Flashcards
Theme 1 hard definitions
Cards in this deck (47)
- 1Opportunity costThe best alternative given up when making a choice
- 2Trade-offA balance between choices, choosing more of one and less of the other, rather than making a simple either/or choice
- 3Positive statementsEconomic statements testable as factual of false on the basis of observation and evidence.
- 4Normative statementsEconomic statements which depend on opinion and judgement, often called value judgements.
- 5SatisficingReaching a good enough profit level, without maximising (for example, an entrepreneur earning enough to survive but still spend time with his family)
- 6CreditorsIndividuals or organisations to whom a business owes money
- 7Tax evasionIllegally failing to pay taxes that are due.
- 8Tax avoidanceFinding legal ways to reduce tax liability
- 9Creative destructionThe way in which quality-improving innovations lead to economic growth. Customers switch to new products and old products become obsolete. Innovations that cut costs and eventually, prices, will have the same effect.
- 10Added valueThe difference between the cost of material inputs and the eventual value of the product in terms of the price that can be charged for it.
- 11Social entrepreneurSomeone who uses business methods and strategies to achieve social objectives. They seek innovative solutions to difficult social problems.
- 12Working capitalThe finance needed by a business to cover production costs - rent, wages and the cost of other inputs needed - until payment is received.
- 13Effective demandThe combination of desire for a product or service with the ability and readiness to pay
- 14Demand scheduleA table showing the quantities demanded at different price levels
- 15Contraction of demandA move up and left on a demand curve when price rises.
- 16Extension of demandA move down and right on a demand curve when price falls
- 17Shift in the demand curveWhen quantity demanded changes for reasons other than price, for example a change in income or tastes and fashions.
- 18Short runIn supply theory, the time period in which the quantity of at least one component in production cannot be changed.
- 19Long runIn supply theory, the time period in which the quantities of all factors of production can be changed.
- 20Ceteris paribusLatin for 'all other things being equal' - in economic terms, freezing all variables other than the one being studied, avoiding complications and allowing us to examine individual changes.
- 21Quantitative market researchMarket research giving numerical results which can be analysed statistically
- 22Qualitative market researchMarket research giving results which examine opinions and feelings.
- 23Quota sampleEnsuring the sampling covers all the different groups of the population - groups will be representative of age, gender, occupation and other factors.
- 24Stratified sampleDoing market research with people from a specific group of the population, perhaps a target market.
- 25Market segmentationIdentifying different groups of consumers in a market where each group has distinctive preferences. Products and marketing strategies can be differentiated to suit individual segments.
- 26Market positioningThe way a product is seen in comparison with rival products.
- 27CollateralA loan which bears no risk to the lender. If it cannot be repaid, the collateral assets (secured against the loan, most likely property) can be sold off to pay the debt
- 28Financial intermediariesInclude retail and investment banks, building societies, pension funds and insurance companies. They all offer a link between investors and savers.
- 29Unlimited liabilityWhen an individual has no legal separation from their business and is therefore personally responsible for the debts of the business. Their personal assets could be used to pay business debts if the business is unable to cover them.
- 30Limited liabilityWhen a business's shareholders are legally separate from the business. The most that shareholders have to contribute towards business debts is the amount of capital originally invested in buying shares.
- 31Private limited companiesA business where the owners have limited liability for business debts but cannot raise finance from the general public. They are usually small or medium-sized businesses owned by family or personal friends.
- 32Public limited companiesBusinesses owned by their shareholders, who have limited liability. The companies can raise finance by selling shares to the general public and large organisations such as pension funds.
- 33Retained profitProfit being reinvested in the business rather than being given to the owners of the business in the form of dividend payments.
- 34EquityAnother name for shares
- 35Ordinary share capitalLong-term finance raised by selling shares in a business. Share capital does not have to be repaid. Investors receive part-ownership of the business and a share of profits in the form of dividends.
- 36Venture capitalMoney invested in a new business by one or more individuals who believe that the business will succeed and therefore increase in value, but are willing to accept the risk that the business idea may fail.
- 37Trade creditA short-term source of finance offered when suppliers allow a time period before payment for supplies must be made.
- 38Command economyAn economy that relies predominantly on public goods and services
- 39Capital spendingWhen a business invests in premises or equipment or something of long term benefit to the business.
- 40Operating costsAlso known as running costs - paid regularly by a business in the course of operating. They include fixed and variable costs and correspond to total costs.
- 41ContributionThe amount each sales raises towards fixed costs or profit, calculated as:
selling price-variable costs - 42Break-even pointThe volume of sales (units) at which a business breaks even, so total revenue matches total costs exactly. Calculated as:
Total fixed costs/contribution margin - 43Margin of safetyThe volume by which sales are above the break-even point.
Expected/actual sales-breakeven point - 44Sunk costsHeavy start-up costs that cannot be recovered.
- 45Statement of comprehensive incomeAlso called the profit and loss account, this starts with a figure for sales revenue and deducts each different group of costs to arrive at measures of profit
- 46InsolvencyWhen a business fails because a lack of working capital means that debts cannot be repaid
- 47LiquidityHaving sufficient cash available, sometimes also having assets which can quickly be converted to cash.
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- A level Economics Flashcards on Theme 1 hard definitions, created by Harry Lewis on 16/03/2017.
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- Harry Lewis
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