Business Studies

0450

Definitions
Definitions
Understanding Business Activity
1. A need is a good or service essential for living
2. A want is a good or service which people would like to have but which
is not essential for living. People's wants are unlimited.
3. Economic Problem - There exist unlimited wants but limited resources
to produce the goods and services to satisfy those wants. This creates
scarcity
4. Factors of production are those resources needed to produce goods
and services. There are four factors of production, and they are in
limited supply.
5. Scarcity is the lack of sufficient products to fulfil the total wants of the
population.
6. Opportunity cost is the next best alternative given up by choosing
another item
7. Specialization occurs when people and businesses concentrate on what
they are best at
8. Division of labour is when the production process is split up into
different tasks and each worker performs one of those tasks. It is a
form of specialization
9. Businesses combine the factors of production to make goods and
services which satisfy people's wants.
10. Added value is the difference between the selling price and the
cost of bought-in materials and components

11. The primary sector of industry extracts and uses the natural
resources of Earth to produce raw materials used by other businesses
12. The secondary sector of industry manufactures goods using the
raw materials provided by the primary sector.
13. The tertiary sector of the industry provides services to
consumers and other sectors of industry.
14. De-industrialisation occurs when there is a decline in the
importance of the secondary manufacturing sector of industry in a
country
15. A mixed economy has both a private sector and a public (state)
sector
16. Capital is the money invested into the business by the owners
17. An entrepreneur is a person who organises, operates and takes
the risk for a new business venture
18. Capital employed is the total value of capital used in the
business
19. Internal Growth occurs when a business expands its existing
operations
20. 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

21. A takeover or acquisition is when one business buys out the

owners of another business, which then becomes part of the 'predator'
business (the business which has taken it over)
22. A merger is when the owners of two businesses agree to join
their businesses together to make one business
23. Horizontal integration is when one business merges with or takes
over another one in the same industry at the same stage of production
24. Vertical integration is when one business merges with or takes
over another one in the same industry but at a different stage of
production. Vertical integration can be forward or backwards.
25. Conglomerate integration is when one business merges with or
takes over a business in a completely different industry. This is also
known as diversification.
26. A sole trader is a business owned by one person.
27. Limited liability means that the liability of shareholders in a
company is limited to only the amount they invested
28. Unlimited liability means that the owners of a business can be
held responsible for the debts of the business they own. Their liability
is not limited to the investment they made in the business
29. Partnership is a form of business in which two or more people
agree to own a business jointly
30. Unincorporated businesses do not have a separate legal identity.
Sole traders and partnerships are unincorporated businesses

31. incorporated businesses are companies that have separate legal

status from their owners
32. Shareholders are the owners of a limited company. They buy
shares, which represent part-ownership of the company.
33. Private limited companies are businesses owned by
shareholders, but they cannot sell shares to the public.
34. Public limited companies are businesses owned by shareholders
but they can sell shares to the public and their shares are tradable on
the Stock Exchange
35. Dividends are payments made to shareholders from the profits
(after tax) of a company. They are the returns to shareholders for
investing in the company.
36. A franchise is a business based upon the use of the brand
names, promotional logos and trading methods of an existing
successful business. The franchisee buys the license to operate this
business from the franchisor.
 37. A joint venture is where two or more businesses start a new
project together, sharing capital, risks and profits.
38. A public corporation is a business in the public sector that is
owned and controlled by the state (government)
39. Business objectives are the aims or targets that a business works
towards
40. Profit is the total income of a business (revenue) minus total
costs
41. Market share is the percentage of total market sales held by one
brand or business
42. A social enterprise has social objectives as well as an aim to
make a profit to reinvest back into the business
43. A stakeholder is any person or group with a direct interest in the
performance and activities of a business
People in Business
1. Motivation is the reason why employees want to work hard and work
effectively for the business.
2. Wage is a payment for work, usually paid weekly
3. Time rate is the amount paid to an employee for one hour of work
4. The piece rate is the amount paid for each unit of output
5. Salary is payment for work, usually paid monthly.
6. Bonus is an additional amount of payment above basic pay as a reward
for good work.
7. The commission is a payment relating to the number of sales made
8. Profit sharing is a system whereby a proportion of the company's
profits are paid out to employees
9. Job satisfaction is the enjoyment derived from feeling that you have
done a good job
10. Job rotation involves workers swapping around and doing each
specific task for only a limited time and then changing around again

