A
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Abnormal profits
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Profits exceed the amount a firm must
receive to carry on production. Also known as supernormal profit. If
abnormal profits persist in an industry this will tend to attract new firms
in, supply will increase, prices will fall and normal profits will be
restored.
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Above the line promotion
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Above the line promotion is promotion
that is carried out through independent media that enable a firm to reach a
wide audience easily. These might include newspapers and television.
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Absolute poverty
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Absolute poverty is experienced when income
levels are inadequate to enjoy a minimum standard of living. This is
contrasted with relative poverty which is where income levels are
relatively too low to enjoy a reasonable standard of living in that
society.
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Absorption cost pricing
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Absorption cost pricing is where a good
is priced according to the proportion of direct and indirect costs used in
the production of the good. The production of the good is costed using
absorption costing and then priced accordingly. For example, the rent on a
building may be split across the production of different goods by looking
at the floor space used for the production of each good and split
accordingly. Labour expenses may be split according to the number of people
working on the production of each good.
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Absorption costing
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Absorption costing is a method of costing
where all the fixed costs (overheads) generated by the production of the
good are 'absorbed' into an individual cost centre. For example, the rent
on a building may be split across the production of different goods by
looking at the floor space used for the production of each good and split
accordingly. Labour expenses may be split according to the number of people
working on the production of each good.
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Acid test ratio
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The acid test or quick ratio is the
current ratio with stock and work-in-progress deducted from current assets.
It is considered to be a better measure of short-term liquidity than the
current ratio as it recognises that stock can be a difficult asset to
realise quickly. It is often said that the value of the acid test ratio
should be greater than one to ensure that the firm can meet all their
short-term liabilities from liquid current assets, but the exact preferred
value will depend on the particular industry.
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Acquired advantages
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Acquired advantages are benefits that
arise over time from being in a particular location.
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Activity rate
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The activity rate is the percentage of
the population of working age in the labour force.
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Activity ratios
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Activity ratios are ratios that measure
how efficiently a business is using the resources that it has. There are a
number of activity ratios, but the most commonly used are stock turnover
(the number of times a year the firm sells its stocks) and the debt
collection period (the average number of days it takes to collect debts).
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Ad valorem
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Ad valorem literally means value added.
It is generally used to refer to a tax (an ad valorem tax) that is a
percentage of the price of the product. An example of an ad valorem tax
would be VAT.
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Ad valorem tax
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An ad valorem tax is a tax that is a
percentage of the selling price. An example of an ad valorem tax would be
VAT.
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Added value
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Added value is the difference between the
price of the good or service and the total cost of the inputs that went into
making it. It is the value that is added to the inputs by the production
process.
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Advertising
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Advertising is a way of trying to
increase the level of demand for a good or service, by making its
availability known to consumers. There are various media where adverts may
be placed including television, radio and magazines. Advertising can be
either informative or persuasive advertising but the aim of both is to
shift the demand curve to the right.
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Aggregate demand
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Aggregate demand is the total of all planned
expenditure in an economy at each level of prices. It is calculated by
adding together all the spending plans of all the major spending groups in
the economy. These are consumers (consumption expenditure), firms
(investment), government (government expenditure) and net exports (exports
- imports). Aggregate demand is the total of all this spending.
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Aggregate supply
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Aggregate supply is the total of all
planned production at each level of prices. It can therefore be considered
as the total quantity supplied at every price level or the total of all
goods and services produced in an economy in a given time period.
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Alienation
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Alienation is the process where workers
become dissatisfied with the work they are doing. This is particularly
likely where the tasks are monotonous in nature.
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Amortisation
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Amortisation is the process of writing
off the value of an intangible asset. As an intangible asset falls in value
its value needs to be reduced in the balance sheet of the firm. It is
similar to depreciation but that just refers to writing down the value of
fixed assets.
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Ancillary firms
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Ancillary firms are firms which provide
goods and services for other firms. In other words suppliers to other
firms.
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Annual General Meeting
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Every limited and public limited company
has to hold an Annual General Meeting (AGM) each year. It is an opportunity
for the shareholders to have their say in the running of the company and
their opportunity to vote for the Board of Directors that they want to run
the company.
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Ansoff matrix
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The Ansoff Matrix looks at growth
potential of a firms products. It acts as a way of classifying marketing
strategies and growth. It shows which strategy is most appropriate to which
type of product. It classifies strategies into market penetration, new
product development, market development and diversification.
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Appreciation
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An appreciation is an increase in the
value of an asset. The term is most commonly used to refer to the
appreciation of a currency which is where the value of one currency rises
against another.
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Appreciation of sterling
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When market forces raise the value of the
£ against another currency. This may be caused either by an increase in
demand for the currency or perhaps a decrease in supply of the currency.
Either of these will change the equilibrium value of the exchange rate.
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method of assessing the effectiveness of an employee
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usually involving an interview with a senior member
of staff
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Appropriation account
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The appropriation account is the final
part of the profit and loss account. It is the section of the profit and
loss account that shows how the profit is distributed. It will show how
much profit is retained by the firm for reinvestment and how much is
distributed to the shareholders in dividends.
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Arbitration
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Arbitration is the process of settling
disputes by each side in the dispute putting their case to an agreed
arbitrator. Many industrial disputes in the UK are settled by ACAS (the
Advisory, Conciliation and Arbitration Service) through arbitration.
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Asset stripping
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Asset stripping is the process of buying
a firm with the intention of splitting all the assets up and selling them.
It is most likely where a firm is under-valued and the value of the assets
is greater than the market value of the firm.
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Assets
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An asset is something which a person or
firm owns that is of value. In other words a person's house or car or
savings could be considered an asset to them. Firms split their assets into
fixed assets (buildings, land etc.) and current assets (cash, debtors and
stock).
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Auditing
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Auditing is the process of checking the
financial statements of a firm to see that they give a 'true and fair' view
of the state of the company's finances. All limited companies that produce
their own accounts must have them checked by a firm of auditors and this is
the one of the functions carried out by firms of accountants.
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Autocratic leadership
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Autocratic leadership is a form of
leadership where the leader makes decisions and sets objectives
independently of the others in the firm without involving them in the
decision making process. This style of leadership can often lead to
dissatisfaction as employees do not feel involved in the process of
decision-making.
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Average cost
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The amount spent on producing each unit
of output. The average cost is calculated by dividing the total cost by the
level of output. This gives the cost per unit which is made up of two
elements - the average fixed cost and the average variable cost.
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Average cost pricing
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Average cost pricing is a method of
pricing where the firm finds the average cost of the product (the unit
cost) and then sets their price by adding a mark-up onto the average cost.
For example, the average cost may be £10 per unit and the firm may add a
mark-up of 10% giving a price of £11.
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Average earnings
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Average earnings are total earnings
divided by those in employment. Average earnings are usually expressed as
an index; the average earnings index and this is used as a measure of how
much the average level of wages in the economy is increasing.
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Average rate of return
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The average rate of return (ARR) is a
technique used for looking at the viability of an investment project. It is
a form of investment appraisal that looks at the average return each year
as a percentage of the original investment. The higher the ARR, the more
viable an investment project is likely to be.
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Average revenue
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The average revenue is the total revenue
divided by the level of output. It is equivalent to the price because it is
the revenue the firm receives for each unit.
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Average
revenue curve
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The average revenue curve is a curve
which plots average revenue. It is therefore equivalent to the firm's
demand curve. The shape of the average revenue curve will depend on the
situation the firm is in. If the firm is a price setter (in other words has
a degree of market power) then the curve will be more inelastic (steeper)
than if they are a price-taker (where they have little or no market power).
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Average total cost
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The amount spent on producing each unit
of output. The average cost is calculated by dividing the total cost by the
level of output. This gives the cost per unit which is made up of two
elements - the average fixed cost and the average variable cost.
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Average variable cost
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The average variable cost is the total
variable cost divided by output. The average variable cost curve (a
short-run cost curve) will generally be u-shaped as the firm initially gets
more efficient and then at higher levels of output diminishing returns set
in and they get less efficient.
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B
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Backward integration
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Backward integration occurs when a
company merges with or takes over a firm at an earlier stage of the chain
of production. An example might be a car firm taking over a supplier of
components like headlights or batteries. It is often called vertical
backward integration.
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Balance of payments
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The balance of payments is a record of
transactions between the UK and overseas. In other words the balance of
payments accounts record all flows of money in and out of the UK.
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Balance sheet
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The balance sheet is one of the financial
statements that limited companies and PLCs produce every year for their
shareholders. It is a financial snapshot of the firm's financial situation
at a given moment in time (usually the firm's year-end). The top half shows
how the funds are being used - as fixed or current assets and the bottom
half (which balances) shows the source of those funds - from retained
profits, shareholder's funds or long-term liabilities.
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Bank of England
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The Bank of England is the Central Bank
of the UK. The Bank of England is based in Threadneedle Street in the City
of London. In 1997 the Labour government gave them operational independence
and they are now responsible for maintaining low inflation. They set
interest rates at a monthly meeting of the Monetary Policy Committee which
is a committee of the bank with nine members.
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Bankruptcy
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Firms who are sole traders or
partnerships can be declared bankrupt when they are unable to meet their
liabilities, The process of bankruptcy can be started by a creditor who can
get a court petition. An official receiver will then be declared who will
have total responsibility over the person's property and who will aim to
pay off the debts of the firm as much as possible by realising (selling)
any assets that the firm (or individual) has.
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Barriers
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This generally refers to factors
inhibiting the free movement of resources e.g. restrictive laws relating to
the movement of goods, capital and labour. The term is often used to refer
to barriers to trade - in other words protectionist policies (like tariffs
or quotas).
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Barriers to entry
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These are barriers that prevent the entry
of new firms into a market. Barriers to entry may be technical barriers,
legal barriers, cost (or investment) barriers or barriers that arise from
strong branding of the product.
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Barter
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The direct exchange of goods and services
without the use of money. In other words a form of exchange where goods are
exchanged for goods without any money.
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Base rate
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The rate of interest on which financial
institutions base their lending rates. It is used to set all their other
interest rates. Their loan rates will be a certain percentage above the
base rate, and their savings rates below. When they change their base rate
all the other rates are automatically changed.
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Base year
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The year that is used as the basis for
the calculation of an index number. The base year will usually be set to a
value of 100 for an index. e.g. 2000=100. Changes from this base value are
then expressed as percentage changes around the base. e.g. a change in an
index from 100 to 120 is a 20% change.
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Batch production
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Batch production is a method of
production where the process is split into a number of different
operations. Each of those operations is then carried out on the whole batch
before another batch is started. This method of production is often used
where the demand for a product is constant rather just a one-off demand.
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Belbin
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Meredith Belbin carried out an extensive
study of group roles in a work setting. Belbin argued that each person has
a role they prefer to carry out and for a group to function correctly all
the roles need to be filled.
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Below the line promotion
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Below the line promotion is promotion
over which the firm has direct control. It includes methods of direct promotion
like direct mailing, exhibitions and trade fairs and sales promotions.
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Benchmarking
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Benchmarking (also known as best practice
benchmarking) is a technique used by businesses to try to identify the best
practice for production being used in the industry so that they can adopt
this method as standard practice for themselves within their own firm.
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Benefits
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Benefits are payments from the government
to people who are in need. This may because they are unemployed or there is
an insufficient level of income in the household. Examples include
unemployment benefits, income support and housing benefit.
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Book value
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The book value is the value of assets on
the balance sheet. It is the value of assets (generally fixed assets) that
the firm has after any depreciation of those assets has been deducted. e.g.
if the firm bought a machine for £150,000 but it has since depreciated by
£30,000, the book value will be £120,000.
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Book-keeping
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Book-keeping is the process of recording
the firms transactions and maintaining their accounting records. All
transactions should be backed up by documents and the transactions are
recorded in the firm's accounting books which include the purchase ledger,
the sales ledger and their day books.
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Boston matrix
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The Boston Matrix is a technique that is
used by firms to help them analyse their overall product portfolio and
product mix. It is a grid with market growth and market share on the two
axes. Each of the four squares represents a different type of product. The
four types of product are cash cows, dogs, problem children or wild cards
and stars.
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Bottom line
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The bottom line is the actual profit or
return that a firm makes on the goods and services it produces.
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Brand
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A brand is the name given by the firm to
its product or service. Their aim is to make their particular brand stand
out from others on the market by associating the good or service in the
consumers mind with their brand name. Advertising and other marketing aims
to strengthen the brand name and therefore increase demand for their
product.
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Brand building
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Brand building is the process of
strengthening and developing the brand name of the good or service that the
firm is producing too boost demand for it. To do this the firm may have to
stress the qualities that makes their good or service stand out against its
rivals.
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Brand image
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The brand image is the impression that
consumers have about a particular brand of good or service. The stronger
the brand image the more inelastic the demand for the product is likely to
be. Firms aim to develop the brand image by stressing the qualities that
makes their good or service stand out from their rivals.
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Brand loyalty
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Brand loyalty is a situation where
consumers stick with the purchase of their favourite brand of a particular
good or service through choice as they prefer that particular brand.
Consumers are therefore reluctant to switch consumption to another brand.
The higher the level of brand loyalty, the more inelastic the demand for
the good will be.
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Branding
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Branding is the process of developing
brand names for a good or service. Branding may take a number of forms. For
example, a brand name may cover a range of products (for example Kellogg's)
or the firm may choose to have different brand names for each of their
products.
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Break-even
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Break-even is the level of output where
the firm's revenues are equal to their costs. Below the break-even level of
output the firm will be making a loss and above it revenue will be greater
than costs and they will be making a profit.
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Break-even charts
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A break-even diagram is a diagram showing
the total revenue and the total cost curves for a business. The break-even
level of output is shown where the total revenue curve and the total cost
curve cross. In other words where the firm is making neither a profit nor a
loss. Below the break-even level of output the firm will be making a loss
and above it revenue will be greater than costs and they will be making a
profit.
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Break-even pricing
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Break-even pricing is where the firms sets
price to break-even i.e. they will make neither a loss nor a profit. The
price will be set equal to the unit cost of production of the good or
service. The firm may do this as part of a penetration pricing strategy to
establish their market or increase their market share.
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Budget
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A budget is a plan which the firm aims to
achieve. For example, they may prepare a sales budget. This will have the
level of sales of their good or service that they plan to achieve over the
coming years. They can then check their progress against the budget and
then assess how well they are achieving their plans. Budgets may be used
for sales or costs or indeed any other business variable like profit or
capital expenditure or staffing.
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Budget deficit
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A budget deficit is a situation where the
level of spending by the government (public expenditure) is greater than
the level of revenue they receive from taxation. The gap between the two
has to be filled by borrowing (also known as the Public Sector Net Cash
Requirement (PSNCR)).
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Budget surplus
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A budget surplus (the opposite to a
deficit) is a situation where the level of spending by the government
(public expenditure) is less than the level of revenue they receive from
taxation. The budget surplus in the UK is referred to as a negative Public
Sector Net Cash Requirement (PSNCR).
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Buffer stock
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the minimum level of stock that a business plans to
hold. This is tro cover emergencies,
or sudden increases in demand. the minimum level of stock that a business plans to hold
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Building societies
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Building societies are financial
institutions which offer a range of services but which specialise in
providing loans (mortgages) for house purchase. Building Societies have
mutual status and the deregulation of the financial sector in the mid 1980s
has led to many of them (e.g. Abbey National and Halifax) converting to
Public Limited Companies. Mutual status means that the firm is owned by its
members. Having an account with a building society therefore makes you a
part owner of the firm.
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Business cycle
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The business cycle is also often known as
the trade cycle and is the tendency of economies to move, over time,
through periods of boom and slump. In other words the business cycle is the
fluctuations in the rate of economic growth that take place. This is
important to firms as the demand for their goods and services will differ
at each stage of the business cycle.
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Buyer's market
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A buyer's market is where the quantity of
goods for sale is greater than the amount consumers want to buy at the
current market price. This type of market will tend to have low prices
because supply is in excess of demand.
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Buying economies of scale
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An economy of scale is a situation where
a firm is able to gain from lower average costs at higher levels of output.
Buying economies of scale often come about because large firms are able to
purchase at a lower price than small firms because of the market power they
have. An example would be the buying power that supermarkets have over
their suppliers.
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C
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Capacity
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The capacity is a measure of the amount a
firm can produce with the inputs they have. If a firm is at full capacity
it means that they are producing as much as they are able to with the
inputs (factors of production) that they have.
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Capital
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Capital is one of the four factors of
production (an input into the production process) and refers to man made
resources e.g. machines, factories and other plant and equipment. The
process of buying capital is called investment.
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Capital employed
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Capital employed is the total amount of
capital that the firm has and is using to produce their goods and services.
It is the total figure on the balance sheet and can be defined in a variety
of ways. The most common is the sum of the fixed assets and the working
capital i.e. current assets less current liabilities. It is the total of
all funds invested in the firm from shareholder's funds, borrowing and past
profits.
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Capital expenditure
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Capital expenditure is spending by firms
on capital equipment. This includes spending on machinery, equipment and
buildings. This type of spending is known as investment and investment is
vital for a firm if they are to grow in the long-term and retain a
competitive advantage.
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Capital goods
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Capital is one of the four factors of
production (an input into the production process) and refers to man made
resources. Capital goods are therefore goods that are used in the
production of other goods and services i.e. machines, buildings and other
plant and equipment.
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Capital intensive
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A capital intensive production technique
is one that uses a high proportion of capital to labour. An example might
be the production of cars where a large amount of capital is used compared
to labour.
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Cartel
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A cartel is where a group of firms act
together to fix price, output or conditions of sale. Cartels are illegal
under UK and European competition law and firms may be subject to fines or
other sanctions if they are found to be operating one. Cartels are most
likely in oligopolistic markets, particularly where the market is a
relatively mature one.
