IGCSE Business Activity Key Terms

Business activity

The process of producing goods and services to satisfy consumer demand.

Need

A good or service which is essential to living.

Want

A good or service which people would like, but is not essential for living.

Economic problem

Unlimited wants cannot be met because there are limited factors of production. This creates scarcity.

Factors of production

The resources needed to produce goods and services - land, labour, capital and enterprise

Scarcity

There are not enough goods and services to meet the wants of the population.

Opportunity cost

The benefit that could have been gained from an alternative use of the same resource.

Specialisation

People and businesses concentrate on what they are best at.

Division of labour

Production is divided into separate tasks and each worker does just one of those tasks.

Consumer goods

Products which are sold to the final consumer. They can be seen and touched, for example computers and food.

Consumer services

Non-tangiable products such as insurance services, transport.

Capital goods

Physical goods, such as machinery and delivery vehicles, used by other businesses to help produce other goods and services.

Primary sector

Firms whose business activity involves the extraction of natural resources.

Secondary sector

Firms that process and manufacture goods from natural resources.

Tertiary sector

Firms that supply a service to consumers and other businesses.

Chain of production

The production and supply of goods to the final consumer involves activities from the primary, secondary and tertiary sector businesses.

Mixed economy

An economy where the resources are owned and controlled by both the private and public sectors.

Private sector

The part of the economy that is owned and controlled by individuals and companies for profit.

Public sector

The part of the economy that is controlled by the state or government.

Entrepreneur

An individual who has an idea for a business takes the financial risk of starting and managing a new business.

Business plan

A detailed written document outlining the purpose and aims of a business which is often used to persuade lenders or investors to finance a business proposal.

Revenue

The amount a business earns from the sale of its products.

Business start-up

A newly formed business. They usually start small, but some might grow to become much bigger.

Sole trader

A business that is owned and controlled by just one person who takes all of the risks and receives all of the profits.

Start-up capital

The finance needed when first setting up a business.

Partnership

A business formed by two or more people who will usually share responsibility for the day-to-day running of the business. Partners usually invest capital in the business and will share profits.

Unincorporated business

A business that does not have legal identity separate from its owners. The owners have unlimited liability for business debts.

Unlimited liability

If an unincorporated business fails, then the owners might have to use their personal wealth to finance any business debts.

Shareholder

A person or organisation who owns shares in a limited company.

Private limited company

Often a small to medium-sized company; owned by shareholders who have limited liability. The company cannot sell its shares to the general public.

Public limited company

Often a large company; owned by shareholders who have limited liability. The company can sell its shares to the general public.

Ordinary shareholders

The owners of a limited company

Limited liability

The shareholders in a limited liability company which fails only risk losing the amount they have invested in the company and not any of their personal wealth.

Dividend

A payment, out of profits, to shareholders as a reward for their investments.

Collateral

Non-current assets offered as security against borrowing.

Franchise

A business system where entrepreneurs buy the right to use the name, logo and product of an existing business.

Joint ventures

Two or more businesses agree to work together on a project and set up a separate business for this purpose.

Public corporation

A business organisation that is owned and controlled by the state.

Objective

A statement of a specific target to be achieved. They should be SMART.

Market share

The revenue of a business expressed as a percentage of total market revenue.

Corporate Social Responsibility

Businesses taking responsibility for the impact their activities might have on society and the environment.

Social enterprise

A business with social objectives that reinvests most of its profits back into the business or into benefiting society at large.

Stakeholder

An individual or group which has an interest in a business because they are affected by its activities and decisions.

market share

The value of one business in comparison to the rest of the market

Economies of scale

When average costs per unit are reduced as a business grows

diseconomies of scale

When average costs per unit rise as a business grows too big

takeover

When an individual or organisation buys over 51% of shares of a company and therefore gains control

internal growth

When a business expands without the intervention of another organisation

horizontal integration

When two firms in the same industry and the same sector merge

Forward vertical integration

When a firm merges with their customer in the same industry

Backward vertical integration

When a firm merges with their supplier in the same industry

Conglomerate integration

When two businesses merge who are in completely different industries

market domination

When the majority of consumers are loyal to one firm in the market