Definition

Need A good or service essential for living

Want A good or service which people would like to have but which is not
essential for living. These are unlimited

Economic Problem Results from their being unlimited wants but limited resources to provide
the goods and services to satisfy these wants. This creates scarcity

Factors of Production The resources need to produce goods or services. There are four and are in
limited supply

Scarcity The lack of sufficient products to satisfy the total wants of the population

Opportunity Cost The next best alternative given up by choosing another item

Division of Labor When the production process is split up into different tasks and each
(Specialization) worker performs one of these tasks

Businesses Combine factors of production to make products which satisfy the people’s
wants

Business Objectives The aims or targets that a business works towards

Value Added The difference between the selling price of a product or service and the
cost of bought in materials and components

Stakeholder Any person or group with direct interest in the performance and activities
of a business

Primary Sector Extracts and uses the natural resources of the Earth

Secondary Sector Manufactures goods using the raw materials provided by the primary
sector

Tertiary Sector Provides services to consumers and the other sectors of industry

De-industrialization When there is a decline in the importance of the secondary sector industry
in a country

Free Market Economy No government control over factors of production

Monopoly Business which controls all of the market for a product

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Command Economy Does not have a private sector as all resources are owned by the state

Mixed Economy Has both a public and a private sector

Entrepreneur Person who organizes, operates and takes risk for a new business venture

Business Plan Document containing business objectives and important details about the
operations, finance and owners of the new business.

Capital Employed Total value of capital used in the business.

Profit The surplus after total costs have been subtracted from the sales revenue

Internal Growth When a business expands its existing operations

External Growth When a business takes over or merges with another business

Merger When owners of two companies agree to join together their firms to make
one business

Takeover When one business buys out the owners of another business which then
becomes part of the predator business

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 different stages of production

Conglomerate Integration When one firm merges with or takes a firm in a completely different
industry

4 Sole Trader Business owned by one person

Limited Liability Liability of shareholders is only limited to the amount they invested.

Unlimited Liability Owners of a business can be held responsible to the debts of the
businesses they own beyond their own investment.

Partnership Form of business in which two or more people agree to jointly own a
business.

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Partnership Agreement Written and legal agreement between business partners

Unincorporated Business One that does not have a separate legal identity. E.g. Sole traders and
partnerships.

Incorporated Business Company that has a separate legal status from its business.

Shareholders The owners of a company who buy shares which represent part ownership
of the company

Private Limited company Business owned by shareholders but cannot sell shares to the public.

Public Limited company Business owned by shareholders and can sell shares to public. Traded on
Stock exchange.

Prospectus A detailed document issued by the directors of a company when they are
converting it to a PLC status. It is an invitation to the general public to buy
shares in the newly formed PLC.

Annual General Meeting A legal requirement for all companies in which it is voted on who should
be on the Board of Directors for the upcoming year

Dividends Payments made to shareholders from the profits of a company after it has
paid corporation tax. They are the return to the shareholders for investing
in the business

Franchise A business based upon the use of the brand names, promotional logos and
trading methods of an existing successful business

Joint Venture Were two or more businesses start a new project together sharing capital,
risks and profits.

Public corporation Business in public sector that is owned and controlled by the state.

5 Market Share Percentage of total market sales held by one brand or company

Social Enterprise Social objectives as well as an aim to make a profit to reinvest back in the
business.

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

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Economic Growth When a country’s GDP increases

Balance of Payments Records the difference between a country’s exports and imports

Real Income The value of income and falls when the prices rise faster than money
income

Gross Domestic Product The total value of output of goods and services in a country in one year

Exports The goods and services sod from one country to another country

Imports Goods and services bought in by one country from another country

Exchange Rate The price of one currency in terms of another

E.R. Depreciation The fall in the value of currency compared with other currencies- it buys
less of another currency than before

E.R. Appreciation The rise in the value of currency compared with other currencies- it buys
more of another currency than before

Fiscal Policy Any change by the government in tax rates or public sector spending

Direct Taxes Paid directly from incomes

Indirect Taxes Added to the prices of goods and the 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

Monetary Policy A change in the interest rates by the government or central bank

Supply Side Policy Used by the government to improve the efficient supply of the goods and
services in their country

Ethical Decision Decision taken by a manager because of the moral code observed in that
firm

Industrial Tribunal Legal meeting which considers workers’ complaints of unfair dismissal or
discrimination at work

