BUSINESS

STUDIES
DEFINATION NOTES
 BASIC ECONOMIC
S NEED : WANTS: PROMBLEM:
E Is a good or service Is a good or service Is concerned with how
C essential for living which people would best to allocate scarce
like to have , but resources in order to
T satisfy people’s
which is not
I unlimited need and
essential for living. wants.
O Wants are unlimited
N
FACTOR OF SCARCITY: OPPORTUNITY
1 PRODUCTION: Is the lack of sufficient COST:
Are those resources products to fulfill the Is the cost of the next
needed to produce total wants of the best opportunity
goods or services. population. forgone when making
There are 4 f.o.p in a decision.
limited supply

SPECIALISATION: DIVISION OF BUSINESS:

Occurs when people LABOUR: Combine factor of
and businesses Is when the production production to make
concentrate on what process is split up into products which satisfy
they are best at. different tasks and people’s wants
each worker performs
1 of these .

ADDED VALUE: PRIMARY SECTOR: SECONDARY

Is the difference Of industry extracts SECTOR:
between the selling and uses the natural Of industry
price of a product and resources of Earth to manufactures goods
the cost of bought-in produce raw materials using the raw
materials and used by other materials provided by
component. businesses. the primary sector.

TERTIARY SECTOR: DE- MIXED ECONOMY:

Of industry provides INDUSTRIALISTION: Has both a private
services to consumers Occurs when there is a sector and a public
and the other sectors decline in the sector.
of industry. importance
,manufacturing sector
of industry in a country
CAPITAL:
Is the money invested
into a business by the
owners
CAPITAL
EMPLOYED:
Is the total value of
capital used in the
business.
TAKEOVER:
Is when 1 business
buys out the owners of
another business,
which then become
part of the ‘predator’
Business.
VERTICAL
INTEGRATION:
Is when 1 business
merges with or takes over
another 1 in the same
industry but at a different
stage of production.
Forward or backward
PARTNERSHIP: PARTNERSHIP
Is a form of business in AGREEMENT :
which two or more
people agree to jointly
own a business.
ENTREPRENEUR:
Is a person who
organizes, operates
and takes the risk for a
new business venture.
INTERNL GROWTH:
Occurs when a
business expands its
existing operations.
MERGER:
Is when the owners of
two businesses agree
to join their businesses
together to make 1
business.
CONGLOMERATE
INTEGRATION:
Is when 1 business
merges with or takes over
a business in a completely
different industry . This is
also known as
diversification.
Is a written and legal
agreement between
business partners. It is not
essential for partners to
have such an agreement
but it is always recommen
BUSINESS PLAN:
Is a document containing
the business objectives
and important details
about the operation,
finance and owners of the
new business
EXTERNAL
GROWTH:
Is when a business takes over
or merges with another
business. It called integration
as 1 business is integrated into
another one.
HORIZONTOL
INTEGRATION:
Is when 1 business
merges with or takes over
another 1 in the same
industry at the same stage
of production
SOLE TRADER:
Is a business owned by
one business
UNICORPORATED
BUSINESS:
Is one of that does not
have a separate legal
identify. Sole trader
and partnership are
(U.B)
INCORPORATED SHAREHOLDERS:
BUSINESSES: Are the owners of a
Are companies that limited company. They
have separate legal buy shares which
status from their represent part-
owners ownership of the
company.
PRIVATE LIMITED
COMPANIES:
Are businesses owned
by shareholders but
they cannot sell
shares to the public

PUBLIC LIMITED ANNUAL GENERAL DIVIDENDS:

COMPANY:
Are businesses owned by
shareholders but they can
sell shares to the public
and their shares tradeable
on the Stock Exchange
MEETING:
Is a legal requirement for
all companies . Share
holders may attend and
vote on who they want to
be on the Board of
Directors for the coming year
Are payments made to
shareholders from the
profit(after tax ) of a
company. They are the
return to shareholders for
investing in the company

FRANCHISE: JOINT VENTURE: PUBLIC

Is a business based upon the
use of the brand names,
promotional logos and training
methods of an existing
successful business. The
franchisee buys the licence to
operate this business from the
franchisor.
Is where two or more
businesses start a new
project together,
sharing capital,risks
and profit.
CORPORATION:
Is a business in the
public sector that is
owned and controlled
by the
state(government)

BUSINESS PROFIT: MARKET SHARE:

OBJECTIVES: Is total income of a Is the percentage of
Are the aims or targets business( revenue) less total market sales held
that a business work total costs. by one brand or
towards. business.

