AS Module3 Glossary

External Influences

Market and Competition

Different Market Conditions

Monopoly – where one firm dominates the market. It has power to set a high price.

Perfect Competition – where there are many firms and many buyers. Firms are price takers.

Oligopoly – where a few firms dominate the market. Firms may be able to collude (act together).

Excess capacity – where firms have the resources to produce more than the market currently wants.
The result is unused resources.

Capacity shortage – where firms are unable to satisfy the demands of the market because they do
not have sufficient resources of land, labour and capital. May result in price rises.

Unfair competition – where firms collude with each other or use other tactics to gain an unfair
advantage. Examples are predatory pricing and market sharing agreements.

Macro-economics – that branch of economics concerned with big issues like inflation.

Business cycle – the tendancy of the economy to alternate between periods of boom and slump.

Causes: durables – very sensititve to confidence in the future + changes in interest rates.
Stock levels – as above. Firms will destock in times when confidence is low.
Investment decisions – as above. Firms will cut back if they expect a recession.

Phases of business cycle- boom, downturn, slump/recession, upturn.

Interest rates- the price one pays for borrowing money. Worked out as so much per annum.

Effects of a rise in interest rates:

Effects on demand – usually causes it to fall.

Effects on overheads – increases them.
Effects on the pound – causes it to rise.
Effects on investment decisions- causes firms to cut back.

Exchange rates – the rate at which the pound exchanges for foreign currentcy on the foreign
exchange market.

Inflation – a rise in the general price level – measured by the RPI (and the CPI).

Deflation – a period when the general price level is falling. Also used for periods when output in
general in the economy is falling.

RPI – retail price index – a nominal “basket” of goods used to measure the average change in the
overall price level.

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Unemployment – the number of people out of work. Usually measured by the number of people
registered as unemployed and seeking work.
Cyclical unemployment – due to business cycle.
Structural unemployment – due to change in structure of economy – e.g. The decline in an
industry such as mining.

Main UK and EU law relevant to UK firms – health and safety, employment, consumer protection
and competition law.

Social responsibilities – those responsibilities which a firm is felt to have towards society, in
particular towards employees, customers, local residents, suppliers but to all stakeholders in general.

Ethics – concerned with what is morally right and wrong. In business it includes issues such as child
labour, falsifying accounts, advertising to vulnerable people, exploiting people in third world
countries.

Objectives and strategy

tertiary business – a firm in the tertiary sector i.e. In the service sector of the economy.

Patent – a legal document which gives a firm sole rights to use an idea for a certain number of years.
In Britain the Patent Office registers patents.

Copyright - legal protection which protects intellectual property such as written or recorded works.

Sole trader – a form of business organisation in which one person runs a business. That person is
identical to the firm and therefor has unlimited liabilities. There are hardly any formalities necessary
to set up such a firm.

Private limited company (ltd). As the name “company” implies, this type of organisation is
separate from the owners and has limited liability. Shares are issued but not transferable on the stock
exchange. They are generally issued to friends or family.

Public limited company (plc) – issues shares which can be traded on the stock market. Has limited
liability.

Limited liability – means if the firm goes bust then the owners (shareholders) are only liable for the
amount they invested. i.e. They will lose their shar value but not any personal assets like house or
car.

Divorce of ownership and control – the fact that in plc's the people who own the company (the
shareholders) are not necessarily the same people who run it (the directors and managers). Can lead
to conflict of aim.

Cash flow – the difference between the cash coming into a firm and that going out.

Business plan – contains the objectives of the company, projected cash flow, details of market
research. Usually used when trying to persuade a lender to make a loan.

Corporate – to do with companies.

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Corporate aims – general statements of intent. e.g. To be a major chocolate manufacturer.
Objectives – more specific and usually quantified. e.g. To gain 34% market share within a year.

Mission statement – a document containing the aims of a company.#

Short term and long term objectives – a firm may sacrifice one for the other. e.g. It may charge a
low price now (and short term profits) in the hope of building market share and gaining maximum
profit in the future.

Stakeholders – anyone with a particular interest or stake in the firm.

SWOT analysis – a process of looking at the strengths, weaknesses, opportunities and threats which
face a firm.

Strengths and weaknesses – factors internal to the firm such as quality and number of staff,
resources in general.

Opportunities and threats – factors external to the firm such as market growth or government
policy.