11. Job enrichment involves looking at jobs and adding tasks that
require more and/or responsibility
12. Team-working involves using groups of workers and allocating
specific tasks and responsibilities to them
13. Training is the process of improving a worker's skills
14. Promotion is the advancement of an employee in an
organisation, for example, to a higher job/managerial level
15. Organisational structure refers to the levels of management and
division of responsibilities within an organisation
16. An organisational chart refers to a diagram that outlines the
internal management structure
17. Hierarchy refers to the levels of management in any
organisation, from the highest to the lowest.
18. A level of hierarchy refers to managers/supervisors/other
employees who are given a similar level of responsibility in an
organisation.
19. Chain of command is the structure in an organisation which
allows instructions to be passed down from senior management to
lower levels of management.
20. The span of control is the number of subordinates working
directly under a manager.

21. Directors are senior managers who lead a particular department

or a division of a business.
22. Line managers have direct responsibility for people below them
in the hierarchy of an organisation.
23. Supervisors are junior managers who have direct control over the
employees below them in the organisational structure.
24. Staff managers are specialists who provide support, information
and assistance to line managers.
25. Delegation means giving a subordinate the authority to perform
particular tasks.
26. Leadership styles are the different approaches to dealing with
people and making decisions when in apposition of authority -
autocratic, democratic and laissez-faire.
27. Autocratic leadership is where the manager expects to be in
charge of the business and to have their orders followed.
28. Democratic leadership gets other employees involved in the
decision-making process.
29. Laissez-faire leadership makes the broad objectives of the
business known to employees, but then they are left to make their own
decisions and organise their own work.
30. Recruitment is the process of identifying that the business needs
to employ someone up to the point at which applications have arrived
at the business.

31. Job analysis identifies and records the responsibilities and tasks
relating to a job.
32. A job description outlines the responsibilities and duties to be
carried out by someone employed to do a specific job.
33. Job specification is a document which outlines the requirements,
qualifications, expertise, physical characteristics, etc., for a specified
job
34. Internal recruitment is when a vacancy is filled by someone who
is an existing employee of the business
35. External recruitment is when a vacancy is filled by someone who
is not an existing employee and will be new to the business
36. induction training is an introduction given to a new employee,
explaining the business's activities, customs and procedures and
introducing them to their fellow workers
37. On-the-job training occurs by watching a more experienced
worker doing the job
38. Off-the-job training involves being trained away from the
workplace, usually by specialist trainers.
39. Workforce planning is establishing the workforce needed by the
business for the foreseeable future in terms of the number and skills of
employees required.
40. Dismissal is when employment is ended against the will of the
employee, usually for not working according to the employment
contract.

41. Redundancy is when the employee is no longer needed and so

loses their job. It is not due to any aspect of their work being
unsatisfactory.
42. A contract of employment is a legal agreement between an
employer and an employee, listing the rights and responsibilities of
workers.
43. Communication is the transferring of a message from the sender
to the receiver, who understands the message.
44. A message is the information or instructions being passed by the
sender to the receiver
45. Internal communication is communication between members of
the same organisation
46. External communication is communication between the
organisation and other organisations or individuals.
47. The transmitter or sender of the message is the person starting
off the process by sending the message.
48. The medium of communication is the method used to send a
message; for example, a letter is a method of written communication,
and a meeting is a method of verbal communication.
49. The receiver is the person who receives the message
50. Feedback is the reply from the receiver which shows whether the
message has arrived, been understood, and, if necessary, acted upon
51. One-way communication involves a message which does not call
for or require a response
52. Two-way communication is when the receiver gives a response to
the message, and there is a discussion about it
53. Formal communication is when messages are sent through
established channels using professional language
54. Informal communication is when information is sent and received
casually using everyday language
55. Communication barriers are factors that stop the effective
communication of messages
Marketing
1. Marketing is identifying customer wants and satisfying them profitably
2. A customer is a person, business or other organisation which buys
goods or services from a business
3. Customer loyalty is when existing customers continually buy products
from the same business
4. Customer relationships are communicating with customers to
encourage them to become loyal to the business and its products
5. Market share is the percentage of total market sales held by one brand
or business
6. Consumer buys goods or services for personal use- not to re-sell
7. Mass market is where there is a large number of sales of a product
8. Niche market is a small, usually specialised, segment of a much larger
market
9. Market segment is an identifiable sub-group of a whole market in which
consumers have similar characteristics or preferences
10. Market research is the process of gathering, analyzing and
interpreting information about a market

