Business Studies IGCSE – from one layperson to another

	Definition
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. These are unlimited
Economic Problem	Results from their being unlimited wants but limited resources to provide the goods and services to satisfy these wants. This creates scarcity
Factors of Production	The resources need to produce goods or services. There are four and are in limited supply
Scarcity	The lack of sufficient products to satisfy the total wants of the population
Opportunity Cost	The next best alternative given up by choosing another item
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
Business Objectives	The aims or targets that a business works towards
Value Added	The difference between the selling price of a product or service and the cost of bought in materials and components
Stakeholder	Any person or group with 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
De-industrialization	When there is a decline in the importance of the secondary sector industry in a country
Free Market Economy	No government control over factors of production
Monopoly	Business which controls all of the market for a product
Command Economy	Does not have a private sector as all resources are owned by the state
Mixed Economy	Has both a public and a private sector
Capital	The money invested into a business by the owners
Profit	The surplus after total costs have been subtracted from the sales revenue
Internal Growth	When a business expands its existing operations
External Growth	When a business takes over or merges with another business
Merger	When owners of two companies agree to join together their firms to make one business
Takeover	When one business buys out the owners of another business which then becomes part of the predator business
Horizontal Integration	When one firm merges with or takes over another one in the same industry at the same stage of production
Vertical Integration	When one firm merges with or takes over another one in the same industry but at different stages of production
Conglomerate Integration	When one firm merges with or takes a firm in a completely different industry
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
Partnership Agreement	Written and legal agreement between business partners
Unincorporated Business	One that does not have a separate legal identity
Shareholders	The owners of a company who buy shares which represent part ownership of the company
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.
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
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
Franchise	A business based upon the use of the brand names, promotional logos and trading methods of an existing successful business
Inflation	The increase in the average price level of goods and services over time
Unemployment	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 and falls when the prices rise faster than money income
Gross Domestic Product	The total value of output of goods and services in a country in one year
Exports	The goods and services sod from one country to another country
Imports	Goods and services bought in by one country from another country
Exchange Rate	The price of one currency in terms of another
E.R. Depreciation	The fall in the value of currency compared with other currencies- it buys less of another currency than before
E.R. Appreciation	The rise in the value of currency compared with other currencies- it buys more of another currency than before
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 and the taxpayers pay the tax as they purchase the 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 to the quantity of a product that can be imported
Monetary Policy	A change in the interest rates by the government or central bank
Supply Side Policy	Used by the government to improve the efficient supply of the goods and services in their country
Ethical Decision	Decision taken by a manager because of the moral code observed in that firm
Industrial Tribunal	Legal meeting which considers workers’ complaints of unfair dismissal or discrimination at work
Contract of Employment	Legal agreement between employer and employee listing the rights and responsibilities of the workers
Planning Permission	Given by a government body to allow a business to build a factory in a particular location
Development Area	A region of a country where businesses will receive financial support to establish there due to the high unemployment in that area
Constraint	Something that limits or controls the actions and decisions of a company
External Constraint	Constraints over which a business has no direct control
Social Responsibility	When a business takes decisions that may benefit stakeholders other than shareholders
Pressure Groups	Formed by people who share a common interest and who will take action to try and change the government policy or business decisions
Cost-Benefit Analysis	Valuation by a government agency of all the external and private costs and benefits resulting from a business decision
External Costs	The costs paid by the rest of the society other than the business as a result of a business decision
External Benefits	The gains to the rest of the society other than the business resulting from a business decision
Private Cost	The costs of a business decision actually paid for by the business
Private Benefit	The financial gains made by a business as a result of a business decision
Social Cost	Addition of the private and external costs of a business decision
Social Benefit	Addition of the private and external benefits of a business decision
Fixed Costs (Overhead Costs)	Costs which do not vary with the number of items sold or produced in the short term. They have to be paid whether or not the business is making any sales
Variable Costs (Direct Costs)	Costs which vary with the number of items sold or produced. They can be directly related to or identified with a particular product
Total Cost	Fixed and variable costs combined
Break-even Charts	Graphs which show how the costs and revenues of a business change with sales. They show the level of sales a business must make in order to break even
Revenue	The income during a period of time from the sale of goods and services
Total Revenue	Price multiplied by quantity sold
Break-even Point	The level of sales at which total costs equal total revenue
