IGCSE business studies complete

Section 1: Understanding Business Activity

• 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. This creates scarcity.

• Factors of production: 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 fulfill 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 labor: When the production process is split up into different tasks and each worker performs one of these tasks. It is a form of specialization.

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

Section 2: Classification of Businesses

• Primary production: Involves the extraction of raw materials from the earth.

• Secondary production: Involves the manufacturing of goods using raw materials.

• Tertiary production: Involves the provision of services.

• Public sector: Businesses owned and controlled by the government.

• Private sector: Businesses owned and controlled by individuals or groups of individuals.

Section 3: Enterprise, Business Growth, and Size

• Entrepreneur: A person who organizes, 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.

• Capital employed: The total value of capital used in the business.

• Internal growth: Occurs when a business expands its existing operations.

• External growth: When a business takes over or merges with another business. Also called integration.

• Takeover or acquisition: When one business buys out the owners of another business, which then becomes part of the 'predator' business.

• Merger: When the owners of two businesses agree to join their businesses together to make one 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. 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.

Section 4: Types of Business Organization

• Sole trader: A business owned and controlled by one person.

• Partnership: A business owned and controlled by two or more people.

• Private limited company: A company owned by shareholders, but the shares cannot be sold to the general public.

• Public limited company: A company owned by shareholders, with shares that can be sold to the general public.

• Franchise: A business model where a business allows another operator to trade under its name.

• Joint venture: An agreement between two or more businesses to work together on a project.

• Unincorporated business: The business and owner are considered the same legal entity.

• Limited company: The business and owners are considered separate legal entities.

• Limited liability: The owners' personal assets are protected if the business fails.

Section 5: Business Objectives and Stakeholders

• Business objectives: Goals set by a business to guide its actions.

• Social enterprise: A business with social objectives as well as an aim to make a profit.

• Stakeholders: Individuals or groups with an interest in a business.

Section 6: People in Business

• Motivation: The reason why employees want to work hard and work effectively for the business.

• Wage: Payment for work, usually paid weekly.

• Time rate: The amount paid to an employee for one hour of work.

• Piece rate: An amount paid for each unit of output.

• Salary: Payment for work, usually paid monthly.

• Bonus: An additional amount of payment above basic pay as a reward for good work.

• Commission: Payment relating to the number of sales made.

• Profit sharing: A system whereby a proportion of the company’s profits is paid out to employees.

• Job satisfaction: The enjoyment derived from feeling that you have done a good job.

• Job rotation: Workers swapping around and doing each specific task for only a limited time and then changing around again.

• Job enrichment: Looking at jobs and adding tasks that require more skill and/or responsibility.

• Teamworking: Involves using groups of workers and allocating specific tasks and responsibilities to them.

• Training: The process of improving a worker’s skills.

• Promotion: The advancement of an employee in an organization.

Section 7: Organization and Management

• Organizational structure: The levels of management and division of responsibilities within an organization.

• Organizational chart: A diagram that outlines the internal management structure.

• Hierarchy: The levels of management in any organization, from the highest to the lowest.

• Level of hierarchy: Managers/supervisors/other employees who are given a similar level of responsibility in an organization.

• Chain of command: The structure in an organization which allows instructions to be passed down from senior management to lower levels of management.

• Span of control: The number of subordinates working directly under a manager.

• Directors: Senior managers who lead a particular department or division of a business.

• Line managers: Have direct responsibility for people below them in the hierarchy of an organization.

• Supervisors: Junior managers who have direct control over the employees below them in the organizational structure.

• Staff managers: Specialists who provide support, information and assistance to line managers.

• Delegation: Giving a subordinate the authority to perform particular tasks.

• Leadership styles: The different approaches to dealing with people and making decisions when in a position of authority – autocratic, democratic, or laissez-faire.

  • Autocratic leadership: 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 organize their own work.

Section 8: Recruitment, Selection, and Training

• Recruitment: The process from identifying that the business needs to employ someone up to the point at which applications have arrived at the business.

