Definitions 1: Understanding business activity

Need

A good or service essential for living

Want

A good or service that is desired but not essential for living

Economic Problem (Scarcity)

Unlimited wants but limited resources

Factors of Production

Land, Labour, Capital, Enterprise

Opportunity Cost

The next best alternative given up when making a choice

Specialisation

When people concentrate on what they are best at

Division of Labour

A workforce is divided across various tasks

Business

Any activity that combines the factors of production to make goods and services which satisfy people's wants/needs

Value Added

Selling price - Raw materials

Primary Sector

Extraction of raw materials

Secondary Sector

The use of raw materials to manufacture goods

Tertiary Sector

Provides services

Deindustrialisation

A reduction in the secondary sector in a country

Mixed Economy

Containing both private and public sector business

Capital

Money invested into a business by owners

Entrepreneur

An individual who creates a company

Capital Employed

The total value of capital used in the business

Internal Growth

Expanding its existing operations

External Growth

When a business takes over or merges with another business

Takeover

When a company buys over 50% of the shares of another company

Merger

Two companies agree to join together and form one company

Horizontal Integration

A company merges with or takes over another business within the same industry and same stage of production

Vertical Integration

A company merges with or takes over another business within the same industry and different stage of production

Conglomerate Integration

A company merges with or takes over another business within a different industry

Sole Trader

A business that is owned by one person who has unlimited liability

Limited Liability

The responsibility of shareholders is limited to the amount of capital invested into the business

Unlimited Liability

The owner is personally and fully responsible for all losses and debts of the business

Partnership

A business is owned by 2-20 people

Unincorporated Business

A business that cannot sell shares. Owners have unlimited liability as the business does not have a separate legal identity

Incorporated Business

A business that can sell shares. Owners have limited liability as the business has a separate legal identity

Shareholders

People who own shares in a limited company

Private Limited Company

Shares are only sold to trusted people (i.e. friends, family)

Public Limited Company

Shares are open to the public for anyone to buy on the stock market

Dividends

The proportion of the net profit after taxes that is paid out to the shareholders of a limited business

Franchise

A business that legally operates on the same business model of an established business at the expense of a license fee

Joint Venture

When two or more companies collaborate on the same project sharing capital, risk, and profit

Public Corporation

A business owned and controlled by the government

Private Corporation

A business owned by individuals who aren't part of the government

Business Objectives

The aims of a business

Market Share

The percentage of a total market sales held by a business

Social Enterprise

A business that operates for the good of the people

Stakeholder

Anyone with a direct interest in a business