SOCIAL STAKEHOLDER:
ENTERPRISE: Is any person or group
Has social objectives as with a direct interest in
well as an aim to make the performance and
a profit to reinvest activities of a business.
back into the business
S MOTIVATION: WAGES: Salary is payment for
Is the reason why Time rate is the amount work, usually paid
E employees want to paid to an employee for 1 monthly
C work hard and work hour of work. Bonus is an additional
Piece rate is an amount amount of payment
T effectively for the paid for each unit of
business. above basic pay as a
I output.
reward for good work.
O
N
Commission is payment Job satisfaction is the Job rotation:
relating to the number of enjoyment derived from involves workers
2 sales made. feeling that you have
Profit sharing is a system done a good job. swapping around and
whereby a proportion of Job enrichment involves doing each specific
the company profits is looking at jobs and adding task for only a limited
paid out to employees tasks that require more time and then
skill or responsibility. changing around
again.
 Basic economic problem :
is concerned with how best
to allocate scarce resources
in order to satisfy people’s
unlimited needs and
wants.
Public sector : refers to
economic activity directly
involving the government,
such as the provision of
state education and
healthcare services. The
public sector’s main aim is
to provide a service.
The factors of production
refer to the resources
required to produce a good
or service. Namely land,
labour, capital and
enterprise.
Opportunity cost: is the
cost of the next best
opportunity forgone when
making a decision.
Microeconomics is the
study of particular marts
and section of the
economy, rather that the
economy as a whole.
Economic Agents : are
households (private
individuals in society),
firms that operate in the
private sector of an
economy and the
government (the public
sector of an economy
Needs : are goods and
services that are essential
for survival.
Wants: are goods and
services that are not
necessary for survival but
are demanded by
economic agents to fulfil
their desires.
Geographical mobility:
refers to the extent to
which labour is willing and
able to move to different
locations for employment
purposes.
The production possibility
curve represents the
maximum combination of
goods and services which
can be produced in an
economy. The productive
capacity of the economy.
Microeconomics is the
study of economic
behavior and decision
making in the whole
economy, rather that
economy, rather that
individual markets.
Private sector: refers to
economic activity of private
individuals and firms. The
private sector’s main aim is
to earn profit for its
owners.
Economic goods: are
those which are limited in
supply.
Free goods: are goods
which are unlimited in
supply. Such as air and
seawater. Hence there is no
opportunity cost in terms
of their output.
Occupational mobility:
refers to the extent to
which labour is able to
move between jobs.
Retraining and upskiling
help workers to improve
occupational mobility.
The PPC Diagramis a
graphical representation of
the maximum combination
of the amounts of goods
and services that can be
produced in an economy
per period of time
The market system refers
to the method of allocating
scarce resources through
the market forces of
demand and supply.
Market equilibrium exists
when the demand for a
product matches the supply,
so there is no excess demand
(shortage)
Or excess supply (surplus)
Demand refers to the willing
and the ability of customers to
pay a given price to buy a
good or service. The higher
the price of a product, the
lower its demand tends to be.
The market demand is the
sum of all individual demand
for a particular product.
Market equilibrium occurs
when the quantity demanded
of a product is equal to the
quantity supplied of the
product, i.e. there are no
shortages or surpluses.
A Surplus is created when
supply exceeds demand
because the price is higher
that the market equilibrium
price.
Excess supply refers to a
situation where the market
price is above the equilibrium
price, thus creating a surplus
in the market.
Market disequilibrium exists if
the price for a product is too
high resulting in excess supply,
or a surplus or too low
resulting in excess demand or
a shortage.
Substitutes are goods or
services that can be used
instead of each other; tea or
coffee.
Complements : are products
that are jointly demanded,
tennis balls and tennis
racquets.
Supply : is the ability and
willingness of firms to provide
goods and services at given
price levels.
Equilibrium price is the price
at which the demand curve for
a product intersects the supply
curve for the product. The
market is therefore cleared of
any excess demand or supply.
Price elasticity of demand
(PED) measures the extent to
which demand for a product
changes due to a change in its
price.
Price inelastic demand
describes demand for a
product that is unresponsive
to changes in price, mainly
because of the lack of
substitutes for the product.
The price mechanism refers to
the system of relying on the
market forces of demand and
supply to allocate resources.
A contraction in demand
means a fall in the quantity
demanded for a product
following an increase in its
price
An extension in demand
means an increase in the
quantity demanded for a
