total value of goods and services produced in a country in one year. Real GDP has been adjusted for inflation
Business investment
Expenditure by a business on capital equipment, new technology and research and development
Business cycle
The regular swings in economic activity, measured by real GDP, that occur in most economies, varying from boom conditions to recession when total national output declines
~> Boom ~ Business/consumers confidence strengthens ~ demand increases ~ job creation + higher wages ~> Recession ~ falling demand ~ decrease in unemployment ~ making loss/closing down ~> Slump ~ increased costs (high wages + inflation) ~ low profitability ~ fall in demand ~> Growth ~ increase in demand ~ unemployment decreases
Recession
A period of six months or more of declining real GDP
Inflation
An increase in the average price level of goods and services. Result in a fall in the value of money
Deflation
A fall in the average price level of goods and services
Working population
All those in the population of working age who are willing and able to work
Unemployment
This exists when members of the working population are willing and able to work but are unable to find a job
Cyclical unemployment
Unemployment resulting from low demand for goods and services in the economy during a period of slow economic growth or recession
Structural unemployment
Unemployment caused by the decline in important industries, leading to significant job losses in one sector of industry
Frictional unemployment
Unemployment resulting from workers losing or leaving jobs and taking a substantial period of time to find alternative employment
Balance of payments- current account
This account records the value of trade in goods and services between one country and the rest of the world. A deficit means that the value of goods and services imported exceeds the value of goods and services exported
Exchange rate
The price of one currency in terms of another
Imports
Goods and services purchased from other countries
Exports
Goods and services sold to consumers and businesses in other countries
Exchange rate depreciation
A rise in the external value of a currency as measured by its exchange rate against other currencies
Fiscal policy
Concerned with decisions about government expenditure, tax rates and government borrowing
~> expansionary ~ raise government spending ~ lower tax rates ~ result increase in demand ~ result increase in output/employment ~> contractionary ~ reduce government spending ~ raise taxes ~ result reduce in national demand ~ result reduce output/employment/inflation
Policies
Long term execution of a plan
Government budget deficit
The value of government spending exceeds revenue from taxation
Government budget surplus
Taxation revenue exceeds the value of government spending
Monetary policy
Is concerned with decisions about the rate of interest and supply of money in the economy
Market failure
When markets fail to achieve the most efficient allocation of resources and there is under or over production of certain goods or services
Government may intervene:
~ limit external costs
~ increase labour training
External costs
Costs of an economic activity that are not paid for by the producer or consumer but by the rest of society
Integration
Conglomerate
~> 2 companies merge; products are unrelated
Horizontal
~> 2 firms merge which are in the same sector/competitor
Vertical backward
~> merging of firms in different stages of production of the same good/industry
» merging with supplier
Vertical forward
~> merging of different stages of production of the same good/industry
» integration with customer
Strategic alliance
External growth without integration or change in ownership
Causes of inflation
Cost push demand
~ higher production cost
~ lower exchange rate
~increasing resource prices
~ higher wage demands
Demand pull inflation
~ during boom
~ supply shortage
~ increase demand raises price