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Contract of Employment Legal agreement between employer and employee listing the rights and
responsibilities of the workers

Planning Permission Given by a government body to allow a business to build a factory in a

particular location

Development Area A region of a country where businesses will receive financial support to
establish there due to the high unemployment in that area

Constraint Something that limits or controls the actions and decisions of a company

External Constraint Constraints over which a business has no direct control

Social Responsibility When a business takes decisions that may benefit stakeholders other than
shareholders

Pressure Groups Formed by people who share a common interest and who will take action
to try and change the government policy or business decisions

Cost-Benefit Analysis Valuation by a government agency of all the external and private costs and
benefits resulting from a business decision

External Costs The costs paid by the rest of the society other than the business as a result
of a business decision

External Benefits The gains to the rest of the society other than the business resulting from
a business decision

Private Cost The costs of a business decision actually paid for by the business

Private Benefit The financial gains made by a business as a result of a business decision

Social Cost Addition of the private and external costs of a business decision

Social Benefit Addition of the private and external benefits of a business decision

Fixed Costs Costs which do not vary with the number of items sold or produced in the
(Overhead Costs) short term. They have to be paid whether or not the business is making
any sales

Variable Costs Costs which vary with the number of items sold or produced. They can be
(Direct Costs) directly related to or identified with a particular product

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Total Cost Fixed and variable costs combined

Break-even Charts Graphs which show how the costs and revenues of a business change with
sales. They show the level of sales a business must make in order to break
even

Revenue The income during a period of time from the sale of goods and services

Total Revenue Price multiplied by quantity sold

Break-even Point The level of sales at which total costs equal total revenue

Contribution The selling price less variable cost

Marginal Costs The extra costs that a business will incur by producing one more unit of
output

Average Cost per Unit Total cost of production divided by total output

Economies of Scale Factors that lead to a reduction in average costs as a business increases in
size

Forecasts Predictions of the future

Trend Underlying movement or direction of data over time

Line of Best Fit Line drawn through a series of points which best show the trend of that
data

Budgets Plans for the future containing financial or numerical targets

Accounts Financial records of a firm’s transactions

Final Accounts Produced at the end of the financial year and give details of the profit or
loss made over the year and the worth of the business

Trading Account Shows how the gross profit of a business is calculated

Cost of Goods Sold Cost of producing or buying in the goods actually sold by a business during
a time period

Sales Revenue Income to a business during a period of time from the sale of goods and
services

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Gross Profit Made when sales revenue is greater than the cost of goods sold

Net Profit Profit made by a business after all the costs have been deducted form
sales revenue

Profit and Loss Account Shows the net profit and retained profit of a business

Depreciation The fall in the value of a fixed asset over time

Appropriation Account That part of the profit and loss account which shows how the profit will be
distributed after tax- either given as dividends or kept in as retained profits

Retained Profit The net profit reinvested back into a company after deducting tax and
payments to owners such as dividends

Balance Sheet Shows the value of a business’s assets and liabilities at a particular time

Assets Those items of value which are owned by the business

Liabilities Items owed by the business

Return on Capital Shows how much profit is made as a proportion of the capital that has
Employed been invested in the business

Liquidity Ability of a business to pay back its short-term debts

Cash-Flow The cash inflows and outflows of a business over a period of time

Cash Flow Cycle The stages between paying out cash for labor, materials etc. and receiving
cash from the sale of goods

Cash Flow Forecast An estimate of future cash inflows and outflows of a business, usually on a
month by month basis. This will then show the expected cash balance at
the end of each month

Opening Cash Balance The amount of cash held by the business at the start of the month

Net Cash Flow The difference between inflow and outflow of cash

Closing Cash Balance Amount of cash held by the business at the end of each month. This
becomes the next month’s opening cash balance

Start-up Capital The finance needed by a new business to pay for essential fixed and

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 current assets before it can start trading

Capital Expenditure Money spent on fixed assets which will last longer than a year

Revenue Expenditure Money spent on day-to-day expenses which do not involve the purchase of
a long-term asset

Organizational Structure Refers to the levels of management and division of responsibilities within
an organization

Job Description Outlines the responsibilities and duties to be carried out by someone
employed to do a specific job

Delegation Giving authority to a subordinate to perform particular tasks. The final

responsibility, however, remains in the hands of the manager

Chain of Command The structure in an organization which allows instructions to be passed

down from senior management to lower levels of management

Span of Control Number of subordinates working directly under a manager

Line Managers Have direct authority over subordinates in their department. They are able
to take decisions in their departmental area