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Cash
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Cash is one of the current assets of the
firm. It is money they have received from selling their good or service
that they are holing either as petty cash (actual cash in their hands) or
in a bank account (cash at bank). When cash is added to stocks and debtors,
it gives total current assets.
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Cash cows
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Cash cow is a term given to a product
that produces significant revenue because it has a large share of an
existing market which is only expanding slowly. It is one of four types of
product that are often shown on a Boston Matrix to help the firm assess
their full product portfolio.
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Cash flow
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Cash flow is the movement of cash in an
out of the business. Cash flows out to pay wages and other expenses and
cash flows in from sales of the firm's good or service. The overall cash
flow is a record of all these flows and shows if the firm has a cash
surplus or deficit. The flow of cash in and out of the business is often
called a cash flow cycle.
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Cash flow forecast
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A cash flow forecast is a projection of
what a company expects its cash inflows (revenue from sales) and cash
outflows (payments for wages and other expenses) to be over a period of
time. Firms will produce cash flow forecasts to help them plan how to
finance any cash shortages that may arise over time.
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Cell production
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Cell production is where a team of
employees take responsibility for a major part of the total production
process. They carry out a range of different tasks and this can help to
ensure that quality is maintained.
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Chain of command
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The chain of command is the way in which
orders are passed down through the business. In other words it is the way
in which the authority in the business is organised. Some businesses may
have very flat hierarchies which will mean a short chain of command, but
other may have a much taller hierarchy where orders have to be passed
through many more levels of command.
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Chain of distribution
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The chain of distribution is the method
used by a firm to get the good or service they have produced to the
consumer. It is the route the good or service takes to get to the consumer.
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Chain of production
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The chain of production is the different
stages of making, distributing and selling a good or service from the
initial production of parts, through to the final product through to
distribution and sale of the product.
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Chairman
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The Chairman (or Chairperson) of a firm
is the head of the board of directors of the firm. They chair the meetings
of the board and are responsible (along with the other directors) to
shareholders for running the business in the interests of the shareholders
and are elected by the shareholders at the Annual General Meeting of the
firm.
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Channels of communication
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Channels of communication are the methods
or routes used to convey information from one person or area of the firm to
others. This may include downward communication to pass information to
employees about decisions that have been made, or upwards communication
where employees pass information up through the chain of command to help
decision makers.
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Channels of distribution
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The channels of distribution are the
routes used by the firm to get the good or service they have produced to
the consumer. The channels may involve physical distribution of the good or
service to retailers or perhaps distribution through the Internet (in the
case of software or Internet banking for example) or some other means.
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Circular flow
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The circular flow is the flow of income
and expenditure between consumers and firms. Expenditure on goods and
services flows from consumers to firms and income (as a payment to the
factors of production) flows from firms to consumers.
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Circular flow of income
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The circular flow is the flow of income
and expenditure between consumers and firms. Expenditure on goods and
services flows from consumers to firms and income (as a payment to the
factors of production) flows from firms to consumers.
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Closed shop
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A closed shop is a situation where anyone
employed in a particular firm or plant has to belong to a union. Collective
bargaining Collective bargaining is the process of negotiation between
trade unions (or other groups representing employees) and employers on
wages and working conditions.
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Co-operative
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A co-operative is a form of business
organisation where all the members of the firm have equal voting rights. It
may be a workers co-operative where the workers have equal rights in the
running of the firm and elect representatives to run the firm or a retail
co-operative (like the Co-op) where the profits are shared between those
using the shop.
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Collusion
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Collusion is a situation where firms
co-operate to try to influence the outcome in a market for their benefit.
An example may be agreements between firms to restrict competition (perhaps
by carving up the market between them).
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Collusive oligopoly
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Oligopoly is a market structure where
there are a small number of large firms in a market who have a significant
market share between them. Collusive oligopoly is when these firms act
together to restrict price or output.
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Command economy
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A command economy is often termed a
planned economy and it is a situation where the state allocates resources,
and sets production targets and growth rates according to its own view of
people's wants. All resources are owned collectively by the state and
allocated according to demand.
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Common market
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A common market is a customs union which
allows the free movement of capital, labour and other factors of production
between member states. The European Union is a common market in which the
free movement of goods, services and factors of production can take place
among members.
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Competition based pricing
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Competition-based pricing is where the
price charged by competitors is the main determinant of an individual
firm's own decision on price. They will price to ensure they are
competitive against the other firms.
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Competition Policy
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Competition policy is the area of
government policy which seeks to promote competition and efficiency. The
key organisations involved in formulating and enforcing competition policy
in the UK are the Competition Commission and the Office for Fair Trading
(OFT) along with the Department of Trade and Industry (DTI).
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Competitive advantage
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A competitive advantage is a situation
where a firm has lower costs than their competitors and so can sell at a
lower price or make a bigger profit at the same price. It may also include
a situation where a firm has developed a new product or feature for a
product that gives the firm an edge over their rivals.
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Competitive conditions
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The competitive conditions are the
conditions in the market that determine the level of competition. The
amount of competition is likely to depend on the barriers to entry and exit
in the market. If there are few barriers to firms starting up, then the
conditions are likely to be very competitive, but extensive barriers to
entry will lead to a relatively uncompetitive market.
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Competitive markets
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Competitive markets are markets where
there is a high level of competition and therefore where there are few
barriers to entry and exit, making it easy for firms to set up and join the
market.
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Complementary goods
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Complementary goods are two goods
consumed at the same time e.g. strawberries and cream, or CD and CD
players. An increase in demand for a complementary good will increase the
demand for the good itself by shifting the demand curve for the good to the
right.
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Computer aided design
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Computer aided design is a process where
computer hardware and software are used to help with the design process.
The software enables designers to design much quicker, and to test a much
wider range of possible designs before deciding on a final design for a
product.
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Concentration ratios
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The concentration ratio measures the
proportion of a market accounted for by, say, the five largest firms (in
other words the market share of the firms). A 5 firm concentration ratio of
75% would indicate that the five largest firms had a total market share of
75%. The concentration ratio can therefore help to measure the competitive
conditions in the market.
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Conglomerate merger
|
A conglomerate merger is a merger between
two firms who are in a different line of business. The main motive behind a
conglomerate merger is likely to be growth through diversification.
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Consumer expenditure
|
Consumer expenditure is spending by
consumers on goods and services.
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Consumer goods
|
Consumer goods are goods purchased and
used by households.
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Consumer loyalty
|
Consumer loyalty is attachment by
consumers to particular goods and services (also known as brand loyalty).
In other words they stick with the purchase of their favourite brand of a
particular good or service through choice as they prefer that particular
brand. Consumers are therefore reluctant to switch consumption to another
brand. The higher the level of consumer loyalty, the more inelastic the
demand for the good will be.
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Consumer sovereignty
|
Consumer sovereignty is the power that
consumers have to determine in a market economy what goods and services are
produced, in other words the way in which resources are allocated.
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Consumer taste
|
Consumers tastes are their preferences
for the goods and services they want to buy.
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Consumption
|
Consumption expenditure by households on
the goods and services they want to satisfy their wants. Consumption is a
key part of aggregate demand (the total level of demand in an economy).
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Contract of employment
|
A contract of employment is a written
legal document setting out the terms and conditions of employment. It is
agreed between an employee and an employer and will show things like the
job title, the rate of pay, the procedures for any grievances, the period
of notice that needs to be given, sickness benefit entitlements and so on.
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Contribution
|
The contribution is the difference
between the price charged and the variable costs of production of the good.
It is in other words the amount that each unit of the good 'contributes' to
paying the fixed costs or overheads of the firm. For example, if the
variable costs are £4 per unit and the firms sells the good for £6, then
each unit sold will make a 'contribution' to fixed costs of £2. If total
fixed costs are £1,000, then the firm will need to make 500 units to break-even.
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Contribution pricing
|
Contribution pricing is where the price
charged is based on the variable costs of production. A price is set that
is greater than the variable costs, so that a contribution is made towards
fixed costs. For example, if the variable costs are £4 per unit and the
firms sells the good for £6, then each unit sold will make a
'contribution' to fixed costs of £2. If total fixed costs are £1,000,
then the firm will need to make 500 units to break-even.
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Copyright
|
Copyright is the legal protection of a
piece of literary, musical or artistic work. It is a way to protect the
intellectual property rights of the person who created the work.
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Core values
|
Core values are those values that are
central to the ethos of the company. These values form the basis of the
decision-making process of the firm. For example, the co-operative movement
aims to ensure that they meet high ethical trading standards - this is one
of the firm's core values.
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Corporate culture
|
The corporate culture is all the
attitudes, beliefs and values which are a part of the business and the way
in which they operate. It is the culture that is created in the business
and forms a part of their day to day operations.
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Corporation tax
|
Corporation tax is the main form of business
taxation in the UK and is a direct tax on firms' profits. It is charged as
a percentage of their profits.
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Cost based pricing
|
Cost-based pricing is a method of pricing
where the firm adds a percentage mark-up to its costs to determine the
price they are going to charge for their products.
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Cost benefit analysis
|
Cost benefit analysis is method of
assessing investment projects generally used by the public sector. CBA
takes into account social costs and benefits as well as the private costs
and benefits.
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Cost centres
|
A cost centre is an area or division of a
firm where costs occur. Firms may split themselves into a number of cost
centres to help them to monitor costs and ensure they are minimised. For
example, if a firm is producing four different products they may make each
one a cost centre and charge costs appropriately to them to ensure that
each product is being produced efficiently. Cost centres may be
geographically determined (different factories or plants), or based around
individual people or teams or based around particular items of equipment
(for example vehicles).
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Cost curve
|
A cost curve is a curve plotting costs
against output. The most important cost curves are the total cost curve,
the average cost curve and the marginal cost curve.
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Cost of living
|
The cost of living is how much it costs
people to buy the goods and services they need to satisfy their wants. This
is determined by the general level of prices in the economy. It is usually
measured by the Retail Price Index.
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Cost plus pricing
|
Cost plus pricing is a method of pricing
where the firm adds a percentage mark-up to its costs to determine the
price they are going to charge for their products. They set prices by
adding the profit margin they want (or feel the market can bear) to average
cost.
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Cost push inflation
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Cost-push inflation is inflation that
comes about costs increasing. When a cost of production (e.g. wages)
increases, firms have to put up prices to maintain profits and this leads
to inflation. Cost increases may happen because wages have gone up or
because raw material prices have increased.
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Cost-plus pricing
|
Cost plus pricing is a method of pricing
where the firm adds a percentage mark-up to its costs to determine the
price they are going to charge for their products. They set prices by
adding the profit margin they want (or feel the market can bear) to average
cost.
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Costs of production
|
The costs of production are the total
costs that arise from producing a good or service. They are made up of
fixed costs and variable costs (or direct and indirect costs) and the sum
of these is the total cost.
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Credit control
|
Credit control is the process of control
over payments coming into and going out of the firm. It is mainly concerned
with the firm's creditors (people who the firm owes money to) and the
firm's debtors (people who owe money to the firm). Tight credit control is
important if a firm wants to avoid cash flow problems.
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Credit note
|
A credit note is a document given to a
customer when they have returned goods, or reduced the quantity of an order
or overpaid for the goods they have received. The credit note acts as a
credit to their account.
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Critical mass
|
Critical mass is the minimum size that a
market or industry needs to be in order to be efficient and to minimise the
unit cost of production.
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Critical path analysis
|
Critical path analysis is a technique
used by firms to identify the most efficient method of carrying out
production or a part of production. The process involves identifying all
the operations required, how long they will take and which operations are
dependent on each other. From this the firm can produce a network diagram
showing the earliest start time and the latest finishing time of each
operation. From this diagram they can identify the critical path - the most
efficient method of production and the optimum order of the operations.
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Current account
|
The current account is usually taken to
refer to the current account of the balance of payments which measures the
exports and imports of goods and services between the UK and overseas. The
current balance is the difference between revenue from exports of goods and
services and the amount we have paid out to import goods and services. If
the figure is negative, we are in deficit, while if it is positive we have
a current account surplus.
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Current account balance
|
The balance of a country's earnings from
the export of goods and services less its expenditure on imports of goods
and services. If the balance is positive then there is a current account
surplus and if the balance is negative then there is a current account
deficit.
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Current account deficit
|
The current account is the balance of a
country's earnings from the export of goods and services less its
expenditure on imports of goods and services. If the balance is negative
then there is a current account deficit. In other words a current account
deficit means that we have spent more on paying for imports of goods and
services than we have earned from selling exports of goods and services.
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Current account surplus
|
The current account is the balance of a
country's earnings from the export of goods and services less its
expenditure on imports of goods and services. If the balance is positive
then there is a current account surplus. In other words a current account
surplus means that we have spent less on paying for imports of goods and
services than we have earned from selling exports of goods and services.
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Current assets
|
Current assets are short-term assets.
They are assets that can be converted into cash within a year. The min
types of current asset shown on a firm's balance sheet are stock, debtors
and cash. Of these, debtors and cash are the most liquid (easiest to
convert to cash) as stock may often be difficult to convert to cash
quickly.
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Current liabilities
|
Current liabilities are short-term debts
of a firm that must be repaid within a year. They will include creditors
(people who the firm owe money to) and short-term loans or perhaps
overdrafts. The current liabilities are shown on the balance sheet.
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Current ratio
|
The current ratio is a ratio that shows
how easily a business can meet its short-term financial commitments. It is
calculated by dividing the level of current assets by the level of current
liabilities. If the ratio is greater than one then this shows that the
business could meet all its current liabilities if it converted all its
assets into cash. If the figure is below one, then the firm has a problem
with the level of liquidity as it cannot meet all its current liabilities.
The current ratio is termed a liquidity ratio as it is an indicator of how
liquid their position is.
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Customer focus
|
Customer focus means that as a firm you
aim to discover exactly what it is that your customers want from your
products or services and then make certain that you deliver these. It means
ensuring that the businesses aims and objectives revolve around the needs
of the customer.
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Customs union
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A group of countries which removes tariff
barriers between member countries and also imposes common external tariffs
on non-members.
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Cutting edge
|
Cutting edge means being at the leading
edge of innovation in the markets you operate in. To remain at the cutting
edge it is vital that businesses spend on research and development
(R&D) of their products and services.
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Cyclical unemployment
|
Cyclical unemployment is often also
called demand deficient unemployment. Workers are without a job because of
a lack of aggregate demand due to a downturn in economic activity (a
slowdown or recession).
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D
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Data Protection Act
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The Data Protection Act 1984 is an Act of
Parliament that aims to ensure that people have rights to know about any
information that is held about them on computer by firms or government
agencies. The act makes people or businesses register with the Data
Protection Registrar and sets out conditions which users of data must
comply with. It is a form of consumer protection legislation.
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De-layering
|
De-layering is the process of flattening
out an organisational hierarchy. This means reducing the number of layers
of management. This process should speed-up decision-making and help
vertical communication in the firm as well as allowing those who are
directly affected by the decisions to be involved in the decision-making
process. This is generally considered to help empower employees and improve
their motivation.
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Debentures
|
Debentures are a method that a firm can
use to raise long-term finance. They are effectively long term fixed
interest loans to companies that will be repaid by the firm at a fixed date
in the future and in the meantime will pay interest.
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Debt collection period
|
The debt collection period is a type of
activity ratio. It measures the number of days that it takes a firm on
average to collect their debts. Firms often allow a period of credit to
their customers, but it is important for their cash flow that they do not
take too long to collect their debts. The debt collection period ratio is
measured by dividing the level of debtors (shown on the balance sheet) by
the sales revenue (from the profit and loss account) and multiplying by 365
to give the average number of days it has taken for the firm to collect
their debts.
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Debt factoring
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Debt factoring is the process of raising
finance by 'selling' some of your debts. When goods and services are sold
the firm often allows their customers a period of credit (generally 30
days). However, if they want to raise finance and receive the money
quicker, then they can 'sell' this debt to a specialist company. They will
receive the bulk of the debt immediately, and the debt factoring firm will
then collect the debt and take a proportion as their fee for providing the
money.
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Debtors
|
Debtors refers to the current amount of
money that the firm is owed by customers who have bought goods and
services. This will arise because firms often allow their customers a
period of credit before they have to pay for the goods. The total level of
debtors at the end of the financial year is shown as one of the current
assets on the balance sheet. It is an asset because it is money that the firm
is owed.
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Decision tree
|
A decision tree is a method of analysis
that can help firms to make complex decisions. The decision tree maps out
alternative possible outcomes of a number of decisions with the likely
outcomes (or probability of those outcomes) for each possible route. From
the probability figures and the potential returns, the firm can calculate
the expected value of each decision and therefore see which may be the best
of all the alternative decisions. Decision trees have decision nodes (usually
shown as squares) where there is a choice of two actions and chance nodes
(usually shown as circles) where there are different possible outcomes of a
decision.
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Deed of Partnership
|
A Deed of Partnership is the official
agreement drawn up by partners in a partnership. It is a legal document
that sets out the rights and obligations of each partner in the
partnership. It is not legally required for a partnership, but is thought
to be highly advisable in case of any disputes or disagreements between
partners in the future.
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Deflate
|
To deflate the economy means to set out
to deliberately reduce the level of economic activity. This is needed when
there is an excess level of demand that may be leading to demand-pull
inflation. Deflating means using deflationary policies like increasing
taxes or reducing government expenditure (fiscal policies) or increasing
interest rates (monetary policy).
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Deflation
|
Deflation is a reduction in national
income, in other words negative economic growth.
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Deflationary policies
|
Deflationary policies are policies
designed to reduce aggregate demand. They could be fiscal policies
(increased taxation or reduced public expenditure) or monetary policies
(increased rate of interest).
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Deindustrialisation
|
Deindustrialisation is a situation where
there is a sustained decline in the manufacturing sector of the economy.
This means a fall in the share of manufacturing in GDP.
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Delegation
|
Delegation is the passing of authority to
perform a role or set of tasks to someone lower down in the hierarchy of
the company. The responsibility remains with the person delegating, but the
work is carried out by the person further down the chain of command.
