Textbook Definitions Flashcards
need
a good or service essential for living
want
a good or service which people would have, but which is not essential for living: people’s wants are unlimited
the economic problem
there exist unlimited wants but limited resources to produce the goods and services to satisfy those wants, creating scarcity
factors of production
the resources needed to produce goods and services: land, labour, capital and enterprise
scarcity
the lack of sufficient products to fulfil the total wants of the population
opportunity cost
the next best alternative given up by choosing another item
specialisation
when people and businesses concentrate on what they are best at
division of labour
when the production process is split up into different tasks: it is a form of specialisation
businesses
combine factors of production to make products (goods and services) which satisfy people’s wants
added value
the difference between the selling price of a product and the cost of bought in materials and components
the primary sector of industry
extracts and uses the natural resources of the earth to produce raw materials used by other businesses
the secondary sector of industry
manufactures goods using the raw materials provided by the primary sector
the tertiary sector of industry
provides services to consumers and the 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 a business by the owners
entrepreneur
a person who organises, operates and takes the risk for a new business venture
business plan
a document containing the business objectives and important details about the operations, finance and owners of the new business
capital employed
the total value of capital used in the business; the total long-term and permanent capital invested in a business: shareholders equity plus non-current liabilities
internal growth
when a business expands its existing operations
external growth / integration
when a business takes over or merges with another business
merger
when the owners of two businesses agree to join their firms together to make one business
takeover acquisition
when one business buys out the owners of another business which then becomes part of the ‘predator’ business (the firm which has taken it over)
horizontal integration
when one firm merges with or takes over another one in the same industry at the same stage of production
vertical integration
when one firm merges with or takes over another one in the same industry but at a different stage of production; vertical integration can be forward or backward
conglomerate integration / diversification
when one firm merges or take over a firm in a completely different industry
sole trader
a business owned and operated by one person
limited liability
the liability of shareholders in a company is only limited to the amount they invested
unlimited liability
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
a form of business in which two or more people agree to jointly own a business
partnership agreement
the written and legal agreement between business partners; it is not essential for partners to have such an agreement but it is always recommended
unincorporated business
a business that doesn’t have a separate legal identity: sole traders and partnerships are unincorporated businesses
incorporated business
a company that has separate legal status from its owners
shareholders
the owners of a limited company, they buy shares which represent part ownership of a company
Annual General Meeting
a legal requirement for all companies; shareholders may attend and vote on who they want on the Board of Directors for the coming year
dividends
payments made to shareholders from the profits (after tax) of a company: they are the return 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
business objectives
the aims or targets that a business works towards
profit
total income of a business (sales revenue) less total costs; the surplus after total costs have been subtracted from sales revenue
market share
the proportion/percentage of total market sales achieved/held by one business/brand
social enterprise
has social objectives as well as an aim to make a profit to reinvest back into the business
stakeholders
any person or group with a direct interest in the performance and activities of a business
motivation
the reason why employees want to work hard and effectively for the business
wage
a payment for work, usually paid weekly
salary
a payment for work, usually paid monthly
commission
payment relating to the number of sales made
profit sharing
a system whereby a proportion of the company’s profits is paid out to employees
bonus
an additional amount of payment above basic pay as a reward for good work
performance-related pay
pay which is related to the effectiveness of the employee where their output can be easily measured
share ownership
where shares of the company are given to employees so that they become part owners in the company
appraisal
a method of assessing the effectiveness of an employee
fringe benefits
non-financial rewards given to employees
job satisfaction
the enjoyment derived from feeling that you have done a good job
job rotation
workers swapping around and doing a specific task only for a limited time then changing round again
job enlargement
extra similar tasks of a similar level of work are added to a worker’s job description
job enrichment
adding tasks that require more skill or responsibility to a worker’s job description
organisational structure
the levels of management and division of responsibilities within an organisation
chain of command
the structure in an organisation which allows instructions to be passed down from senior management levels to lower levels of managament
