Business Key Terms 1

barriers to entry

Factors, such as technological or legal conditions, that prevent new firms from competing equally with an existing firm.

business

An organization that strives for a profit by providing goods and services desired by its customers.

business cycles

Upward and downward changes in the level of economic activity.

capital

The inputs, such as tools, machinery, equipment, and buildings, used to produce goods and services and get them to the customer.

capitalism

An economic system based on competition in the marketplace and private ownership of the factors of production (resources); also known as the private enterprise system.

circular flow

The movement of inputs and outputs among households, businesses, and governments; a way of showing how the sectors of the economy interact.

communism

An economic system characterized by government ownership of virtually all resources, government control of all markets, and economic decision-making by central government planning.

consumer price index (CPI)

An index of the prices of a "market basket" of goods and services purchased by typical urban consumers.

contractionary policy

The use of monetary policy by the Fed to tighten the money supply by selling government securities or raising interest rates.

cost-push inflation

Inflation that occurs when increases in production costs push up the prices of final goods and services.

costs

Expenses incurred from creating and selling goods and services.

crowding out

The situation that occurs when government spending replaces spending by the private sector.

cyclical unemployment

Unemployment that occurs when a downturn in the business cycle reduces the demand for labor throughout the economy.

demand

The quantity of a good or service that people are willing to buy at various prices.

demand curve

A graph showing the quantity of a good or service that people are willing to buy at various prices.

demand-pull inflation

Inflation that occurs when the demand for goods and services is greater than the supply.

demography

The study of people's vital statistics, such as their age, gender, race and ethnicity, and location.

economic growth

An increase in a nation's output of goods and services.

economic system

The combination of policies, laws, and choices made by a nation's government to establish the systems that determine what goods and services are produced and how they are allocated.

economics

The study of how a society uses scarce resources to produce and distribute goods and services.

entrepreneurs

People who combine the inputs of natural resources, labor, and capital to produce goods or services with the intention of making a profit or accomplishing a not-for-profit goal.

equilibrium

equilibrium

expansionary policy

The use of monetary policy by the Fed to increase, or loosen, the growth of the money supply.

factors of production

The resources used to create goods and services.

federal budget deficit

The condition that occurs when the federal government spends more for programs than it collects in taxes.

Federal Reserve System (the Fed)

The central banking system of the United States.

fiscal policy

The government's use of taxation and spending to affect the economy.

frictional unemployment

Short-term unemployment that is not related to the business cycle.

full employment

The condition when all people who want to work and can work have jobs.

goods

Tangible items manufactured by businesses.

gross domestic product (GDP)

The total market value of all final goods and services produced within a nation's borders each year.

inflation

The situation in which the average of all prices of goods and services is rising.

knowledge

The combined talents and skills of the workforce.

knowledge workers

Workers who create, distribute, and apply knowledge.

macroeconomics

The subarea of economics that focuses on the economy as a whole by looking at aggregate data for large groups of people, companies, or products.

market structure

The number of suppliers in a market.

microeconomics

The subarea of economics that focuses on individual parts of the economy, such as households or firms.

mixed economies

Economies that combine several economic systems; for example, an economy where the government owns certain industries but others are owned by the private sector.

monetary policy

A government's programs for controlling the amount of money circulating in the economy and interest rates.

monopolistic competition

A market structure in which many firms offer products that are close substitutes and in which entry is relatively easy.

national debt

The accumulated total of all of the federal government's annual budget deficits.

not-for-profit organization

An organization that exists to achieve some goal other than the usual business goal of profit.

oligopoly

A market structure in which a few firms produce most or all of the output and in which large capital requirements or other factors limit the number of firms.

perfect (pure) competition

A market structure in which a large number of small firms sell similar products, buyers and sellers have good information, and businesses can be easily opened or closed.

producer price index (PPI)

An index of the prices paid by producers and wholesalers for various commodities, such as raw materials, partially finished goods, and finished products.

productivity

The amount of goods and services one worker can produce.

profit

The money left over after all costs are paid.

purchasing power

The value of what money can buy.

pure monopoly

A market structure in which a single firm accounts for all industry sales of a particular good or service and in which there are barriers to entry.

quality of life

The general level of human happiness based on such things as life expectancy, educational standards, health, sanitation, and leisure time.

recession

A decline in GDP that lasts for at least two consecutive quarters.

relationship management

The practice of building, maintaining, and enhancing interactions with customers and other parties to develop long-term satisfaction through mutually beneficial partnerships.

revenue

The money a company receives by providing services or selling goods to customers.

