Key Terms

Economics & Business Glossary

A–Z glossary of key terms and definitions for Edexcel International A-Level Economics and Business. Search by term or filter by subject — perfect for quick revision and exam reference.

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Absolute advantage: When a country can produce a good using fewer resources than another country. A necessary but not sufficient condition for beneficial trade.
Absolute poverty: A condition where individuals cannot afford the basic necessities of life (food, shelter, clean water, healthcare). Measured against a fixed threshold (e.g. $2.15/day).
Aggregate demand: The total demand for goods and services in an economy at a given price level in a given time period. AD = C + I + G + (X - M).
Aggregate supply: The total output of goods and services that producers in an economy are willing and able to supply at a given price level.
Allocative efficiency: Achieved when resources are allocated to produce the combination of goods most valued by society. Occurs where P = MC (price equals marginal cost).
Ansoff's Matrix: A strategic framework that identifies four growth strategies based on whether products and markets are new or existing: market penetration, market development, product development, and diversification.
Appreciation: An increase in the value of a currency under a floating exchange rate system, caused by market forces.
Automatic stabilisers: Fiscal mechanisms that automatically adjust government spending and tax revenue to stabilise the economy without deliberate policy action. E.g. benefits rise in recession, tax revenue falls.
Average cost: The cost per unit of output. AC = TC ÷ Q. The AC curve is U-shaped due to the spread of fixed costs and eventually diminishing returns.
Average rate of return: An investment appraisal method that calculates the average annual profit as a percentage of the initial investment, allowing comparison with alternative investments or interest rates.
Average revenue: Revenue per unit of output sold. AR = TR ÷ Q. Since TR = P × Q, AR always equals the price, so the AR curve is the demand curve.

Balance of payments: A record of all financial transactions between a country and the rest of the world over a given period, consisting of the current account, capital account, and financial account.
Barriers to change: Factors that hinder or prevent organisational change, such as employee resistance, financial constraints, organisational inertia, or poor communication from management.
Barriers to entry: Factors that make it difficult or costly for new firms to enter a market. E.g. economies of scale, patents, branding, sunk costs, legal barriers.
Barriers to entry: Obstacles that make it difficult for new firms to enter a market, such as high start-up costs, strong brand loyalty, legal regulations, or economies of scale enjoyed by existing firms.
Bartlett and Ghoshal model: A framework classifying multinational strategies into four types based on the balance between global integration and local responsiveness: international, multidomestic, global, and transnational.
Benchmarking: The process of comparing a firm's performance, processes, or products against those of industry leaders or competitors in order to identify best practices and areas for improvement.
Boston Matrix: A model that classifies a firm's products into four categories based on market share and market growth: Stars, Cash Cows, Question Marks, and Dogs. It helps firms manage their product portfolio.
Branding: The process of creating a distinctive name, logo, image, or identity for a product or business in the consumer's mind, used to differentiate it from competitors and build customer loyalty.
Break-even analysis: A calculation that determines the level of output at which total revenue equals total costs, resulting in neither profit nor loss. Break-even output equals fixed costs divided by contribution per unit.
Budget: A financial plan that estimates future income and expenditure over a set period. Budgets help control spending, allocate resources, and monitor financial performance.
Budget deficit: When government spending exceeds government revenue (taxation) in a given year. The shortfall must be financed by borrowing.
Budget surplus: When government revenue (taxation) exceeds government spending in a given year, allowing the government to repay debt.
Buffer stock: A scheme where the government buys and stores surplus goods when supply is high and sells from stocks when supply is low, aiming to stabilise prices.
Buffer stock scheme: A system where a central authority buys and stores a commodity when prices are low and sells from stocks when prices are high, aiming to stabilise prices and producer incomes.
Business angel: A wealthy individual who provides capital and often mentoring to early-stage businesses in exchange for equity or convertible debt.
Business confidence: The degree of optimism or pessimism that business leaders feel about the future prospects of the economy. High confidence encourages investment and expansion; low confidence leads to caution.
Business cycle: The regular pattern of fluctuations in economic activity over time, consisting of four phases: boom, recession, slump (trough), and recovery (expansion).
Business ethics: The moral principles and values that guide decision-making and behaviour within a business. Ethical decisions consider what is right and fair, not just what is profitable.

