Definitions 1.2 - Enterprise, business and the economy

Harry Lewis
Flashcards by Harry Lewis, updated more than 1 year ago
Harry Lewis
Created by Harry Lewis over 3 years ago


1.2.1 - Role of an entrepreneur in the economy 1.2.2 - Entrepreneurial motives 1.2.3 - Factors of production 1.2.4 - Specialisation 1.2.5 - The wider economic environment

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Creative destruction The way in which quality-improving innovations lead to economics growth. Consumers switch to new products and old products become obsolete. Innovations that cut costs and eventually prices will have the same effect.
Innovation Developing an idea that will generate new or improved products or production techniques.
Added value The difference between the cost of material inputs and the eventual value of a product in terms of the price that can be charged for it.
Costs of production All the payments that have to be made in order to get a product into the market place. They will include wages, premises and all other input costs - raw materials, components, inputs bought from wholesalers, business rates, interest, energy bills and so on.
Investment Spending now in order to generate income in the future, i.e investing in premises, capital equipment (such as machinery, computers or vans), researching and developing the product, and training key employees.
Incentives Financial and other rewards that can induce people to behave in a certain way.
Social entrepeneurs These people use business methods and strategies to achieve social objectives. They seek innovative solutions to difficult social problems.
Non-financial motives Reasons for setting up a business that are not linked to making a profit
Ethical motives These lie behind firms' efforts to do 'what is right'. For example, a business or organisation may contribute to projects that benefit the local community, or be committed to ethical employment.
Factors of production Land, labour and capital - the essential inputs into the production process. Together they contribute the value added to the output, which makes it saleable in the market place.
Enterprise Sometimes called the fourth factor of production because it is fundamental to the organisation of the economic activity and willingness to take risks in return for a profit.
Labour Human effort contributing to production. Wages and salaries are received in return.
Land This refers to space where production can be located but can also refer to the natural resources that are inputs to the production process. Landowners receive rent.
Capital This includes premises and equipment that are used repeatedly in production. Owners of this will receive interest or dividends.
Specialisation When people make the most of their skills by concentrating their expertise in a particular field. As a skilled person produces more, output per head will rise; across the economy, standards of living will improve.
Exchange This allows us to trade our own products for those of others, giving us a range of consumers good and services that we want or need. Money makes the exchange of products easy, enabling us each to specialise and become more skilled and productive.
Division of labour Organising employees so that individuals specialise in one part of the production process. As they become quicker and more proficient and specific tasks, output increases. People specialise in the type of work to which they are best suited.
Efficiency Using resources in the most economical way possible. As this increases, output per person employed will be higher.
Working capital The finance needed by a business to cover production costs - rent, wages and the cost of other inputs needed - until payment is received.
Interest rates The amount that has to be paid by the borrower to the lender. Where there is a risk that the lender will not be repaid, the interest rate is higher.
Exchange rate The rate at which one currency is exchanged for another. Usually they change continuously, but by small amounts.
Income tax Taxation levied on the incomes of individuals. There is a personal allowance which is tax free, which is generally increased by at least the rate of inflation, in the Budget each year.
Corporation tax Taxation paid by businesses; the level will be a percentage of the profit made. For businesses making less than £300,000 profit in a year, it is currently 20%. Higher profits are taxed at 21%.
Value added tax Taxation collected by business taking 20% of the value of the sales, less the cost of all inputs bought from other business
Skill shortages When the people available for work do not have the skills that employers are seeking. This is particularly likely to happen when the economy is growing, unemployment is relatively low and new technologies are being widely adopted.
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