KEY TERMS of
BUSINESS STUDIES
(0450)
Chapter 1
Business Activity
Business Activity: the process of producing goods and
services to satisfy consumer demand.
Need: A goods or service which is essential to living.
Want: A good or service which people would like, but is not
essential for living.
Economic problem: unlimited wants cannot be met
because of the limited factors of production, creating
scarcity.
Factors of production: the resources required to produce
goods and services, which are Land, Labour, Capital and
Enterprise.
Scarcity: there are not enough goods and services to meet
the wants of population.
Opportunity cost: the benefit that could have been gained
from an alternative use of the same resource
Specialisation: people and business focus on what they are
best at.
Division of Labour: production is divided into separated
tasks and each employee does just one of those tasks.
Consumer goods: Products which are sold to the final
consumer and they are tangible. For instance, computers
and food.
(Tangible – can be seen and touched)
Consumer services: non-tangible products sold to final
consumer such as insurance services, transport.
Capital goods: physical goods, such as machinery and
delivery vehicles, used by other businesses to help
produce other goods and services.
Chapter 2
Classification of Businesses
Primary sector: firms whose business activity involves
extraction of natural resources.
Secondary sector: firms that process and manufacture
goods from natural resources
Tertiary sector: Firms that supply a service to consumers
and other businesses.
Chain of production: the production and supply of goods to
the final consumer involves activities from all three sectors
businesses.
Mixed economy: an economy where the resources are
owned and controlled by both the private and the public
sectors.
Private sector: the part of the economy that is owned and
controlled by individuals and group of individuals for profit.
Public sector: the part of the economy that is controlled by
the state or government.
Chapter 3
Enterprise, Business growth and size
Entrepreneur: an individual who has an idea for a business
takes the financial risk of starting and managing a new
business.
Business plan: a detailed written document outlining
purpose and aims of a business which is often used to
persuade lenders or investors to finance a business
proposal.
Revenue: the amount of a business earns from the sale of
its products.
Business start-up: a newly formed business. They usually
start small, but some might grow to become much bigger.
Chapter 4
Types of business organisations
Sole trader: a business that is owned and controlled by just
one person who takes all of the risks and receives all of the
profits.
Start-up capital: the finance needed when first setting up a
business.
Partnership: a business formed by tow or more people who
will usually share responsibility for day-to-day running of
the business. Partners usually invest capital in the business
and will share profits.
Unincorporated business: a business that does not have
legal identity, separated from its owners. The owners have
unlimited liability for business debts.
Unlimited liability: if an unincorporated business fails then
the owner might have to use their personal wealth to
finance any business debts.
Shareholders: a person or organisation who owns shares in
a limited company.
Private limited company: often a small to medium-sized
company; owned by shareholders who have limited
liability, The company cannot sell its shares to general
public.
Ordinary shareholders: the owners of a limited company.
Limited liability: the shareholders in a limited liability
company which fails only risk losing the amount they have
invested in the company and not any of their personal
wealth.
Dividend: a payment, out of profits, to shareholders as a
reward for the investment.
Collateral: non-current assets offered as security against
borrowing.
Franchise: a business system where entrepreneurs buy the
right to use the name, logo and product of an existing
business.
Joint venture: two or more businesses agree to work
together on a project and set up a separate business for
this purpose.
Public corporation: a business organisation that is ownd
and controlled by the state.