• Employee selection: The process of evaluating candidates for a specific job and selecting an individual for employment based on the needs of the organization.

• 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 that outlines the requirements, qualifications, expertise, physical characteristics, etc., for a specified job.

• Internal recruitment: When a vacancy is filled by someone who is an existing employee of the business.

• External recruitment: When a vacancy is filled by someone who is not an existing employee and will be new to the business.

• Part-time employment: Often considered to be between 1 and 30– 35 hours a week.

• Full-time employees: Usually work 35 hours or more a week.

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

• On-the-job training: Occurs by watching a more experienced worker doing the job.

• Off-the-job training: Involves being trained away from the workplace, usually by specialist trainers.

• Workforce planning: Establishing the workforce needed by the business for the foreseeable future in terms of the number and skills of employees required.

• Dismissal: When employment is ended against the will of the employee.

Section 9: Internal and External Communication

• Internal communication: Communication between people within the same organization.

• External communication: Communication between an organization and people outside of it.

• One-way communication: A message sent with no feedback from the receiver.

• Two-way communication: A message sent with feedback from the receiver.

• Verbal communication: Involves the sender of the message using spoken words.

• Written communication: Involves the sender of the message writing down their thoughts.

• Communication barriers: Factors that prevent effective communication.

Section 10: Marketing, Competition and the Customer

• Market segmentation: Dividing a market into smaller groups of customers with similar needs.

• Niche market: A small, specialized market segment.

• Mass market: A large market with a wide range of customers.

Section 11: Market Research

• Market research: The process of gathering, analyzing, and interpreting information about a market.

• Product-oriented business: A business whose main focus of activity is on the product itself.

• Market-oriented business: A business that carries out market research to find out consumer wants before a product is developed and produced.

• Marketing budget: A financial plan for the marketing of a product or product range for a specified period of time.

• Primary research: The collection and collation of original data via direct contact with potential or existing customers. Also called field research.

• Secondary research: Uses information that has already been collected and is available for use by others. Also called desk research.

• Questionnaire: A set of questions to be answered as a means of collecting data for market research.

• Online surveys: Require the target sample to answer a series of questions over the internet.

• Interviews: Involve asking individuals a series of questions, often face-to-face or over the phone.

• Focus group: A group of people who are representative of the target market.

• Sample: The group of people who are selected to respond to a market research exercise.

• Random sample: When people are selected at random as a source of information for market research.

• Quota sample: When people are selected on the basis of certain characteristics as a source of information for market research.

Section 12: The Marketing Mix: Product

• Marketing mix: A term used to describe all the activities that go into marketing a product or service. Often summarized as the four Ps – product, price, place, and promotion.

• USP (Unique selling point): The special feature of a product that differentiates it from the products of competitors.

• Brand name: The unique name of a product that distinguishes it from other brands.

• Brand loyalty: When consumers keep buying the same brand again and again instead of choosing a competitor’s brand.

• Brand image: An image or identity given to a product which gives it a personality of its own and distinguishes it from its competitors’ brands.

• Packaging: The physical container or wrapping for a product. Also used for promotion and selling appeal.

• 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.

Section 13: The Marketing Mix: Price

• Cost-plus pricing: The cost of manufacturing the product plus a profit mark-up.

• Competitive pricing: When the product is priced in line with or just below competitors’ prices to try to capture more of the market.

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

• Price skimming: Where a high price is set for a new product on the market.

• Promotional pricing: When a product is sold at a very low price for a short period of time.

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

• Price elastic demand: Where consumers are very sensitive to changes in price.

• Price inelastic demand: Where consumers are not sensitive to changes in price.

Section 14: The Marketing Mix: Place

• Distribution channel: The means by which a product is passed from the place of production to the customer.

• Agent: An independent person or business that is appointed to deal with the sales and distribution of a product or range of products.

• Wholesaler: A business that buys goods in large quantities from manufacturers and sells them in smaller quantities to retailers.

Section 15: The Marketing Mix: Promotion

• Promotion: Where marketing activities aim to raise customer awareness of a product or brand, generating sales and helping to create brand loyalty.

