IGCSE O Levels Business Studies Definitions - Sir Shayan Khan

Comprehensive vocabulary flashcards covering key definitions across Units 1 through 6 of IGCSE O Levels Business Studies by Sir Shayan Khan.

Need

A good or service essential for living.

Want

A good or service which people would like to have, but which is not essential for living. People’s wants are unlimited.

Economic problem

There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity.

Factors of production

Those resources needed to produce goods or services. There are four factors of production and they are in limited supply.

Scarcity

The lack of sufficient products to fulfil the total wants of the population.

Opportunity cost

The next best alternative given up by choosing another item.

Specialisation

Occurs when people and businesses concentrate on what they are best at.

Division of labour

When the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialisation.

Added value

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

Primary sector of industry

Extracts and uses the natural resources of Earth to produce raw materials used by other businesses.

Secondary sector of industry

Manufactures goods using the raw materials provided by the primary sector.

Tertiary sector of industry

Provides services to consumers and the other sectors of industry.

De-industrialisation

Occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.

Mixed economy

Has both a private sector and a public (state) sector.

Entrepreneur

A person who organises, operates and takes the risk for a new business venture.

Business plan

A document containing the business objectives and important details about the operations, finance and owners of the new business.

Horizontal integration

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

Vertical integration

When one business merges with or takes over another one in the same industry but at a different stage of production. It can be forward or backward.

Conglomerate integration

When one business merges with or takes over a business in a completely different industry (also known as diversification).

Limited liability

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

Unlimited liability

Means that the owners of a business can be held responsible for the debts of the business they own. Their liability is not limited to the investment they made in the business.

Franchise

A business based upon the use of the brand names, promotional logos and trading methods of an existing successful business. The franchisee buys the licence to operate this business from the franchisor.

Joint venture

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

Public corporation

A business in the public sector that is owned and controlled by the state (government).

Social enterprise

Has social objectives as well as an aim to make a profit to reinvest back into the business.

Stakeholder

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

Span of control

The number of subordinates working directly under a manager.

Chain of command

The structure in an organisation which allows instructions to be passed down from senior management to lower levels of management.

Delegation

Means giving a subordinate the authority to perform particular tasks.

Autocratic leadership

Where the manager expects to be in charge of the business and to have their orders followed.

Democratic leadership

Gets other employees involved in the decision-making process.

Laissez-faire leadership

Makes the broad objectives of the business known to employees, but then they are left to make their own decisions and organise their own work.

Job analysis

Identifies and records the responsibilities and tasks relating to a job.

Job description

Outlines the responsibilities and duties to be carried out by someone employed to do a specific job.

Job specification

A document which outlines the requirements, qualifications, expertise, physical characteristics, etc., for a specified job.

Induction training

An introduction given to a new employee, explaining the business’s activities, customs and procedures and introducing them to their fellow workers.

Redundancy

When an employee is no longer needed and so loses their job. It is not due to any aspect of their work being unsatisfactory.

Niche market

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

Unique selling point (USP)

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

Product life cycle

Describes the stages a product will pass through from its introduction, through its growth until it is mature, and then finally its decline.

Extension strategy

A way of keeping a product at the maturity stage of the life cycle and extending the cycle.

Price skimming

Where a high price is set for a new product on the market.

Penetration pricing

When the price is set lower than the competitors’ prices in order to be able to enter a new market.

Dynamic pricing

When businesses change product prices, usually when selling online, depending on the level of demand.

Kaizen

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

Just-in-time (JIT)

A production method that involves reducing or virtually eliminating the need to hold inventories of raw materials or unsold inventories of the finished product.

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 point

The level of sales at which $\text{total costs} = \text{total revenue}$.

Margin of safety

The amount by which sales exceed the break-even point.

Quality control

The checking for quality at the end of the production process, whether it is the production of a product or a service. It uses quality inspectors as a way of finding any faults.

Quality assurance

The checking for quality standards throughout the production process by employees, whether it is the production of a product or a service.

Total Quality Management (TQM)

The continuous improvement of products and processes by focusing on quality at each and every stage of production.

Working capital

The capital available to a business in the short term to pay for day-to-day expenses.

Capital expenditure

Money spent on non-current (fixed) assets which will last for more than one year.

Revenue expenditure

Money spent on day-to-day expenses which do not involve the purchase of a long-term asset, for example, wages or rent.

Gross profit

Made when revenue is greater than the cost of sales.

Net profit

The profit made by a business after all costs have been deducted from revenue. It is calculated by subtracting overhead costs from gross profits.

Statement of financial position

Shows the value of a business’s assets and liabilities at a particular time.

Liquidity

The ability of a business to pay back its short-term debts.

Fiscal policy

Any change by the government in tax rates or public sector spending.

Monetary policy

A change in interest rates by the government or central bank, for example, the European Central Bank.

Social cost

$\text{Social cost} = \text{external costs} + \text{private costs}$.

Sustainable development

Development which does not put at risk the living standards of future generations.

Protectionism

When a government protects domestic businesses from foreign competition using tariffs and quotas.