11. A product-orientated business is one whose main focus of

activity is on the product itself
12. The market-orientated business carries out market research to
find out what consumer wants before a product is developed and
produced
13. The marketing budget is a financial plan for the marketing of a
product or product range for some specific period of time. It specifies
how much money is available to market the product or range so that
the Marketing department may know how much it may spend
14. Primary research is the collection and collation of original data
via direct contact with potential or existing customers
15. Secondary research uses information that has already been
collected and is available for use by others
16. A questionnaire is a set of questions to be answered as a means
of collecting data for market research
17. Online surveys require the target sample to answer a series of
questions over the internet
18. Interviews involve asking individuals a series of questions, often
face-to-face or over the phone
19. A focus group is a group of people who are representative of the
target market
20. A sample is a group of people who are selected to respond to a
market research exercise, such as a questionnaire

21. A random sample is when people are selected at random as a

source of information for market research
22. A quota sample is when people are selected on the basis of
certain characteristics (such as age, gender or income) as a source of
information for market research
23. The marketing mix is a term which is used to describe all the
activities which go into marketing a product or service. These activities
are often summarized as the four Ps - product, price, place and
promotion
24. The USP is the special feature of a product that differentiates it
from the products of competitors
25. The brand name is the unique name of a product that
distinguishes it from other brands
26. Brand loyalty is when consumers keep buying the same brand
again and again instead of choosing a competitor's brand
27. Brand image is an image or identity given to a product which
gives it a personality of its own and distinguishes it from its
competitors' brands
28. Packaging is the physical container or wrapping for a product. It
is also used for promotion and selling appeal.
29. The 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
30. Extension strategy is a way of keeping a product at the maturity
stage of the life cycle and extending the cycle

