Unit 1 Key Terms

unit 1 key terms for edexcel economics and business A S 

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ADDED VALUE - the difference between the price of a good or service and the
cost of its material inputs.
ASSESTS- anything that is useful or valuable to a business.
AUTOCRATIC MANAGEMENT - style of management where decisions are made
by the owner or manager of the business, with little or no consultation with
others. Disagreement or discussion is not encouraged. Employees are expected
to follow orders without question.
BANK LOAN ­ a fixed sum of money borrowed from a bank and repaid with
regular monthly repayments plus interests over a fixed period.
BRAND ­ the name or symbol that is closely associated with a product or
service. Brands add value, increase consumer loyalty and enable a higher price
to be charged.
BREAK-EVEN POINT ­ the level of output where neither a profit nor a loss is
being made. The point at which total revenue equals total costs.
BREAK EVEN POINT CALCULATION ­ the formula is fixed costs divided by
contribution (P-VC)
BUSINESS PLAN ­ a formal document that sets out the details of the business. It
acts as a planning aid for the business itself and as a means of attracting
potential investors or providers of finance. It will also usually include a
marketing plan and financial plans including an income statement and a cash
flow forecast.
CASH FLOW ­ the movement of cash into (cash inflow) and out of (cash
outflow) a business. The cash inflow must be sufficient to cover the cash
outflow in any given month so careful management is needed to avoid running
our of cash at crucial times.
CASH FLOW FORECAST ­ a spreadsheet that projects expected flows of cash
income and cash expenditure month by month. It will help to identify times
when cash may be short and allow the business to make plans to deal with it.
COLLATERAL ­ anything of value that can be seized by a lender if a loan is not
repaid (security.)
COMPETITIVE ADVANTAGE- any feature of a business that enables it to
compete effectively, it may be based on price, quality, service, reputation or
COMPETITIVE PRICING ­ a pricing strategy that consists of matching your
competitor's prices or slightly undercutting them.
COMPLEMENTRY GOODS ­ goods that tend to be bought together, e.g. cars and
petrol, DVD's and DVD players
CONSUMER PRICE INDEX (CPI) ­ one measure of the rate of inflation based on
price changes of a wide range of goods and services thought to be typical of the
`average consumer'
CONTRIBUTION ­ price minus variable cost (P-VC) this can be used to calculate
the break-even point.
COST OF SALES ­ another way of describing variable costs or direct costs, they
are subtracted from turnover to give gross profit.
COST PLUS PRICING ­ a pricing strategy that adds a given percentage increase
onto total costs to arrive at a selling price.

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CREDITOR ­ a person or company that the business, it is a long term loan often
secured on the company's property.
DEBENTURE ­ a form of external finance for a business, it is a long-term loan
often secured on the company's properties.
DEMAND - the amount of a good or service that consumers are willing and able
to buy, at any given time at any given price.
DEMAND CURVE ­ a graphical representation of the relationship between price
and quantity demanded.…read more

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MARKET POSITIONG ­ how the consumers see individual products or brands in
relation to their competitors. Businesses may well attempt to re position their
products in attempt to boost sales.
MARKET SEGMENTATION ­ the splitting up of the market into groups of
consumers with similar characteristics. Common groups include age, gender,
income, interests, location etc. this enables products and services to be
designed specifically for and targeted at a particular segment.
MASS MARKET ­ a large market, which includes the majority of the relevant
population.…read more

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TURNOVER ­ the total income generated by a business' sales of its goods and
services over a period of time.
UNEMPLOYMENT ­ the problem of people that re not working.
UNLIMITED LIABILITY - the owner/s of a business is/are responsible for all the
debits of a business should it fail. This applies to sole traders and partnerships.
VARIABLE COSTS ­ costs of production that vary with the level of output. For
example raw materials.…read more


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