Contribution	The selling price less variable cost
Marginal Costs	The extra costs that a business will incur by producing one more unit of output
Average Cost per Unit	Total cost of production divided by total output
Economies of Scale	Factors that lead to a reduction in average costs as a business increases in size
Forecasts	Predictions of the future
Trend	Underlying movement or direction of data over time
Line of Best Fit	Line drawn through a series of points which best show the trend of that data
Budgets	Plans for the future containing financial or numerical targets
Accounts	Financial records of a firm’s transactions
Final Accounts	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
Trading Account	Shows how the gross profit of a business is calculated
Cost of Goods Sold	Cost of producing or buying in the goods actually sold by a business during a time period
Sales Revenue	Income to a business during a period of time from the sale of goods and services
Gross Profit	Made when sales revenue is greater than the cost of goods sold
Net Profit	Profit made by a business after all the costs have been deducted form sales revenue
Profit and Loss Account	Shows the net profit and retained profit of a business
Depreciation	The fall in the value of a fixed asset over time
Appropriation Account	That part of the profit and loss account which shows how the profit will be distributed after tax- either given as dividends or kept in as retained profits
Retained Profit	The net profit reinvested back into a company after deducting tax and payments to owners such as dividends
Balance Sheet	Shows the value of a business’s assets and liabilities at a particular time
Assets	Those items of value which are owned by the business
Liabilities	Items owed by the business
Return on Capital Employed	Shows how much profit is made as a proportion of the capital that has been invested in the business
Liquidity	Ability of a business to pay back its short-term debts
Cash-Flow	The cash inflows and outflows of a business over a period of time
Cash Flow Cycle	The stages between paying out cash for labor, materials etc. and receiving cash from the sale of goods
Cash Flow Forecast	An estimate of future cash inflows and outflows of a business, usually on a month by month basis. This will then show the expected cash balance at the end of each month
Opening Cash Balance	The amount of cash held by the business at the start of the month
Net Cash Flow	The difference between inflow and outflow of cash
Closing Cash Balance	Amount of cash held by the business at the end of each month. This becomes the next month’s opening cash balance
Start-up Capital	The finance needed by a new business to pay for essential fixed and current assets before it can start trading
Capital Expenditure	Money spent on fixed assets which will last longer than a year
Revenue Expenditure	Money spent on day-to-day expenses which do not involve the purchase of a long-term asset
Organizational Structure	Refers to the levels of management and division of responsibilities within an organization
Job Description	Outlines the responsibilities and duties to be carried out by someone employed to do a specific job
Delegation	Giving authority to a subordinate to perform particular tasks. The final responsibility, however, remains in the hands of the manager
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	Number of subordinates working directly under a manager
Line Managers	Have direct authority over subordinates in their department. They are able to take decisions in their departmental area
Staff Managers	Specialist advisers who provide support to line managers and to the Board of Directors
Decentralized Management Structure	Many decisions are not taken at the center of the business but instead are delegated to a lower level of management
Centralized Management Structure	Most decisions are taken at the center or higher levels of management
Strategic Decisions	Very important decisions which can affect the overall success of the business
Tactical Decisions	Tactical decisions are medium term, less complex decisions made by middle managers
Operational Decisions	Day-to-day decisions which will be taken by a lower level of management
Communication	The transferring of a message from the sender to the receiver who understands the message
Medium of Communication	The method used to send a message
Feedback	The reply from the receiver which shows whether the message has arrived, been understood and, if necessary, been acted upon
One-way Communication	Involves a message which does not call for or require a response
Two-way Communication	When the receiver gives a response to the message and there is discussion about it
Internal Communication	When messages are sent between people working in the same organization
External Communication	When messages are sent between one organization and another organization or an outside individual
Communication Nets	The ways in which members of a group communicate with one another
Motivation	The reason why employees want to work hard and effectively for the business
Wage	A payment for work, usually paid weekly
Salary	Payment for work, usually paid monthly
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 the employees
Bonus	An additional amount of payment above basic pay as a reward for good work
Performance-Related Pay	Pay which is related to the effectiveness of the employee
Appraisal	A method of assessing the effectiveness of an employee
Fringe Benefits	Non-financial rewards given to employees
Job Satisfaction	Enjoyment derived from feeling that you have done a good job
Job Rotation	Involves workers swapping round and doing each specific task for only a limited time and then changing round again
Job Enlargement	Extra tasks of a similar level of work are added to a worker’s job description
Job Enrichment	Involves looking at jobs and adding tasks that require more skill and/or responsibility
Leadership Styles	Different approaches to dealing with people in a position of authority
Autocratic Leadership	When the manager expects to be in charge of the business and have their orders followed- there is little/no opportunity for workers to comment on anything
Democratic Leadership	Involves a team guided by a leader where all individuals are involved in the decision-making process to determine what needs to be done and how it should be done.
