Level 2
Level 1

Section 1


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need
A good or service that is essential for living.
want
A good or service that people would like to have but is not necessary for living. People have unlimited wants.
economic problem
There are unlimited wants but limited resources to produce the goods and services to satisfy wants. This creates scarcity.
Factors of production
Resources needed to produce goods and services. There are 4 factors of production (land, labour, capital, enterprise) and they are limited in supply.
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 and each worker performs one of these tasks. It is a form of specialisation.
Business
Combines factors of production to make products (goods and services) which satisfy people's wants.
Added Value
It is the difference between the selling price of a product and the cost of bought in materials and components.
Primary Sector
Extracts and uses natural resources to produce raw materials used by other businesses.
Secondary Sector
Manufactures goods using raw materials provided by Primary Sector.
Tertiary Sector
Provides services to customers and other sectors of industry.
De-industrialisation
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 sector.
Private Sector
Businesses not owned by government. Make their own decision about selling price. Aim to run profitably. Some government control.
Public Sector
Government-owned, controlled businesses and organisations. Decide which price to charge consumers. Different aim from Private Sector.
Capital
Money invested into business by owners.
Entrepreneur
A person who organises, operates and takes the risk for a new business venture.
Business Plan
Document containing the business objectives and important details about the operations, finance and owners of the new businesses.
Capital Employed
Total value of capital used in the business.
Internal Growth
When a business expands its existing operations.
External Growth
When a business takes over or merges with another business.
Integrations/Merger
When two businesses agree to join their firms together to make one business.
Takeover/Acquisition
One business buys out the owners of another business which then becomes part of the 'predator' business
Horizontal Integration
When one company merges with or takes over another in the same industry in the same stage of production.
Vertical Integration
When one company merges with or takes over another in the same industry but at a different stage of production.
Conglomerate Integration/Diversification
When one company merges with or takes over another in a completely different industry.
Sole Trader
Business owned 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 make.
Partnership
A form of business in which two or more people agree to jointly own a business.
Partnership Agreement
The written legal agreement between partners.
Unincorporated Business
One that does not have a separate legal entity. Sole traders and partnerships are unincorporated businesses.
Incorporated Business
Companies that have a separate legal status from their owners.
Shareholders
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 to be on the Board of Directors for the coming year.
Dividend
Payments made to shareholders from the profit (after tax) of a company. They are the return to shareholders for their investment in the company.
Franchise
Business based upon the use of brand names and trading methods of an existing successful business. Franchisees use franchisor's ideas, names.
Business Objective
Aims and targets that a business works towards.
Profit
Total income (sales revenue) - total costs
Market share
Proportion of total market sales achieved by one business.
Social Enterprise
Has social objectives as well as an aim to make profit to reinvest back into the business.
Stakeholder
A person or group with a direct interest in the performance and activities of a business.