• Advertising: Paid for communication with potential customers about a product to encourage them to buy it.

• Informative advertising: Where the emphasis of advertising or sales promotion is to give full information about the product.

• Persuasive advertising: Advertising or promotion that is trying to persuade the consumer that they really need the product and should buy it.

• Target audience: People who are potential buyers of a product or service.

• Sales promotions: Incentives such as special offers or special deals aimed at consumers to achieve short-term increases in sales.

• Marketing budget: A financial plan for the marketing of a product or product range for a specified period of time.

Section 16: Technology and the Marketing Mix

• Social media marketing: A form of internet marketing that involves creating and sharing content on social media networks to achieve marketing and branding goals.

• Viral marketing: When consumers are encouraged to share information online about the products of a business.

• E-commerce: The ‘online’ buying and selling of goods and services using computer systems linked to the internet and apps on mobile (cell) phones.

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

Section 17: Marketing Strategy

• Marketing strategy: A plan to combine the right combination of the four elements of the marketing mix for a product or service to achieve a particular marketing objective(s).

Section 18: Production of Goods and Services

• Productivity: The output measured against the inputs used to create it.

• Buffer inventory level: The inventory held to deal with uncertainty in customer demand and deliveries of supplies.

• Lean production: Techniques used by businesses to cut down on waste and therefore increase efficiency.

• 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.

• Job production: Where a single product is made at a time.

• Batch production: Where a quantity of one product is made, then a quantity of another item will be produced.

• Flow production: Where large quantities of a product are produced in a continuous process. Sometimes referred to as mass production.

Section 19: Costs, Scale of Production, and Break-Even Analysis

• Fixed costs: Costs that do not vary in the short run with the number of items sold or produced. Also known as overhead costs.

• Variable costs: Costs that vary directly with the number of items sold or produced.

• Total costs: Fixed and variable costs combined.

• Average cost per unit: The total cost of production divided by total output. Sometimes referred to as unit cost.

• 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 level of output: The quantity that must be produced/sold for total revenue to equal total costs. Also known as break-even point.

• Break-even charts: Graphs that show how costs and revenues of a business change with sales.

• Revenue: The income during a period of time from the sale of goods or services.

• Margin of safety: The amount by which sales exceed the break-even point.

• Contribution: The selling price less its variable cost.

Section 20: Achieving Quality Production

• Quality: To produce a good or a service which meets customer expectations.

• Quality control: Checking for quality at the end of the production process. Uses quality inspectors.

• Quality assurance: Checking for quality standards throughout the production process by employees.

• Total Quality Management (TQM): The continuous improvement of products and processes by focusing on quality at each and every stage of production.

Section 21: Location Decisions

• Location decisions: Choosing the best place to locate a business.

Section 22: Business Finance: Needs and Sources

• Start-up capital: The finance needed by a new business to pay for essential non-current (fixed) and current assets before it can begin trading.

• Working capital: The finance needed by a business to pay its day-to-day costs.

• Capital expenditure: Money spent on non-current (fixed) assets that will last for more than one year.

• Revenue expenditure: Money spent on day-to-day expenses that do not involve the purchase of a long-term asset.

• Internal finance: Obtained from within the business itself.

• External finance: Obtained from sources outside of and separate from the business.

• Micro-finance: Providing financial services to poor people not served by traditional banks.

• Crowdfunding: Funding a project by raising money from a large number of people, typically via the internet.

Section 23: Cash Flow Forecasting and Working Capital

• Cash flow: The cash inflows and outflows over a period of time.

• Cash inflows: The sums of money received by a business during a period of time.

• Cash outflows: The sums of money paid out by a business during a period of time.

• Cash flow cycle: Shows the stages between paying out cash and receiving cash from sales.

• Profit: The surplus after total costs have been subtracted from revenue.

• Cash flow forecast: An estimate of future cash inflows and outflows of a business.

• Net cash flow: The difference, each month, between inflows and outflows.

• Closing cash (or bank) balance: The amount of cash held by the business at the end of each month.