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Demand based pricing
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This is where an organisation decides the
price to charge based as far as possible on what consumers are prepared to
pay. This has become more common with the use of such techniques by many
low cost airlines for selling fares over the Internet.
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Demand curve
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A curve showing the amount of a good or
service that consumers are willing and able to buy at each and every price
level. The curve is downward sloping because as price increases, demand
falls. The curve is drawn on the assumption of all other determinants of
demand (including income, tastes and the prices of other goods) remaining
constant.
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Demand pull inflation
|
Demand pull inflation occurs when
aggregate demand exceeds aggregate supply. If there is an excess level of
demand in the economy, this will tend to cause prices to rise and this is
called demand-pull inflation. It is most likely when the economy is at the
boom phase of the business cycle.
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Demarcation
|
Demarcation is where a particular task or
job can only be carried out by a particular person. In the past there were
often demarcation disputes where employees would not carry out roles or
tasks that they felt should be done by another group of workers.
Demarcation tends to reduce the flexibility of the labour force and much
has been done in recent years to reduce the level of demarcation.
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Demerger
|
A demerger is when a firm divides into
two or more firms or sells off some of its subsidiaries.
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Democratic leadership
|
Democratic leadership is a style of
leadership where a leader encourages others to be involved in the decision
making process. It is felt that this style of leadership will help to
motivate employees as they will feel more involved in the decision-making
process, though this style does require leaders who are skilled at
communication.
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Demography
|
Demography is the study of population. It
looks at trends in population growth, the structure of the population and
the likely impact of population changes.
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Depreciation
|
Depreciation is the fall in value of an
asset. It applies to fixed assets as they are used over and over again as
part of the production process and so over time will lose value. The level
of depreciation has to be taken off the cost of an asset to show its
current book value. There are two main methods of calculating depreciation
- the straight line method and the reducing balance method.
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Depreciation of sterling
|
A depreciation is when market forces in
the foreign exchange market lower the value of one currency against
another. A depreciation of sterling will make out exports appear cheaper
overseas and therefore make us more competitive, but it will raise the
price of imports and may therefore add to inflation.
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Deregulation
|
De-regulation is the removal of
regulations or the removal of controls on a particular market e.g. the
removal of certain health and safety regulations.
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Desk research
|
Desk research is a form of secondary
market research. It means using data that already exists (secondary data)
as part of the market research process. This may include data from
government, industry surveys or perhaps data bought from a specialist data
provider.
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Determinants of demand
|
Determinants of demand are those factors
that affect the level of demand for a good or service. They include the
price of the good, income, the price of other goods and tastes.
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Determinants of supply
|
Determinants of supply are those factors
that affect the level of supply for a good or service. They include the
price, costs, objectives of the firm and the level of technology.
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Devaluation of sterling
|
A devaluation of sterling only arises
under a fixed exchange rate. It is when a government lowers the value of
their currency from one fixed rate to another.
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Developed countries
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Developed countries are countries at an
advanced stage of economic development with high levels of real GDP per
head and a relatively large service sector.
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Developing countries
|
Developing countries are countries with
low levels of real GDP per head and relatively large primary sectors
producing predominantly basic commodities.
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Differentiated products
|
Differentiated products are goods or
services which are made distinctive from rival products. This may be done
through the packaging, the branding of the good / service or perhaps
through the features that the good or service has.
|
Differentiation
|
Differentiation is a strategy where products
are made distinctive from rival products. This may be done through the
packaging, the branding of the good / service or perhaps through the
features that the good or service has.
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Diminishing returns
|
Diminishing returns (also known as
decreasing returns) refers to a situation where adding more of a variable
factor of production results in gradually smaller increases in output. This
will mean costs increasing at an increasing rate.
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Direct costs
|
Direct costs are costs that can be
directly attributed to the production of the firms' good or service. They
may include the labour to make the product, the raw materials or the
packaging - any costs that can be directly identified as part of the
production process.
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Direct mail
|
Direct mail is a form of marketing where
promotional material is posted directly to a consumer's home address to try
to persuade them to buy the good or service the firm is offering.
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Direct marketing
|
Direct marketing is the process of a firm
trying to sell a good or service to a consumer directly without any
intermediary involved in the selling process. It is often muddled with
direct mail, but direct mail is just ONE form of direct marketing. Others
include telephone selling, personal selling and catalogues.
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Direct taxes
|
Direct taxation is taxation on income and
wealth. The main direct taxes in the UK are income tax (on individuals) and
corporation tax (tax on corporate profits).
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Directors
|
The directors of a firm are elected by
the shareholders to manage the running of the business. In a small firm,
the owner may also be the managing director, but in larger firms (for
example, public limited companies) there will be directors responsible for
each of the main areas of operation of the firm. For example, there may be
a production director, a financial director and so on.
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Discounted cash flow
|
Discounted cash flow is an investment
appraisal technique that helps firms assess whether a particular investment
is worthwhile. DCF takes account of when the revenues from the investment
take place. This is important because future revenues will have a lower
current value and so DCF 'discounts' future revenues using a 'discount
rate' to see what they are worth now and therefore whether the investment
project is worthwhile.
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Discounting
|
Discounting is a part of an investment
appraisal technique that helps firms assess whether a particular investment
is worthwhile. Discounting is necessary because future revenues will have a
lower current value and so future revenues are 'discounted' using a
'discount rate' to see what they are worth now and therefore whether the
investment project is worthwhile.
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Discrimination
|
Discrimination is the unequal treatment
of individuals, usually on the basis of gender, race, age, religion or
disability. There is a wide range of Acts of Parliament aimed at protecting
people against discrimination.
|
Diseconomies of scale
|
Diseconomies of scale is a situation
where average costs increase as production increases. This is the opposite
to economies of scale and often happens where there are communication
problems in larger organisations.
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Dismissal
|
Dismissal refers to a situation where an
employee has been asked to leave their job. The dismissal may be fair in a
situation where the employee is unable to do the job or where there has
been major misconduct or various other reasons but it could also be unfair.
In this case the employee has the right to argue their case in front of an
industrial tribunal and if the tribunal finds in their favour they may have
their job replaced or they may be paid compensation.
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Disposable income
|
Disposable income is the amount of income
left after such deductions as income tax, pension contributions and
national insurance. Disposable income is often known as 'take home pay' -
the actual pay a worker receives.
|
Distribution of income
|
The distribution of income is the way in
which income is shared out between households and between factors of
production. Income is unevenly distributed in a market economy and the
extent of this inequality is measured by the distribution of income.
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Diversification
|
Diversification is where a firm produces
new products or services to expand the range of goods and services they
offer. They may also diversify by buying companies offering different goods
and services. A key reason for diversification may be to reduce risk by
being overly exposed in one particular market.
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Dividend
|
A dividend is payment of a share of a
firm's profits to the shareholders. The shareholders are the owners of the
business and so are entitled to a share of the profits. Some of the profits
will be reinvested in the firm and some will usually be paid as a dividend
to shareholders. The dividend is usually expressed as an amount per share.
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Dividend cover
|
Dividend cover is a ratio that measures
the potential for future capital growth of the firm. It measures how easily
the dividend can be paid (or 'covered') out of the current profits of the
firm. It is calculated by dividing the profit accruing to shareholders by
the level of dividends. The higher the figure, the easier it was for the
firm to 'cover' their dividends. This may indicate that more profit has
been re-invested in the firm and therefore the possibility of higher future
growth. However, a high dividend cover may be a bad sign for an investor
looking for short term income from the investment. Dividend cover is
described as a shareholders ratio.
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Dividend yield ratio
|
The dividend yield ratio is a ratio that
shows the amount an investor in shares receives as a percentage of the
market price of the share. The ratio is calculated by dividing the dividend
per share by the market price of the share and multiplying it by 100 to get
it as a percentage. The higher the value, the better the income level that
the share is offering.
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Division of labour
|
The division of labour is the allocation
of tasks or jobs to particular people. For instance, instead of one worker
undertaking all aspects of the production of a good, the task is broken
down into small, separate operations each performed by just one person. The
division of labour can make production much more efficient (or productive).
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Dog
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A dog is a type of product in the Boston
Matrix. It indicates a product that has a low or declining share of its
market in a market that is growing slowly. It is probably a product that is
in the later stages of its product life cycle.
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Drucker
|
Peter Drucker is a management theorist
who is credited with introducing the idea of management by objectives
(MBO). This groups the role of management into five different operations
including the setting of objectives for the organisation, the organisation
of the work, the motivation of employees, the measurement of the job being
done and the development of people. Good managers will perform all these functions
well according to Drucker.
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Dumping
|
Dumping is a practice in international
trade where a firm sells goods in a foreign country at a price below that
charged in the home market or even below cost. This is regarded as an
unfair trading practice and is generally used to dispose of surpluses of
goods where a firm or country have over-produced.
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Duopoly
|
Duopoly is a market structure where the
market is dominated by two firms.
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E
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Earliest starting time
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The earliest starting time (EST) is
identified when using critical path analysis (or network path analysis) to
see the most efficient way to carry out a series of tasks. The EST shows
the earliest time (in hours or days) that a task can be started, and will
depend on how many tasks have to be completed before it can be done.
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Earnings per share
|
Earnings per share is a shareholders
ratio that measures the amount that each share is earning an investor. It
is calculated by dividing the profit attributable to shareholders by the
number of ordinary shares. The higher the earnings per share, the more income
the share is offering shareholders.
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Economic growth
|
Economic growth refers to an increase in
a country's total output of goods and services. It is measured by changes
in real GDP (i.e. the increase in GDP after inflation has been removed).
|
Economic order quantity
|
The economic order quantity is the level
of stock that minimises the firm's costs. Holding stock will raise a firm'
costs, but ordering small quantities of stock will also raise their costs
as it is cheaper to buy stock in large quantities. The economic order
quantity takes account of both these factors to work out the level of
stocks which will minimise costs.
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Economies of scale
|
An economy of scale is where average cost
falls as production increases. Economies of scale are happening because
larger firms are able to lower their unit costs. This may happen for a
variety of reasons. A larger firm may be able to buy in bulk, it may be
able to produce relatively more efficiently, it may be able to raise
finance cheaper and it may have access to more efficient marketing methods.
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Education
|
Education is the process of improving the
quality of the human capital in an economy. Improvements in education will
help to increase the level of aggregate supply, in others words the
potential level of output of the economy. Policies to achieve this are
called supply-side policies.
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Effective exchange rate
|
The effective exchange rate is also often
called the trade-weighted exchange rate. It is based on a basket of
currencies, and so is in effect an average exchange rate for a number of
currencies. The currencies in the basket are weighted according to how much
trade we do with other countries, in other words to their importance to us
in terms of trade.
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Elastic
|
Elastic means that a good is responsive
to a change in another variable. For example, if a good is 'price elastic'
then it will be responsive to a change in price and the percentage change
in demand for the good will be greater than the percentage change in price
that caused it. Firms selling elastic goods may aim to cut prices as much
as possible as this will help increase revenue.
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Elasticity
|
Elasticity is a measure of how much one
variable responds to a change in another variable. There are various
measures of elasticity including the price elasticity of demand, the income
elasticity of demand, the cross elasticity of demand and the price
elasticity of supply. If something is termed 'elastic' then this means that
it is responsive to the variable that caused the change.
|
Elasticity of demand
|
The elasticity of demand is the
responsiveness of demand to a given change in price or income or the price
of other goods.
|
Elasticity of supply
|
The elasticity of supply is the
responsiveness of supply to a change in price. If a good is elastic in supply,
then an increase in price will lead to a larger proportionate increase in
the quantity supplied.
|
Employers' organisations
|
Employer's organisations are groups of
representatives of firms' owners or managers, either within one industry or
across several industries. An example of an employers organisation is the
Confederation of British Industry (CBI).
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Empowerment
|
Empowerment is the process of involving
employees in the decision-making process by transferring authority to act
to those workers actually performing the relevant tasks. It is generally
thought to help improve the motivation of workers by involving them more in
the company.
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Entrepreneur
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Entrepreneurs are businessmen - people
who take risks and invest to produce goods and services in order to make a
profit.
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Entrepreneurship
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An entrepreneur is an individual who
takes risks and organises the factors of production to generate a product
and therefore hopefully profit. Entrepreneurship is the skill of achieving
this and is considered one of the factors of production.
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Environmental audit
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Environmental Audit is a method used to
assess the company's corporate responsibility by evaluating the
environmental impact of the policies and processes they use to produce and
distribute their goods and services. An environmental audit will look at
both the costs and the benefits of all the activities of the firm.
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Equilibrium
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Equilibrium is state of balance, in other
words a situation where there is no tendency for change. This will occur in
a market when supply is equal to demand in the market.
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Equilibrium price
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The equilibrium price is the price at
which supply equals demand in a market. An equilibrium means that there is
no tendency for change and an equilibrium price will remain stable until
one of the other determinants of demand or supply changes, causing a change
in price in the market.
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Equities
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Equities is another word for shares. It
refers to the ordinary shares of a company. Having an ordinary share means
that you own a proportion of that company, and that you have a vote at
their annual general meeting. The number of votes you have depends on the
number of shares you own, and the amount of control those votes give you
depend on the proportion of the shares you own.
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Ethics
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Ethics are a set of values and principles
that determine behaviour. In the context of business we are usually looking
at business ethics which are the values that firms use to decide whether
actions are right or wrong. If a company is taking account of their ethical
principles, then these ethics will influence their business decisions.
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Euro
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The Euro is the single European Currency
which was adopted by 11 countries in the European Union. The full
changeover and the introduction of Euro notes and coins took place on January
1st 2002. European Central Bank (ECB) The ECB is the bank that sets
monetary policy for the Euro area. Each of the countries taking part in the
single currency has representation on the Euro Governing Council. They meet
twice a month to set monetary policy. The ECB is based in Frankfurt.
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European Union
|
The European Union (EU) is a common
market between all members in which goods, services, labour and capital can
circulate freely. The European Single Market was introduced in 1992.
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Excess demand
|
Excess demand is where consumers want to
buy more than producers are prepared to sell. In other words demand is
greater than supply. This excess demand will drive the equilibrium market
price upwards until demand is equal to supply again and there is once again
an equilibrium.
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Excess supply
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Excess supply is where producers are
prepared to sell more than consumers are willing to buy. In other words
supply is greater than demand. This excess supply will drive the
equilibrium market price down until demand is equal to supply again and
there is once again an equilibrium price.
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Exchange rate
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An exchange rate is the price of one
currency in terms of another currency. For example, the exchange rate
between the £ and the $ may be £1=$1.40. This means that you need to pay
a price of £1 to get every $1.40. Exchange rates can be either fixed or
floating. If they are floating, this means that their value is determined
by demand and supply.
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Exchange rate mechanism (ERM)
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The ERM was an adjustable peg system which
involved EU countries maintaining the value of their currencies around a
central rate within limited margins but the currencies still floated
against non member currencies. The ERM was the forerunner to the
implementation of the Euro as a single currency for the Eurozone.
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Excise duties
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Excise duties are form of indirect
taxation. They are taxes on fuel, tobacco, alcohol and gambling. They are
levied by HM Customs and Excise.
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Exports
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Exports are goods, services and capital
assets sold abroad. The sale of them results in an inflow of currency.
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Extension strategies
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Firms will often try to use extension
strategies to prolong the product life cycle of a product. They are
techniques to try to delay the decline stage of the product life cycle. An
extension strategy may mean upgrading or updating the product, changing the
packaging or presentation, adding new features or new design elements to
the basic product and so on.
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External diseconomies of scale
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Diseconomies of scale happen when unit
costs (average costs) increase as the firm grows larger. They may arise
because of a deterioration in communication or because of organisational
problems.
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External growth
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External growth is when a firm grows by
taking over or merging with another firm (integration). This is often known
as inorganic growth.
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External recruitment
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External recruitment is the process of
filling vacant posts with applicants from outside the company. This will
involve the advertising of the post followed by selection and interviewing
of a shortlist of candidates.
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External shock
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An external shock is an unexpected change
in an economic variable which takes place outside the economy. An example
might be an increase in the price of oil having an impact on firm's costs
of production.
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F
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Factoring
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Debt factoring is the process of raising
finance by 'selling' some of your debts. When goods and services are sold
the firm often allows their customers a period of credit (generally 30
days). However, if they want to raise finance and receive the money
quicker, then they can 'sell' this debt to a specialist company. They will
receive the bulk of the debt immediately, and the debt factoring firm will
then collect the debt and take a proportion as their fee for providing the
money.
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Factors of production
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The factors of production are the resources
that are necessary for production. They are usually classified into 4
different groups: 1. Land - all natural resources (minerals and other raw
materials) 2. Labour - all human resources 3. Capital - all man-made aids
to production (machinery, equipment and so on) 4. Enterprise (or
entrepreneurship) - the skill of managing resources and taking risks to
produce goods and services.
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Fayol
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Henri Fayol was a French management
theorist working at the start of the last century. He looked at management
from the point of view of the functions (or 'elements') of management. He
argued that the main functions of management included planning, organising,
commanding, co-ordinating and controlling. He is very much associated with
'command and control' methods of management.
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Field research
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Field research is a type of market
research using primary data. This is data that is collected by the
researcher and therefore does not exist prior to the research. It is likely
to include either observing or questioning consumers and an important part
of this process will be sampling the population to see that it is
representative.
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Field trials
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Field trials is where a product or a
marketing approach is tested on a small number of consumers to gauge the
effectiveness of the product or the marketing policy and the reactions of
consumers to it.
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Financial economies of scale
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An economy of scale is where average cost
falls as production increases. Economies of scale come about because larger
firms are able to lower their unit costs. A financial economy of scale
results from the ability of large firms to borrow money on better terms
than smaller firms which makes the cost of financing investment lower. This
may be because they are seen as a better risk by the financial institution
or perhaps because they have access to more efficient ways of raising
capital (e.g. equity markets).
