Cambridge IGCSE and O Level Business Sixth Edition - Core Vocabulary

An optimized revision deck of fundamental business definitions designed to maximize mastery, yield the highest educational return, and efficiently prepare students for assessment.

Capital

The money invested into a business by the owners.

Added value

The difference between the selling price of a product and the cost of bought-in materials and components needed to produce it.

Opportunity cost

The value of the next most desired option given up when making a choice between alternative uses of limited resources.

Primary sector

The sector of industry that extracts and uses the natural resources from the Earth to produce raw materials used by other businesses.

Secondary sector

The sector of industry that manufactures goods using the raw materials provided by the primary sector.

Tertiary sector

The sector of industry that provides goods and services to consumers and the other economic sectors.

Private sector

The part of the economy owned and controlled by private individuals and companies, usually for profit.

Public sector

The part of the economy owned and controlled by the government or state.

Entrepreneur

A person who has an idea for a business, is prepared to invest their own capital, and accepts the risks of the business.

Internal growth

Occurs when a business expands its existing operations without merging or joining with another business.

Integration

Occurs when one business merges with or takes over another business, which then becomes part of the combined business.

Vertical integration

When one business merges with or takes over another one in the same industry at a different stage of production.

Sole trader

A business owned and operated by just one person.

Partnership

A form of business organisation formed when two or more people agree to jointly own a business.

Unincorporated business

A business that does not have a separate legal identity from its owners.

Unlimited liability

Means that the owners of a business can be held personally responsible for all the debts of the business they own.

Limited liability

Means that the liability of shareholders in a company is limited to only the amount of money they invested.

Private limited company

A business owned by shareholders that cannot sell shares to the general public.

Public limited company

A business owned by shareholders that can sell shares to the general public on a stock exchange.

Annual General Meeting (AGM)

A legal requirement for all public limited companies where shareholders may attend, vote on who will be on the Board of Directors, and discuss company decisions.

Dividends

Payments made to shareholders from the profits (after tax) of a company as a return for investing in the company.

Franchise

A business system based upon the name, logo, and trading methods of an established business, where a licence is sold to a franchisee.

Joint venture

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

Social enterprise

A business operated by private individuals that has social, environmental, and financial objectives rather than focusing solely on profit.

Stakeholder

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

Internal stakeholders

Individuals or groups who work within or own the business, such as managers, employees, and owners.

External stakeholders

Individuals or groups who are separate from the business but have a direct interest in its activities, such as customers, suppliers, and local communities.

Recruitment

The process that starts with identifying that the business needs to employ someone, up to the point at which applications have arrived at the business.

Employee selection

The process of evaluating applicants for a specific job and selecting an individual for employment based on the needs of the organisation.

Internal recruitment

When a vacancy is filled by someone who is an existing employee of the business.

External recruitment

When a vacancy is filled by someone who is not an existing employee and is new to the business.

Contract of employment

A legal agreement between an employer and an employee, listing the rights and responsibilities of employees.

Unfair dismissal

Occurs when an employer ends an employee's contract of employment for a reason that is not legally covered by that contract.

Legal minimum wage

The minimum wage per hour that employers must legally pay their employees.

Induction training

An introduction given to a new employee, informing them about the business, its procedures, and their job.

On-the-job training

Training where a person is trained by observing and practicing with a more experienced employee doing the job within the business.

Off-the-job training

Training where the employee is trained away from the normal place of work.

Hierarchical structure

An organisational structure with different levels of authority and a chain of command.

Chain of command

The way in which authority, control, and instructions are passed down from senior management to lower levels.

Span of control

The number of subordinates working directly under a manager.

Flexible working

A system allowing employees choice over start and stop times or where to work, as long as contracted hours are completed.

Delegation

Giving a subordinate the authority to perform particular tasks.

Autocratic leadership

Leadership style where the manager is in total charge of the business and expects orders to be followed without question.

Democratic leadership

Leadership style that involves employees in the decision-making process, but the final decision is left to the leader.

Laissez-faire leadership

Leadership style that makes the broad objectives of the business known to employees but then leaves them to make their own decisions and organise their own work.

Downsizing

Permanently reducing the number of people employed in a business to make the workforce smaller.

Redundancy

When an employee's job is no longer required by the business through no fault of their own.

Trade union

A group of employees who have joined together to ensure their interests and working conditions are protected.

Communication

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

Feedback

The response of the receiver which shows whether the message has been received, understood, and acted upon.

