Business glossary

• Definition of Need:

  • A good or service essential for living
• Definition of Want:

  • A good or service which people would like to have but which is not essential for living. These are unlimited
• Definition of Economic Problem:

  • Results from there being unlimited wants but limited resources to provide the goods and services to satisfy these wants. This creates scarcity
• Factors of Production:

  • The resources needed to produce goods or services
  • There are four factors of production and they are in limited supply
• Definition of Scarcity:

  • The lack of sufficient products to satisfy the total wants of the population
• Definition of Opportunity Cost:

  • The next best alternative given up by choosing another item
• Definition of Division of Labor (Specialization):

  • When the production process is split up into different tasks and each worker performs one of these tasks
• Businesses:

  • Combine factors of production to make products which satisfy the people’s wants
• Definition of Business Objectives:

  • The aims or targets that a business works towards
• Definition of Value Added:

  • The difference between the selling price of a product or service and the cost of bought-in materials and components
• Definition of Stakeholder:

  • Any person or group with a direct interest in the performance and activities of a business
• Primary Sector:

  • Extracts and uses the natural resources of the Earth
• 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
• Definition of De-industrialization:

  • When there is a decline in the importance of the secondary sector industry in a country
• Definition of Free Market Economy:

  • No government control over factors of production
• Definition of Monopoly:

  • Business which controls all of the market for a product
• Definition of Command Economy:

  • Does not have a private sector as all resources are owned by the state
• Definition of Mixed Economy:

  • Has both a public and a private sector
• Definition of Capital:

  • The money invested into a business by the owners
• Definition of Profit:

  • The surplus after total costs have been subtracted from the sales revenue
• Definition of Internal Growth:

  • When a business expands its existing operations
• Definition of External Growth:

  • When a business takes over or merges with another business
• Definition of Merger:

  • When owners of two companies agree to join together their firms to make one business
• Definition of Takeover:

  • When one business buys out the owners of another business which then becomes part of the predator business
• Definition of Horizontal Integration:

  • When one firm merges with or takes over another one in the same industry at the same stage of production
• Definition of Vertical Integration:

  • When one firm merges with or takes over another one in the same industry but at different stages of production
• Definition of Conglomerate Integration:

  • When one firm merges with or takes a firm in a completely different industry
• Definition of Limited Liability:

  • The owners of a company cannot be held responsible for the debts of the company they own and their liability is only limited to the investment they made in buying the shares
• Definition of Partnership Agreement:

  • Written and legal agreement between business partners
• Definition of Unincorporated Business:

  • One that does not have a separate legal identity
• Definition of Shareholders:

  • The owners of a company who buy shares which represent part ownership of the company
• Definition of Prospectus:

  • A detailed document issued by the directors of a company when they are converting it to a PLC status. It is an invitation to the general public to buy shares in the newly formed PLC
• Definition of Annual General Meeting:

  • A legal requirement for all companies in which it is voted on who should be on the Board of Directors for the upcoming year
• Definition of Dividends:

  • Payments made to shareholders from the profits of a company after it has paid corporation tax. They are the return to the shareholders for investing in the business
• Definition of Franchise:

  • A business based upon the use of the brand names, promotional logos and trading methods of an existing successful business
• Definition of Inflation:

  • The increase in the average price level of goods and services over time
• Definition of Unemployment:

  • When people who are willing and able to work cannot find a job
• Definition of Economic Growth:

  • When a country’s GDP increases
• Definition of Balance of Payments:

  • Records the difference between a country’s exports and imports