Business studies.

Definitions of all topics.

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

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

Capital The money invested into a business by the owners

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

Limited Liability The owners of a company cannot be held responsible for the debts of the
company they own and their liability is only limited to the investment
they made in buying the shares

Partnership Agreement Written and legal agreement between business partners

Unincorporated One that does not have a separate legal identity

Business

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

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 A legal requirement for all companies in which it is voted on who should
Meeting 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

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 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

Contract of Legal agreement between employer and employee listing the rights and
Employment 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
(Overhead Costs) the 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
(Direct Costs) be directly related to or identified with a particular product

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

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

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 Involves a message which does not call for or require a response
Communication

Two-way When the receiver gives a response to the message and there is
Communication discussion about it

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

External When messages are sent between one organization and another
Communication 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 which is related to the effectiveness of the employee

Pay
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
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

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

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
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

Marketing Management process which identifies customer wants, anticipates future

wants and then goes about satisfying them profitably

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

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

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

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

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

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
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

Trade Cycle A cycle or series of cycles of economic expansion and contraction

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

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

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

Channel of Distribution The means by which a product is passed from the place of 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. The agent will
either put an additional amount on the price to cover their expenses or
will receive a commission on sales

Productivity Output measured against the inputs used to create it

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)

Lead Time Margin of time between the date when stock is obtained and the date
when it is sold

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

Quality Control A system of maintaining standards in manufactured products by testing a

sample of the output against the specification.

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.

Total Quality Continuous improvement of products and processes by focusing on

Management quality at each stage of production

Common Currency Result of an agreement between countries to use the same currency for
all business and other transactions- e.g. euro in EU

Globalization The process by which businesses or other organizations develop

international influence or start operating on an international scale

Multinational A business with factories, production or service operations in more than

(Transnational) one country
Businesses