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Economic terms to learn

Added value means the value of output minus the cost of inputs. Adding value can enhance
the attractiveness of the product to consumers and is the key to profit.

Aggregate demand refers to the total of all the demand in an economy, from consumers,
investment, government…

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Bulk buying economies occur when businesses are purchasing large enough quantities to be
changed a lower price per unit, either because unit supplier costs are reduced or because the
buyer has market power.

Bundling is the practise of selling products as a group or package rather than individually. This

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Contestability refers to the ease with which new firms can enter a market. Competition is
always likely in contestable markets. Barriers to entry reduce contestability.

Contingency planning means preparing for unwelcome or unlikely but possible problems.

Conventional wisdom a widely accepted view which is not necessarily as true as it…

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Effective demand is the combination of desire for a product or service with the ability and
readiness to pay.

Entrepreneurs people who take responsibility for organising business activity and carry
business risks.

Entrepreneurial organisations have a relatively fluid structure in which multilateral lines of
communication allow everyone to be in…

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Homogenous products are identical to one another. It is impossible to distinguish one
producer's output from another's. They are closely associated with strong competition.

Human capital refers to the knowledge and skills embodied in people. These are now known
to increase productivity very markedly.

Human relations approach emphasises human relationships…

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Lagging indicators are measures which are slow to reflect the current state of economic
activity. Unemployment levels are often a lagging indicator.

Leading indicators are early signals of the direction of economic activity, such as the state of
confidence or capital goods orders.

Lean Production a term used to describe…

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Monopolistic competition describes a market with many sellers, easy entry and exit and
product differentiation. Competition is likely to be stiff, but there is scope for the individual
business to flourish if it can attract enough customers.

Monopoly a market in which there is a single supplier. This is the…

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Organisational Structures is the way in which management is organised, both horizontally
(layers of hierarchy) within an organisation. To be effective, the chain of command should be
clear, with no one answerable to two people. An organisational chart should show:
the different business functions and divisions
who is answerable to…

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Price takers are businesses with undifferentiated products that face high price elasticity of
demand in a competitive market. Following market price is the only way to reach satisfactory
sales levels.

Product when the term is used in a marketing context refers to goods and services sold, and
the way they…

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Risk bearing economies when a business has a single product, a single market or perhaps a
single new product, it is highly vulnerable if that product fails. Businesses with many products
and markets are diversified and can spread risk by offsetting losses in one area against profits

Role culture…


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