Staff Managers Specialist advisers who provide support to line managers and to the Board
of Directors

Decentralized Many decisions are not taken at the center of the business but instead are
Management Structure delegated to a lower level of management

Centralized Management Most decisions are taken at the center or higher levels of management
Structure

Strategic Decisions Very important decisions which can affect the overall success of the
business

Tactical Decisions Tactical decisions are medium term, less complex decisions made by
middle managers

Operational Decisions Day-to-day decisions which will be taken by a lower level of management

Communication The transferring of a message from the sender to the receiver who
understands the message

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Medium of The method used to send a message
Communication

Feedback The reply from the receiver which shows whether the message has arrived,
been understood and, if necessary, been acted upon

One-way Communication Involves 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 discussion
about it

Internal Communication When messages are sent between people working in the same
organization

External Communication When messages are sent between one organization and another
organization or an outside individual

Communication Nets The ways in which members of a group communicate with one another

Motivation The reason why employees want to work hard and effectively for the
business

Wage A payment for work, usually paid weekly

Salary 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 the
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

Appraisal A method of assessing the effectiveness of an employee

Fringe Benefits Non-financial rewards given to employees

Job Satisfaction Enjoyment derived from feeling that you have done a good job

Job Rotation Involves workers swapping round and doing each specific task for only a

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 limited time and then changing round again

Job Enlargement Extra tasks of a similar level of work are added to a worker’s job
description

Job Enrichment Involves looking at jobs and adding tasks that require more skill and/or
responsibility

Leadership Styles Different approaches to dealing with people in a position of authority

Autocratic Leadership When the manager expects to be in charge of the business and have their
orders followed- there is little/no opportunity for workers to comment on
anything

Democratic Leadership Involves a team guided by a leader where all individuals are involved in the
decision-making process to determine what needs to be done and how it
should be done.

Leave-to-do Leadership Laissez-faire leaders allow followers to have complete freedom to make
decisions concerning the completion of their work. It allows followers a
high degree of autonomy and self-rule, while at the same time offering
guidance and support when requested

Formal Group A group designated to carry out specific tasks within a business

Informal Group Group of people who form independently of any official groups set up
within a business and who have similar interests or something else in
common

Job Analysis Identifies and records the responsibilities and tasks related to a job

Job Specification 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 a

business

External Recruitment When a vacancy is filled by someone who is not an existing employee and
will be new to the business

Inundation Training Introduction given to a new employee, explaining the firm’s activities,
customs and procedures and introducing them to fellow workers

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On-the-job Training Watching a more experienced worker doing the job

Off-the-job Training Involves being 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 the 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

Trade Union Group of workers who have joined together to ensure their interests are
protected

Craft Union Trade union which represents a particular type of skilled worker

General Union Trade union which represents workers from a variety of trades and
industry- they are often unskilled or semi-skilled

Industrial Union Trade union which represents all types of workers in a particular industry

White-Collar Union Trade union which represents non-manual workers

Closed Shop All employees must be a member of the same trade union

Single-Union Agreement A firm will deal with only one trade union and no others

Employer Associations Groups of employers who join together to give benefits to their members

Negotiation Joint decision making involving bargaining between representatives of the

management and of the workforce within a firm in hopes to arrive at a
mutually acceptable agreement

Collective Bargaining Negotiations between one or more trade unions and one or more
employers on pay and conditions of employment

Productivity Agreement Workers and management agree on an increase in benefits, in return for
an increase in productivity

Industrial Action Action taken by the trade unions to decrease or halt production

Strike When employees refuse to work

Picketing When employees who are taking industrial action stand outside their
workplace to prevent or protest at the delivery of goods, arrival and

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 departure of other employees etc.

Work-to-Rule Rules are strictly obeyed so that work is slowed down

Go Slow Employees do their normal tasks but slower than usual

Non-cooperation Employees refuse to comply with the new working practices

Overtime Ban Employees refuse to work longer than their normal working hours

No-Strike Agreement When trade unions and management agree to have pay disputes settled by
an independent arbitrator instead of taking strike action

Arbitrator Listens to both sides in the industrial dispute and then gives a ruling on
what they think is fair to both sides

Lock-Out Employees are locked out of their workplace by the employers

Worker Participation When employees contribute to decision-making in the business

Works Councils Committees of workers who are consulted or informed on matters that
affect employees

Market Where buyers and sellers come together to exchange products for money

Product-Oriented A business whose main focus of activity is the product itself

Market-Oriented A business which carries out market research to find out consumer wants
before a product is developed and produced

Marketing Budget Financial plan for the marketing of a product or product range for some
specified period of time

10 Marketing Identifying customer wants, and satisfying them profitably

Customer Person or business that buys goods or services from a business.

