Chapter 1: The business environment and business economics
PEST analysis: Where a Political, Economic, Social and Technology factors shaping a business environment are assessed y a business so as to devise future business strategies.
Primary production: The production and extraction of natural resources, plus agriculture.
Secondary production: The production from manufacturing and construction sectors of the economy.
Tertiary production: The production from from service sector of the economy.
Gross domestic product (GDP): the value of output produced within the country over a twelve-month period.
Deindustrialisation: The decline in the contribution to production of the manufacturing sector of the economy.
Industry: A group of firms producing a particular product or service.
Industrial sector: A grouping of industries producing similar products or services.
Standard Industrial Classification (SIC): The name given to the formal classification of firms into industries used by the government in order to collect data on business and industry trends.
Industrial concentration: The degree to which an industry is dominated by large business enterprises.
Chapter 2: Economics and the world of business.
Scarcity: The excess of human wants over what can actually be produced to fulfill these wants.
Consumption: The act of using goods and services to satisfy wants. This will normally involve purchasing the goods and services.
Production: The transformation of inputs into outputs by firms in order to earn profit (or meet some other objective).
Factors of production (or resources): The inputs into the production of goods and services: labour, land and raw materials, and capital.
Labour: All forms of human input, both physical and mental into current production.
Land (and raw materials): Input into production that are provided by nature: eg unimproved land and mineral deposits in the ground.
Capital: All inputs into production that have themselves been produced: eg factories, machines and tools.
Macroeconomics: The branch of economics that studies economic aggregates (grand total): eg the overall level of price, output and employment in the economy.
Aggregate demand: The total level if spending in the economy.
Aggregate supply: The total amount of output in the economy.
Microeconomics: The branch of economics that studies individual units: eg households, firms and industries. It studies the interrelationships between these units in determining the pattern of production and distribution of goods and services.
Rate of inflation: The percentage increase in the level of prices over a twelve-month period.
Balance of trade: Exports of goods and services minus imports of goods and services. If exports exceeds imports, there is a 'balance of trade surplus' (a positive figure). If import exceeds exports, there is 'balance if trade deficit' (a negative figure).
Recession: A period where national output falls. The official definition is where output declines for two or more quarters.
Unemployment: A number of people who are actively looking for work but are currently without a job. (Note that there is much debate as to who should officially be counted of unemployed).
Demand-side policy: Government policy designed to alter level of aggregate demand, and thereby the level of output, employment and prices.
Supply-side policy: Government policy that attempts to alter the level of aggregate supply directly.
Barter economy: An economy where people exchange goods and services directly with one another without any payment of money. Workers would be paid with bundles of goods.
Market: The interaction between buyers and sellers.
Opportunity cost: The cost of any activity measured in terms of the best alternative forgone.
Relational choices: Choices that involve weighing up the benefit of any activity against its opportunity cost.
Marginal costs: The additional cost of doing a little bit more (or 1 unit more if a unit can be measured) of an activity.
Marginal benefits: The additional benefits of doing a little bit more (or 1 unit more if a unit can be measured) of an activity.
Time-series data: Information depicting how a variable (eg the price of eggs) changes over time.
Cross-section data: Information showing how a variable (eg the consumption of eggs) differs between different groups or different individuals at a given time.
Index number: The value of a variable expressed as 100 plus or minus its percentage deviation from a base year.
Base year (for index numbers): The year whose index number is set at 100.
Consumer prices index (CPI): An index of the prices of goods bought by a typical household.
Weighted average: The average of several items where each item is ascribed a weight according to its importance. The weights must add up to 1.
Functional relationships: The mathematical relationship showing how one variable is affected by one or more others.
Chapter 3: Business Organisations.
The firm: An economic organization that coordinates the process of production and contribution.
Transaction costs: Those costs incurred when making economic contracts in the marketplace.
Joint-stock company: A company where ownership is distributed between a large number of shareholders.
Principal-agent problem: One where people (principals), as a result of lack of knowledge, cannot ensure that their best interests are being served by their agents.
Asymmetric information: A situation in which one party in an economic relationship knows more than another.
U-form business organization: One in which the central organization of the firm (the chief executive or a managerial team) is responsible both for firm's day-to-day administration and for formulating its business strategy.
Bounded rationality: Individuals are limited in their ability to absorb and process information. People think in a ways conditioned by their experiences (family, education, peer groups, etc)
M-form business organization: One in which the business is organised into separate departments, such that responsibility for the day-to-day management enterprise is separated from the formulation of the business's strategic plan.
Flat organization: One in which technology enables senior managers to communicate directly with those lower in the organizational structure. Middle managers are bypassed.
Holding company: A business organization in which the present company holds interests in a number of other companies or subsidiaries.
Integrated international enterprise: One in which an international company pursues a single business strategy. It coordinates across different countries.
Transnational association: A form of business organization in which the subsidiaries of a company in different countries are contractually bound to the parent company to provide output to or receive inputs from other subsidiaries.