Topic 5.1
Scarcity: Resources are limited in supply, e.g. raw materials, time
Trade-off: Where the selection of one choice results in the loss of another.
Opportunity Cost: The loss of the next most desired alternative when choosing a particular course of action.
Price: The amount of money required to purchase a good or service.
Revenue: The value of sales o a time period, calculated by Price x(times) Quantity sold.
Demand: The quantity of a good or service a consumer would like to buy at a given price in a time period.
Price insensitivity: Where changing the price of a product by a certain amount leads to a smaller change in demand.
Necessity: A good or service that a consumer views as essential.
Substitute: A good or service which is a possible alternative to another good or service.
Price sensitivity: Where changing the price by a certain amount results in a bigger change in demand.
Stakeholder: Groups which are interested in the performance of a business.
Shareholders: The owners of a limited company. They buy shares which represent part ownership of a company.
Competition Commission: The body which investigates cases where firms merge or are taken over to decide whether such activity is in the public interest. It has the power to prevent mergers or take-overs where these are seen to reduce the level of competition.
Dividends: The payments made to shareholders from the profits of a company.
Third party: a group or an individual that is not directly involved in a decision or action.
Externalities: The effects of economic decision on individuals and groups outside who are not directly involved in the decision.
Negative externalities: Those costs arising from business activity which are paid by people or organisations outside the firm.
Positive externalities: Those benefits arising from business activity which are experienced by people outside the firm. The firm receives no payment for the benefits received.
Profits: the rewards for risk-taking. Profit is the difference between the amount of revenue earned b a firm and the total costs of producing the goods ad services the business sells.
Market share: The quantity sold by a business as a percentage of total sales in a market.
Competitiveness: The strength of a business’s position in a market measured by market share and profitability.
Competitive advantage: Advantages that a business has over its rivals. These advantages help to win it customers. To be really effective the advantages must be difficult to copy (defensible) and unique (distinctive).
Social success: The performance of a business which takes account social environmental and ethical factors.
Marketing mix: The combination of product, place, promotion, price that is designed by a business to achieve its aims. This is also knows as the ‘4Ps’
Cash flow: The money coming into and going out of a business over a period of time. This refers to the inflows and outflows of money.
Productivity: The measure of the output per worker or machine per period of time.
Average cost: The cost of producing each unit of output. This is calculated by dividing total cost by the amount produced (output)
Consumer confidence: A measure of the extent to which customers are prepard to spend money.
Inflation: An increase in the general price level. This is measured by the Consumer price Index (CPI).
Cost of living: A measure of the average cost of basic necessities, such as food, housing and clothing.
External shock: An unanticipated change in demand or inflation caused by factors beyond the control of the country, for example, a rise in oil prices or a fall in the exchange rate.
Internal shock: An unanticipated change in demand or inflation caused by factors within the country.
Tax revenue: Money received by the government from people and businesses paying their taxes.
Exports: Goods and services which are sold to other countries and which lead to payments to the UK.
Imports: Goods and services brought from other countries which leads to money going out of the UK.
Exchange rate: The value of one currency in terms of another.
Interest rate: the cost of borrowing money, or the returns received on savings.
Economic activity: The total amount of buying and selling that takes place in an economy over a period of time.
Monetary policy: The use of changes in interest rates to control inflation.
Fiscal policy: The use of taxation and government spending to achieve government objectives.
Topic 5.3
Internal growth: Occurs when a business increases in size by selling more of its goods/services without taking over or merging with other businesses.
External Growth: Where a business grows in size due to merger or takeover.
Innovation: The process of transforming an invention into a product that customers will buy. It is the commercial exploitation of an invention.
Research and Development (R&D): the process of creating and designing new products and new methods of production.
Merger: Where two or more firms agree to join together. This is a voluntary agreement and results in the new business retaining the identity of both businesses.
Takeover: Where one business buys another business.
Conglomerate merger: Occurs when two businesses join which have no common business interest.
Economies of scale: The factors which cause the average cost of producing something to fall as output rises.
Bulk-buying (commercial) economies: Occur when businesses can gain discounts on large orders from suppliers.
Technical Economies of scale: Reductions in average costs of production due to the use of more advanced machinery.
Market Power: A measure of the influence of a business over consumers and suppliers.
Diseconomies of scale: The factors which cause average costs of production to increase as output increases.
Monopoly: A business which has a market share of 25% and can therefore influence the market. In a pure sense of monopoly exists when there is only one seller.
Patent: A legal protection for a business’s new ideas. This prevents other businesses stealing ideas from other companies.
Natural Monopoly: Where one large business can supply the market with products at lower costs than if the market was supplied by many producers.
Regulators: Independent bodies set up by the Government to monitor and regulate business activity.
Privatisation: The transfer of state owned business to the private sector.
Self-regulation: Where an industry body made of representatives from businesses within the industry monitors the actions of members to ensure rules and guideless are followed.