risk

The potential to lose time and money or otherwise not be able to accomplish an organization's goals.

savings bonds

Government bonds issued in relatively small denominations.

seasonal unemployment

Unemployment that occurs during specific seasons in certain industries.

services

Intangible offerings of businesses that can't be held, touched, or stored.

socialism

An economic system in which the basic industries are owned either by the government itself or by the private sector under strong government control.

standard of living

A country's output of goods and services that people can buy with the money they have.

strategic alliance

A cooperative agreement between business firms; sometimes called a strategic partnership.

structural unemployment

Unemployment that is caused by a mismatch between available jobs and the skills of available workers in an industry or region; not related to the business cycle.

supply

The quantity of a good or service that businesses will make available at various prices.

supply curve

A graph showing the quantity of a good or service that businesses will make available at various prices.

technology

The application of science and engineering skills and knowledge to solve production and organizational problems.

unemployment rate

The percentage of the total labor force that is not working but is actively looking for work.

code of ethics

A set of guidelines prepared by a firm to provide its employees with the knowledge of what the firm expects in terms of their responsibilities and behavior toward fellow employees, customers, and suppliers.

corporate philanthropy

The practice of charitable giving by corporations; includes contributing cash, donating equipment and products, and supporting the volunteer efforts of company employees.

corporate social responsibility (CSR)

The concern of businesses for the welfare of society as a whole; consists of obligations beyond those required by law or contracts.

deontology

A philosophy in which a person will follow his or her obligations to an individual or society because upholding one's duty is what is ethically correct.

ethical issue

A situation where a person must choose from a set of actions that may be ethical or unethical.

ethics

A set of moral standards for judging whether something is right or wrong.

justice

What is considered fair according to the prevailing standards of society; an equitable distribution of the burdens and rewards that society has to offer.

social investing

The practice of limiting investments to securities of companies that behave in accordance with the investor's beliefs about ethical and social responsibility to encourage businesses to be more socially responsible.

stakeholders

Individuals or groups to whom a business has a responsibility; include employees, customers, the general public, and investors.

strategic giving

The practice of tying philanthropy and corporate social responsibility efforts closely to a company's mission or goals and targeting donations to the communities where a company does business.

utilitarianism

A philosophy that focuses on the consequences of an action to determine whether it is right or wrong; holds that an action that affects the majority adversely is morally wrong.

absolute advantage

The situation when a country can produce and sell a product at a lower cost than any other country or when it is the only country that can provide the product.

balance of payment

A summary of a country's international financial transactions showing the difference between the country's total payments to and its total receipts from other countries.

balance of trade

The difference between the value of a country's exports and the value of its imports during a specific time.

buy-national regulations

Government rules that give special privileges to domestic manufacturers and retailers.

contract manufacturing

The practice in which a foreign firm manufactures private-label goods under a domestic firm's brand name.

countertrade

A form of international trade in which part or all of the payment for goods or services is in the form of other goods and services.

devaluation

A lowering of the value of a nation's currency relative to other currencies.

direct foreign investment

Active ownership of a foreign company or of manufacturing or marketing facilities in a foreign country.

dumping

The practice of charging a lower price for a product in foreign markets than in the firm's home market.

embargo

A total ban on imports or exports of a product.

European integration

The delegation of limited sovereignty by European Union member states to the EU so that common laws and policies can be created at the European level.

European Union

Trade agreement among 28 European nations.

exchange controls

Laws that require a company earning foreign exchange (foreign currency) from its exports to sell the foreign exchange to a control agency, such as a central bank.

exporting

The practice of selling domestically produced goods to buyers in another country.

exports

Goods and services produced in one country and sold to other countries.

floating exchange rates

A system in which prices of currencies move up and down based upon the demand for and supply of the various currencies.

free trade

The policy of permitting the people and businesses of a country to buy and sell where they please without restrictions.

free-trade zone

An area where the nations allow free, or almost free, trade among each other while imposing tariffs on goods of nations outside the zone.

G20

Informal group that brings together 19 countries and the European Union—the 20 leading economies in the world.

global vision

The ability to recognize and react to international business opportunities, be aware of threats from foreign competition, and effectively use international distribution networks to obtain raw materials and move finished products to customers.

import quota

A limit on the quantity of a certain good that can be imported.

imports

Goods and services that are bought from other countries.

infrastructure

The basic institutions and public facilities upon which an economy's development depends.

International Monetary Fund (IMF)

An international organization, founded in 1945, that promotes trade, makes short-term loans to member nations, and acts as a lender of last resort for troubled nations.