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Financial institutions
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Financial institutions are institutions
(banks and building societies) which provide a range of services including
lending, accepting deposits and providing advice for both consumers and
businesses.
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Fiscal policy
|
Fiscal policy is changes in the levels of
taxation and government expenditure to try to influence the level of
economic activity. An expansionary (or reflationary) fiscal policy could
mean cutting levels of direct or indirect tax or increasing government
expenditure while a contractionary (or deflationary) fiscal policy might
involve the government increasing taxation and cutting government
expenditure.
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Fixed assets
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Fixed assets are assets which have a
lifespan of more than a year. They are generally used again and again for
the purposes of production or distribution or administration and include
things like plant, equipment, buildings and machinery. They can be split into
tangible assets (like machinery) and intangible assets (like goodwill) and
financial assets (for example investments).
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Fixed costs
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Fixed costs are production costs that do
not depend on the level of output. Fixed costs could include loan
repayments, security costs and marketing and administration costs. Fixed
costs are often also termed as overheads.
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Fixed exchange rates
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A fixed exchange rate system is one where
the value of the currency against other currencies remains the same. The
fixed rate is maintained by governments by intervening in the foreign
exchange market using foreign exchange reserves to buy and sell the
currency to maintain the fixed rate.
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Flatter organisations
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Flatter organisations have fewer levels
in their organisational hierarchy. This will usually mean that they have a
higher span of control with each person responsible for a larger number of
people under them than in taller hierarchies.
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Flexibility
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Flexibility is the ability of an employee
to be able to carry out various tasks or functions. Such an ability cuts
costs and makes the business more efficient. Flexibility can be helped
through employee training and development programmes.
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Floating exchange rates
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A floating exchange rate system is where
the exchange rate is determined by demand and supply in the foreign
exchange market without any government intervention. An increase in demand
will lead to an appreciation of the currency (assuming constant or lower
supply) while a decrease in demand (assuming constant or higher supply)
will lead to a depreciation of the currency.
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Flow production
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Flow production is a form of production
where all the different operations required for production are carried out
in sequence one after the other. It is usually used where mass production
is required and the product being produced is reasonably standardised.
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Focus groups
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Focus groups are small groups of people
who are got together to discuss a product, service or marketing policy. The
aim of focus groups is to provide an insight into consumers behaviours and
attitudes which should help inform the development of new products or
marketing policies.
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Footloose industry
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Footloose industries are ones which do
not gain any cost advantage from any particular location and so they can set
up in any location. Many high technology industries (like software
production) are considered to be footloose.
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Forecasting
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Forecasting is an attempt to predict the
future performance of a business. The business may be keen to forecast
their sales, their cash flow or perhaps their costs. They may also be
interested in forecasting the level of demand in the economy and therefore
in their market. There are various statistical techniques that can help
them in this process.
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Foreign exchange market
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The foreign exchange market is the market
that determines the exchange rate. It is where currencies are traded and
therefore exchange rates are determined.
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Formal groups
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Formal groups are groups that are set up
within a business to carry out specific functions. They may be either
temporary (to look at a particular problem or issue) or they may be
permanent groups who manage a particular aspect of business activity.
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Forward integration
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Forward integration is the integration
(or merger) of one firm with another firm that is at a later stage in the
chain of production. An example could be a brewery taking over a chain of
pubs and clubs.
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Four P's
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The four P's are often referred to as the
marketing mix. They are the four elements of a marketing strategy that a
firm must ensure they meet if they are to meet their customer needs. The
four P's are product, price, promotion and place (distribution).
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Franchise
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A franchise is a type of business
organisation where the owner buys into an existing business idea but they
keep control over the business. For the right to use the business name,
idea and products they will pay a franchise fee and they may have to buy
their products from the franchisor or pay a royalty. Examples of franchises
include the Body Shop, Dyno-Rod, McDonalds, the Holiday Inn and Mailboxes
etc. However, there are many other examples and franchising has grown much
more popular as a method of business start-up over the last decade.
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Franchising
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A franchise is a type of business
organisation where the owner buys into an existing business idea but they
keep control over the business. Franchising is therefore the process of
expanding your business by offering business franchises. For the right to
use your business name, idea and products the franchisee will pay a
franchise fee and usually a royalty.
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Free float
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The float is the amount of time that an
activity in a process could be delayed without affecting the total amount
of time that the process will take. It is usually calculated from a network
diagram. The free float is calculated by subtracting the earliest starting
time (EST) at the start of the task and the duration from the EST at the
end of the task.
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Free market economy
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A free market economy is a type of
economic system for allocating resources where markets are used to allocate
resources through the price mechanism. Supply and demand set a market price
in each market. If a good is relatively scarce the price will be high and
this will have the effect of ensuring that the scarce resources are
effectively allocated.
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Frictional unemployment
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Frictional unemployment is sometimes
called transitional unemployment and occurs when unemployed workers are
temporarily without a paid occupation while moving from one job to another.
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Fringe benefits
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Fringe benefits are payments to workers
other than wages and salaries. They may include things like subsidised
meals, free transport loans, private health insurance and so on.
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Full capacity
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Full capacity is the maximum that can be
produced by an economy with the existing level of resources.
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Full cost pricing
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Full cost pricing is a method that
businesses use to determine their prices where the fixed costs are
allocated between all the products that are sold. For example to decide how
much of the cost of the rent to include in the price of each different
product they make, a firm may simply allocate the rent according to the
percentage of total sales that each product accounts for.
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G
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Gearing ratio
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The gearing ratio measures the percentage
of capital employed that is financed by debt and long term finance. The
higher the gearing ratio, the higher the dependence on borrowings and long
term financing. A high gearing ratio will also mean that the firm incurs
higher debt servicing costs and is much more exposed to changes in interest
rates. The lower the gearing ratio, the higher the dependence on internal
shareholder funds and the less exposed the firm may be to fluctuations in
interest rates.
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Globalisation
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Globalisation is the process whereby
trade is now being conducted on ever widening geographical boundaries.
Countries now trade across continents and companies also trade all over the
world.
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Going concern
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This concept is the underlying assumption
that any accountant makes when he prepares a set of accounts. The going
concern assumption is that the business being looked at will remain in
existence for the foreseeable future.
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Goodwill
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Goodwill is an intangible asset. It is
the amount by which the value of the firm exceeds the value of the net
assets held by the firm. In other words it is the value of the firm's
reputation and customer base and it will need to be taken into account as
part of the price if a business is sold.
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Government expenditure
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Government spending is spending by
central government and local authorities on the provision of goods and
services, transfer payments and debt repayments. It is also called public
expenditure.
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Government intervention
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Government intervention is when the
government intervenes in a particular market. This may mean the
introduction of price controls (for example, rent controls) or it may mean
the government setting rules and regulations in the market to try to alter
the market outcome. They may do this if they consider that the outcome of
the market being left to its own devices is not the most desirable one for
society.
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Government policies
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Government policies are measures that the
government puts in place to try to improve the workings of the economy. The
main types of policies are fiscal policy (the manipulation of tax and
government expenditure), monetary policy (adjustments in interest rates)
and supply-side policy (policies aimed at improving the level of aggregate
supply in the economy).
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Gross domestic product (GDP)
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Gross domestic product is a measure of
the total level of economic activity within the UK - in other words a
measure of national income. It is the total value of all goods and services
produced over a given time period (usually a year).
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Gross profit margin
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The gross profit margin shows the level
of gross profit as a percentage of sales (gross profit is the turnover less
the cost of sales). It is calculated by dividing the gross profit by the
level of sales and multiplying by 100 to get it as a percentage.
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Group decision making
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Group decision making is the process of
making regular business decisions through groups set up within the firm.
Much work has gone into studying group behaviour to try to ensure that
groups work as effectively as possible, thereby ensuring that the optimum
decisions are made.
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H
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Handy
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Charles Handy is an influential
management thinker and has written extensively. He argued that any
definition of a manager is likely to be too broad to be of any value and so
he looked at what is involved in being a manager. He considered managerial
dilemmas, the role of a manager in keeping business healthy and the manager
as a person.
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Hawthorne effect
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The Hawthorne effect was identified from
a series of studies carried out at the Hawthorne Plant of the Western
Electric Company in Chicago between 1927 and 1932. The studies noticed that
whatever changes were made in the working conditions over the five years
(including a return to the original conditions), output always rose. They
therefore concluded that the increases in output were simply due to the
team working together better and not related to changes in working conditions
- it is this that is termed as the 'Hawthorne effect'.
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Headline rate of inflation
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The headline rate of inflation is the
principal measure for inflation in the UK. It is the rate of inflation
unadjusted for any factors that may distort the value. The headline figure
is measured by the Retail Price Index (RPI).
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Health and safety
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Health and safety is the process of
ensuring that the working environment within a firm is both a healthy and a
safe one. This will include looking at a wide range of factors including
for example, the safety of the substances being used, the temperatures
employees have to work in, the procedures used in production, the
protection offered when using potentially dangerous equipment and so on.
There is extensive legislation to ensure that companies meet required
health and safety standards.
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Hedging
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Hedging is the process of protecting
oneself against risk. For example, a company who owes money to an overseas
company may want to hedge against the risk that the exchange rate moves
against them.
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Herzberg
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Frederick Herzberg looked at the factors
that affect people's motivation to work. He identified a two-factor theory
that suggested that motivation depends on two causes or factors. The first
category is 'motivators'. These are things that give workers job
satisfaction. Increasing these 'motivators' should therefore improve
productivity. The other category was 'hygiene factors'. These are factors
that lead to people being dissatisfied and firms should aim to minimise
these.
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Hierarchy
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The hierarchy of a firm is the
organisational structure of the firm from top to bottom into different
levels of management. A tall hierarchy is one with a lot of levels of
management, while a flat hierarchy is one with few levels of management.
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Holding company
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A holding company is a company that owns
and therefore controls other companies. The other companies are
subsidiaries of the holding company. Many multinationals are organised as a
holing company owning a wide range of subsidiaries in different countries.
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Horizontal communication
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Communication within a firm can be along
different routes or channels. Horizontal communication is communication
between different departments of the firm. It is also known often as
lateral communication.
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Horizontal integration
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Horizontal integration is when two
companies in the same industry and at the same stage in the chain of
production merge. For example, a merger between two breweries. It is also
known as a horizontal merger.
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Horizontal merger
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A horizontal merger is when two companies
in the same industry and at the same stage in the chain of production
merge. For example, a merger between two breweries. It is also known as
horizontal integration.
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Human capital
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Human capital is the skill, knowledge and
expertise of workers. Training and education are aimed at improving the
quality of human capital as this is one of the key factors of production.
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Human resource management
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Human resource management is the process
of managing the personnel of the firm. It is the management of all aspects
of employment within the firm to ensure that the firm meets its objectives.
Human resource management will include among other things recruitment and
training, conditions of employment, motivation, wage bargaining and
manpower planning.
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Hygiene factors
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Hygiene factors were identified by
Frederick Herzberg as factors that can lead to workers being dissatisfied.
He argued that to improve worker's motivation, firms needed to improve
these hygiene factors. Hygiene factors may include pay and conditions,
company policy or the way people are treated at work.
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I
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Import controls
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Import controls are controls that a
government put on to limit the volume of imports entering a country. They
may include tariffs, quotas or perhaps even embargos on certain goods.
Import controls are a form of protectionism.
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Import prices
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Import prices are the prices of goods
imported into a country. When compared with export prices they give the
terms of trade of a country.
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Import restrictions
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Import restrictions are restraints that a
government may impose to limit the volume of imports entering a country.
They may include tariffs, quotas or perhaps even embargos on certain goods.
Import restrictions are a form of protectionism.
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Imports
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Imports are goods or services that have
been bought from overseas. They could also include the purchase of capital
overseas. Imports result in an outflow of money from the country and are
considered a debit on the balance of payments accounts.
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Income elasticity of demand
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The income elasticity of demand is a
measure of the responsiveness of demand to a change in income. It is an
important piece of information to a firm as it helps them to predict how
much the demand for their product will grow as the economy grows. If a good
is income elastic, then demand will rise proportionately more than the
level of income rises.
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Income tax
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Income tax is one of the main taxes in
the UK. It is a tax levied by the government on wages, rent, interest and
dividends. It is a direct tax and is progressive in nature as higher
incomes attract higher rates of income tax.
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Index numbers
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Index numbers are a form of numbers used
for expressing average changes in a number of different variables. They are
expressed in terms of a base year value of 100. For instance if the value
changes from 100 to 120 this means that the variable measured by the index
has increased by 20%.
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Indirect taxation
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Indirect taxation is taxation on
expenditure. Indirect taxation is therefore an addition to the price
imposed on the sale of goods and services by the government. Examples of
indirect taxes in the UK include VAT and taxes on alcohol, tobacco and
petrol.
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Induction
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Induction is a programme to help a new
employee settle quickly and efficiently into their job. It may include
introductions to key personnel, tours around the workplace, information
about company systems and policy and information on their post and
responsibilities.
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Industrial action
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Industrial action may occur when there is
a dispute that cannot be easily resolved between the firm and group of
their employees. Industrial action may be taken by either employers' or
employees' and is action in support of their claim. Industrial action by
employees may include strikes or other stoppages, working to rule, overtime
bans or perhaps even sit-ins.
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Industrial inertia
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Industrial inertia is when a firm remains
in its original location even after the initial advantage that led to them
locating there has disappeared.
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Industrial location
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Industrial location is the way in which
industries are located geographically.
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Industrial relations
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Industrial relations are relations
between employers and employees. Generally this will be the relations
between a union or other group representing the workers at the firm and the
management of the firm.
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Industrial tribunal
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An industrial tribunal is an independent
body which an employee can appeal to if they feel that they have been
unfairly dismissed. The tribunal will hear the cases of both the employer
and employee and then make a decision which all parties are legally bound
by. The tribunal has the power to demand the reinstatement of an employee
or the payment of compensation to them.
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Inelastic
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Inelastic means that one variable is
unresponsive to changes in another. For example, if a good is price
inelastic it means demand will change proportionately by less than the
change in price that caused it.
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Inflation
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Inflation is a rise in the general price
level. This means that the value of money has fallen. In other words it is
the rate at which prices are increasing. It can be measured in various
ways, but the most common measure is the Retail Price Index (RPI).
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Informal groups
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Informal groups are groups within a
business that are made up of people with similar interests. They are not a
formal part of the business organisation but arise from people having a
similar interest in discussing issues.
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Informative advertising
|
Informative advertising is advertising
which emphasises facts and factual information about a product. It is aimed
at giving consumers information about the product in order to influence
their decision about whether to purchase.
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Infrastructure
|
The infrastructure of an economy is the
basic underlying networks necessary to support economic activity. This
includes roads, bridges, ports, sewers, hospitals and schools.
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Innovation
|
Innovation is the process of introducing
new ideas that may affect products or the way in which they are made. It
can also be considered as the commercial exploitation of a new invention.
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Inorganic growth
|
When a company grows, the growth may be
either organic or inorganic. Organic growth means that the company itself
has grown from its own business activity, while inorganic growth means that
the company has grown by merger or take-over.
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Insolvency
|
Insolvency is where a company does not
have sufficient assets to meet its liabilities. A firms 'capital' is equal
to its total assets minus its total liabilities. Where this figure is
negative, the firm is insolvent.
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Intangible assets
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Intangible assets are a form of fixed
asset. They are assets that are not physical assets and so will include
assets like goodwill (the value of the firm's reputation and customer
base), the value of a firm's brand and investments.
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Integration
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Integration is the process of two firms
combining. Integration is either horizontal integration (firms at the same
stage of production), vertical (firms at different stages of production) or
conglomerate integration (unrelated firms).
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Intellectual assets
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Intellectual assets are a form of
intangible asset. They are things like the abilities of individuals, the
brands that a company owns and any other asset that is not immediately
measurable or tangible.
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Interest
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Interest is the reward received for the
investment of money. In the case of borrowing it is an amount paid to a
lender over and above the original sum borrowed.
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Interest cover
|
The interest cover ratio is a measure of
how easily the firm can meet the interest payments on any debts that they
have. It is calculated by dividing the profit before tax and interest by
the amount of interest paid. A figure of one would therefore mean that the
firm would need to use all its profit to pay their interest. The lower the
figure the more easily the firm can cover their interest payments.
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Interest rates
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Interest is the reward for giving up use
of money and is an amount paid to a lender over and above the original sum
borrowed. The rate is expressed as a % per annum. The rate of interest can
be thought of as the price of money.
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Internal constraints
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Internal constraints are limits that are
placed on the behaviour of a firm by their rules, regulations and policies.
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Internal growth
|
Internal growth is where a firm gets
larger from expanding by using its own resources. This is often known as
organic growth.
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Internal rate of return
|
The internal rate of return is the rate
of return of an investment project where the net present value is zero.
This rate is arrived at by discounting future returns from the investment
to give their present value and then seeing which discount rate gives a net
present value of the returns of zero. This rate is called the internal rate
of return and can then be compared with the current market rate of interest
to see how worthwhile the project is.
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Internal recruitment
|
Internal recruitment is the process of
recruiting personnel to posts from within the company. It is often argued
that this approach works well as it will maintain the commitment of
employees to the company.
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International marketing
|
International marketing is the process of
marketing a firm's goods and services in other countries. It cane be
difficult for firms as they may need to take account of political
differences, cultural differences, different business practices and
different legislation. This means that international markets will often
need a different marketing mix to the domestic market.
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International trade
|
International trade is the process of
exchanging goods and services between countries. It involves the buying and
selling of imports and exports.
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Intervention
|
Intervention is any form of government
interference with the market mechanism to try to influence the market
outcome. An example of intervention is the government establishment of
regulatory bodies to influence the market outcome in various markets (for
example, the National Lottery regulator).