product following a fall in its
price.
An extension in supply means
an increase in the quantity
supplied of a product
following an increase in its
price.
A contraction in supply means
a fall in the quantity supplied
of a product following a fall in
its price.
Excess demand refers to a
situation where the market
price is below the equilibrium
price, thus creating a shortage
in the market.
A Shortage occurs when
demand exceed supply
because the price is lower
than market equilibrium.
Price elastic demand
describes demand for a
product that is responsive to
changes in price, usually due
to substitutes being available.
 Unitary price elasticity
Occurs when the
percentage chandge in the
quantity demanded or
supplied is proportional to
the change in the price, so
there is no change in the
sales revenue.
Profit is the difference
between a firm’s total
revenues an its total costs.
It is calculated using the
formula.
The Private sector refers to
economic activity of private
individuals and firms. The private
sector’s main aim is to earn profit
for its owners. The Public sector
refers to economic activity directly
involving the government. Such as
the provision of state edu @
healthcare services. The public
sector’s main aim is to provide a
service.
Public goods are good and
services that are non-
excludable and non-rivalrous,
and which are a cause of
market failure as there is a
lack of a profit motive to
produce them. Merit goods
are goods or service which
when consumed create
positive spillover effects in an
economy.
A minimum price occurs
when the government sets
a price above the market
equilibrium price in order
to encourage output of a
certain good or service.
Sales revenue total
revenue is the sum of
money received from the
sale of a good or service. It
is calculated by the
formula. P x Q
Price elasticity of supply
(PES) measures the degree
of responsiveness of the
quantity supplied of a
product following a change
in its price.
Market Failure occurs when the market
forces of demand and supply are
unsuccessful in allocation resources
efficiently and cause external costs or
external benefits.
External costs are the negative side-
effects of production or consumption
incurred or consumption incurred by
third parties for which no compensation
is paid.
Social costs are the true (or full) costs
of consumption or production to society
as a whole, i.e.the sum of private costs
and external costs.
Demerit goods are goods
or services which when
consumed cause negative
spillover effects in an
economy.
Privatisation is the
transfer of the ownership
of assets from the public
sector to the private
sector.
Price discrimination
occurs when firm charge
different customers
different prices for
essentially the same
product due to differences
in PED
Stocks or inventories are
the raw materials,
components and finished
goods (ready for sale) used
in the production process.
Private benefits are the benefits of
production and consumption
enjoyed by a firm, individual or
government.
External benefits are the positives
side-effects of production or
consumption experienced by third
parties for which no money is paid
by the beneficiary.
Social benefits are the true or full
benefits of consumption or
production, the sum of private
benefits and external benefits.
A maximum price occurs
when the government sets
a price below the market
equilibrium price in order
to encourage
consumption.
Nationalisation is the
purchase of private sector
assets by the government.
Money is any commodity
that can be used as a
medium of exchange for
the purchase of goods and
services, banknotes and
coins.
A commercial bank is a
retail bank that provides
financial services to its
customers, e.g saving bank
loans and mortgages.
Saving occurs when a person
puts away part of their current
income for future spending.
The supply of labour refers
to everyone in an
economy who is of working
age and is both willing and
able to work at different
wage rates.
A trade union is an
organization which aims to
protect the interests of its
worker members, their
terms and conditions of
employment, including pay.
Bartering is the act of
swapping items in
exchange for other items
through a process of
bargaining and negotiation,
due to the absence of
money in the economy.
Disposable income is the
amount of income a person
has available to spend on
goods and services after
compulsory deductions
such as income tax.
Borrowing occurs when an
individual, firm or the
government takes out a loan,
paying it back to the financial
lender over a period of time,
with interest payments.
A national minimum wage
is the lowest legal amount
any firm can pay its
workers and is set by the
government.
Collective bargaining is the
process of trade union
representatives negotiating
on behalf of their worker
members with employer
representatives for better
pay and conditions.
The central bank of a
country is the monetary
authority that oversees
and manages the
economy’s money supply
and banking system.
Current expenditure is money spent
on goods and services consumed
within the current year. Unlike
capital expenditure, it is often
recurrent, such as the spending on
food, clothing, entertainment and
haircuts.
Capital expenditure is money spent
by on fixed assets items owned by an
individual or firm which last more