31. Cost-plus pricing is the cost of manufacturing the product plus a

profit mark-up
32. Competitive pricing is when the product is priced in line with or
just below competitors' prices to try to capture more of the market
33. Penetration pricing is when the price is set lower than the
competitors' prices in order to be able to enter a new market
34. Price skimming is where a high price is set for a new product on
the market
35. Promotional pricing is when a product is sold at a very low price
for a short period of time
36. Dynamic pricing is when businesses change product prices,
usually when selling online, depending on the level of demand
37. Price elastic demand is where consumers are very sensitive to
changes in price
38. Price inelastic demand is where consumers are not sensitive to
changes in price
39. A distribution channel is the means by which a product is passed
from the place of production to the consumer
40. An agent is an independent person or business that is appointed
to deal with the sales and distribution of a product or a range of
products
 41. Promotion is where marketing activities aim to raise customer
awareness of a product or a brand, generating sales and helping to
create brand loyalty
42. Advertising means paying for communication with potential
customers about a product to encourage them to buy it
43. informative advertising is where the emphasis of advertising or
sales promotion is to give full information about the product
44. Persuasive advertising is advertising or promotion which is trying
to persuade the consumer that they really need the product and should
buy it
45. Target audience refers to people who are potential buyers of a
product or a service
46. Sales promotions are incentives such as special offers aimed at
consumers to achieve short-term increases in sales
47. Marketing budget is a financial plan for the marketing of a
product or a product range for a specified period of time
48. Social media marketing is a form of internet marketing that
involves creating and sharing content on social media networks in
order to achieve marketing and branding goals. It includes activities
such as posting text and image updates, videos, and other content that
achieves audience engagement as well as paid social media
advertising
49. Viral marketing is when consumers are encouraged to share
information online about the products of a business
50. E-commerce is the 'online' buying and selling of goods and
services using computer systems linked to the internet and apps on
mobile (cell) phones
51. A marketing strategy is a plan to combine the right combination
of the four elements of the marketing mix for a product or a service to
achieve a particular marketing objective(s)
Operations Management
1. Productivity is the output measured against the inputs used to create it
2. The buffer inventory level is the inventory held to deal with uncertainty
in customer demand and deliveries of supplies
3. Lean production is a term for those techniques used by businesses to
cut down on waste and, therefore, increase efficiency, for example, by
reducing the time it takes for a product to be developed and become
available for sale.
4. Kaizen is a Japanese term meaning 'continuous improvement through
the elimination of waste.
5. Just-in-time is a production method that involves reducing or virtually
eliminating the need to hold inventories of raw materials or unsold
inventories of the finished product.
6. Job production is where a single product is made at a time
7. Batch production is where a quantity of one product is made, and then
a quantity of another item will be produced
 8. Flow production is where large quantities of a product are produced in
a continuous process. It is sometimes referred to as mass production
9. Fixed costs are costs which do not vary in the short run with the
number of items sold or produced. They have to be paid whether the
business is making any sales or not. They are also known as overhead
costs.
10. Variable costs are costs which vary directly with the number of
items sold or produced.

11. Total costs are fixed and variable costs combined.

12. Average cost per unit (unit cost) is the total cost of production
divided by total output.
13. Economies of scale are the factors that lead to a reduction in
average costs as a business increases in size.
14. Diseconomies of scale are the factors that lead to an increase in
average costs as a business grows beyond a certain size.
15. The break-even point is the level of sales at which total costs =
total revenue.
16. The revenue of a business is the income during a period of time
from the sale of goods or services.
17. Quality means to produce a good or service, which means
customer expectations.
18. Quality control is checking for quality at the end of the
production process; it uses quality inspectors to find any faults.
19. Quality assurance is the checking for quality standards by
employees throughout the production process.
Financial Information and Decisions
1. Start-up capital is the finance needed by a new business to pay for
essential non-current and current assets before it can begin trading.
2. Working capital is the finance needed by a business to pay for its day-
to-day activities.
3. Capital expenditure is money spent on non-current assets which will
last for more than one year.
4. Revenue expenditure is money spent on day-to-day expenses which do
not involve the purchase of a long-term asset, for example, wages or
rent.
5. Internal finance is obtained from within the business itself
6. External finance is obtained from sources outside of and separate from
the business
7. Micro-finance is providing financial services - including small loans - to
poor people not served by traditional banks
8. Crowdfunding is funding a project or venture by raising money from a
large number of people who each contribute a relatively small amount,
typically via the internet
9. The cash flow of a business is the cash inflows and outflows over a
period of time
10. Cash inflows are the sums of money received by a business
during a period of time

11. Cash outflows are the sums of money paid out by a business
during a period of time
12. A cash flow cycle shows the stages between paying out cash for
labour, materials, and so on, and receiving cash from the sale of goods
13. Profit is the surplus after total costs have been subtracted from
revenue
14. A cash flow forecast is an estimate of future cash inflows and
outflows of a business, usually on a month-by-month basis. This then
shows the expected cash balance at the end of each month
15. Net cash flow is the difference, each month, between inflows and
outflows.
16. Closing cash (or bank balance) is the amount of cash held by the
business at the end of each month. This becomes next month's
opening cash balance.
17. Opening cash (or bank balance) is the amount of cash held by
the business at the start of the month.
18. Working capital is the finance needed by a business to pay for its
day-to-day expenses.
19. Accounts are the financial records of a firm's transactions
20. Final accounts are produced at the end of the financial year and
give details of the profit or loss made over the year and the worth of
the business

