Cambridge IGCSE® and O Level Business Studies - Definitions

Working with Cambridge International Education

Fifth edition of Cambridge IGCSE and O Level Business Studies.
Endorsed for full syllabus coverage.

Cambridge IGCSE and O Level Business Studies Fifth edition

Karen Borrington and Peter Stimpson

Working definitions

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.
Economic problem: There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants, creating scarcity.
Factors of production: Resources needed to produce goods or services - Land, Labour, Capital, and Enterprise.
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: 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.
Businesses: Combine factors of production to make products (goods and services) which satisfy people’s wants.
Added value: The difference between the selling price of a product and the cost of bought-in materials and components.
Primary sector: Extracts and uses the natural resources of Earth to produce raw materials used by other businesses.
Secondary sector: Manufactures goods using the raw materials provided by the primary sector.
Tertiary sector: 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.
Capital: The money invested into a business by the owners.
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 the owners of the new business.
Capital employed: The total value of capital used in the business.
Internal growth: Occurs when a business expands its existing operations.
External growth: Is when a business takes over or merges with another business, it is often called integration as one business is integrated into another one.
Takeover/Acquisition: is when one business buys out the owners of another business, which then becomes part of the ‘predator’ business
Merger: is when the owners of two businesses agree to join their businesses together to make one business.
Horizontal integration: is when one business merges with or takes over another one in the same industry at the same stage of production.
Vertical integration: is when one business merges with or takes over another one in the same industry but at a different stage of production.
Conglomerate Integration: is when one business merges with or takes over a business in a completely different industry; this is also known as diversification.
Sole trader: a business owned by one person.
Limited liability: Shareholders in a company are only liable up to the amount they invested.
Unlimited liability: The owners of a business can be held responsible for the debts of the business they own.
Partnership: a form of business in which two or more people agree to jointly own a business.
Partnership agreement: a written and legal agreement between business partners.
Unincorporated business: one that does not have a separate legal identity; sole traders and partnerships are unincorporated businesses.
Incorporated business: companies that have separate legal status from their owners.
Shareholders: the owners of a limited company. They buy shares which represent part-ownership of the company.
Private limited company: businesses owned by shareholders but they can not sell shares to the public.
Public limited company: businesses owned by shareholders but they can sell shares to the public and their shares are tradeable on the Stock Exchange.
Annual General Meeting: a legal requirement for all companies where shareholders may attend and vote on who they want to be on the Board of Directors for the coming year.
Dividends: are payments made to shareholders from the profits (after tax) of a company; the return to shareholders for investing in the company.
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).
Business objectives: The aims or targets that a business works towards.
Profit: Total income of a business (revenue) less total costs.
Market share: The percentage of total market sales held by one brand or business.
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.
Capital employed: The total value of capital used in the business.
Internal growth: Occurs when a business expands its existing operations.External growth: Is when a business takes over or merges with another business; it is often called integration as one business is integrated into another one.
Takeover/Acquisition: Is when one business buys out the owners of another business, which then becomes part of the ‘predator’ business.
Merger: Is when the owners of two businesses agree to join their businesses together to make one business.
Horizontal Integration: Is when one business merges with or takes over another one in the same industry at the same stage of production.
Vertical Integration: Is when one business merges with or takes over another one in the same industry but at a different stage of production.
Conglomerate Intergration: Is when one business merges with or takes over a business in a completely different industry.
De-industrialisation: Occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.Capital: The money invested into a business by the owners.
Organisational chart: refers to a diagram that outlines the internal management structure.
Hierarchy: refers to the Levels of management in any organisation from the highest to the lowest.
Level of hierarchy: refers to managers/supervisors/other employees who are given a similar level of responsibility in an organisation.
Chain of command: is the structure in an organisation which allows instructions to be passed down from senior management to lower levels of management.
Span of control: Is the number of subordinates working directly under a manager.
Capital employed: Is the money invested into a business by the owners.
Motivation: Is the reason why an employee wants to work hard and work effectively for the business.