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Investment
|
Investment is the purchase of capital
equipment that firms need to enable them to produce. It may include
machinery, equipment and vehicles. Investment is important if firms are to
retain a competitive advantage.
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Investment appraisal
|
Investment appraisal is the process of
assessing potential investment projects to see which ones are most viable
(and profitable) for the firm. There are a range of techniques they may use
to assess investments and these include the payback method, the average
rate of return, discounted cash flow and the internal rate of return.
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Inward investment
|
Inward investment is money flowing into a
country to be invested there that has come from other countries. e.g. a
Japanese company building a factory in South Wales.
|
|
|
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J
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Job description
|
The preparation of a job description is
an important part of the recruitment process. A job description gives
details of what the job entails and explains the basic roles and
responsibilities of the job. It will usually be made available to
applicants for a job, but is also then used once a person is appointed to
let them know their roles and responsibilities.
|
Job enlargement
|
Job enlargement is the process of giving
an employee more work of a similar nature to do. It will often mean them
carrying out a larger proportion of the production process for the product
and is often argued to be a way to increase the job satisfaction of
workers.
|
Job enrichment
|
Job enrichment is the process of giving a
person more responsibility for the work they are carrying out. This will
often mean the 'vertical' extension of their role to give them further
responsibilities for more areas. For example, as well as carrying out a
task they may also be given responsibility for the planning, quality
control and other areas. It is argued that job enrichment will increase
worker satisfaction.
|
Job production
|
Job production is a production method
where just one item at a time is made and is usually used where the product
is a one-off product or perhaps unique to each customer.
|
Job rotation
|
Job rotation is the process of changing
the roles or tasks that employees carry out from time to time. This is
often done to help avoid dissatisfaction among workers who may become demotivated
by carrying out one task for too long a period of time.
|
Job specification
|
A job specification looks at all the
skills and knowledge required by an employee to carry out their role. It
therefore gives a profile of the sort of person required for a particular
post. It will set out the essential and desirable skills, the personal
characteristics and any qualifications required. It is also sometimes known
as a personal specification.
|
Joint demand
|
Goods in joint demand are goods which are
used together i.e. complements like CDs and CD players are in joint demand.
|
Joint supply
|
Goods in joint supply are goods that are
produced together. Many goods in joint supply are likely to be by products
from manufacture.
|
Joint venture
|
A joint venture is where two companies
get together to carry out a business venture together. They will share the
costs, responsibility and profits from the venture but they remain as
separate firms.
|
Just-in-time
|
Just-in-time is a system which operates
on the scheduling of stocks in a precise, co-ordinated way, so minimising
the quantity needed to be held. Stocks are only ordered a short time period
before they are needed for the actual production of the final good. This
technique helps to minimise stocks and therefore reduce the costs of
holding stocks. Just-in-time production requires a close relationship with
suppliers to ensure that stocks are available exactly when they are needed.
|
|
|
|
K
|
Kanban
|
Kanban is an approach to production which
uses just in time stock control to 'pull' stocks to production when they
are required and is based on establishing very close relationships with
suppliers. The focus of decision-making is strongly market orientated under
a Kanban approach.
|
Known price item
|
A known price item is a good whose price
is widely known by consumers. Known price items are usually priced very
competitively to attract customers.
|
|
|
|
L
|
Labour force
|
The national labour force is all those
who are employed or are available for work. It is made up of the employed,
the self employed and the unemployed. The term may also be used to refer to
all the workers in a particular company.
|
Labour intensive
|
Labour intensive is a form of production
that uses a high proportion of labour to capital in the production process.
|
Labour market
|
The labour market is where labour is
bought and sold. People supply their labour and it is in turn demanded by
firms. The wage rate is determined in the labour market by the interaction
of demand and supply.
|
Labour turnover
|
Labour turnover is a measure of how many
people leave a business over a given period of time. Rather than just look at
the 'absolute' figure, the labour turnover would usually be expressed as a
percentage of the total labour force. Firms try to avoid high labour
turnover as it can adversely affect productivity and employee motivation.
|
Laissez faire
|
The term 'laissez-faire' is used to
describe an economic system where the government intervene as little as
possible and leave the private sector to organise most economic activity
through markets.
|
Laissez faire leadership
|
Laissez-faire leadership is a style of
leadership where people are left to make decisions and carry out their
tasks much more independently than under other leadership styles. Employees
are given a greater degree of freedom in their roles.
|
Lateral integration
|
Lateral integration is the merger of two firms
who sell related goods or services but the firms do not compete directly
with each other.
|
Latest finishing time
|
The latest finishing time (LFT) is
identified when using critical path analysis (or network path analysis) to
see the most efficient way to carry out a series of tasks. The LFT shows
the latest time (in hours or days) that a task can be finished without
delaying the next task in the process.
|
Lead time
|
The lead time is the time taken between
an order and the delivery of the goods.
|
Leading edge
|
Being at the leading edge means being
right at the forefront of developments in your profession, job, market etc.
|
Lean production
|
Lean production refers to a production
technique (originally used in Japanese manufacturing companies) where production
methods are streamlined as much as possible. The aim is to cut costs by
reducing waste and improving quality.
|
Leasing
|
Leasing is the process of getting hold of
equipment without buying it outright. The equipment is leased (or
effectively rented) from the leasing company for a period of time for a
fee. Leasing will often also have an option to buy at the end of the
leasing period.
|
Liabilities
|
Liabilities are items which are
potentially owed to someone. Firms may have current liabilities (liabilities
that need to be repaid within a year) or long-term liabilities (liabilities
that need to be repaid in over a year).
|
Limit pricing
|
Limit pricing is a situation where a firm
sets price just low enough to discourage possible new entrants. It will act
as a barrier to entry to new firms.
|
Limited companies
|
Limited companies are companies owned by
shareholders who have limited liability. This means that if they were to go
into liquidation the value of their liability is limited to the nominal
value of the shares. In other words the owners are not personally
responsible for the debts of the company. There are private limited and
public limited companies.
|
Limited company
|
Limited companies are companies owned by
shareholders who have limited liability. This means that if they were to go
into liquidation the value of their liability is limited to the nominal
value of the shares. In other words the owners are not personally
responsible for the debts of the company. There are private limited and
public limited companies.
|
Limited liability
|
Limited liability means that any
shareholders' loss is limited to the amount of capital they have invested
in a company. Limited and public limited companies both enjoy limited
liability but sole traders and partnerships have unlimited liability.
|
Linked processes
|
Linked processes is where different but
related stages of production are combined together to make a product.
|
Liquid assets
|
Liquid assets are assets which can
readily or easily be converted into cash. The more liquid an asset, the
easier it is to turn it into cash. For example, a bank deposit is highly
liquid as it can almost instantly be cashed whereas stocks of raw materials
are much less liquid as they are likely to be more difficult to convert
into cash.
|
Liquidation
|
Liquidation is the process of winding-up
a company when it is insolvent. It may be either voluntary (where the
company has realised that it is unable to continue) or compulsory (where
creditors of the company have acted to try to recoup their money).
Liquidation means gathering together all the assets of the company and
selling them to realise as much as possible for those who are owed money by
the firm.
|
Liquidity
|
Liquidity refers how easily an asset such
as money in the bank or shares can be turned into cash. Liquid assets are
therefore ones that can quickly be converted to cash.
|
Living standards
|
Living standards are the quality of
peoples lives. Living standards will depend on the level of incomes as well
as other measures like the number of doctors, nurses, teachers and so on.
|
Loan capital
|
Loan capital is money that a business has
borrowed for a lengthy period of time to fund expansion and development of
the business. It is shown on the balance sheet as a part of the capital
employed. The proportion of loan capital to other capital is known as the
gearing ratio. A high proportion of loan capital means high interest
payments.
|
Lobbying
|
Lobbying is when organisations try to
persuade decision makers (often government) that their view or product or
organisation should be supported. Many firms spend considerable amounts of
money on lobbying government for changes in laws and regulations.
|
Local authorities
|
Local authorities are local government
groups responsible for managing areas of the country. They have
responsibility for social services, local facilities, local roads and other
local services (police and education).
|
Location
|
The location of a firm is where it is
geographically sited. Where a firm locates will depend on the nature of its
business, the nature of the product, the need for raw materials and a wide
range of other factors.
|
Logo
|
A logo is a symbol or other recognisable
form that allows others to recognise your company, its products, premises
etc.
|
Long run
|
The long run is the period of time when
all factor inputs, including capital, can be changed.
|
Long run average cost curve
|
The long run average cost (LRAC) curve
shows the minimum unit cost of producing each level of output. The shape of
the long run average cost curve will depend on the existence of economies
and diseconomies of scale. If there are economies of scale then the LRAC
curve will slope downwards (falling unit costs), whereas if there are
diseconomies of scale the LRAC curve will slope upwards (rising unit
costs).
|
Long term liabilities
|
Long-term liabilities are liabilities
that are due for repayment in more than a year. They may include loans,
debentures and other forms of loan capital.
|
Long term liquidity ratios
|
Long term liquidity ratios assess the
performance of the capital that has been invested in the company for a
longer period of time. They include the Gearing and Interest Cover ratios
and measure the extent to which the capital employed in the business has
been funded from loan capital and how easily the firm can cover the
interest payments.
|
Loss leader
|
A loss leader is a good that is sold at a
low price (often below cost) to attract customers. The firm then hopes that
those customers will make other purchases of goods where the profit margin
is a positive one.
|
|
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M
|
Macroeconomic policies
|
Macroeconomic policies are policies
designed to influence the principal macroeconomic targets. These include
the level of employment, the price level, economic growth and the balance
of payments. Macroeconomic policies include fiscal and monetary policy.
|
Macroeconomics
|
Macroeconomics is the study of the whole
economy or large sectors of the economy. It is therefore concerned with
issues like unemployment, inflation and economic growth.
|
Major player
|
A major player is one of the largest
market-share holders in a particular market. They will have a significant
proportion of the market when compared to other firms.
|
Management
|
Management is the process of organising
resources. This may involve planning, organising and co-ordinating of all
the resources available for a particular task.
|
Management accounting
|
Management accounting is the preparation
of financial statements and other data for managers to support them in the
decision-making process. Management accounts are internal documents and
simply used for information purposes within the firm. They are prepared
much more frequently (often monthly) than published accounts to ensure that
managers always have right up to date information.
|
Management buy-out
|
A management buy-out is when a group of managers
in the firm become the firm's owners by buying all the shares in the
company from the existing shareholders. This tends to happen more
frequently with relatively smaller companies.
|
Margin of safety
|
The margin of safety is the difference
between the current level of output of the firm and the break-even level of
output. The further output is above the break-even level, the higher the
margin of safety.
|
Marginal cost
|
The marginal cost is the cost of
producing one extra unit. It is the increase in total cost when one more
unit is produced. For example, if cost increases from £200 to £225 when
one more unit is produced, then the marginal cost is £25.
|
Marginal cost curve
|
The marginal cost curve is a curve
showing the increase in total cost that occurs when one more unit is
produced. The marginal cost curve will generally be u-shaped due to
increasing and diminishing returns.
|
Marginal cost pricing
|
Marginal cost pricing is a pricing method
where price is determined by reference to the level of marginal cost.
|
Marginal rate of tax
|
The marginal rate of tax is the rate of
tax paid on the next pound earned. In the case of income tax this will
increase as a person moves from one tax band to another and at any time
will depend on how much the person is earning.
|
Mark up
|
The mark up is the amount that is added
to the cost of a good or service to get to the price. It is the profit
margin on a good or service.
|
Mark up pricing
|
Mark up pricing is where price is set by
adding a percentage onto costs. For example, if the mark up is 30% and the
cost of producing the good is £50, then the price charged will be £65.
|
Market concentration
|
Market concentration is a measure of how
competitive a market may be. It measures the market share of the largest firms
in the industry. For example, a 3 firm market concentration ratio of 65%
indicates that the largest three firms in the market have 65% market share.
This indicates an oligopolistic market.
|
Market economy
|
A market economy is an economy where
markets are used to allocate resources through demand and supply and the
price mechanism. The level of income received by people depends upon the
value of the resources they own.
|
Market leadership
|
Market leadership happens where a firm
has the largest share of the market. This often results in the other
companies in the market watching carefully the actions of the market leader
and following them closely to ensure they do not get left behind.
|
Market orientated
|
A firm that is market oriented is one
which focuses closely on the needs of the customer before making decisions
regarding the product, pricing strategy and promotion.
|
Market orientation
|
Market orientation normally refers to the
process of decision-making within an organisation and means that the business
will focus on the needs of the customer before making decisions regarding
the product, pricing strategy and promotion.
|
Market penetration
|
Market penetration is a strategy where a
firm reduces price to try to sell a large volume of their product and
increase their market share.
|
Market research
|
Market research is the process of
collecting and analysing data about a market to help inform the firm when
they are preparing their marketing strategy. The data may be collected
through desk research (using secondary data) or field research (gathering
of primary data).
|
Market segment
|
A market segment is a particular group or
sub-group of consumers within a market who have similar characteristics. By
analysing the various segments in a market, the firm is able to target
their marketing more effectively.
|
Market segmentation
|
Market segmentation is the process of
breaking a market down into segments, each of which reflects different
customer preferences. By analysing the various segments in a market, the firm
is able to target their marketing more effectively and if necessary develop
differentiated products for the different segments.
|
Market share
|
Market share is the proportion of total
sales in a market accounted for by a particular brand or firm.
|
Market stagnation
|
Market stagnation is where a market fails
to grow or grows very slowly.
|
Market structure
|
Market structure refers to the number and
type of firms in a particular industry. Economists identify a number of
possible market structures including perfect competition, monopolistic
competition, oligopoly and monopoly.
|
Marketing economies of scale
|
An economy of scale is where the average
cost of production falls as production increases. Marketing economies of
scale occur when larger firms are able to lower the unit cost of
advertising and promotion perhaps through access to more effective
marketing media.
|
Marketing mix
|
The marketing mix is the balance of
marketing techniques required for selling the product. It's components are
often known as the four P's. The first is PRICE - the price of the product.
The second is PRODUCT - the nature of the product itself. The third is
PROMOTION - the promotional methods used to sell the product and the fourth
is PLACE - the distribution of the product.
|
Maslow
|
Abraham Maslow classified the needs of
employees of a firm into a series of levels - a hierarchy of needs. To
progress to the next level in the hierarchy, the employee has to satisfy
the current level of needs. At the bottom of the hierarchy are physiological
needs (basic survival needs) followed by safety needs, love and belonging
needs, esteem needs and at the top of the hierarchy self-actualisation
needs.
|
Matrix structure
|
A matrix structure is a form of
organisation within a firm where people are grouped into teams (project
teams) each with different areas of responsibility. These groups
communicate between each other on the same level as necessary to gather
information and discuss ideas.
|
Maximum price
|
A maximum price is an upper limit in a market
set by a government or other agency above which the price charged is not
allowed to rise. The effect of this will generally be to create excess
demand in a market if the maximum is set below the current equilibrium
price.
|
McClelland
|
David McClelland argued that there are
three basic needs that need to be satisfied and these are based on
behaviours that are learned at an early age. The three needs are the need
for achievement, affiliation and the need for power. Businesses need to
know how these needs affect people and allocate work and roles accordingly.
|
McGregor
|
Douglas McGregor looked at the reasons
why people work and tried to develop applications of the work of theorists
like Maslow to a business. He suggested the categories theory X and theory
Y to explain the different reasons why people work. Theory X workers are
essentially motivated by money, lazy and dislike work and need to be
carefully controlled by management. Theory Y workers, by contrast, can
enjoy work if well motivated and will show creativity and take
responsibility if circumstances allow this.
|
Means tested
|
Means-testing is the process of looking
at a person's income and wealth to see if they are entitled to something.
Many state benefits are means-tested, so that people will only get the
benefits if their income and assets are below a certain level.
|
Memorandum of association
|
A Memorandum of Association is one of two
legal documents that are required when setting up a limited company. The
Memorandum sets out the constitution of the firm and gives various details
about the firm including the company name and registered office.
|
Mergers
|
A merger is when two firms agree to join
together to form a new company. It is often referred to as integration of
the two firms and one of the motives is often to enable faster growth and
to benefit from economies of scale.
|
Micro-environment
|
The micro-environment is the immediate
environment in which an individual or company works.
|
Microeconomic policies
|
Microeconomic policies are policies
designed to improve the efficiency of individual markets and therefore get
a better allocation of resources. They are also known as supply-side
policies.
|
Microeconomics
|
Microeconomics studies the behaviour of
an individual consumer, firm and industry. It looks at individual markets
and what determines the behaviour of those markets.
|
Minimum efficient scale
|
The minimum efficient plant size is
smallest size of plant needed to minimise unit cost. It is the lowest
output level at which average cost can be minimised.
|
Minimum price
|
A minimum price is a price floor set by a
government or other agency below which the price charged is not permitted
to fall. An example of a minimum price is a minimum wage which is a limit
on the price in the labour market. Minimum prices will generally lead to an
excess supply of the good or service as more people will want to supply the
good because of the higher price, but fewer people will demand the good.
|
Minimum wage
|
A minimum wage is lower wage limit set by
a government below which the wage paid cannot fall. It is a form of minimum
price and it has been argued that it may cause unemployment as there will
be an excess supply of labour at the minimum wage. A National Minimum Wage
was introduced in the UK with effect from 1999.
|
Mintzberg
|
Henry Mintzberg argued that a manager in
a firm needs to carry out certain roles. He identified three min roles and
these are interpersonal roles, information roles and decision-making roles.
|
Mission Statement
|
A Mission Statement is a formal statement
that focuses on the major objectives and values a company holds and what
they are aiming to achieve.
|
Mixed economy
|
A mixed economy is a society where some
resources are owned by both private individuals and some by the government.
It is the most common form of organisation of an economy though mixed
economies vary to the extent to which the government intervene in the
economy.
|
Monetary policy
|
Monetary policy is the use of changes in
the supply of money and interest rates to achieve economic policy targets.