Motivation

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

Piece-rate

An employee payment method that is paid for each unit of output produced.

Job satisfaction

The enjoyment derived from feeling that you have done a good job.

Job rotation

Involves workers swapping jobs and doing each specific task for only a limited time and then changing jobs again.

Job enrichment

Involves adding extra tasks to a job role that require more skill and responsibility.

Customer loyalty

When existing customers continually buy products from the same business.

Market share

The percentage of total market sales held by one brand or business, calculated as: $\text{Market share (\%)} = \frac{\text{Sales revenue of business}}{\text{Total sales revenue for whole market}} \times 100$

Mass market

Where a business sells to the largest part of the market, often where standardized products are being sold.

Niche market

A small, usually specialized, segment of a much larger market.

Market segmentation

When a business knows that different segments of a market exist and it develops and markets different products to each segment.

Primary market research

The collection and collation of original data via direct contact with potential or existing consumers.

Secondary market research

Uses information that has already been collected and is available for use by others.

Sample

The group of people who are selected to respond to a primary market research exercise.

Unique Selling Point (USP)

The special feature of a product that differentiates it from the products of competitors.

Product life cycle

The stages a product will pass through from its initial introduction, through its growth to maturity and eventual decline.

Extension strategy

A way of keeping a product at the maturity stage of the life cycle and extending the cycle over a longer period of time.

Cost-plus pricing

Setting a price by estimating total costs per unit and adding a percentage mark-up for profit.

Competitive pricing

Setting prices at the same level as, or a similar level to, competitors' prices.

Penetration pricing

Setting a price lower than competitors' prices in order to penetrate the market and gain market share quickly.

Price skimming

Charging a high price for a new product, usually when it is high quality or newly developed.

Dynamic pricing

Varying the price of a product, usually when selling online, depending on changing demand.

Distribution channel

The route through which a product passes from the producer to the consumer.

Agent

An independent person or business that is appointed to deal with the sales and distribution of a product or range of products.

Sales promotion

Short-term incentives or special offers used to encourage consumers to buy a product.

Ecommerce

The buying and selling of goods or services over the internet.

Marketing strategy

A plan of action combining a clear marketing objective and details of an appropriate marketing mix.

Labour productivity

The amount of work done or the number of units produced by a worker in a given time period, calculated as: $\text{Labour productivity} = \frac{\text{Output per period (units)}}{\text{Number of employees}}$

Lean production

Production methods aimed at using fewer inputs, cutting down on waste, and increasing efficiency.

Just-in-Time (JIT)

A production method that reduces or eliminates the need to hold inventories of raw materials or finished goods.

Kaizen

A Japanese term meaning continuous improvement through the elimination of waste.

Job production

A production method where single, customized products are made specifically to order.

Batch production

A production method where a set quantity of one product is made, then a set quantity of another product is made.

Flow production

Where large quantities of a standardized product are produced continuously along an assembly line.

3D printing

Producing a physical three-dimensional object from a digital design.

Fixed costs

Costs which do not vary in the short run with the number of items produced or sold.

Variable costs

Costs which vary directly with the number of items produced or sold.

Total costs

The sum of fixed costs and total variable costs for a specific level of output.

Average cost

The total cost of production divided by the total number of units produced.

Economies of scale

The factors that lead to a reduction in average costs as a business increases in size.

Diseconomies of scale

The factors that lead to an increase in average costs as a business grows beyond a certain size.

Break-even output

The quantity of output that must be produced or sold for total revenue to equal total costs, calculated as: $\text{Break-even output} = \frac{\text{Fixed costs}}{\text{Contribution per unit}}$

Margin of safety

The amount by which actual output or sales exceed the break-even output level, calculated as: $\text{Margin of safety} = \text{Actual number of sales} - \text{Break-even number of sales}$

Quality control

Checking the quality of a product or service at the end of the production process by quality inspectors.

Quality assurance

Setting quality standards at every stage of production and checking that these standards are met by all employees.

Globalisation

The increase in worldwide trade and the movement of people and capital between countries.

Multinational company (MNC)

A business with factories, production, or service operations in more than one country.

External costs

Costs imposed on a third party that are independent of the original economic transaction.

External benefits

Benefits imposed on a third party that are independent of the original economic transaction.

Exchange rate

The price of one currency in terms of another currency.

Pressure group

A group of people who act together to try to force businesses or governments to adopt certain policies.