Customer Loyalty When existing customers continuously buy products from the same
business.

Customer Relationships Communicating with customers to encourage them to become loyal and
buy more products.

Market Share The percentage of total market sales held by one brand or business

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Consumer Buys products or services for personal use.

Market Segment An identifiable sub-group of a whole market in which customers have

similar preferences.

Market Segmentation Market is divided up into groups of consumers who have similar needs

Mass Market A very large number of sales for a product

Niche Market Small, specialized segment of a much larger market

11 Market Research Process of gathering, analyzing and interpreting information about a

market.

Primary Research Collection and collation of original data via direct contact with potential or
(Field Research) existing customers

Secondary Research Information which has already been collected and is available for use by
(Desk Research) others

Online Survey Requires target sample to answer some questions over the internet.

Questionnaire Set of questions to be answered as a means of collecting data for market

research

Consumer Panels Groups of people who agree to provide information about a specific
product or general spending patterns over a period of time

Focus Group Group of people who are representative of the target market.

Sample Group of people who are selected to respond to a market research.

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

12 Marketing Mix Term used to describe all the activities which go into marketing a product
or a service.

USP Unique Selling Point is the special feature of the product that differentiates
it from the competitors’ products.

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Brand Name Unique name of a product that distinguishes it from other brands

Brand Loyalty When consumers keep buying the same brand again and again instead of
choosing a competitor’s brand

Brand Image 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- 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

Extension Strategy Way of keeping a product at the maturity stage of life cycle and extending
the cycle.

13 Marketing Mix

Cost-Plus Pricing Cost of manufacturing the product plus a profit mark-up

Penetration Pricing When prices are set lower than the competitors’ prices in order to be able
to enter a new market

Price Skimming High price set for a new product on the market due to its novelty factor

Competitive Pricing Product is priced in line with or just below competitors’ prices to try to
capture more of the market

Promotional Pricing When a product is sold at a very low price for a short period of time

Psychological Pricing When particular attention is paid to the effect that the price of a product
will have upon the consumers’ perceptions of the product

Dynamic Pricing When Businesses change product prices. Usually when selling online
depending on the level of demand.

Price elastic Demand Where consumers are sensitive to changes in price

Price inelastic demand Where consumers are insensitive to change in price.

14 Marketing Mix: Place

Distribution Channel The means by which a product is passed from the place of production to

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 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. The agent will either
put an additional amount on the price to cover their expenses or will
receive a commission on sales

15 MM: Promotion

Promotion Where marketing activities aim to raise customer awareness of a product

or a brand, generating sales and helping to create brand loyalty

Advertising Paid for communication with potential customers about a product to

encourage them to buy it.

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 Refers to the people who are potential buyers of a product or service

Sales promotions Special incentives such as deals or offers aimed at consumers to get short-
term increase in sales.

Marketing Budget Financial plan for marketing a product for a specified period of time

AIDA Model Simple way of planning an advert’s design. It stands for attention, interest,
desire and action

16 MM: Tech & Mkt Mix

Social Media Mktg Form of internet marketing that involves creating and sharing content on
social media networks in order to achieve marketing and branding goals.
Involves activities such as posting text and image updates, video and other
content.

Viral Marketing When consumers are encouraged to share information online about the
products.

e-Commerce Online buying and selling of goods and services using computers and
phones over internet.

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17 MM: Marketing
Strategy

Marketing Strategy Plan to combine the right combination of marketing mix for a product or
service to achieve specific objectives.

Operations Management

18 Production of Goods and Services

Productivity Output measured against the inputs used to create it

Buffer inventory Inventory held to deal with uncertainty in demand and supply

Job Production A single product is made at a time

Batch Production A quantity of one product is made, then a quantity of another item will be
produced depending on the orders which come in

Flow Production Large quantities of a product are produced in a continuous process

(Mass Production)

Lean Production Techniques used by businesses to cut down on waste and therefore
increase efficiency

Kaizen A process of continuous improvement through the elimination of waste

Just-in-Time Production method that involves reducing or virtually eliminating the need
to hold stocks of raw materials or unsold stocks of the finished products.
Supplies arrive just at the time they are needed

19 Costs, Scale of Production and Break Even

Fixed Costs Costs that do not vary with the number of items sold or produced. Have to
be paid whether business makes any sales or not.

