Edexcel economics and business studies unit 3

key terms

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A2 Business terms
Absolute advantage exists if the real resource cost of a product is lower in one country than
another.
Centrally planned economies were those in which all of most economics decision were taken
by governments. Planning involved deciding on the inputs to be used, the production targets and
the price of all products.
Common markets have completely free trade internally and a single unified trade policy
covering all member countries' trade with the rest of the world. There is also free movement of
people and capital and all individuals in member countries can work in any other member
country.
Comparative advantage the idea that countries can benefit from specialising in the production of
goods at which they are relatively more efficient, in this way consumers within each country
gain the maximum benefit from international trade. If two countries each specialise in the
product with the lowest opportunity cost, and then trade, real incomes will increase for both
countries.
Division of labour involves organising employees so that individuals specialise in one part of the
production business. As they become quicker and more proficient at specific tasks, output
increases.
Dumping means exporting at a price elss that the true cost of production.
Economies of scale are the factors that cause average costs to be lower in large scale
operations than in smallscale ones. In other words, doubling the output results in a less than
double increase in costs the cost of producing each unit falls because factor inputs can be
used more efficiently.
Ethical decision making means following codes of practise that embody moral values. The
objective is to do the right thing, acting honestly and integrity and taking into consideration the
interests of everyone affected by the decision.
Emerging markets are markets what are not yet fully developed but have a group of middle
class consumers that is large and prosperous enough to provide a market for developed country
products.
Ethnocentric model an approach to marketing based on the tendency to loot at the world
primarily from the perspective of one's own culture. A business believes that what was a
success story in its domestic market will also be so in the other countries in which it operates.
Foreign operations are treated as secondary or subordinate to the domestic markets. Products
and services are therefore sold without adaption.
External costs occur when production involves the use or degradation of resources which
neither products nor consumers pay for. Pollution and congestion are external costs.
Foreign direct investment FDI refers to investment by companies with their head office in
another country, which are setting up factories or distribution outlets. In others words, it implies
that the investment is in actual productive capacity which will generate output, rather that in
financial assets such as shares or bonds.

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Free trade areas are groups of countries that trade completely freely with each other, with no
trade barriers, but each member country retains its own independent trade policies in relation to
the rest of the world.
Geocentric approach sees the world as a potential market with both similarities and differences
in domestic and foreign markets. An effort is make to develop integrated world market strategies
to gain the best from both of these strands.…read more

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Market saturation occurs when it becomes impossible to expand sales any further in that
particular market. If the product is a durable good, e.g. a washing machine, it may still be
possible to sell replacement machines.
Market share is the percentage of total sales of one particular product that comes from an
individual business.
Merger means combining with another company on a collaborative basis.
Multinational corporations are businesses that operate or have assets in more than one
country.…read more

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Technology transfer refers to the way in which countries with limited access to new
technologies may acquire expertise when multinational companies locate there.
Trade creation occurs when there is an increase in the total amount of goods and services
traded because of reduced trade restrictions within a trade block.
Trade diversion occurs when a trading block reduced imports from nonmember countries,
enabling businesses within member countries to increase sales inside the trading block.…read more

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