1. Understanding business activity

Business Terms

Need

good or service essential for living

Want

good or service which people would like but is not an essential for living.

→ peoples wants are unlimited

Economic problem

unlimited wants but have limited resources to produce the goods and services to satisfy those wants.

→ results in scarcity

Scarcity

is the lack of sufficient products to fulfill the total wants of population

Factors of production

• are resources needed to produce goods and services

• four factors of production which are in limited supply

  • land

  • labour

  • enterprise

  • capital

Opportunity cost

next best alternative given by choosing another item

Division of labour

when the production process is split up into different tasks, each performed by different workers selected to one of those tasks.

Added value

is the difference between the selling price and the cost of the bought in materials and components to produce the product.

Primary sector of industry

extracts and uses the natural resources of earth to produce raw materials used by other business

Secondary sector of industry

uses the raw materials from primary sector to manufacture goods

tertiary sector of industry

provides a service to consumers & other sectors of the industry

→ selling products from the secondary sector to consumers

De-industrialisation

occurs when there is a decline in the secondary manufacturing sector of industry in a country.

Mixed economy

both private and public (state) sectors

Capital

money invested into business by owners

Entrepreneur

the person taking on the responsibility and risks to operate and organise a new business.

Capital employed

is the total value of capital used in the business

Internal growth

occurs when a business expands its existing operations

External growth

occurs when a business takes over or merges with another, often called integration.

Takeover or Acquisition

when one business buys out the owners of another business, which then becomes part of the ’predators’ business (business which took over the other).

Merger

is when two owners of different firms/ business agree to join their business with the other to make one business.

Horizontal integration

when one business mergers or takes over another which is in the same industry at same stage of production.

Vertical integration

when a business merges or takes over another which is at a different stage of production but in same industry.

→ can be forward or backwards

1. Forward: A Coca-Cola business merging with a convenient store to sell its products directly to consumers

2. Backward: A Coca-Cola business merging with a bottling company for production of its products

Conglomerate integration

when a business merges or takes over a totally different business at a diverse stage of production and diverse industry.

Sole trader

one singular person owning and taking on risks of a business

Limited liability

is when the owner of a business can only be held accountable for the amount they invest in

Unlimited liability

when the owners of a business can be held responsable for any depts of business they own.

→ liability is not limited to investments made in business

Partnership

a form of business in which two or more people agree to own a business jointly

Unincorporated business

they do not have a separate legal identity.

Sole traders and partnerships are an example of this.

Incorporated business

the owner/s of a business have a separate legal identity to their business

Shareholders

are the owners of a limited company.

→ they 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, but they can sell share to public, and their shares are tradable on the stock exchange.

Dividends

Are payments made to shareholder from profits (after tax) of a company.

They are the return to shareholders for investing in the company.

Franchise

when a business uses the name, logo, and ideas of a business that is already successful.

Franchisor

person that gives authorisation to franchisee to buy a license to operate on.

Franchisee

buys the license to operate from this business from franchisor

Joint venture

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

Public coporation

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

Profit

are the total incomes of a business (revenue) minus the total costs

revenue - total costs = profit

Market share

is the percentage% of the total market sales held by one brand or business

Social enterprise

has social objectives and an aim to make a profit to reinvest back into the business

Stakeholder

is any person or group with a direct interest in the performance or activity of a business