Capacity utilisation: The proportion of a firm's maximum output that is actually being achieved, expressed as a percentage. Low utilisation means resources are underused; high utilisation may strain resources.
Capital and financial account: Part of the balance of payments recording capital transfers and transactions in financial assets (FDI, portfolio investment, reserve assets).
Capital expenditure: Government spending on long-term assets such as infrastructure, buildings, and equipment that will provide benefits over many years.
Capital flight: The rapid movement of large sums of financial capital out of a country, typically due to political instability, economic crisis, or unfavourable policy changes.
Cartel: A formal agreement between firms in an oligopoly to fix prices, restrict output, or divide markets. Illegal in most countries but difficult to detect.
Cash flow forecast: A prediction of the expected cash inflows and outflows over a future period, used to anticipate cash shortages and plan borrowing or investment decisions.
Ceteris paribus: A Latin phrase meaning "all other things being equal". Used in economic models to isolate the effect of one variable by holding all others constant.
Circular flow of income: A model showing how money flows between households and firms. Income flows from firms to households (as wages/rent/profit) and back as spending on goods and services.
Claimant count: A measure of unemployment based on the number of people claiming unemployment-related benefits (e.g. Jobseeker's Allowance).
Co-operative: A business owned and democratically controlled by its members (workers, consumers, or producers), with each member having one vote regardless of investment.
Collusion: When firms in an oligopoly cooperate to set prices or output levels, reducing competition. Can be formal (cartel) or informal (tacit).
Common market: A customs union that also allows the free movement of factors of production (labour and capital) between member states.
Comparative advantage: When a country can produce a good at a lower opportunity cost than another country. The basis for mutually beneficial trade even when one country has absolute advantage in all goods.
Comparative advantage: The ability of a country to produce a good or service at a lower opportunity cost than another country, forming the basis for mutually beneficial international trade.
Compensating wage differential: Higher wages paid to workers in jobs with undesirable characteristics (danger, antisocial hours, unpleasant conditions) to attract sufficient labour supply.
Competition policy: Government policies designed to promote competition and prevent the abuse of market power. Includes merger control, anti-cartel enforcement, and market investigations.
Competitive tendering: A process where private firms bid to provide public sector services, aiming to reduce costs and improve efficiency through competitive pressure.
Complementary good: A good that is consumed together with another. A rise in the price of one leads to a fall in demand for its complement (negative XED).
Concentration ratio: The market share of the largest n firms in an industry. A high concentration ratio indicates an oligopolistic or monopolistic market structure.
Conglomerate integration: A merger between firms in completely different industries, primarily motivated by risk diversification.
Consumer Price Index: A measure of inflation that tracks the average price change of a weighted basket of goods and services bought by a typical household.
Consumer surplus: The difference between what consumers are willing to pay for a good and what they actually pay. Shown as the area below the demand curve and above the market price.
Consumption: Spending by households on goods and services. The largest component of aggregate demand in most economies.
Contestable market: A market with low barriers to entry and exit and low sunk costs, where the threat of potential competition disciplines incumbent firms' behaviour.
Contribution: The amount remaining after variable costs are subtracted from sales revenue. Total contribution can be used to cover fixed costs and generate profit.
Core competencies: The unique strengths, resources, and capabilities that give a business a competitive advantage and are difficult for rivals to imitate, forming the basis of its strategic position.
Corporate culture: The shared values, beliefs, attitudes, and norms that shape behaviour within an organisation. Culture influences how employees interact, make decisions, and approach their work.
Corporate objectives: The specific, measurable goals set by senior management for the whole organisation, derived from the mission statement. They guide strategic decision-making.
Corporate social responsibility: The voluntary actions a business takes to consider and address the social, environmental, and ethical impacts of its operations beyond its legal obligations.
Cost-push inflation: Inflation caused by increases in the costs of production (e.g. wages, raw materials, energy), which are passed on to consumers as higher prices.
Critical path analysis: A project management technique that identifies the sequence of dependent tasks (the critical path) that determines the minimum time needed to complete a project. Any delay on the critical path delays the whole project.
Cross elasticity of demand: A measure of the responsiveness of demand for one good to a change in the price of another good. XED = % change in Qd of A ÷ % change in price of B.
Crowd-funding: A method of raising finance by collecting small amounts of money from a large number of people, typically via online platforms, to fund a business idea or project.
Crowding out: When increased government borrowing leads to higher interest rates, which reduces private sector investment and consumption, partially offsetting the fiscal stimulus.
Current account: Part of the balance of payments recording trade in goods and services, investment income, and current transfers between a country and the rest of the world.
Current expenditure: Government spending on day-to-day items such as wages of public sector workers, consumables, and maintenance of existing services.
Customs union: A group of countries with free trade between members and a common external tariff on imports from non-members. E.g. the EU Customs Union.
Cyclical deficit: The part of the fiscal deficit caused by the economy being below full employment during a recession. Disappears when the economy recovers.
Cyclical unemployment: Unemployment caused by a downturn in the economic cycle (recession). Demand for labour falls as firms reduce output.

