Understanding business activity

• Specialisation


  When people or businesses concentrate on what they are best at.
• Division of labour

  Production process split in to different tasks and each worker preforms one of those tasks
• Added value


  Difference between the selling price and the total cost of the materials
• The primary sector


  Raw materials being extracted from the planet
• The secondary sector


  Manufacturing the raw materials into finished goods
• The tertiary sector


  Support services for businesses
• A mixed economy


  Both a private and a public sector
• Public sector


  Organisations owned by the government
• Private sector


  Organisations owned by individuals and/or groups of people
• Capital


  The money invested into a business
• Internal growth


  A business expands existing operations
• External growth


  When a business merges with or takes over another business
• Horizontal integration


  Business merging with or taking over a business in the same industry at the same stage of production
• Vertical integration


  Business merging with or taking over a business in the same industry but at different stages of production
• Conglomerate integration


  Business merging with or taking over a business in a completely different industry (known as diversification)
• Shareholders


  Owners of a limited company, they can buy shares, representing part-ownership
• Private limited company (LTD)


  Owned by shareholders, they cannot sell shares to the public
• Public limited company (PLC)


  Owned by share holders, they can sell shares to the public
• Dividends


  Payments made to shareholders from profits (after tax) of a company
• Profit


  Total income of a business (revenue) minus total costs
• Market share


  % of total market sales held by 1 brand
• Stakeholder


  Person or group with a direct interest in the performance and activities of a business
• Factors of production

  • Land - Natural resources; fields, forests, oil, gas, metals, minerals
  • Labour - Employees, workers, people
  • Capital - money, finance, equipment, machinery needed for the manufacture of goods/services
  • Enterprise - The drive or motivation from the entrepreneur to bring together the other factors of production
• The economic problem


  Unlimited wants but limited resources
• Capital employed


  The total value of capital used in the business