 A need is a good or service essential for living.

 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.
 The economic problem – there exist unlimited wants but limited resources to produce the
goods and services to satisfy those wants. This creates scarcity.
 Factors of production are those resources needed to produce goods or services. There are
four factors of production, and they are in limited supply.
 Scarcity is the lack of sufficient products to fulfil the total wants of the population.
 Opportunity cost is the next best alternative given up by choosing another item.
 Specialization occurs when people and businesses concentrate on what they are best at.
 Division of labor is when the production process is split up into different tasks and each
worker performs one of these tasks. It is a form of specialization.
 Businesses combine factors of production to make products (goods and services) which
satisfy people’s wants.
 Added value is the difference between the selling price of a product and the cost of
bought-in materials and components.
 The primary sector of industry extracts and uses the natural resources of Earth to produce
raw materials used by other businesses.
 The secondary sector of industry manufactures goods using the raw materials provided by
the primary sector.
 The tertiary sector of industry provides services to consumers and the other sectors of
industry.
 De-industrialisation occurs when there is a decline in the importance of the secondary,
manufacturing sector of industry in a country.
 A mixed economy has both a private sector and a public (state) sector.
 Capital is the money invested into a business by the owners.
 Entrepreneur is a person who organises, operates and takes the risk for a new business
venture.
 A business plan is a document containing the business objectives and important details
about the operations, finance and owners of the new business.
 Capital employed is the total value of capital used in the business.
 Internal growth occurs when a business expands its existing operations.
 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.
 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).
 A merger is when the owners of two businesses agree to join their businesses together to
make one business.
 Horizontal integration is when one business merges with or takes over another one in the
same industry at the same stage of production.
 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.
 Conglomerate integration is when one business merges with or takes over a business in a
completely different industry. This is also known as diversification.
 Sole trader is a business owned by one person.
 Limited liability means that the liability of shareholders in a company is limited to only
the amount they invested.
 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.
 Partnership is a form of business in which two or more people agree to jointly own a
business.
 A partnership agreement is the written and legal agreement between business partners. It
is not essential for partners to have such an agreement but it is always recommended.
 An unincorporated business is one that does not have a separate legal identity. Sole
traders and partnerships are unincorporated businesses.
 Incorporated businesses are companies that have separate legal status from their owners.
 Shareholders are the owners of a limited company. They buy shares which represent part-
ownership of the company.
 Private limited companies are businesses owned by shareholders but they cannot sell
shares to the public.
 Public limited companies are businesses owned by shareholders but they can sell shares
to the public and their shares are tradeable on the Stock Exchange.
 An Annual General Meeting is a legal requirement for all companies. Shareholders may
attend and vote on who they want to be on the Board of Directors for the coming year.
 Dividends are payments made to shareholders from the profits (after tax) of a company.
They are the return to shareholders for investing in the company.
 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 licence to
operate this business from the franchisor.
 A joint venture is where two or more businesses start a new project together, sharing
capital, risks and profits.
 A public corporation is a business in the public sector that is owned and controlled by the
state (government).
 Business objectives are the aims or targets that a business works towards.
 Profit is total income of a business (revenue) less total costs.
 Market share is the percentage of total market sales held by one brand or business.
 A social enterprise has social objectives as well as an aim to make a profit to reinvest
back into the business.
 A stakeholder is any person or group with a direct interest in the performance and
activities of a business.
 Motivation is the reason why employees want to work hard and work effectively for the
business.
 A wage is payment for work, usually paid weekly.
 Time rate is the amount paid to an employee for one hour of work.
 Piece rate is an amount paid for each unit of output. A salary is payment for work, usually
paid monthly.
 A bonus is an additional amount of payment above basic pay as a reward for good work.
 Commission is payment relating to the number of sales made.
 Profit sharing is a system whereby a proportion of the company’s profits is paid out to
employees.
 Job satisfaction is the enjoyment derived from feeling that you have done a good job.
 Job rotation involves workers swapping around and doing each specific task for only a
limited time and then changing around again.
 Job enrichment involves looking at jobs and adding tasks that require more skill and/or
responsibility.
 Teamworking involves using groups of workers and allocating specific tasks and
responsibilities to them.
 Training is the process of improving a worker’s skills.
 Promotion is the advancement of an employee in an organization, for example, to a
higher job/managerial level.
 Organizational structure refers to the levels of management and division of
responsibilities within an organization.
 Organizational chart refers to a diagram that outlines the internal management structure.
 Hierarchy refers to the levels of management in any organization, from the highest to the
lowest.
 A level of hierarchy refers to managers/supervisors/other employees who are given a
similar level of responsibility in an organization.
 Chain of command is the structure in an organization which allows instructions to be
passed down from senior management to lower levels of management.
 The span of control is the number of subordinates working directly under a manager.
 Directors are senior managers who lead a particular department or division of a business.
 Line managers have direct responsibility for people below them in the hierarchy of an
organization.
 Supervisors are junior managers who have direct control over the employees below them
in the organizational structure.
 Staff managers are specialists who provide support, information and assistance to line
managers.
 Delegation means giving a subordinate the authority to perform particular tasks.
 Leadership styles are the different approaches to dealing with people and making
decisions when in a position of authority – autocratic, democratic or laissez-faire.
 Autocratic leadership is where the manager expects to be in charge of the business and to
have their orders followed.
 Democratic leadership gets other employees involved in the decision-making process.
 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.
 A trade union is a group of employees who have joined together to ensure their interests
are protected.
 A closed shop is when all employees must be a member of the same trade union.