span of control
the number of subordinates working directly under a manager
line managers
directly responsible for people below them in the hierarchy of an organisation
staff managers
specialists who provide support, information and assistance to line managers
delegation
when a subordinate is given the authority to perform particular tasks
leadership styles
the different approaches to dealing with people when in a position of authority: autocratic, democratic or laissez-faire
autocratic leadership
the manager expects to be in charge of the business and to have their orders followed
democratic leadership
other employees are involved in the decision-making process
laissez-faire leadership
the broad objectives of the business are made known to the employees, but then they make their own decisions and organise their own work
trade union
a group of workers who have joined together to ensure their interests are protected
closed-shop
all employees must be a member of the same trade union
recruitment
the process from identifying that the business needs to employ someone up to the point at which applications have arrived at the business
job analysis
identifies and records the responsibilities and tasks relating to a job
job description
outlines the responsibilities and duties to be carried out by someone employed to do a specific job
job specification
a document which outlines the requirements, qualifications, expertise, physical characteristics, etc. for a specified job
internal recruitment
when a vacancy is filled by someone who is an existing employee of the business
external recruitment
when a vacancy is filled by someone who isn’t an existing employee and will be new to the business
part-time employment
often considered to be between 1 and 30-35 hours a week
full-time employment
employees will usually work 35 hours or more a week
induction training
an introduction given to a new employee, explaining the firm’s activities, customs and procedures and introducing them to their fellow workers
on-the-job training
occurs by watching a more experienced worker doing the job
off-the-job training
involves being trained away from the workplace, usually by specialist trainers
workforce planning
establishing the workforce needed by the business for the foreseeable future in terms of the number and skills of employees required
redundancy
when an employee is no longer needed and so loses their job, not due to any aspect of their work being unsatisfactory
ethical decision
a decision taken by a manager or a company because of the moral code observed by the firm
industrial tribunal
a legal meeting which considers workers’ complaints of unfair dismissal or discrimination at work
contract of employment
a legal agreement between employer and employee listing the rights and responsibilities of workers
communication
the transferring of a message from the sender to the receiver, who understands the message
message
the information or instructions being passed by the sender to the receiver
internal communication
communication between members of the same organisation
external communication
communication between the organisation and other organisations or individuals
transmitter / sender
the person starting off the process of communication by sending the message
medium of communication
the method used to send a message
receiver
the person who receives the message
feedback
the reply from the receiver which shows whether the message has arrived, been understood and, if necessary, acted upon
one-way communication
a message which does not call for or require a response
two-way communication
when the receiver gives a response to the message and there is a discussion about it
formal communication
when messages are sent through established channels using professional language
informal communication
when information is sent and received casually with the use of everyday language
communication barriers
factors that prevent effective communication of messages
mass market
where there is a very large number of sales of a product
niche market
a small, usually specialised, segment of a much larger market
market segment
an identifiable sub-group of a whole market in which consumers have similar characteristics or preferences
product-orientated business
a business whose main focus of activity is on the product itself
market-orientated business
a business which carries out market research to find out consumer wants before a product is developed and produced
marketing budget
a financial plan for the marketing of a product or product range for some specified period of time: it specifies how much money is available to market the product or range, so that the Marketing department know how much they may spend
market research
the process of gathering, analysing and interpreting information about a market
primary research / field research
the collection and collation of original data via direct contact with potential or existing customers
secondary research / desk research
information that has already been collected and is available for use by others
questionnaire
a set of questions to be answered as a means of collecting data for market research
sample
the group of people who are selected to respond to a market research exercise
random sample
when people are selected at random as a source of information for market research
quota sample
when people are selected on the basis of certain characteristics as a source of information for market research
focus group
a group of people who are representative of the target market
marketing mix
a term used to describe all the activities which go into the marketing of a product or service: product, price, place and promotion
