Definitions - Unit 1

Question 1

need

Answer 1

A need is a good or service essential for living

Question 2

want

Answer 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.

Question 3

economic problem

Answer 3

There exist unlimited wants but limited resources to produce the goods and services to satisfy those wants. This creates scarcity

Question 4

Factors of production

Answer 4

Those resources needed to produce goods and services. There are four factors of production, and they are in limited supply.

Question 5

Scarcity

Answer 5

Scarcity is the lack of sufficient products to fulfill the
total wants of the population

Question 6

Opportunity cost

Answer 6

Opportunity cost is the next best alternative given up
by choosing another item

Question 7

Specialization

Answer 7

Specialization occurs when people and businesses
concentrate on what they are best at

Question 8

Division of labour

Answer 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

Question 9

Added value

Answer 9

Added value is the difference between the selling
price and the cost of bought-in materials and
components

Question 10

The primary sector

Answer 10

The primary sector of industry extracts and uses the
natural resources of Earth to produce raw materials
used by other businesses

Question 11

The secondary sector

Answer 11

The secondary sector of industry manufactures goods
using the raw materials provided by the primary
sector

Question 12

The tertiary sector

Answer 12

The tertiary sector of industry provides services to
consumers and other sectors of industry

Question 13

De-industrilization

Answer 13

De -industrialisation occurs when there is a decline in
the importance of the secondary, manufacturing
sector of industry in a country

Question 14

Mixed Economy

Answer 14

Mixed economy has both a private sector and a public
(state) sector

Question 15

Capital

Answer 15

Capital is the money invested into the business by the
owners

Question 16

Entrepreneur

Answer 16

An entrepreneur is a person who organises, operates
and takes the risk for a new business venture

Question 17

Capital employed

Answer 17

Capital employed is the total value of capital used in
the business

Question 18

Internal Growth

Answer 18

Internal Growth occurs when a business expands its
existing operations

Question 19

External Growth

Answer 19

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

Question 20

Takeover

Answer 20

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]

Question 21

Merger

Answer 21

A merger is when the owners of two businesses agree
to join their businesses together to make one
business

Question 22

Horizontal integration

Answer 22

Horizontal integration is when one business merges
with or takes over another one in the same industry
at the same stage of production

Question 23

Vertical integration

Answer 23

. 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 backward.

Question 24

Conglomerate integration

Answer 24

Conglomerate integration is when one business
merges with or takes over a business in a completely
different industry. This is also known as
diversification.

Question 25

Sole trader

Answer 25

Sole trader is a business owned by one person

Question 26

Limited liability

Answer 26

Limited liability means that the liability of shareholders in a company is limited to only the amount they invested

Question 27

Unlimited liability

Answer 27

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

Question 28

Partnership

Answer 28

Partnership is a form of business in which two or more people agree to jointly own a business

Question 29

Unincorporated businesses

Answer 29

Unincorporated business is one that does not have a separate legal identity. Sole traders and partnerships are unincorporated businesses

Question 30

Incorporated businesses

Answer 30

incorporated businesses are companies that have separate legal status from their owners

Question 31

Shareholders

Answer 31

Shareholders are the owners of a limited company. They buy shares which represent part-ownership of the company.

Question 32

Private limited companies

Answer 32

Private limited companies are businesses owned by shareholders but they cannot sell shares to the public.

Question 33

Public limited companies

Answer 33

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

Question 34

Dividends

Answer 34

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.

Question 35

Franchise

Answer 35

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

Question 36

Joint venture

Answer 36

A joint venture is where two or more businesses start a new project together, sharing capital, risks and profits

Question 37

Public corporation

Answer 37

A public corporation is a business in the public sector that is owned and controlled by the state [government]

Question 38

Business objectives

Answer 38

A public corporation is a business in the public sector that is owned and controlled by the state [government]

Question 39

Profit

Answer 39

Total revenue-Total costs`

Question 40

Market share

Answer 40

Market share is the percentage of total market sales held by one brand or business

Question 41

Social enterprise

Answer 41

A social enterprise has social objectives as well as an aim to make a profit to reinvest back into the business

Question 42

Stakeholder

Answer 42

A stakeholder is any person or group with direct interest in the performance and activities of a business