than 12 month. Such as computers,
cars, furniture, buildings and
equipment.
The demand for labour is the
number of workers that firms
are willing and able to hire at
a given wage rate Derived
demand means that labour or
any other factor of production
is not demamded for ifself but
for the goods and services it is
used to produce.
Specialisation of labour
refers to workers being
expert in a particular
profession.
Division of labour refers to
workers being expert ina
particular production
process.
Industrial action refers to
measures taken by trade
union members as a result
of major disagreements or
disputes with their
employers. Strike action.
Corporate social
responsibility refers to the
ethical approach taken by
firms towards their
stakeholders such as
employees and customers
and the environment such
as adopting green
technologies.
A merger occurs when two
or more firms join together
to form just one firm. A
takeover occurs hen a firm
is taken over by another
firm. A takeover may be
hostile or the two firms
might have agreed to the
takeover.
A conglomerate merger
occurs when two or more
firms from unrelated areas
of business integrate to
create a new firm.
Diseconomies of scale
Occur when average costs
of production start to
increase as the size of a
firm increases.
A demerger occurs when
two previously merged
firms decide to break up
and become two separate
firms.
Interdependence means
that the three sectors of
industry depend on each
other, and cannot operate
independently to produce
goods and services.
A franchise involves a
person or business buying
a licence to trade using
another firm’s name, logos,
brands and trademarks. A
horizontal merger occurs
when two or more firms in
the same economic sector
of industry integrate.
Economies of scale are the cost-
saving benefits of large-scale
operations, which reduce
average costs of production.
Internal economies of scale are
economies of scale that arise
from the internal organization of
the business, financial, bulk-
buying and technical economies
of scale.
Derived demand means
that a factor of production
is not demanded for its
own sake, but for the
goods and services that it is
used to produce.
In labour intensive
industries, the cost labour
is proportionately higher
than the cost of other
factors of production.
The private sector refers to
economic activity of private
individuals and firms. The private
sector’s main aim is to earn profit
for its owners.
Public sector refers to economic
activity directly involving the
government, such as the
provision of state education and
healthcare services. The public
sector’s main aim is to provide a
service.
A vertical merger occurs
when integration takes
place between two firms
from different economic
sector of industry.
External economies of
scale are economies of
scale that arise from
factors outside of the firm,
location of the firm,
proximity to transport, and
the availability of skilled
workers.
In capital intensive
industries,the use and cost
of capital is more
prominent than that of any
other factor of production.
Production refers to the
total output of goods and
services in the production
process.
Production refers to the
total output of goods and
services in the production
process.
Productivity is a measure
of efficiency found by
calculating the amount of
output per unit of a factor
input.
Fixed costs are costs that a
firm has to pay irrespective
of how much it produces or
sells.
Variable costs are those
that change as the level of
output changes. The higher
the level of production ,
the greater the total
variable cost will be.
Profit is the positive
difference between a firm’s
total revenue and its total
cost of production.
Profit= TR-TC
Price takers are firms that
set their price according to
the market price, rather
than determining their
own prices.
Monopoly is a market
structure where there is
only one supplier of a good
or service , with the power
to affect market supply and
prices.
Innovation is the
commercialization of new
ideas and products. It is a
vital source od productivity.
Total costs is the sum of all
fixed and variable costs of
production.
Average fixed cost refers to
a firm’s fixed cost per unit
of output.
Average variable cost
refers to the variable cost
per unit of output.
Marker structure refers to
the key characteristics of a
particular market, such as
the number and size of
firms in the market, the
degree and intensity of
price and non- price
competition, and the
nature of barriers to entry.
Price makers are firms that
set their own price as they
have the market power to
do so, rather than having
to base their price on the
equilibrium price
determined by the forces
of demand and supply.
Costs of production refers
to a firm’s expenditure in
the process of producing
goods and providing
services.
Average total cost is the
cost per unit of output.
Total revenue is the
amount payable to a firm
from the sale of its goods
and services.
Barriers to entry are the
obstacles that prevent
firms from entering a
market. Examples, are the
existence of intellectual
property rights, large
advertising budgets of
existing firms and legal
constraints to prevent
wasteful competition.
A trading bloc is a free
trade area which also
promotes the free
movement of factor of
productions between
member countries.