Variable Costs Costs that vary directly with the number of items produced

Total Costs Fixed + Variable Costs

Average Cost per Unit Total Cost of Production / Total Output

Economies of Scale Factors that lead to a reduction in average costs as a business increases in

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 size.

Diseconomies of scale Factors that lead to an increase in average costs as a business grows
beyond a certain size.

Breakeven level of Quantity that must be produced / sold for Total revenue = Total Costs. Also
output / Breakeven point

Breakeven Charts Graphs which show how revenue and costs change with sales. Also show
the breakeven point.

Revenue Income during a period of time from sale of goods or services.

Margin of safety Amount by which sales exceed the breakeven point.

Contribution Selling price – variable cost.

20 Achieving quality and Production

Quality To produce good or service that meets customer expectations

Quality Control Checking for quality at the end of production process. Uses quality
inspectors to find faults.

Quality Control Checking for quality standards in throughout production process by

employees.

Total Quality Continuous improvement of products and processes by focusing on quality

Management at each stage of production

Quality Assurance The maintenance of a desired level of quality in a service or product,

especially by means of attention to every stage of the process of delivery
or production.

22 Business finance: Needs and Sources

Start-up Capital finance needed by a new business to pay for essential non-current and
current assets before it can begin trading

Working capital finance needed by a business to pay for its day-to-day activities

Capital Expenditure money spent on non-current assets which will last for more than one year

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Revenue expenditure money spent on day-to-day expenses which do not involve the purchase of
a long-term asset, for example, wages or rent

Internal Finance Finance obtained from within the business itself

External Finance Finance obtained from sources outside of and separate from the business

Micro finance providing financial services - including small loans - to poor people not
served by traditional banks

Crowdfunding funding a project or venture by raising money from a large number of

people who each contribute a relatively small amount, typically via the
internet

23 Cash flow forecasting and working capital

Cash flow cash inflows and outflows over a period of time

Cash inflows sums of money received by a business during a period of time

Cash outflows sums of money paid out by a business during a period of time

Cash flow cycle shows the stages between paying out cash for labor, materials, and so on,
and receiving cash from the sale of goods

Profit surplus after total costs have been subtracted from revenue

cash flow forecast estimate of future cash inflows and outflows of a business, usually on a
month-by-month basis

Net cash flow difference, each month, between inflows and outflows

Closing cash (or bank amount of cash held by the business at the end of each month
balance)

Opening cash amount of cash held by the business at the start of the month

Working capital Capital available to a business in the short term pay for its day-to-day
expenses

24 Income Statement

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Accounts financial records of a firm's transactions

Final accounts produced at the end of the financial year and give details of the profit or
loss made over the year and the worth of the business

Accountants Professionally qualified people who have responsibility for keeping

accurate accounts and for producing the final accounts.

income statement financial statement that records the income of a business and all costs
incurred to earn that income over a period of time

Revenue income to a business during a period of time from the sale of goods and
services

Cost of sales cost of producing or buying the goods actually sold by the business during
a time period

Gross Profit made when revenue is greater than the cost of sales

trading account shows how the gross profit of a business is calculated

Net profit profit made by a business after all costs have been deducted from revenue

Depreciation Fall in the value of a fixed asset over time

Retained profit net profit reinvested back into the company after deducting tax and
payments to owners, such as dividends

25 Statement of Financial position

statement of financial shows the value of a business's assets and liabilities at a particular time
position

Assets those items of value which are owned by the business

Liabilities are debts owed by the business

Non-current assets Items owned by the business for more than one year

Current assets Owned by the business and used within one year

Non-current liabilities Long-term debts owed by the business, repaid over more than one year

Current liabilities short-term debts owed by the business, repaid in less than one year

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20
26 Analysis of Accounts

Capital Employed shareholders' equity + non-current liabilities and is the total long-term and
permanent capital invested in a business

Liquidity Ability of a business to pay back its short-term debts

Profitability Measurement of the profit made relative to either the value of sales
achieved, or the capital invested in the business