Leave-to-do Leadership	Laissez-faire leaders allow followers to have complete freedom to make decisions concerning the completion of their work. It allows followers a high degree of autonomy and self-rule, while at the same time offering guidance and support when requested
Formal Group	A group designated to carry out specific tasks within a business
Informal Group	Group of people who form independently of any official groups set up within a business and who have similar interests or something else in common
Job Analysis	Identifies and records the responsibilities and tasks related to a job
Job Specification	Document which 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 a business
External Recruitment	When a vacancy is filled by someone who is not an existing employee and will be new to the business
Inundation Training	Introduction given to a new employee, explaining the firm’s activities, customs and procedures and introducing them to fellow workers
On-the-job Training	Watching a more experienced worker doing the job
Off-the-job Training	Involves being 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 the employees required
Redundancy	When an employee is no longer needed and so loses their job- not due to any aspect of their work being unsatisfactory
Trade Union	Group of workers who have joined together to ensure their interests are protected
Craft Union	Trade union which represents a particular type of skilled worker
General Union	Trade union which represents workers from a variety of trades and industry- they are often unskilled or semi-skilled
Industrial Union	Trade union which represents all types of workers in a particular industry
White-Collar Union	Trade union which represents non-manual workers
Closed Shop	All employees must be a member of the same trade union
Single-Union Agreement	A firm will deal with only one trade union and no others
Employer Associations	Groups of employers who join together to give benefits to their members
Negotiation	Joint decision making involving bargaining between representatives of the management and of the workforce within a firm in hopes to arrive at a mutually acceptable agreement
Collective Bargaining	Negotiations between one or more trade unions and one or more employers on pay and conditions of employment
Productivity Agreement	Workers and management agree on an increase in benefits, in return for an increase in productivity
Industrial Action	Action taken by the trade unions to decrease or halt production
Strike	When employees refuse to work
Picketing	When employees who are taking industrial action stand outside their workplace to prevent or protest at the delivery of goods, arrival and departure of other employees etc.
Work-to-Rule	Rules are strictly obeyed so that work is slowed down
Go Slow	Employees do their normal tasks but slower than usual
Non-cooperation	Employees refuse to comply with the new working practices
Overtime Ban	Employees refuse to work longer than their normal working hours
No-Strike Agreement	When trade unions and management agree to have pay disputes settled by an independent arbitrator instead of taking strike action
Arbitrator	Listens to both sides in the industrial dispute and then gives a ruling on what they think is fair to both sides
Lock-Out	Employees are locked out of their workplace by the employers
Worker Participation	When employees contribute to decision-making in the business
Works Councils	Committees of workers who are consulted or informed on matters that affect employees
Market	Where buyers and sellers come together to exchange products for money
Product-Oriented	A business whose main focus of activity is the product itself
Market-Oriented	A business which carries out market research to find out consumer wants before a product is developed and produced
Marketing Budget	Financial plan for the marketing of a product or product range for some specified period of time
Marketing	Management process which identifies customer wants, anticipates future wants and then goes about satisfying them profitably
Market Share	The percentage of total market sales held by one brand or business
Market Segmentation	Market is divided up into groups of consumers who have similar needs
Mass Market	A very large number of sales for a product
Niche Market	Small, specialized segment of a much larger market
Primary Research (Field Research)	Collection and collation of original data via direct contact with potential or existing customers
Secondary Research (Desk Research)	Information which has already been collected and is available for use by others
Questionnaire	Set of questions to be answered as a means of collecting data for market research
Consumer Panels	Groups of people who agree to provide information about a specific product or general spending patterns over a period of time
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
Brand Name	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	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
Trade Cycle	A cycle or series of cycles of economic expansion and contraction
Cost-Plus Pricing	Cost of manufacturing the product plus a profit mark-up
Penetration Pricing	When prices are set lower than the competitors’ prices in order to be able to enter a new market
Price Skimming	High price set for a new product on the market due to its novelty factor
Competitive Pricing	Product is priced in line with or just below competitors’ prices to try to capture more of the market
Promotional Pricing	When a product is sold at a very low price for a short period of time
Psychological Pricing	When particular attention is paid to the effect that the price of a product will have upon the consumers’ perceptions of the product
Informative Advertising	The emphasis of advertising or sales promotion is to give full information about the product
Persuasive Advertising	Advertising or promotion which is trying to persuade the consumer that they really need the product and should buy it
Target Audience	Refers to the people who are potential buyers of a product or service
AIDA Model	Simple way of planning an advert’s design. It stands for attention, interest, desire and action
Channel of Distribution	The means by which a product is passed from the place of production to the customer or retailer
Agent	An independent person or business that is appointed to deal with the sales and distribution of a product or range of products. The agent will either put an additional amount on the price to cover their expenses or will receive a commission on sales
Productivity	Output measured against the inputs used to create it
Job Production	A single product is made at a time
Batch Production	A quantity of one product is made, then a quantity of another item will be produced depending on the orders which come in
Flow Production (Mass Production)	Large quantities of a product are produced in a continuous process
Lead Time	Margin of time between the date when stock is obtained and the date when it is sold
Lean Production	Techniques used by businesses to cut down on waste and therefore increase efficiency
Kaizen	A process of continuous improvement through the elimination of waste
Just-in-Time	Production method that involves reducing or virtually eliminating the need to hold stocks of raw materials or unsold stocks of the finished products. Supplies arrive just at the time they are needed
Quality Control	A system of maintaining standards in manufactured products by testing a sample of the output against the specification.
Quality Assurance	The maintenance of a desired level of quality in a service or product, especially by means of attention to every stage of the process of delivery or production.
Total Quality Management	Continuous improvement of products and processes by focusing on quality at each stage of production
Common Currency	Result of an agreement between countries to use the same currency for all business and other transactions- e.g. euro in EU
Globalization	The process by which businesses or other organizations develop international influence or start operating on an international scale
Multinational (Transnational) Businesses	A business with factories, production or service operations in more than one country