Business AS level theme 2 recap

nominal value

the actual amount before the effect of inflation is considered

inflation

the general increase in prices over time

demand-pull inflation

occurs when there is an excess demand in the economy (mainly from consumer) and firms cannot supply the increase in demand this causes prices to rise, hence inflation: often described as an overheating economy

cost-push inflation

when inflation occurs when the costs (of the factors of production) increase

hyperinflation

were the prices of all good and services rise uncontrollably over a defined period time

ARR

average rate of return, (Average Annual Profit / Initial Investment) x 100 

NPV

net present value, used to calculate the current value of a future stream of payments from a company, project or investment

benefits of infaltion

• improve efficiency (pressure to put costs down)

• more effecient business will survive

• benefit to consumers as selling prices for products will fall

free markets economists

where prices set freely between seller and consumer, without intervention from the government.

interest rate

the cost of borrowing money or the reward returned on saving money

disposable income

the amount consumers have left to spend after paying bills such as mortgage repayments

exchange rate

the value of one currency expressed in terms of another

depreciation

a fall in the value of a currency

appreciation

the rise in value of a currency

imports

goods from other countries paid with foregin currrency

exports

goods sold to another countries and paid for in pounds

public sectors

part of the economy directly organised by the government

private sector

all business and self employed people that make their own decisions independently

direct taxes

income, NI, corporation tax

indirect taxes

council tax, excise duties, VAT

tax revenue

income generated by governments through taxes

economic growth

the rate of increase in the size of an economy over time, usually measured by GDP

GDP

the value of a country's output over a peroid of time

5 areas of legisaltion

1. Consumer protection

2. Employee protection

3. environmental protection 

4. competition policy 

5. health and safety

non-competitive markets

a minority of markets that have very little competition

Market structure - the characteristics of a market

1. Barriers to entry 

2. the number of business in the market (level of saturation/concentration)

3. whether they produce identical products

4. knowledge of buyers and sellers

5. degree of interrelationships 

monopoly

where one business dominates the market (25% market share)

duopoly

where 2 business dominate the market e.g apple and samsung

monopsony

where one business in the man buyer in a market

oligopoly

were a small number of business dominate the market e.g the supermarket makret is an oligopolistic market

cartel

a group of business/countries which join together to agree on pricing and output in the market, is illegal

colluding

were several business/countries make an agreement among themselves which benefits them at the expense of rival businesses or customers

acid test ratio / liquidity ratio

measures the ability of a business to stay solvent in the short term, current assets- inventory/ current liabilities, ideal ration is 1.1 :1

current ratio

current assets/ current liabilities, ideal ratio is 1.5:1 or 2:1

ways of improving liquidity

• selling under used fixed assets

• raising more share capital

• increasing long-term borrowing

• postponing planned investment

equity

assets (current + noncurrent) - Liabilities (current + noncurrent)

working captial/ net assets

current assets - current liabilities

total equity

share capital + reserves

capital employed

total equity + non current liabilities

main difference between current and non-current assets

current= turned into cash within a year e.g stock vs non-current= likley to be kept in the business for over a year e.g machinery

non-current liaiblites

Debts that the business has more than one year to repay e.g bank loan

current liabilities

Debts that the business may have to repay within one year e.g. taxes

margin of safety

actual level of output- breakeven level of output