21. An income statement is a financial statement that records the

income of a business and all costs incurred to earn that income over a
period of time. It is also known as a profit and loss account
22. The revenue is the income to a business during a period of time
from the sale of goods and services
23. The cost of sales is the cost of producing or buying the goods
actually sold by the business during a time period
24. A gross profit is made when revenue is greater than the cost of
sales
25. A trading account shows how the gross profit of a business is
calculated
26. Net profit is the profit made by a business after all costs have
been deducted from revenue. It is calculated by subtracting overhead
costs from gross profits
27. Depreciation is the fall in the value of a fixed asset over time
28. Retained profit is the net profit reinvested back into the company
after deducting tax and payments to owners, such as dividends
29. The statement of financial position shows the value of a
business's assets and liabilities at a particular time
 30. Assets are those items of value which are owned by the
business. They may be non-current (fixed) assets or current assets

31. Liabilities are debts owed by the business. They may be non-
current liabilities or current liabilities
32. Non-current assets are items owned by the business for more
than one year
33. Current assets are owned by the business and used within one
year
34. Non-current liabilities are long-term debts owed by the business,
repaid over more than one year
35. Current liabilities are short-term debts owed by the business,
repaid in less than one year
36. Capital employed is shareholders' equity + non-current liabilities
and is the total long-term and permanent capital invested in a business
37. Liquidity is the ability of a business to pay back its short-term
debts
38. Profitability is the measurement of the profit made relative to
either the value of sales achieved or the capital invested in the
business
39. Illiquid means that assets are not readily convertible into cash
External Influences on Business Activity
1. Gross Domestic Product (GDP) is the total value of the output of goods
and services in a country in one year
2. A recession is when there is a period of falling GDP
3. Inflation is the increase in the average price level of goods and
services over time
4. Unemployment exists when the people who are willing and able to
work cannot find a job
5. Economic growth is when a country's GDP increases- more goods and
services are produced than in the previous year
6. Balance of payments records the difference between a country's
exports and imports
7. Real income is the value of income, and it falls when prices rise faster
than money income
8. Exports are goods and services sold from one country to another
country
9. imports are goods and services bought by one country from other
countries
10. The exchange rate is the price of one currency in terms of
another

11. Exchange rate appreciation is the rise in the value of a currency

compared with other currencies
12. Exchange rate depreciation is the fall in value of a currency
compared with other currencies
13. Fiscal policy is any change by the government in tax rates or
public sector spending
14. Direct taxes are paid directly from incomes, eg, income tax or
profits tax
15. indirect taxes are added to the prices of goods, and taxpayers
pay the tax as they purchase the goods, eg-VAT
16. Disposable income is the level of income a taxpayer has after
paying income tax
17. An import tariff is a tax on an imported product
18. Monetary policy is a change in rates by the government or
central bank
19. Supply-side policies aim to increase supply and make the
economy more efficient
20. Private costs of an activity are the costs paid for by a business or
the consumer of the product

21. Private benefits of an activity are the gains to a business or the

consumer of the product
22. External costs are costs paid for by the rest of society, other than
the business, as a result of business activity
23. External benefits are the gains to the rest of society, other than
the business, as a result of business activity
24. Social cost = external costs + private costs
25. Social benefit = external benefits + private benefits
26. Globalisation is the term used to describe increases in worldwide
trade and movement of people and capital between countries
27. Sustainable development refers to development that meets the
needs of the present without compromising the ability of future
generations to meet their own needs.
28. Free trade agreements exist when countries agree to trade
imports/exports with no barriers, such as tariffs or quotas
29. An import tariff is a tax placed on imported goods when they
arrive in the country
30. An import quota is a restriction on the quantity of a product that
can be imported
31. Protectionism is when a government protects domestic
businesses from foreign competition using tariffs and quotas
32. Multinational businesses are those with factories, production or
service operations in more than one country