Illiquid Assets cannot be easily converted to cash

27 Economic Issues

Inflation increase in the average price level of goods and services over time

Unemployment When the people who are willing and able to work cannot find a job

Economic growth When a country's GDP 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 Value of income, and it falls when prices rise faster than money income

Exports Goods and services sold from one country to another country

Imports Goods and services bought by one country from other countries

Exchange rate Price of one currency in terms of another

Exchange rate Rise in the value of a currency compared with other currencies
appreciation

Exchange rate Fall in value of a currency compared with other currencies

depreciation

Fiscal policy Change by the government in tax rates or public sector spending

Direct taxes Paid directly from incomes, eg, income tax or profits tax

Indirect taxes Added to the prices of goods, and taxpayers pay the tax as they purchase
the goods, eg-VAT

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Disposable income Level of income a taxpayer has after paying income tax

Import tariff Tax on an imported product

Monetary policy Change in rates by the government or central bank

Import quota Physical limit on the quantity of a product that can be imported

Supply-side policies Aim to increase supply and make the economy more efficient by increasing
competitiveness of industries in an economy

Social responsibility When business decision benefits stakeholders other than shareholders

Environment Is our natural world including pure air, clean water and undeveloped
countryside

Global warming Gradual increase in the overall temperature of earth’s atmosphere due to
increased levels of CO2, CFCs and other pollutants

Pressure group Made up of people who want to change business or government decisions
by taking actions such as boycotts

Private costs of an activity Costs paid for by a business or the consumer of the product

Private benefits of an Gains to a business or the consumer of the product

activity

External costs Costs paid for by the rest of society, other than the business, as a result of
business activity

External benefits Gains to the rest of society, other than the business, as a result of business
activity

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23
Understanding Business Activity
1. A need is a good or service essential for living
2. 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.
3. Economic Problem- There exist unlimited wants but limited resources to produce the goods and
services to satisfy those wants. This creates scarcity
4. Factors of production are those resources needed to produce goods and services. There are four
factors of production, and they are in limited supply.
5. Scarcity is the lack of sufficient products to fulfil the total wants of the population.
6. Opportunity cost is the next best alternative given up by choosing another item
7. Specialization occurs when people and businesses concentrate on what they are best at
8. 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
9. Businesses combine the factors of production to make goods and services which satisfy people's
wants.
10. Added value is the difference between the selling price and the cost of bought-in materials and
components
11. The primary sector of industry extracts and uses the natural resources of Earth to produce raw
materials used by other businesses
12. The secondary sector of industry manufactures goods using the raw materials provided by the
primary sector.
13. The tertiary sector of the industry provides services to consumers and other sectors of industry.
14. De-industrialisation occurs when there is a decline in the importance of the secondary
manufacturing sector of industry in a country
15. A mixed economy has both a private sector and a public (state) sector
16. Capital is the money invested into the business by the owners
17. An entrepreneur is a person who organises, operates and takes the risk for a new business
venture
18. Capital employed is the total value of capital used in the business
19. Internal Growth occurs when a business expands its existing operations
20. 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
21. 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]
22. A merger is when the owners of two businesses agree to join their businesses together to make
one business
23. Horizontal integration is when one business merges with or takes over another one in the same
industry at the same stage of production
24. 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.
25. Conglomerate integration is when one business merges with or takes over a business in a
completely different industry. This is also known as diversification.

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 26. A sole trader is a business owned by one person.
27. Limited liability means that the liability of shareholders in a company is limited to only the
amount they invested
28. 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
29. Partnership is a form of business in which two or more people agree to own a business jointly
30. Unincorporated businesses do not have a separate legal identity. Sole traders and partnerships
are unincorporated businesses
31. incorporated businesses are companies that have separate legal status from their owners
32. Shareholders are the owners of a limited company. They buy shares, which represent part-
ownership of the company.
33. Private limited companies are businesses owned by shareholders, but they cannot sell shares to
the public.
34. 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
35. 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.
36. 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.
37. A joint venture is where two or more businesses start a new project together, sharing capital,
risks and profits.
38. A public corporation is a business in the public sector that is owned and controlled by the state
[government]
39. Business objectives are the aims or targets that a business works towards
40. Profit is the total income of a business [revenue] minus total costs
41. Market share is the percentage of total market sales held by one brand or business
42. A social enterprise has social objectives as well as an aim to make a profit to reinvest back into
the business
43. A stakeholder is any person or group with a direct interest in the performance and activities of a
business