• Opening cash (or bank) balance: The amount of cash held by the business at the start of the month.

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

Section 24: Income Statements

• Accounts: The financial records of a firm’s transactions.

• Accountants: The professionally qualified people who have responsibility for keeping accurate accounts and for producing the final accounts.

• Final accounts: Produced at the end of the financial year, giving details of profit or loss and the worth of the business.

• Income statement: A financial statement that records the income of a business and all costs incurred to earn that income over a period of time. Also known as a profit and loss account.

• Revenue: The income to a business from the sale of goods or services.

• Cost of sales: The cost of producing or buying in the goods actually sold by the business during a time period.

• Gross profit: Made when revenue is greater than the cost of sales.

• Trading account: Shows how the gross profit of a business is calculated.

• Net profit: The profit made by a business after all costs have been deducted from revenue.

• Depreciation: The fall in the value of a fixed asset over time.

• Retained profit: The net profit reinvested back into a company, after deducting tax and payments to owners.

Section 25: Statement of Financial Position

• Statement of financial position: Shows the value of a business’s assets and liabilities at a particular time.

• Assets: Those items of value that are owned by the business. May be non-current (fixed) or current.

• Liabilities: Debts owed by the business. May be non-current (long-term) or current.

• Non-current assets: Items owned by the business for more than one year.

• Current assets: Owned by a business and used within one year.

• Non-current liabilities: Long-term debts owed by the business, repaid over more than one year.

• Current liabilities: Short-term debts owed by the business, repaid in less than one year.

Section 26: Analysis of Accounts

• Capital employed: Shareholders’ equity plus non-current liabilities; the total long-term and permanent capital invested in a business.

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

• Profitability: The measurement of the profit made relative to either the value of sales achieved or the capital invested in the business.

• Illiquid: Assets that are not easily convertible into cash.

Section 27: Economic Issues

• Gross Domestic Product (GDP): The total value of output of goods and services in a country in one year.

• Recession: When there is a period of falling GDP.

• Inflation: The increase in the average price level of goods and services over time.

• Unemployment: Exists when people who are willing and able to work cannot find a job.

• Economic growth: When a country’s GDP increases.

• Balance of payments: Records the difference between a country’s exports and imports.

• Real income: The value of income; it falls when prices rise faster than money income.

• Exports: Goods and services sold from one country to other countries.

• Imports: Goods and services bought in by one country from other countries.

• Exchange rate: The price of one currency in terms of another.

• Exchange rate depreciation: The fall in the value of a currency compared with other currencies.

• Fiscal policy: Any change by the government in tax rates or public sector spending.

• Direct taxes: Paid directly from incomes.

• Indirect taxes: Added to the prices of goods.

• Disposable income: The level of income a taxpayer has after paying income tax.

• Import tariff: A tax on an imported product.

• Import quota: A physical limit on the quantity of a product that can be imported.

• Monetary policy: A change in interest rates by the government or central bank.

Section 28: Environmental and Ethical Issues

• Social responsibility: When a business decision benefits stakeholders other than shareholders.

• Environment: The natural world.

• Global warming: A gradual increase in the overall temperature of the Earth’s atmosphere.

• Pressure group: Made up of people who want to change business or government decisions by taking action.

• Private costs: The costs paid for by a business or the consumer of the product.

• Private benefits: The gains to a business or the consumer of the product.

• External costs: Costs paid for by the rest of society, other than the business, as a result of business activity.

• External benefits: Gains to the rest of society, other than the business, as a result of business activity.

• Social cost: External costs + private costs.

• Social benefit: External benefits + private benefits.

• Sustainable development: Development that does not put at risk the living standards of future generations.

• Consumer boycott: When consumers decide not to buy products from businesses that do not act in a socially responsible way.

• Ethical decisions: Based on a moral code; 'doing the right thing'.

Section 29: Business and the International Economy

• Globalization: The increasing interconnectedness and interdependence of countries and economies.

• Multinational business (MNC): A business that produces goods or services in more than one country.

• Exchange rate: The price of one currency in terms of another.