IGCSE Business Studies Topic 1: Understanding Business Activity

Vocabulary flashcards covering Topic 1: Understanding Business Activity for IGCSE Business Studies (0450).

Business

An organisation that combines resources to produce goods or provide services to satisfy customers' needs and wants.

Needs

Basic necessities that people must have to survive, such as food, water, shelter, and clothing.

Wants

Goods or services that people would like to have, such as smartphones, jewellery, designer clothes, and holidays.

Factors of production

Resources needed to produce goods/services, consisting of Land, Labour, Capital, and Enterprise ($L + L + C + E$).

Land

Natural resources used in production, such as water, land, and minerals.

Labour

Human effort used in production, represented by employees.

Capital

Man-made resources used in production, such as machines and buildings.

Enterprise

The ability to take risks and organise resources to start and operate a business.

Economic activity

The production, buying, and selling of goods and services.

Added value

The difference between the selling price and the cost of materials ($\text{Added value} = \text{Selling price} - \text{Cost of bought-in materials}$).

Primary sector

The sector of the economy that extracts natural resources, such as farming, fishing, mining, and forestry.

Secondary sector

The sector of the economy that processes raw materials into finished/semi-finished goods, such as manufacturing, construction, food processing, and car production.

Tertiary sector

The sector of the economy that provides services, such as banks, schools, hotels, transport, shops, and hospitals.

Entrepreneur

Someone who takes the risk of starting/running a business.

Business plan

A document setting out objectives and how to achieve them.

Internal growth

Growth achieved when a business expands using its own resources, such as opening a new branch or increasing production.

External growth

Growth achieved by joining/taking over another business.

Merger

A form of external growth where two businesses agree to join together.

Takeover

A form of external growth where one business buys another.

Horizontal integration

External growth resulting from joining businesses at the same stage in the same industry (e.g., bakery + bakery).

Vertical integration

External growth resulting from joining businesses at different stages in the same industry, either Forward (closer to customer) or Backward (closer to raw materials).

Conglomerate / diversification

External growth resulting from joining businesses in different industries (e.g., food + clothing).

Economies of scale

The reduction in average cost as production increases (Types: Purchasing, Marketing, Financial, Managerial, Technical).

Diseconomies of scale

The situation where costs increase when a business becomes too large due to poor communication, difficult management, low motivation, slow decisions, or lack of control.

Market share

The proportion of total market sales achieved by a business, calculated as $\text{Market share} = \frac{\text{Business sales}}{\text{Total market sales}} \times 100$.

Sole trader

A business organisation owned by one person.

Unlimited liability

A legal responsibility where owner's personal possessions may be used to pay business debts.