Unique Selling Point
the special feature of a product that differentiates it from the products of competitors
brand name
the unique name of a product that distinguishes is from other brands
brand loyalty
when consumers keep buying the same brand again and again instead of choosing a competitor’s brand
brand image
an image or identity given to a product which gives it a personality of its own and distinguishes it from its competitors’ brands
packaging
the physical container or wrapping for a product, it is also used for promotion and selling appeal
product life cycle
describes the stages a product will pass through from its introduction through its growth until it is mature and then finally its decline
cost-plus pricing
the cost of manufacturing the product plus a mark-up determines the product’s price
competitive pricing
when the product is priced in line with or just below competitors’ prices to try to capture more of the market
penetration pricing
when a price is set lower than the competitors’ prices in order to be able to enter a new market
price skimming
when a high price is set for a new product on the market
promotional pricing
when a product is sold at a very low price for a short period of time
price elasticity
a measure of the responsiveness of demand to a change in price
informative advertising
the emphasis of advertising or sales promotion is to give full information about the product
persuasive advertising
advertising or promotion which is trying to persuade the consumer that they really need the product and should buy it
target audience
people who are potential buyers of a product or service
sales promotion
incentives such as special offers or special deals aimed at consumers to achieve short-term increases in sales
distribution channel
the means by which a product is passed from the place of its production to the customer or retailer
agent
an independent person or business that is appointed to deal with the sales and distribution of a product or range of products
e-commerce
the buying and selling of goods and services using computer systems linked to the internet
marketing strategy
a plan to combine the right combination of the four elements of the marketing mix (product, price, place and promotion) for a product or service to achieve a particular marketing objective
productivity
the output measured against the inputs used to create it
buffer inventory level
the inventory held to deal with uncertainty in customer demand and deliveries of supplies
lean production
a term used for the techniques employed by businesses to cut down on waste and thereby increase efficiency
Kaizen
a Japanese term meaning ‘continuous improvement’ through the elimination of waste
just-in-time
a production method that involves reducing or virtually eliminating the need to hold inventories of raw materials or unsold inventories of the finished product: supplies arrive just at the time they are needed
job production
where a single product is made at a time
batch production
where a quantity of one product is made, then a quantity of another item will be produced
flow production / mass production
where large quantities of a product are produced in a continuous process
fixed costs / overhead costs
costs which do not vary with the number of items produced in the short run: they have to be paid whether the business is making any sales or not
variable costs
costs which vary directly with the number of items sold or produced
total costs
the sum of fixed and variable costs combined
average cost per unit / unit cost
the total cost of production divided by total output
economies of scale
the factors that lead to a reduction in average costs as a business increases in size
diseconomies of scale
the factors that lead to an increase in average costs as a business grows beyond a certain size
break-even level of output / break-even point
the quantity of output that must be sold or produced for total revenue to equal total costs; the level of sales at which the total costs are equal to the total revenue
break-even charts
graphs which show how costs and revenues of a business change with sales: they show the level of sales the business must make in order to cover its costs, or ‘break even’
(sales) revenue
the income during a period of time from the sale of goods and services
Total Revenue = Quantity Sold x Price
(unit) contribution
a product’s selling price less its variable cost
quality
the production of a good or service which meets customer expectations
quality control
the checking for quality at the end of the production process
quality assurance
the checking for quality standards throughout the production process
Total Quality Management
the continuous improvement of products and processes by focusing on quality at each stage of production
start-up capital
the finance needed by a new business to pay for essential fixed and current assets before it can begin trading
working capital
the finance needed by a business to pay its day-to-day costs; the capital available to a business in the short term to pay for day-to-day expenses
capital expenditure
money spent on fixed assets which will last for more than one year
revenue expenditure
money spent on day-to-day expenses which do not involve the purchase of a long-term asset
internal finance
finance that is obtained from within the business itself
external finance
finance that is obtained from sources outside of and separate from the business
micro-finance
the provision of financial services - including small loans - to poor people not served by traditional banks
cash flow
the cash inflows and outflows of a business over a period of time
cash inflows
the sums of money received by a business during a period of time