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People in Business
1. Motivation is the reason why employees want to work hard and work effectively for the
business.
2. Wage is a payment for work, usually paid weekly
3. Time rate is the amount paid to an employee for one hour of work
4. The piece rate is the amount paid for each unit of output
5. Salary is payment for work, usually paid monthly.
6. Bonus is an additional amount of payment above basic pay as a reward for good work.
7. The commission is a payment relating to the number of sales made
8. Profit sharing is a system whereby a proportion of the company's profits are paid out to
employees
9. Job satisfaction is the enjoyment derived from feeling that you have done a good job
10. Job rotation involves workers swapping around and doing each specific task for only a limited
time and then changing around again
11. Job enrichment involves looking at jobs and adding tasks that require more and/or responsibility
12. Team-working involves using groups of workers and allocating specific tasks and responsibilities
to them
13. Training is the process of improving a worker's skills
14. Promotion is the advancement of an employee in an organisation, for example, to a higher
job/managerial level
15. Organisational structure refers to the levels of management and division of responsibilities
within an organisation
16. An organisational chart refers to a diagram that outlines the internal management structure
17. Hierarchy refers to the levels of management in any organisation, from the highest to the lowest.
18. A level of hierarchy refers to managers/supervisors/other employees who are given a similar
level of responsibility in an organisation.
19. Chain of command is the structure in an organisation which allows instructions to be passed
down from senior management to lower levels of management.
20. The span of control is the number of subordinates working directly under a manager.
21. Directors are senior managers who lead a particular department or a division of a business.
22. Line managers have direct responsibility for people below them in the hierarchy of an
organisation.
23. Supervisors are junior managers who have direct control over the employees below them in the
organisational structure.
24. Staff managers are specialists who provide support, information and assistance to line managers.
25. Delegation means giving a subordinate the authority to perform particular tasks.
26. Leadership styles are the different approaches to dealing with people and making decisions
when in apposition of authority - autocratic, democratic and laissez-faire.
27. Autocratic leadership is where the manager expects to be in charge of the business and to have
their orders followed.
28. Democratic leadership gets other employees involved in the decision-making process.

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 29. Laissez-faire leadership makes the broad objectives of the business known to employees, but
then they are left to make their own decisions and organise their own work.
30. Recruitment is the process of identifying that the business needs to employ someone up to the
point at which applications have arrived at the business.
31. Job analysis identifies and records the responsibilities and tasks relating to a job.
32. A job description outlines the responsibilities and duties to be carried out by someone employed
to do a specific job.
33. Job specification is a document which outlines the requirements, qualifications, expertise,
physical characteristics, etc., for a specified job
34. Internal recruitment is when a vacancy is filled by someone who is an existing employee of the
business
35. External recruitment is when a vacancy is filled by someone who is not an existing employee and
will be new to the business
36. induction training is an introduction given to a new employee, explaining the business's
activities, customs and procedures and introducing them to their fellow workers
37. On-the-job training occurs by watching a more experienced worker doing the job
38. Off-the-job training involves being trained away from the workplace, usually by specialist
trainers.
39. Workforce planning is establishing the workforce needed by the business for the foreseeable
future in terms of the number and skills of employees required.
40. Dismissal is when employment is ended against the will of the employee, usually for not working
according to the employment contract.
41. Redundancy is when the employee is no longer needed and so loses their job. It is not due to
any aspect of their work being unsatisfactory.
42. A contract of employment is a legal agreement between an employer and an employee, listing
the rights and responsibilities of workers.
43. Communication is the transferring of a message from the sender to the receiver, who
understands the message.
44. A message is the information or instructions being passed by the sender to the receiver
45. Internal communication is communication between members of the same organisation
46. External communication is communication between the organisation and other organisations or
individuals.
47. The transmitter or sender of the message is the person starting off the process by sending the
message.
48. The medium of communication is the method used to send a message; for example, a letter is a
method of written communication, and a meeting is a method of verbal communication.
49. The receiver is the person who receives the message
50. Feedback is the reply from the receiver which shows whether the message has arrived, been
understood, and, if necessary, acted upon
51. One-way communication involves a message which does not call for or require a response
52. Two-way communication is when the receiver gives a response to the message, and there is a
discussion about it

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 53. Formal communication is when messages are sent through established channels using
professional language
54. Informal communication is when information is sent and received casually using everyday
language
55. Communication barriers are factors that stop the effective communication of messages

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