Pressure Group: An organisation which aims to influence the decisions and a business, government and individuals.
Topic 5.4
Gross Domestic Product (GPD): The total value output produced in an economy in a year.
Economic growth: The percentage increase in GDP per year. (This can be negative)
Output: The amount of goods and services produced in a period of time.
Resources: The land, labour and machinery that are used to produce goods and services.
Investment: Spending on equipment and plant that helps contribute to production.
Human capital investment: Spending on training and education, which allows workers to be able to produce more output in the future.
Physical capital investment: Spending on new assets such as factories or machinery, which allows a firm to produce more output in the future.
Grants: Sums of money provided by the Government to encourage a particular project or activity.
Infrastructure: Road, rail and air links that allow people and output to move speedily around a country and which help trade.
Less economically developed countries (LEDCs): These are countries that have a low gross domestic product and where the average standard living is low.
Standard of living: The amount of goods and services a person can buy with their income in a year.
GDP per capita: The value of output produced by a country in a year divided by the population of that country.
Quality of life: An individuals overall sense of well being. This can be measured by health and education as well as the amount of goods and services a person can buy.
Infant mortality rates: The percentage of babies that do not survive past their fifth birthday.
Income inequalities: Where there is a difference in income between different groups of people within a country.
Life expectancy rates: The average age which people are expected to live from birth.
Literacy rates: The percentage of adults who are able to read and write.
Non-renewable resources: Resources which are limited in supply and will eventually run out, e.g. coal and oil.
Renewable Resources: Resources that are not limited in supply and are naturally replaced in the environment, e.g. solar power and wind power.
Sustainable economic growth (development): An increase in GDP that minimises negative externalities faced by future generations.
Corporate social responsibility: A measure of the impact that a business has on society and the environment as a result of its operations.
Greenwash: Where a business tried to give the impression that it is environmentally friendly when its claims may not be entirely true or justified.
Ethical responsibility: Where a business takes a moral standpoint and ensures that its behaviour does not impact stakeholder groups in a negative way; it tries to do the ‘right thing’.
Environmentally friendly: Where a business acts or produces products in a way that minimises damage to the environment.
Taxation: A payment made to the Government by consumers or firms. It is usually based on spending or incomes.
Internalising an externality: where an unconsidered external cost is turned into a considered private cost which is paid in money.
Incentives: Measures designed to encourage a person to act in a different way – a way which may be considered preferable or desirable.
Subsidy: A payment to businesses and other organisations from the government to encourage the production of certain products or to make them cheaper for the consumer.
Legislation: Laws that are introduced by the government.
Ban: A law that makes the production of a product or other business activity illegal.
Regulation: Restrictions and rules placed on business activities, which may be monitored by an independent body or by the industries themselves.
Topic 5.5
Poverty line: A level of income usually defined by a government or international body, below which a person would not be able to afford many of the goods and services seen as being the essentials of a decent standard of living.
Welfare state: The system of state benefits and free Government services paid for through taxation. Its aim is to reduce inequality between different groups of people in the UK.
Absolute poverty: Where a person cannot afford the basics of life such as food, shelter and clothes.
Universal Benefits: Payments made by the government to people that are paid regardless of a person’s level of income.
Means-tested Benefits: Payments made by the government to people, that are determined by the amount of income or savings a person has.
Relative poverty: Where a person has a standard of living well below the average for that country.
Poverty Cycle: Where living in poverty makes it harder for you to escape poverty in the long-run.
International trade: The exchange of goods and services between countries.
Free trade: The exchange of goods and services between countries where there are no restrictions such as tariffs, quotas or other barriers.
Tariff: A tax which is imposed on goods and services which have been imported from aboard and which has the effect of increasing the price,
Quota: A physical limit to the amount of goods and services that can be imported into a country,
Non-tariff barriers: Any barriers excluding tariffs that are designed to restrict trade and limit the amount of imports entering a country.
Protectionism: The process of erecting barriers to trade such as tariffs and quotas to restrict the amount of imports coming into a country.
Single European market: Where all restrictions to trade including tariffs, quotas and other barriers have been abolished between countries who are members within the European Union. This has created free trade within the European Union.
Multinational/transnational corporation: A company that is based in one country but manufactures and sells products in a variety of other countries.
International debt: A sum of money which is owed by the government of an LEDC to richer developed nations or organisations such as the World Bank.
World Bank: An organisation that provides loans to LEDCs. It is based in Washington, USA.
Debt relief: The reduction or cancellation of debt that LEDCs owe to either the World Bank or developed nations.
Charities: Organisations that aim to produce a surplus of income over expenses to promote a good cause.
Non-Government Organisations: Independent non-profit organisations that aim to achieve a particular objective, e.g. debt cancellation.
World Trade Organisation: An organisation that aims to promote international free trade.
Fairtrade: An NGO which aims to improve living standards in LEDCs by paying higher prices for agricultural produce.
Ethically responsible: Where firms act with a moral sense of responsibility towards their stakeholders.