Monetary policy can either be expansionary (reducing interest rates) to
boost the economy or deflationary (increasing interest rates) to lower the
rate of economic growth.
|
Monetary Policy Committee (MPC)
|
The Monetary Policy Committee is a
committee of the Bank of England chaired by the Governor that meets monthly
to set the level of interest rates in the economy. They set interest rates
according to the targets they have been set for inflation (currently 2.5%).
|
Money national income
|
Money national income refers to national
income measured in nominal terms. This means the actual money level of
income without any adjustment for inflation. After inflation has been taken
into account it would be called the 'real' level of income.
|
Monopolistic competition
|
An industry in monopolistic competition
is an industry made up of a large number of small firms who produce goods
which are only slightly different from that of all other sellers. It is
similar to perfect competition with freedom of entry and exit for firms but
goods that are differentiated.
|
Monopoly
|
A monopoly is a firm that dominates the
market and in the case of a pure monopoly has a 100% market share (produces
the entire output of the industry). A monopolist will have a high degree of
market power and therefore the ability to 'set' prices (within the
constraints of demand in the market).
|
Monopoly profits
|
Monopoly profits are supernormal profits
earned by monopolies. They are often called abnormal profits.
|
Multi-skilling
|
Multi-skilling is ensuring that
individuals are able to undertake a range of tasks. This will require
education and training to ensure that the workers are flexible.
|
Multinational
|
A multinational is a large company owning
subsidiaries and producing in a number of countries.
|
Multinational corporation (MNC)
|
A multinational corporation is a large
company owning subsidiaries and producing in a number of countries.
|
|
|
|
N
|
National income
|
National income is the total value of
goods and services created by a country in one year. GDP and GNP are both
measures of national income.
|
Natural advantages
|
Natural advantages are the benefits of a
location which occur naturally. These may be a factor that determine the
geographical location of a firm.
|
Natural resources
|
Natural resources are resources that are
not man-made. These will include minerals and other naturally occurring raw
materials.
|
Negotiation
|
Negotiation is the process of discussion
and debate between different groups to agree an outcome. Negotiation is
generally used as part of the collective bargaining process to determine
wages where negotiation usually takes place between unions (as
representatives of the employees) and employers.
|
Net assets
|
The net assets figure for a firm is the
difference between total assets and current liabilities. This figure is
shown on the balance sheet and will balance with the capital employed.
|
Net current assets
|
Net current assets is the working capital
of the business and is the difference between current assets and current
liabilities. The figure shows the funds available for a business to meet
their immediate expenditure needs. It is vital for a business to have
sufficient net assets to fund their day to day business activities.
|
Net present value
|
The net present value is used in
investment appraisal to try to establish the value of future returns of
income and expenditure. Future incomes will be less valuable now and so
they are discounted (using a discount rate) to give their current value.
The net present value is the value today of future incomes less any costs.
|
Net profit margin
|
The net profit margin measures net profit
as a percentage of the sales that generated it. It is calculated by
dividing the net profit by the turnover and multiplying by 100 to get the
figure as a percentage. A net profit margin of 15% means that for every
£100 of goods sold the firm will make a net profit of £15.
|
Network analysis
|
Network (or critical path) analysis is a
tool used by business to help with decision making. It is generally used
where a product requires the completion of a series of tasks, many of which
are interdependent (depend on each other). To help with finding the best
combination of the tasks, the firm can construct a network. The network
shows each of the tasks as a 'node' and the earliest start time and latest
finishing time of each task are calculated. From the network the critical
path (the optimum route with no delays) can be identified.
|
Niche market
|
A niche market is a specialist area of
the market. Niche markets are therefore normally small segments of a
market. Suppliers are likely to face less competition when they initially
enter such a market.
|
Niche marketing
|
Niche marketing is the process of
marketing a good or service in a niche market. A niche market is a
specialist area of the market or small segment of a market and may require
a very different approach to marketing from marketing in a mass market.
|
Nodes
|
A node is a part of a network that is
being used to help decision making. The node shows the node number (which
identifies the task being carried out), the earliest starting time of the
task and the latest finishing time. Once all the nodes in the network have
been identified, the firm can find the critical path through the nodes -
that is the optimum route with no delays.
|
Nominal national income
|
Nominal national income is the value of
output at current prices. In other words it is national income valued at
the prices existing at the time and not adjusted for inflation. Once
adjusted for inflation it would be described as 'real national income'.
|
Nominal rate of interest
|
The nominal rate of interest is the
actual current rate of interest expressed as a percentage without taking
any account of the rate of inflation. If the rate of inflation is
subtracted from the nominal rate of interest, this is then called the 'real
rate of interest'.
|
Non-price competition
|
Non-price competition is competition
between firms using methods other than price reductions. Examples include
advertising, free gifts, quality, reliability and so on.
|
Non-renewable resources
|
Non-renewable resources are resources
which are finite and cannot be replaced. Minerals, fossil fuels and so on
are all non-renewable resources.
|
Non-wage
benefits
|
Non-wage benefits are benefits received
from working that are received in a form other than money. These may
include for example fringe benefits, free uniform, free travel to work and
so on.
|
Normal profits
|
Normal profit is the level of profit that
is required for a firm to keep the resources they are using in their current
use. In other words it is enough profit to keep them in the industry.
Anything in excess of normal profits is called abnormal or supernormal
profit.
|
Not for profit
|
A not for profit organisation is any
organisation that does not seek to make a surplus. It usually refers to
charities and similar organisations that have aims other than profit
making.
|
|
|
|
O
|
Oligopoly
|
Oligopoly is a market structure where a
market has just a few firms. Each of the firms will account for a large
proportion of output. In an oligopolistic market there will tend to be a high
degree of interdependence between the firms as they will watch carefully
what each other are doing.
|
Operating profit
|
Operating profit is the profit (or
surplus) that the firm has made after overheads (indirect costs) have been
deducted from the gross profit. So, to get the operating profit you need to
deduct the cost of sales from the turnover (giving the gross profit) and
then deduct the level of overheads. The resulting surplus is the operating
profit.
|
Opportunity cost
|
The opportunity cost is the cost that
results from making a choice. The opportunity cost is the value of the next
best alternative foregone. The economic problem of scarcity means that we
have to make choices and those choices result in an opportunity cost.
|
Ordinary share
|
An ordinary share is the most common type
of share issued in a firm. Ordinary shareholders have voting rights in the
firm and the dividend they receive depends on the profits made by the firm.
Ordinary shares are therefore the most risky type of investment as they
have no guaranteed return and may fluctuate significantly in value.
|
Organic growth
|
When a company grows, the growth may be
either organic or inorganic. Organic growth means that the company itself
has grown from its own business activity and its own resources, while
inorganic growth means that the company has grown by merger or take-over.
|
Organisational culture
|
The organisational culture of a business
is the shared values and ideals that are common throughout the
organisation. Management will try to create a positive organisational
culture as part of motivating their employees and ensuring the best level
of service for their customers.
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Output
|
Output is the production of goods and
services. In other words it is the goods and services produced as a result
of economic activity.
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Output per worker
|
Output per worker is the level of total
output divided by the number of workers employed. It is a measure of the
productivity of labour.
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Overheads
|
The overheads (or expenses, or indirect
costs) of a business are costs that are not attributed to any particular
part of the production process or any particular product produced. They
will include business expenses like rent, security costs, telephone,
administration and other office expenses.
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Overmanning
|
Overmanning means that more people are
employed than are needed to produce the current level of output. This will
mean higher unit costs than necessary for the firm.
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Overproduction
|
Overproduction is when production is
above the socially optimum level. This will often occur where the
production of a good results in negative externalities. These external
costs (e.g. pollution) will not be taken into account by the market and
this will mean that more of the good is produced than is socially
desirable.
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Overseas investment
|
Overseas investment is the purchase of
overseas financial and physical assets. This may mean the purchase of
shares overseas (portfolio investment) or it may mean the purchase of plant
and machinery overseas to enable a firm to produce overseas (direct
investment).
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Overtime
|
Overtime is work done over and above
standard working hours. It is generally paid at a higher rate than the
standard hours.
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Overtrading
|
Overtrading occurs when the business
expands rapidly without having sufficient working capital. In other words
they do not have sufficient funds to pay their day to day business expenses
and may well fail as a result.
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Ownership
|
The ownership of a firm depends on the
structure of the firm. A firm may be a sole trader owned by one individual,
or a partnership (owned by the partners in the business) or a private or
public limited company which is owned by the shareholders (depending on the
proportion of the shares they own).
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P
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Packaging
|
The packaging is the way in which a
product is presented and delivered to the consumer and generally will use
colour, shape, size and different materials to help market the product.
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Participation
|
Participation is the encouragement of
those not normally involved in a particular process or decision-making
system to be involved. Participation may be encouraged by empowering
employees to take more responsibility for their work and therefore become
more involved.
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Participation rate
|
The participation rate is the percentage
of the population of working age in the economy. Ageing populations (a situation
faced by many developed countries) lead to a lower participation rate.
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Partnership
|
A partnership is a firm owned by between
2-20 people who share the profits and usually have unlimited liability for
the debts of the firm. There is now also a new category of limited
liability partnership (llp) where the firm is still a partnership, but they
have limited liability for the debts of the firm as in the case of private
and public limited companies.
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Patent
|
A patent is a form of protection for the
inventor or originator of a product, idea or production process to prevent
other firms from copying it. To qualify for a patent the product must be
brand new and the patent must be registered with the UK Patent Office (for
an annual fee).
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Payback period
|
The payback period is a technique used in
investment appraisal to help assess whether an investment project may be
worthwhile. It is the amount of time taken for the original investment
outlay to be repaid by income from the investment.
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Penetration pricing
|
Penetration pricing is a strategy where a
firm reduces price to a relatively low level to try to sell a large volume
of their product and increase their market share.
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Perfect competition
|
Perfect competition is a market structure
made up of a large number of small firms, each selling homogeneous
(identical) products with a small market share to a large number of buyers.
Perfect competition also requires freedom of entry and exit for firms and
perfect knowledge amongst them.
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Performance ratios
|
Performance ratios re ratios that
consider how well the firm is performing in terms of profitability and
turnover. Performance ratios include the return on capital employed (ROCE)
(and the return on net assets (RONA)) and the gross and net profit margins.
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Performance related pay
|
Performance related pay is where incomes
are adjusted according to performance. Targets are usually set and
exceeding these targets can often result in a bonus.
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Person specification
|
A person specification looks at all the
skills and knowledge required by an employee to carry out their role. It
therefore gives a profile of the sort of person required for a particular
post. It will set out the essential and desirable skills, the personal
characteristics and any qualifications required. It is also sometimes known
as a job specification.
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Persuasive advertising
|
Persuasive advertising is advertising
that tries to persuade consumers to purchase a product. The adverts often
use images, humour or celebrities as a means of promoting the product.
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PEST analysis
|
PEST analysis is a tool used by
businesses to look at the external environment they face and issues that
may arise from the global marketplace they operate in. A PEST analysis
looks at how POLITICAL, ECONOMIC, SOCIAL and TECHNOLOGICAL factors may
affect the business. A PEST analysis is a useful tool for businesses to
help them formulate strategy and develop appropriate policies.
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PESTLE analysis
|
PESTLE analysis is a tool used by
businesses to look at the external environment they face and issues that
may arise from the global marketplace they operate in. A PESTLE analysis is
the same as a PEST analysis and looks at how POLITICAL, ECONOMIC, SOCIAL
and TECHNOLOGICAL factors may affect the business. It also looks at LEGAL
and ENVIRONMENTAL factors to see how these might affect the business in
addition to the PEST factors. A PESTLE analysis is a useful tool for
businesses to help them formulate strategy and develop appropriate
policies.
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Piece rate
|
Piece rate is a payment system where employees
are paid according to how much they produce. They are paid an amount per
unit produced, the argument being that this will motivate them to work
harder. However, the system has a number of disadvantages and is now used
much less widely.
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Place
|
Place is one of the Four P's of the
marketing mix and refers to the distribution of the product. It is the
process of getting the right goods to the right consumers at the right
time.
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Point of sale promotion
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Point of sale promotion is advertising or
promotion of the product at the point where the consumer is actually buying
the product. This is intended to influence the consumer into buying the
product while they are in an appropriate place to do so. It is also known
as merchandising.
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Policy
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A policy is a strategy that is a means of
achieving an objective.
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Policy instruments
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Policy instruments are policy tools used
to achieve an objective. The key policy instruments for the management of
the macroeconomy are government expenditure and taxation (fiscal policy)
and interest rates (monetary policy). Firms may use a variety of policy
instruments to achieve their objectives.
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Population
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The number of people living in a country.
The change in the population level will be determined by the natural rate
of increase / decrease which is the difference between the birth rate and
the death rate.
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Potential output
|
Potential output for an economy is the
output that could be achieved if all resources were to be fully deployed.
Potential output tends to grow each year as technology and productivity
improve each year. The potential output for an individual firm is what they
could produce with all their given resources.
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Predatory pricing
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Predatory pricing is where a firm reduces
price in the short run to try to force competitors out of the industry.
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Preference share
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A preference share is a less risky
investment than an ordinary share as it carries a fixed rate of return for
the investor, but the owners of preference shares are not strictly owners
of the business and preference shares do not carry the same shareholders'
rights as ordinary shares.
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Present value
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The present value is used in investment
appraisal to try to establish the value of future returns of income. Future
incomes will be less valuable now and so they are discounted (using a
discount rate) to give their current or present value. The present value is
therefore the value today of future incomes from an investment.
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Pressure groups
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Pressure groups are groups who come
together to present a particular cause and to try to influence policy and
behaviour. They will try to lobby government and firms to achieve their
objectives.
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Prestige pricing
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Prestige pricing is where a business is
able to set a high price because of the image associated with its product.
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Price
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A price is the amount of money a good or
service is bought for. Prices are normally determined in a market economy
by the forces of demand and supply.
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Price competition
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Price competition is the process of firms
trying to attract customers through changes (cuts) in price. This is in
contrast to non-price competition where firms compete on factors other than
price (like quality, appearance or reliability, for example).
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Price discrimination
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Price discrimination is where the same
product is sold in different markets for different prices. A firm will only
be able to price discriminate where there is separation between the markets
and the markets have different elasticities of demand for the product.
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Price earnings ratio
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The price earnings ratio is a ratio that
measures the earnings from a share compared to the price of the share. It
therefore measures the return available from buying shares. It is
calculated by dividing the market price of the share by the earnings per
share. Higher ratios are better as they reflect higher returns.
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Price elasticity of demand
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The price elasticity of demand is a
measure of the responsiveness of demand to a change in price. It is
calculated by taking the percentage change in demand and dividing by the
percentage change in price. If a good is elastic (a value for the
elasticity of over 1), then this means that it is responsive to a change in
price, while an inelastic good (a value of less than 1) is unresponsive to
changes in demand.
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Price elasticity of supply
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Measures the responsiveness of supply to
a given change in price. It is calculated by taking the percentage change
in supply and dividing by the percentage change in price. If a good is
elastic (a value for the elasticity of more than one), supply is considered
to be responsive to changes in price, while if it is inelastic (a value of
less than one) then supply is unresponsive to changes in price.
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Price index
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A price index is a figure measuring price
changes. One of the best known ones is called the Retail Price Index (RPI),
a statistical measurement of a typical basket of goods typically purchased
by people. The RPI measures the level of inflation in the economy.
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Price maker
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Price makers are firms who are able to
influence price as their output represents a significant share of the
market. Firms in monopoly and oligopoly will tend to have a high level of
price setting power.
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Price taker
|
Price takers are firms whose output does
not influence price. Firms in perfect competition are price takers as they
are too small to influence the market price and therefore simply 'take the
market price'.
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Pricing policies
|
Pricing policies are the ways in which
firms set prices or aim to influence the prices of goods and services.
Governments and other agencies may sometimes set pricing policies as well.
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Primary data
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Primary data is information that doesn't
as yet exist. It is data that is collected for the first time by a
researcher and is likely to be collected through questionnaires or surveys.
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Primary sector
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The primary sector of the economy is the
part concerned with agriculture and the extraction of raw materials (for
example, mining, fishing and agriculture).
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Prioritising
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Prioritising is the process of putting
tasks or activities in order of 'needing to be done'. It is required when
there are a large number of tasks needing to be carried out with
insufficient resources to do this quickly.
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Private sector
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The private sector is the part of the
economy privately owned and in the control of individuals and companies.
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Privatisation
|
Privatisation is the process of moving
economic activity from the public sector to the private sector. The most
common form of privatisation is the sale of government-owned shares in
private sector companies or the sale of whole companies (for example
British Telecom), but it could also mean sub-contracting government
activities to private firms (for example government property management or
catering).
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Problem child
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A problem child is one of the four types
of product identified in the Boston Matrix. It is a product that has a low
market share within a fast growing market.
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Process innovation
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Process innovation means using new
technologies in the production process to make the production process more
efficient or to ensure a better quality outcome from the process. It is
important for a firms to ensure that they do this to satisfy customer wants
in the most efficient way.
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Product life cycle
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The product life cycle shows the
different stages that a product passes through during its lifetime. The
standard product life cycle tends to have five or six phases. First there
is the development of the product - a phase where there are no sales.
Secondly there is the introduction phase of the product - at this stage the
sales may grow relatively slowly while information about the product is
disseminated and the main purchasers at this stage may be early adopters.
Thirdly there is the growth phase - in this phase there may well be rapid
growth of the product as it becomes more widely purchased. The fourth phase
tends to be known as maturity (which may sometimes market saturation) - in
this phase the product has become a well known product and while sales may
still be strong, they are unlikely to be growing fast. The final phase is usually
called decline and this phase is fairly self-explanatory!
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Product orientation
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Product orientation implies that the firm
focuses more on creating the product than responding to the needs of the
market. A product oriented firm may have spent more time and effort on the
development of the product and the production process than identifying
customer needs.
