ECON1000 Chapter 1 Glossary

Joint-stock company

A company where ownership is distributed between shareholders.

Limited liability

Liability of the owners for the debts of a company is limited to the amount they have invested.

U-form business organisation

An organization where the chief executive or team is responsible for day-to-day management and strategic planning.

M-form business organisation

An organization structured into separate departments, separating management from strategic planning.

Flat organisation

A structure that enables direct communication between senior managers and lower-level employees, bypassing middle management.

Principal-agent problem

A situation where principals cannot ensure their interests are served by agents due to lack of information.

Asymmetric information

A scenario in which one party knows significantly more than the other in an economic relationship.

PEST (or STEEPLE) analysis

An assessment of political, economic, social, technological, ethical, legal, and environmental factors for business strategy.

Primary production

The extraction and production of natural resources, including agriculture.

Secondary production

Production in the manufacturing and construction sectors of the economy.

Tertiary production

Production from the service sector of the economy.

Gross Domestic Product (GDP)

The total value of output produced within a country over a 12-month period.

Deindustrialisation

The decline in contribution to production from the manufacturing sector.

Industry

A group of firms producing a particular product or service.

Industrial sector

A grouping of industries producing similar products or services.

Standard Industrial Classification (SIC)

A formal classification of firms into industries for government data collection.

Factors of production

Inputs into the production of goods and services: labor, land, raw materials, and capital.

Labour

All forms of human input, physical and mental, into production.

Land and raw materials

Natural resources used as inputs in production, like unimproved land and minerals.

Capital

Produced inputs into production, such as factories, machines, and tools.

Scarcity

The excess of human wants over what can be produced to satisfy those wants.

Consumption

The act of using goods and services to satisfy wants, generally involving purchasing.

Production

The transformation of inputs into outputs by firms to earn profit or meet other objectives.

Opportunity cost

The cost of any activity measured in terms of the best alternative foregone.

Rational choices

Choices made by weighing the benefits of an activity against its opportunity cost.

Marginal costs

The additional cost incurred from doing a little more of an activity.

Marginal benefits

The additional benefits gained from doing a little more of an activity.