Unit 1 - Understanding business activity Flashcards
Need
is a good or service essential for living
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
those resources needed to
produce goods and services. There are four factors of production and they are in limited supply
Scarcity
the lack of su ficient products to fulfil l the total wants of the population
Opportunity cost
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
when the production process is split up into di fferent tasks and each worker performs one of those tasks. It is a form of specialization
Added value
di fference between the selling price and the cost of bought-in materials and
components
The primary sector
extracts and uses the
natural resources of Earth to produce raw materials
used by other businesses
The secondary sector
manufactures goods
using the raw materials provided by the primary
sector
The tertiary sector
provides services to
consumers and other sectors of industry
De -industrialisation
occurs 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
is the total value of capital used in the business
Internal Growth
occurs when a business expands its existing operations
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
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
is 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 di fferent stage of production. Vertical integration can be forward or backward.
Conglomerate integration
is when one business merges with or takes over a business in a completely di erent industry. This is also known as diversi cation.
Sole trader
a business owned by one person
Limited liability
means that the liability of shareholders in a company is limited to only the amount they invested
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
is a form of business in which two or more people agree to jointly own a business
Unincorporated business
is one that does not have a separate legal identity. Sole traders and partnerships are unincorporated businesses
incorporated businesses
are companies that have separate legal status from their owners
Shareholders
are the owners of a limited company. They buy shares which represent part-ownership of the company.
Private limited companies
are businesses owned by shareholders but they cannot sell shares to the public
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
are payments made to shareholders from the pro ts [after tax] of a company. They are the returns to shareholders for investing in the company.
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
is where two or more businesses start a new project together, sharing capital, risks and profi ts
A public corporation
is a business in the public sector that is owned and controlled by the state [government]
Business objectives
are the aims or targets that a business works towards
Pro fit
total income of a business [revenue] minus total costs
Market share
is the percentage of total market sales held by one brand or business
A social enterprise
has social objectives as well as an aim to make a pro t to reinvest back into the business
A stakeholder
is any person or group with direct interest in the performance and activities of a business