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Product portfolio
|
The company's product portfolio is the
range of products offered by a company. Companies will want to ensure that
they have a full and balanced product portfolio to cover all possible types
of customer for their product.
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Production
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Production is the process of making goods
and services from the inputs available (the factors of production). In
other words it is the output of goods and services.
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Productive capacity
|
Productive capacity is the amount that a
firm or plant could produce if all the resources available to it were to be
fully employed and working as efficiently as possible.
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Productivity
|
Productivity is a measure of efficiency.
It can be calculated by taking the total level of output and dividing by
the quantity used of the factors of production. The higher the level of
productivity, the greater the level of efficiency.
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Profit
|
Profit is the reward to the factor of
production - enterprise. It is where a firm receives more revenue from the
sale of a product or service than it cost to manufacture the good or
service. It is a reward for the risk taken by entrepreneurs.
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Profit and loss account
|
The profit and loss account differs
significantly from the balance sheet in that it is a record of the firm's
trading activities over a period of time whereas the balance sheet is the
financial position at a moment in time. The profit and loss account is
split into three parts. The first is the trading account that shows how the
company has performed in terms of their production and sales. The second
part is the profit and loss account that shows the impact of the company's
expenses and tax and interest on the trading profit. The final part is the
appropriation account that shows what they do with the profit - whether
they retain it or distribute it to shareholders. In practice these three
parts are all blended together and termed the profit and loss account.
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Profit margin
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The profit margin is the profit as a
percentage of turnover (or sales). It is calculated by taking the level of
profit, dividing by the level of turnover and multiplying by 100 to get the
figure as a percentage. It shows how profitable the firm is. The higher the
margin the better for the firm. Both gross and net profit margins can be
calculated.
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Profit maximisation
|
Profit maximisation is assumed to be the
main motive for a firms. It is where firms aim to make the highest level of
profit possible - in other words the largest surplus of revenue over cost.
|
Profitability ratios
|
Profitability ratios are ratios that
measure the profitability of a company. They include the Return on Total
Assets, Return on Capital Employed, Net Profit Margin and Net Asset Turnover
and are used to assess how profitable the company is.
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Progressive tax
|
A progressive tax is a tax that takes an
increasing proportion of income as income rises. Income tax is an example
of a progressive tax, as the rate increases as a person earns more.
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Promotion campaigns
|
Promotion campaigns are promotional
efforts by firms that are aimed at encouraging people to purchase a
product. Examples may include the giving of free gifts or two for the price
of one offers.
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Public corporations
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Public corporations are industries owned
by the state / government. There are fewer of these left now as many were
privatised during the 1980s and 1990s.
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Public expenditure
|
Public expenditure is spending by central
government and local authorities on providing goods and services, transfer
payments and debt repayments. It is also called government expenditure.
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Public interest
|
The public interest is the common good or
the good of society at large.
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Public limited company
|
A public limited company (plc) is a limited
liability company owned by shareholders. The shares in the company are
available publicly for purchase through the stock exchange. As with other
limited companies, they have to publish an annual report and accounts.
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Public relations
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Public relations is the division of a
firm that deals with communication with their consumers / customers (the
'public'). Public relations will usually be responsible for dealing with
comments, complaints and criticisms but will also be responsible for
dealing with the media and issuing press releases and other information.
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Public sector
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The public sector is the section of the
economy under government control. In the UK it includes the health and
education services, the police, fire service and ambulance service and many
other areas of economic activity.
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Public Sector Net Cash Requirement
(PSNCR)
|
This used to be called the Public Sector
Borrowing Requirement (PSBR) and is the amount of money the government need
to borrow to meet their spending plans. In other words it is the amount
that their spending exceeds their tax revenue by (or vice-versa).
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Published accounts
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The published accounts are the financial
statements that every limited company has to issue annually. Limited
companies are legally obliged to lodge a report and accounts with Companies
House (the government body responsible for overseeing and managing limited
companies) annually and these are available for anyone to access. The
accounts include an annual balance sheet and profit and loss account.
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Purchasing
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Purchasing is the buying of any raw
materials, parts or equipment that are needed by the firm. In some firm
this function may be carried out by each individual department, but many
firms will centralise this function and have a dedicated department responsible
for all purchasing. This approach will often allow the firm to negotiate
better rates with suppliers and therefore offer the possibility of
economies of scale.
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Q
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Qualitative research
|
Qualitative research is the gathering of
information that is not statistical but that gives an idea about the
perceptions or views that customers have of a product or service.
|
Quality assurance
|
Quality assurance is a way for a firm to
give their customers greater confidence about the quality of the product
they are buying. The quality assurance may be offered through membership of
a trade association or some other group that offers a quality stamp of some
sort. Examples of quality assurance trademarks include the kitemark, the
fair trade mark and other similar schemes like the ABTA bonding scheme for
holiday operators.
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Quality circles
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Quality circles are small groups of
workers who get together to look at all issues relating to the quality of
production of the good or service. The circle aim to solve any production
problems that may have a negative impact on quality. A quality circle may
be a part of a Total Quality Management (TQM) approach.
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Quantitative research
|
Quantitative research is the gathering of
statistical data for market research or other purposes.
|
Quick ratio
|
This is another name for the acid test
ratio which is the current ratio modified to provide a more prudent measure
of short-term liquidity. The acid test or quick ratio is the current ratio
with stock and work-in-progress deducted from current assets. It is
considered to be a better measure of short-term liquidity than the current
ratio as it recognises that stock can be a difficult asset to realise
quickly. It is often said that the value of the acid test ratio should be
greater than one to ensure that the firm can meet all their short-term
liabilities from liquid current assets, but the exact preferred value will
depend on the particular industry.
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Quotas
|
A quota is a limit on the quantity of
goods that can be imported into a country. Quotas are a form of
protectionist policy.
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R
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Rate of interest
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The rate of interest can be thought of as
the price of money. It is the extra percentage that has to be paid when
borrowing money or the extra percentage that a saver receives when putting
their money aside for the future.
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Rate of return
|
The rate of return is the percentage
return earned by an asset. In the case of a firm, the rate of return is the
profit earned by a firm as a percentage of the assets.
|
Ratio analysis
|
Ratio analysis is a tool for analysing
the financial performance of a company by calculating ratios from their
published accounts. The main types of ratio are performance ratios (looking
at the profitability and trading performance of the firm - ROCE and profit
margin), activity ratios (looking at how effectively the firm are using
their assets - stock turnover and debtor days), liquidity ratios (looking
at how liquid the firms assets are - current ratio and acid test ratio),
gearing ratios (looking at the way the capital of the firm has been
financed - gearing and interest cover ratios) and shareholder ratios
(looking at the performance of the company from the perspective of an
investor - earnings per share, price earnings ratio and dividend yield /
cover).
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Re-order level
|
The re-order level is the minimum level
that the firm will allow their stocks to fall to before they re-order new
ones. By setting a re-order level they should ensure that they never run
low of stocks, but the re-order level will need to take account of factors
like the time taken for the orders to arrive.
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Real income
|
The real level of income is the level of
national income adjusted for inflation. This is often termed as national
income at constant prices (often indicated by the expression 'at 2000
prices' or 'at constant prices').
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Real rate of interest
|
The real rate of interest is the rate of
interest adjusted for inflation. It is the nominal rate of interest minus
the rate of inflation. For example if inflation is 3% and the rate of
interest is 8% - the real rate of interest will be 5%.
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Real terms
|
If a variable is in real terms this means
that the effects of inflation have been taken into account. In other words
the effect of inflation has been removed.
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Real wage
|
The real wage is the value of income in
real terms. It is a measure of what the wage is actually able to buy in
terms of goods and services.
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Receivership
|
Receivership is the process of winding up
a firm following its collapse. The process is carried out by an official
receiver who will be appointed and who will aim to get the best possible
value from the assets of the business. The money realised will be used to
pay creditors, though it is generally unlikely that the creditors will
receive all they are owed.
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Redundancy
|
Redundancy is the process of laying off
staff where job cuts need to be made. It may be either compulsory where
workers are given their notice because there is no longer work for them or
voluntary where workers are asked if they are prepared to offer themselves
for redundancy (maybe because they are close to retirement or looking for
other opportunities). Staff are entitled to redundancy payments when they
are made redundant and the level of these will depend on their wage level
and how long they have been working for the firm.
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Reflate
|
To reflate the economy means to try to
boost the level of economic activity. This generally means using
reflationary policies like cutting interest rates, increasing government
expenditure or cutting the level of taxation.
|
Reflationary policies
|
Reflationary policies are policies aimed
to boost the level of economic activity. These could be either fiscal or
monetary policies. Reflationary monetary policies include cutting interest
rates while reflationary fiscal policies include increasing government
expenditure or cutting the level of taxation.
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Regional policy
|
Regional policies are government policies
designed to influence specific local areas. Regional policies may include
grants and subsidies for firms to locate in an area.
|
Regional problem
|
A regional problem means that there is an
uneven spread of living standards and employment levels between different
regions of the country.
|
Regional unemployment
|
Regional unemployment means that
unemployment in certain regions of the country is higher than in other
regions. For many years the UK suffered from a North-South divide where
regions in the north suffered much higher levels of unemployment than
southern regions.
|
Regressive taxes
|
Regressive taxes are taxes that take a
smaller proportion of income as income rises. In other words it is a tax
that hits less well-off people harder.
|
Regulation
|
Regulations are rules and laws that
control the behaviour of consumers and firms. Many regulations are enforced
by regulatory bodies. For example, regulations about financial products are
enforced by the Financial Services Authority and Ofcom regulates all
aspects of communications and broadcast media.
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Regulatory bodies
|
Regulatory bodies are organisations that
monitor the performance of those industries once in the public sector. They
normally have powers to influence pricing decisions and the standards and
range of services offered. An example of a regulatory body is Ofcom that
regulates all aspects of communications and broadcast media.
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Repositioning
|
Repositioning is the process of shifting
a product or products from one part of the market to another - in other
words from one market segment to another. The aim of repositioning is to
help the company to find new sales opportunities.
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Research and development
|
Research and development is spending to
try to find new products and to improve existing products. Research and
development spending by firms is vital if the economy is to maintain
economic growth in the medium to long term and is vital for firms if they
are to remain at the leading edge in their market.
|
Resources
|
Resources are the inputs used to produce
goods and services. Resources are often termed factors of production and
are split into land, labour, capital and enterprise (entrepreneurship).
|
Restrictive practices
|
Restrictive trade practices are business
practices that are intended to give an advantage by limiting or restricting
competition from other firms. Government regulates against restrictive
trade practices and this is a part of overall competition policy. The
Office of Fair Trading is the government body responsible for overseeing
fair trade in the UK.
|
Retail price index
|
The Retail Price Index is the main
measure of inflation in the UK. It shows the amount that the prices in an
average basket of goods have changed. Price changes are weighted to reflect
the importance of each price change. The weights are worked out from the
Family Expenditure Survey which is a survey of the pattern of spending by
households.
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Retained profit
|
Retained profit is the annual level of
profit that the firm does not distribute to the shareholders as dividend,
but retains for re-investment within the firm. Retained profit is an
importance source of investment funding for firms.
|
Return on capital employed (ROCE)
|
Return on capital employed (ROCE) is a
ratio that measures the performance of the firm in relation to the capital
that has been invested. It is calculated by dividing the net profit before
tax and interest by the level of capital employed and then multiplying by
100 to get the figure as a percentage. The higher the ROCE, the better the
return the firm is making on the capital invested in the business.
|
Return on Net Assets (RONA)
|
Return on net assets (RONA) is a ratio
that measures the performance of the firm in relation to the net assets of
the business. It is calculated by dividing the net profit before tax and
interest by the level of net assets of the business and then multiplying by
100 to get the figure as a percentage. The higher the RONA, the better the
return the firm is making on the net assets of the business.
|
Returns to scale
|
Returns to scale are the way in which
changes in the quantity of inputs (factors of production) affect output.
Increasing returns to scale (economies of scale) means that output
increases by more than the increase in inputs and therefore unit costs are
falling as output increases.
|
Revaluation of sterling
|
A revaluation is when the government
raises the value of the exchange rate from one fixed rate to another. It
only occurs under fixed exchange rates.
|
Revenue
|
Revenue is the money received from the
sale of output. Total revenue is worked out from the number of goods sold
multiplied by the price charged for each one.
|
Right first time
|
Right first time is a production
technique / philosophy that aims for no defects, mistakes or spoilt output.
The aim of the approach is to reduce waste and therefore production costs.
|
Rising star
|
A rising star (or star) is one of the
product categories in the Boston Matrix. It is a product that has a high or
rising market share within an expanding market.
|
Risk-bearing economies of scale
|
An economy of scale is where average cost
falls as production increases. Economies of scale come about because larger
firms are able to lower their unit costs. Risk-bearing economies of scale
is the ability of large firms to spread the costs of uncertainty over a
wider range of activities and therefore reduce their unit cost.
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Role-based
|
Role based is a system of allocating
responsibility for tasks and activities based on what it is that the
individual is actually responsible for carrying out.
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S
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Sale and leaseback
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Sale and leaseback is a method for
raising finance (or working capital) if firms face a liquidity problem. It
involves the sale of fixed assets to a specialist firm who then leases the
assets back to the firm. This enables the firms to raise the capital value
of the asset and just pay an annual (or monthly) fee to lease the asset
back.
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Sales
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Sales is the amount of goods or services
sold by a firm in a given period of time.
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Savings
|
Savings is that part of disposable income
(income after tax) not spent on goods and services. Savings is therefore
income that is not spent, but put aside.
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Scarcity
|
Scarcity is the fundamental economic
problem. It arises because there are insufficient resources to meet all
consumer wants.
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Secondary data
|
Secondary data is existing published
information that the firm uses for market research. The data has already
been collected and published and the firm can access the data for its own
purposes. Examples would include industry surveys, government economic data
or perhaps existing market research studies carried out by trade
associations or specialist market research firms.
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Secondary sector
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The secondary sector is the part of the
economy concerned with the manufacture of goods. It is in other words the
manufacturing sector of the economy.
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Self employment
|
Self-employment means working for
oneself. The economy has seen a rapid growth in the levels of self
employment in recent years.
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Seller's market
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A seller's market happens when there is
an excess demand in the market. Sellers of the good or service are
therefore at an advantage. Prices are high as a result.
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Share capital
|
The share capital of the firm is the
money that has been raised from the selling of shares in the firm. This
figure is shown as part of the shareholders' funds on the firm's balance
sheet.
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Share issue
|
Share
issue is the process of selling shares in a firm. It is used by firms as a
method of raising long term capital for the business. The money raised is
part of the share capital and is shown as part of the shareholders' funds
on the firm's balance sheet.
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Share premium
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The share premium is the difference
between the nominal (or face value) of the share and the value that the
share is sold for. For example, if a £1 share is issued at £1.25 then the
share premium is 25p. Share premium is shown separately on the firm's
balance sheet.
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Shareholders
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Shareholders are the owners of limited
companies and public limited companies. Shareholders own shares and as a
result own a proportion of the company. The return they receive for their
investment is a dividend which is their share of the profits of the firm.
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Shareholders' funds
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The shareholders' funds are the capital
of the business that has been raised or is directly attributable to the
shareholders. It will include the value of the issued share capital of the
firm and also the retained profit that has been built up in the reserves of
the company.
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Shares
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Shares are issued by companies as a way
of raising long-term capital for the company. The owners of the shares are
owners of the company - the exact proportion they own being determined by
the proportion of the shares they own.
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Shock
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A shock is any unanticipated event that
affects the economy and firms or consumers.
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Short run
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The short-run is the period of time in
which at least one factor of production is fixed. Over this time period the
firm can only expand production by using more of the variable factor.
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Short term liquidity ratios
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Short term liquidity ratios include the
current ratio and the acid test ratio and measure how easily the company
can meet its short-term financial commitments from the current assets they
have. A reasonable level of liquidity is vital for firms to ensure that
they can meet their day to day financial commitments.
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Single currency
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A single currency is a situation where
countries agree to use the same currency. The main example of a single
currency is the adoption of the Euro as the single currency for 11 European
countries in 1999. Euro notes and coins were issued in January 2002
replacing the existing (so-called legacy) currencies in the 11 Eurozone
countries.
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Skimming
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Skimming is a pricing policy sometimes
used by companies introducing a new product. A high price is set to ensure
large profits are made before the competitors are able to produce a similar
product. Each unit sold will therefore have a high profit margin.
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Skimming pricing
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Skimming
is a pricing policy sometimes used by companies introducing a new product.
A high price is set to ensure large profits are made before the competitors
are able to produce a similar product. Each unit sold will therefore have a
high profit margin.
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Slumpflation
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Slumpflation occurs when there is high
inflation, high unemployment and negative growth. In other words a slump
and inflation.
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Small firms
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Small firms are companies which employ a
relatively low number of workers.
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Social audit
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A social audit is an audit of the way in
which a company is meeting their accepted social responsibilities. It is an
assessment of whether the firm is meeting its obligations towards society
as a whole and the immediate groups affected by the firm's actions.
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Social marketing
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Social marketing is including within your
marketing mix an awareness of the social responsibility and impact that
your products on society as a whole and the environment in which they
operate.
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Social security payments
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Social security payments are benefits.
Benefits are usually paid to low income groups. Examples include
unemployment benefits and social security benefits.
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Sole trader
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A sole trader is a person owning a
private business. The sole trader may employ other people, but has
unlimited liability and bears the financial risks of the business on their
own. It is the most basic form of business organisation.
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Span of control
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The span of control is the number of
people in an organisation for whom one person is responsible. A wider span
of control means that each person is responsible for more people below them
and tends to be associated with firms with a flatter hierarchy of
management. It is argued that this will give more responsibility to the
workers and therefore motivate them to work harder.