cash outflows
the sums of money paid out by a business during a period of time
cash flow cycle
shows the stages between paying out cash for labour, materials, etc. and receiving cash from the sales of goods
cash flow forecast
an estimate of future cash inflows and outflows, usually on a month-by-month basis, showing the expected cash balance at the end of each month
opening cash balance / opening bank balance
the amount of cash held by a business at the start of the month
net cash flow
the difference, each month, between inflows and outflows
closing cash balance / closing bank balance
the amount of cash held by a business at the end of each month, becoming the next month’s opening balance
accounts
the financial records of a firm’s transactions
accountants
the professionally qualified people who have responsibility for keeping accurate accounts and for producing the final accounts
final accounts
produced at the end of the financial year, these give details of the profit or loss made over the year and the worth of the business
income statement / profit and loss account
a document that records the income of a business and all costs incurred to earn that income over a period of time
gross profit
it is made when sales revenue is greater that the cost of goods sold
cost of goods sold
the cost of producing or buying in the goods actually sold by the business in a time period
trading account
shows how the gross profit of a business is calculated
net profit
the profit made by a business after all costs have been deducted from sales revenue
Gross profits - Overhead costs = Net profit
depreciation
the fall in value of a fixed asset over time
retained profit
the net profit reinvested back into a company, after deducting tax and payments to owners
balance sheet / statement of financial position
shows the value of a business’ assets and liabilities at a particular time
assets
the items of value which are owned by the business; they may be fixed (non-current) or short-term current assets
liabilities
debts owned by the business
non-current assets
items owned by the business for more than one year
current assets
items owned and used by the business within one year
non-current liabilities
long-term debts owed by the business
current liabilities
short-term debts owed by the business
liquidity
the ability of a business to pay back its short-term debts
illiquidity
assets are not easily convertible into cash
inflation
the increase in the average price level of goods and services over time
unemployment
when people who are willing and able to work cannot find a job
economic growth
when a country’s Gross Domestic Product increases - more goods and services are produced than in the previous year
balance of payments
records the difference between a country’s exports and imports
real income
the value of income, it falls when prices rise faster than money income
Gross Domestic Product
the total value of output of goods and services in a country in one year
recession
a period of falling Gross Domestic Product
exports
goods and services sold from one country to other countries
imports
goods and services brought in by one country from other countries
exchange rate
the price of one currency in terms of another
exchange rate depreciation / currency depreciation
the fall in the value of a currency compared with other currencies; when the value of a currency falls - it buys less of another currency
fiscal policy
any change by the government in tax rates or public sector spending
direct taxes
paid directly from incomes
indirect taxes
are added to the prices of goods and taxpayers pay the tax as they purchase the goods
disposable income
the level of income a taxpayer has after paying income tax
import tariff
a tax on an imported product
import quota
a physical limit to the quantity of a product that can be imported; a restriction on the quantity of a product that can be imported
monetary policy
a change in interest rates by the government or central bank
exchange rate appreciation / currency appreciation
the rise in value of a currency compared to other currencies; when the value of a currency rises - it buys more of another currency
social responsibility
when a business decision benefits stakeholders other than shareholders
environment
our natural world
private costs (of an activity)
the costs paid for by the business
private benefits (of an activity)
the gains to a business
external costs
costs paid for by the rest of society, other than the business, as a result of business activity
external benefits
the gains to the rest of society, other than the business, resulting from business activity
social costs =
external costs + private costs
social benefits =
external benefits + private benefits
sustainable development
development which doesn’t put at risk the living standards of future generations
sustainable production methods
those that do minimum damage to the environment
pressure group
made up of people who want to change business (or government) decisions and they take action
consumer boycott
when consumers decide not to buy products from businesses that do not act in a socially responsible way
ethical decisions
based on a moral code, sometimes referred to as ‘doing the right thing’
globalisation
the term used to describe increases in worldwide trade and movement of people and capital between countries
free trade agreements
exist when countries agree to trade imports/exports with no barriers
protectionism
when a government protects domestic firms from foreign competition using tariffs and quotas
multinational businesses / transnational businesses
those with factories, production or service operations in more than one country
