IGSCE Definitions - 1.Understanding Business Activity

Question 1

A need

Answer 1

A need is a good or service essential for living

Question 2

A 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

are 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 fulfil 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

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

Question 8

Division of labour

Answer 8

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

Businesses

Answer 9

Businesses combine the factors of production to make goods and services which satisfy people’s wants.

Question 10

Added value

Answer 10

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

Question 11

The primary sector of industry

Answer 11

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

Question 12

The secondary sector

Answer 12

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

Question 13

The tertiary sector

Answer 13

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

Question 14

De-industrialisation

Answer 14

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

Question 15

A mixed economy

Answer 15

A mixed economy has both a private sector and a public (state) sector

Question 16

Capital

Answer 16

Capital is the money invested into the business by the owners

Question 17

An entrepreneur

Answer 17

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

Question 18

Capital employed

Answer 18

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

Question 19

Internal Growth

Answer 19

Internal Growth occurs when a business expands its existing operations

Question 20

External Growth

Answer 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

Question 21

A takeover or acquisition

Answer 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]

Question 22

A merger

Answer 22

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

Question 23

Horizontal integration

Answer 23

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

Question 24

Vertical integration

Answer 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.

Question 25

Conglomerate integration

Answer 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.

Question 26

A sole trader

Answer 26

A sole trader is a business owned by one person.

Question 27

Limited liability

Answer 27

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

Question 28

Unlimited liability

Answer 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

Question 29

Partnership

Answer 29

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

Question 30

Unincorporated businesses

Answer 30

Unincorporated businesses do not have a separate legal identity. Sole traders and partnerships are unincorporated businesses

Question 31

Incorporated businesses

Answer 31

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

Question 32

Shareholders

Answer 32

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

Question 33

Private limited companies

Answer 33

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

Question 34

Public limited companies

Answer 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

Question 35

Dividends

Answer 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.

Question 36

A franchise

Answer 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.

Question 37

A joint venture

Answer 37

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

Question 38

A public corporation

Answer 38

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

Question 39

Business objectives

Answer 39

Business objectives are the aims or targets that a business works towards

Question 40

Profit

Answer 40

Profit is the total income of a business [revenue] minus total costs

Question 41

Market share

Answer 41

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

Question 42

A social enterprise

Answer 42

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

Question 43

A stakeholder

Answer 43

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