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Spare capacity
|
Spare capacity is a situation where a
firm or economy can produce more with existing resources than they are
currently producing.
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Specialisation
|
Specialisation means to focus on the
production of a single good or service or a particular activity in the
production of that good or service. Specialisation will generally help to
raise efficiency as workers become more adept and more skilled at the
specialised operation they are carrying out.
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Specific tax
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A specific tax is a fixed amount of tax
charged on each unit. An example of a specific tax is the airport tax that
is charged on people when they fly out of the country.
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Stagnation
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Stagnation means a negative level of
economic growth. If this only happens in the short-term it may be called a
recession, but if it lasts longer, then it may be referred to as
stagnation.
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Stakeholders
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Stakeholders are all of those individuals
who have an interest or stake in a business. These include: employees,
suppliers, creditors, customers, shareholders, local communities and anyone
else who is effected by the operations of the business. It is important for
a business to be aware of all its stakeholders.
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Standards of living
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Living standards are the quality of
peoples lives. Living standards will depend on the level of incomes as well
as other measures like the number of doctors, nurses, teachers and so on.
The standard of living can be measured as national income per capita.
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Star
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A star (or rising star) is one of the
product categories in the Boston Matrix. It is a product that has a high or
rising market share within an expanding market.
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Stock Exchange
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The Stock Exchange is a market for shares
and securities. Traders are linked by computer and trade in shares meaning
that their value is determined by supply and demand. Companies can use the
stock market to raise long term capital through the issue of new shares.
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Stock turnover
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Stock turnover is a ratio that measures
the number of times in a year a business sells their stocks. It is
calculated by dividing the cost of sales by the stock figure. This gives
the 'number of times' that a firm has sold their stock in a year. A high
figure is desirable but the figure will vary a lot according to the
industry the firm operates in and so it is essential to compare it with
similar firms.
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Stockpiling
|
Stockpiling is the process of building up
a stock of goods. This may be involuntary which may be caused by
overproduction or a slowdown in demand or it may be a matter of policy in
preparation for seasonal peaks in demand. However, stockpiling has a cost
as the firm will have a large amount of working capital tied up in the
stocks and it will be difficult to realise quickly should the firm need to.
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Stocks
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Stocks are raw materials, work in
progress and unsold consumer goods that are held by the firm ready for
production or sale.
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Straight line depreciation
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The straight line method of calculating
depreciation is perhaps the simplest (and most common) method to work out
how much depreciation to charge against and asset each year. It involves
subtracting the residual (or scrap value) of the asset from its cost and
then dividing the result by the number of years of useful life that the
asset is likely to give. For example, if a machine cost £100,000 and is
likely to have a residual value of £20,000 after giving a useful life of
ten years, then according to the straight line method of calculating
depreciation, the depreciation charge will be £8,000 per year (£100,000 -
£20,000 = £80,000 which over 10 years is equal to £8,000 per year).
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Strike
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A strike is a form of industrial action
that can be used by employees (members of a trade union) in the event of an
industrial dispute that is proving difficult to resolve. Striking means to
stop work completely for a period of time and tends to be a last or nearly
last resort in a dispute. Strikes can be official or unofficial.
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Structural unemployment
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Structural unemployment is unemployment
that is caused by changes in the structure of industry. It will be caused
by a permanent decline in the demand for an industry's product.
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Subsidiary
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A subsidiary is a firm that is more than
50% owned by another firm. Many large companies and multinationals are
organised as holding companies that own a number of subsidiary firms who
are run independently by a board of directors, but who are ultimately
answerable to the holding company.
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Subsidies
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A subsidy is a payment made to firms or
consumers designed to encourage an increase in output. A subsidy will shift
the supply curve to the right and therefore lower the equilibrium price in
a market.
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Subsidy
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A subsidy is a payment made to firms or
consumers designed to encourage an increase in output. A subsidy will shift
the supply curve to the right and therefore lower the equilibrium price in
a market.
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Substitutes
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Substitutes are goods that can be used
for the same purpose and are in competition with each other. They are
therefore alternatives to each other.
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Supply
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Supply is the amount of a good which
firms are willing and able to sell at a given price. Supply will be
determined by the price of a good, the costs of producing it, the firm's
motives and the available technology.
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Supply chains
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Supply chains are the lines of
distribution for the organisation's goods or services. High quality supply
chains are vital for the business to be efficient and profitable.
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Supply curve
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The supply curve is an upward-sloping
curve showing the amount of a good which producers are willing and able to
sell at different prices. It shows the relationship between supply and
price with all other determinants of supply held constant.
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Supply side
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The supply side of the economy is all
factors affecting the level of aggregate supply. Supply side policies like
improving education and training are used by the government to try to
increase the potential level of output that the economy can achieve. Supply
side policies are aimed at increasing the productivity of the economy.
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Supply side economics
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Supply side economics is concerned with
the productive potential of the economy - the level of aggregate supply in
the economy. Supply side policies like improving education and training are
used by the government to try to increase the potential level of output
that the economy can achieve. Supply side policies are aimed at increasing
the productivity of the economy.
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Supply side policy
|
Supply side policies are government
policies to create incentives for individuals and firms to increase their
productivity and therefore improve the workings of markets. The aim is to
increase the level of productivity in the economy and therefore the
capacity of the economy.
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SWOT analysis
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SWOT analysis is a tool used by
businesses to help them develop marketing and other strategies. It looks at
internal STRENGTHS and WEAKNESSES of the business and the external
OPPORTUNITIES and THREATS. This framework can be very useful in helping the
business set its aims and objectives for the future.
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Synergy
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Synergy is the hoped for result when
companies merge or combine together. They hope to see that the value
created by the combined business is greater than the sum of the two parts.
This may come about through economies of scale, avoidance of duplication or
a range of other efficiencies in marketing, planning, distribution and
production.
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T
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Takeover
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When one company buys sufficient shares
in another company to have a controlling interest. In the case of a hostile
takeover this will be against the wishes of that company's directors.
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Tangible assets
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Tangible assets are physical assets held
by the firm. They would include assets like buildings, machinery, cars and
trucks. Tangible assets will tend to depreciate in value as they are used
and so will have depreciation charged against their balance sheet value.
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Target market
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A target market is a market or market
segment that a firm has decided to focus on selling to. They may use
different marketing techniques, as appropriate, to sell to different target
markets.
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Target rate of profit
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A target rate of profit is when an
organisation sets their price to try to achieve a certain level of profit.
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Tariffs
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Tariffs are taxes on goods imported into
a country. They are a form of protectionism and are often used by
governments to try to reduce the level of imports into a country.
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Tax threshold
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The tax threshold is the level at which a
tax rate changes. It often refers to the levels at which income tax rates
change from one level to another. For example, the threshold at which
income tax increases from 10% to 22%.
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Taylor
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Frederick Taylor set out the theory of
scientific management in a book published in 1911. He studied the way in
which tasks were carried out and applied scientific methods to make them
more efficient. He argued that people were mainly motivated by money and
that the best type of payment system would be one based on piece rates
where people were paid according to what they produced.
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Teams
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Teams are groups of workers who work
together to produce goods and services. Team-based production has been used
very effectively by many companies to raise the quality and efficiency of
production.
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Technical economies of scale
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An economy of scale is where average cost
falls as production increases. Economies of scale are happening because
larger firms are able to lower their unit costs. Technical economies of
scale are the lower unit costs which come about from larger firms being
able to use more efficient techniques of production and the fact that a
larger plants are often cheaper to run. This is often helped by the
principle of increased dimensions. For example, a ship double the size will
have more than double the volume and can therefore reduce the cost of
transportation per unit considerably. It will also not require double the
number of crew to run it resulting in a further saving.
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Telemarketing
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Telemarketing is and direct selling
technique (below the line promotion) and involves using the telephone and
telesales teams to sell a product.
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Tender
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Many firms, organisations and other
institutions (for example government) will put work or particular projects
out to tender. This means that they are asking interested firms to put in a
bid for how much they think the work will cost to carry out and details of
how they propose to do the work (including timescales, specifications and
so on). They will then review all these tenders to decide who to award the
contract to.
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Tertiary sector
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The tertiary sector is the service sector
of the economy. It is the part of the economy concerned with providing
services. For example, leisure and financial services.
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The Budget
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The Budget is the annual announcement of
fiscal policy changes by the Chancellor of the Exchequer. It usually takes
place in March of each year. In the Budget the Chancellor announces the tax
changes he proposes for the following tax year.
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Theory X
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Douglas McGregor looked at the reasons
why people work and tried to develop applications of the work of theorists
like Maslow to a business. He suggested the categories theory X and theory
Y to explain the different reasons why people work. Theory X workers, he
argued, are essentially motivated by money, lazy and dislike work and need
to be carefully controlled by management.
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Theory Y
|
Douglas McGregor looked at the reasons
why people work and tried to develop applications of the work of theorists
like Maslow to a business. He suggested the categories theory X and theory
Y to explain the different reasons why people work. Theory Y workers, he
argued, can enjoy work if well motivated and will show creativity and take
responsibility if circumstances allow this and management create the right
environment.
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Total costs
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Total cost is the total amount spent by a
firm on producing a given level of output. Total costs are made up of the
fixed costs and the variable costs of production or the direct and the
indirect costs of production.
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Total quality management
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Total quality management is a philosophy
that tries to generate responsibility for quality at every level of the
organisation. The aim is to check and monitor production at every stage and
investigate methods that may help to reduce wastage that occurs through
poor quality control. The approach must be company-wide if it is to
succeed.
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Total revenue
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The total revenue is the income received
by a firm from the sale of their goods and services. It can be calculated
by multiplying the price received for each unit by the number of units
sold.
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Trade cycle
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The trade cycle is the cyclical
fluctuations that occur in economic activity. Economies tend to move, over
time, through periods of boom and slump and the trade cycle shows these
variations in economic growth.
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Trade mark
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A trademark is a form of legal protection
for a company's brand or product. Trademarks have to be registered with the
UK Patent Office to gain the legal protection.
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Trade union
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A trade union is an organisation of
workers that represents them in negotiations with their employers. The
trade union will seek improvements for its members and represent them in
collective bargaining about wage levels.
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Trade war
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A trade war is a situation where
countries retaliate against import restrictions imposed on them by
themselves placing import restrictions on goods entering the country. It is
a dispute over trade and these disputes are generally caused by the
imposition of tariffs, subsidies or quotas by other countries.
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Trade-off
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A trade-off is when one thing has to be
sacrificed in order to obtain something else. When there is a trade-off
this means that there is an opportunity cost. To get one thing something
else has to be given up. For example, there was always thought to be a
trade-off between unemployment and inflation. To get lower unemployment, it
was thought that governments had to accept higher inflation.
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Trading account
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The trading account is the top section of
the profit and loss account that shows the trading performance of the firm.
It shows their total sales and the cost of sales - therefore showing their
gross profit. The other sections of the overall profit and loss account are
the profit and loss account and the appropriation account.
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Transfer pricing
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Transfer pricing is where companies set
internal prices to charge other branches of the same company. Some
multinationals may use transfer pricing as a means to move profits within
branches of the company to take advantage of different tax rules in
different countries.
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U
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Underlying rate of inflation
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The underlying rate of inflation is the
rate of inflation allowing distortions. The underlying rate of inflation is
an adjusted measure of inflation that removes some of the distortions in
the Retail Price Index. It is also known as RPIX.
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Unemployment
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Unemployment is the number of workers (of
working age) without a job who are willing and able to work. There are
various ways to measure unemployment, but the figure is currently calculated
from the Labour Force Survey.
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Unemployment rate
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The unemployment rate is the percentage
of the working population without a job who are willing and able to work.
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Unfair dismissal
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Unfair
dismissal is a situation where an employee is dismissed from their job by a
firm without good reason. In this instance the employee has the right to
take their case to an industrial tribunal which has the power, if their
case is proven, to demand their reinstatement or compensation for the
unfair dismissal.
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Unique selling point
|
A unique selling point (USP) is any
aspect of or characteristic of a product that differentiates it from the
competition. Firms will often want to stress the USP of their product in
their marketing to persuade consumers of the superiority or desirability of
their product.
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Unit cost
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The unit cost is the average cost - cost
per unit of output. It is calculated by dividing the total cost by the
level of output.
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Unlimited liability
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Owners of a business may have to sell off
some or all of their personal possessions to meet the debts of the business
because there is no limit to the amount of claims that can be made against
them. Sole traders and partnerships have unlimited liability.
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V
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Vacancies
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Vacancies
are unfilled jobs. High levels of vacancies are more likely to occur when
economic growth is booming and the labour market is therefore tight as
there will then be more demand for labour than there is supply.
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Value
added
|
Value
added is the financial worth that a firms adds to the raw materials that
they process into the good or service they produce. It is therefore the
difference between the value of the goods and services sold and the cost of
buying raw materials and other supplies necessary for production.
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Values
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Values
are the principles that underpin the decisions that firms make and the
policies they pursue.
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Variable
costs
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Variable
costs are costs that vary with the level of output. Variable costs include
costs like raw materials and labour costs that are directly attributable to
production.
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Variable
pricing
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Variable
pricing is where a firm offers the same goods for sale at different prices
in different market segments.
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Variance
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Variance
analysis is used to explore the difference between the plans that a firm
made beforehand and the actual outcome. It is a useful tool for analysing
the success of a strategy. A variance is the difference between a planned
value for a variable and the actual outcome. A firm may want to calculate
sales variances, profit variances, production variances or any number of
other variables. A variance will either be favourable (the outcome was
better than the plan) or adverse (the outcome was worse than the plan).
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Variance
analysis
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Variance
analysis is used to explore the difference between the plans that a firm
made beforehand and the actual outcome. It is a useful tool for analysing
the success of a strategy. Variance analysis assesses whether the outcome
has been better (favourable variance) or worse (adverse variance) than the
plan and looks at the reasons for the difference in performance from what
was expected.
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VAT
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VAT
(value added tax) is a tax on the value added at each stage of production.
It is an indirect tax and is charged at the rate of 17.5% on all final
expenditure by consumers. It is a regressive tax as the proportion of income
paid by less well off will be greater than the proportion paid by the
better off.
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Vertical
integration
|
Vertical
integration is where firms at different stages of the production chain
merge together. It may be either vertical forward integration where a firm
merges with another further up the chain (e.g. a brewery taking over a
chain of pubs) or vertical backward integration where a firm merges with
one further down the production chain (e.g. a brewery taking over a hop
farm).
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Vertical
merger
|
A vertical
merger (integration) is where firms at different stages of the production
chain merge together. It may be either vertical forward integration where a
firm merges with another further up the chain (e.g. a brewery taking over a
chain of pubs) or vertical backward integration where a firm merges with
one further down the production chain (e.g. a brewery taking over a hop
farm).
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Voluntary
export agreements
|
A
voluntary export agreement is an agreement between firms in another country
and the government to limit the volume of exports coming into a country.
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W
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Wage differentials
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Wage differentials are the difference in
wages between workers in different occupations and different regions.
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Wage drift
|
Wage drift is a situation where
traditional wage differentials between groups of workers are eroded. This
can often be a cause of industrial disputes.
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Wage rate
|
The wage rate is the amount of pay received
for working over a period of time. It will usually be expressed as an
amount per period of time e.g. £5 per hour.
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Wage-price spiral
|
A wage-price spiral happens when workers
demand a pay rise above inflation. This results in an increase in the firm's
costs and means that they have to put their prices up further if they are
to maintain their profit margin. This in turn, will lead to further
inflation and therefore a further demand for higher wages and so the spiral
goes on .....
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Wage-wage spiral
|
A wage-wage spiral happens when a wage
increase in one industry sets off a series of wage claims in other
industries so as to maintain wage differentials.
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Wages
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Wages is the level of pay received for
working. It is the income received by labour as a factor of production.
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Wants
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Wants are people's desires for goods and
services. Wants result in demand, but to be effective demand the want has
to be backed by an ability to pay.
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Weight-gaining industries
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Weight-gaining industries are industries
where the raw materials are relatively small, but these are converted to
produce a bulky finished product.
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Weight-losing industries
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Weight-losing industries are industries
where the raw materials are relatively bulky, but the resulting product is
relatively smaller.
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Wild cards
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A wild card is an alternative name for a
problem child which is one of the four types of product identified in the
Boston Matrix. It is a product that has a low market share within a fast
growing market.
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Work
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Work is the process of being employed by
a firm or for yourself and using your skills and abilities to be a part of
the production of a good or service.
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Work study
|
A work study is a technique used to
analyse a job to identify the various stages and tasks involved and the
time taken to complete them. From this information the study aims to
suggest more efficient ways of producing the good or service.
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Workforce
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The workforce is all those who are
employed, self employed, claiming benefit or in the armed forces. It is
everyone who is available to work and of working age.
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Working capital
|
The net current assets figure is the
working capital of the business and is the difference between current
assets and current liabilities. The figure shows the funds available for a
business to meet their immediate expenditure needs. It is vital for a
business to have sufficient net assets to fund their day to day business
activities.
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Working capital cycle
|
The working capital cycle shows the flow
of cash in and out of the business. It shows how cash has to flow out of
the business to pay for raw materials, to pay wages and to pay for other
production costs and produce the goods and services before the product can
be sold to generate cash to flow back into the business.
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Working population
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The working population is all those who
are eligible and willing to work.
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Works' councils
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Works' councils are groups within a firm
that bring together workers and management to discuss issues of concern to
both. These issues may include pay and conditions, employment rights,
training, company policy and a range of other topics.
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Y
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Yield
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The yield of something is the income from it as a percentage
of its price. For example, the dividend yield would be the dividend
received as a percentage of the market price of the share.
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Z
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Zero-based budgeting
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Zero-based budgeting is a budgeting
technique that takes a completely fresh start and avoids using historic /
past data as a starting point for budgeting. Budgets are therefore drawn up
on the basis of what is needed now as opposed to being derived from what
was needed in previous periods.
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