Unit 3 Key terms

1. Money - Anything that is generally accepted as a means of exchange

2. Standard of deferred payment – Purchase of products can be made now and
payment can be made later as the value of currency stays same.
3. Medium of Exchange – Money is generally acceptable to buy and sell goods and
services in a country.
4. Store of Value - The money is used as a store of value because they can be kept
for a long period of time without any wastage and money is easily to store.
5. Measure of Value/ Unit of Account – The value of the products can be measured
with the value of money.
6. Commercial Bank – Mostly private sector banks which aims for profit by
providing various services to the people.
7. Central Bank - a government owned bank which provides banking
services to the government and commercial banks. Its an apex bank which
manages and supervises all other banks in the country.
8. Lender of last resort - The central bank will lend to the banks which are
temporarily short of cash.
9. Average Propensity to Save - The proportion of income which people save is
referred as APS. It is calculated by dividing savings by disposable income.
10. Average Propensity to Consume - The proportion of income which people spend
is referred as APC. It is calculated by dividing consumption by disposable
income.
11. Wage factors - Monetary factors that affect a person while choosing a job.
12. Non Wage Factors - Non monetary factors that affect a person while choosing a
job.
13. Limiting Factors – Factors which affect a person not to choose a particular job.
14. Trade Union – An association which represents interest of the workers with the
employer. It bargains to increase wages and working conditions for the workers.
15. Collective bargaining - Negotiation of wages and other conditions of
employment by an organized body of employees.
16. Sole Trader - a business owned by one person.
17. Partnership Firm - a business organization for two or more people who are
personally responsible for its debts and share its profits.
18. Cooperatives -a firm that exists for the benefits of its members.
19. Public Corporation - a business organization owned by the government which is
designed to act in the public interest.
20. Private Limited Company - a business organization with limited liability which
can only share its shares with the approval of existing shareholders.
21. Public Limited Company - a business organization with limited liability which
sells its shares to the general public.
22. MNCs - a company which produces and operates in more than one country.
23. Private Sector - owned and controlled by people (individual or group)
24. Public Sector - owned and controlled by the government
25. Economies of Scale - The large scale production reduces the average cost of
production to a considerable extent
26. Diseconomies of Scale - The large scale production increases the average cost of
production due to problems faced by it.
27. Internal Economies of Scale - lower long run average costs resulting from a firm
growing in size.
28. External Economies of Scale - lower long run average costs resulting from an
industry growing in size.
29. Internal Diseconomies of Scale - higher long run average costs arising from a
firm growing too large.
30. External Diseconomies of Scale - higher long run average costs arising from an
industry growing too large in size.
31. Horizontal integration - the merger/take over of firms producing the same
product and at the same stage of production.
32. Vertical Integration - The merger/take over of one firm with another firm that
either provides an outlet for its products or supplies it with raw materials,
components or the products it sells.
33. Conglomerate Integration - a merger between firms producing different
products.
34. Integration - growth of a firm by a merger or a takeover.
35. Labour intensive Production - Labor intensive refers to a process or industry
that requires a large amount of labor to produce its goods or services
36. Capital Intensive Production - refers to a business process or an industry that
 requires large amounts of money and other financial resources to produce a
good or service
37. Total Cost - Total Fixed cost +Total Variable cost
38. Average Cost - Average fixed cost +Average variable cost (or) total cost divided
by output
39. Fixed Cost - Cost which does not change with output
40. Variable Cost - Cost which changes with the output. It’s usage rate can be
changed easily.
41. Average Variable Cost - It is the total variable cost divided by output.
42. Average Fixed Cost - It is the total fixed cost divided by output. It decreases
when the output increases.
43. Total Revenue – Price x Quantity Sold
44. Profit - Revenue minus cost
45. Sales Maximization Principle - After reaching a point of profit, a company
should produce more, keep prices low, and invest in advertising to increase
product’s demand.
46. Monopoly - a market with a single supplier.
47. Perfect Competition - A market structure with the highest level of competition.
Firms produce identical products.