Deadweight loss: The loss of economic efficiency when equilibrium is not achieved. Represented as a triangle of lost consumer and producer surplus on a diagram.
Debt relief: The partial or total cancellation of debts owed by developing countries, freeing resources for investment in health, education, and infrastructure.
Decision tree: A mathematical model that maps out different options, possible outcomes, and their probabilities and financial returns, helping managers make objective decisions under uncertainty.
Deflation: A sustained decrease in the general price level. Can lead to delayed spending, falling output, and rising real debt burdens.
Delegation: The process of assigning authority and responsibility for a task to a subordinate, while the manager retains overall accountability for the outcome.
Demand: The quantity of a good or service that consumers are willing and able to buy at a given price in a given time period.
Demand: The quantity of a good or service that consumers are willing and able to purchase at a given price in a given time period.
Demand-pull inflation: Inflation caused by excessive aggregate demand growing faster than aggregate supply. "Too much money chasing too few goods."
Demerger: The splitting of a business into two or more separate, independent companies. May occur to improve focus, efficiency, or unlock shareholder value.
Demerit good: A good that is over-consumed in a free market because consumers underestimate its private costs, or it generates negative externalities. E.g. cigarettes, alcohol.
Depreciation: A decrease in the value of a currency under a floating exchange rate system, caused by market forces.
Deregulation: The removal or reduction of government regulations and barriers to entry in a market, intended to increase competition and reduce costs.
Derived demand: The demand for labour (or any factor of production) that arises from the demand for the final product it is used to produce.
Devaluation: A deliberate decrease in the value of a currency under a fixed exchange rate system, decided by the government.
Diminishing marginal utility: The principle that as a consumer consumes more units of a good, the additional satisfaction from each extra unit decreases.
Discretionary fiscal policy: Deliberate changes in government spending or taxation to influence aggregate demand and achieve macroeconomic objectives.
Diseconomies of scale: Increases in long-run average cost as a firm grows beyond its optimal size, caused by communication problems, coordination difficulties, and X-inefficiency.
Diseconomies of scale: The cost disadvantages that arise when a firm grows too large, causing long-run average costs to rise. Common causes include communication problems, coordination difficulties, and low employee motivation.
Disinflation: A reduction in the rate of inflation. Prices are still rising, but at a slower rate than before.
Distribution channel: The route through which a product travels from the producer to the final consumer. Channels may include wholesalers, retailers, agents, or direct selling.
Division of labour: Breaking the production process into separate tasks, with each worker specialising in one task, increasing productivity and efficiency.
Dumping: When a country exports goods at prices below the cost of production or below the domestic price, often to gain market share or dispose of surplus output.
Dynamic efficiency: Efficiency over time, achieved when firms invest supernormal profits in research, development, and innovation to improve products and processes.
Dynamic market: A market that is subject to rapid and continuous change due to factors such as evolving consumer tastes, new technology, or increased competition.

Economic and monetary union: A common market with a shared currency and harmonised economic policies. E.g. the Eurozone.
Economic development: A broader concept than economic growth, encompassing improvements in living standards, health, education, political freedom, and environmental quality.
Economic good: A good that is scarce and has an opportunity cost. Resources must be used to produce it.
Economic growth: An increase in the real GDP of an economy over time. Short-run growth uses spare capacity; long-run growth increases productive potential.
Economies of scale: Reductions in long-run average cost as a firm increases its scale of production. Sources include technical, managerial, financial, marketing, and purchasing economies.
Economies of scale: The cost advantages that a business gains as it increases its scale of production, causing long-run average costs to fall. Types include purchasing, technical, managerial, and financial economies.
Effective demand: Demand backed by the ability to pay. A want becomes effective demand only when the consumer has sufficient purchasing power.
Elasticity of demand for labour: The responsiveness of the quantity of labour demanded to a change in the wage rate. Depends on ease of substitution, labour cost proportion, PED for the product, and time.
Emerging market: A country that is transitioning from a developing to a more advanced economy, characterised by rapid industrialisation, rising incomes, and growing consumer markets.
Enterprise: The willingness to take risks and show initiative in starting and running a business. It is considered the fourth factor of production alongside land, labour, and capital.
Equilibrium price: The price at which quantity demanded equals quantity supplied. There is no tendency for the price to change at this point.
Equilibrium quantity: The quantity bought and sold at the equilibrium price, where demand equals supply.
Ethical trading: Business practices that ensure products are sourced and produced in a way that respects workers' rights, provides fair wages, and minimises environmental harm throughout the supply chain.
Ethnocentric approach: An international marketing approach where the home country's practices, products, and strategies are applied uniformly in all foreign markets with little or no adaptation.
Excess demand: When quantity demanded exceeds quantity supplied at the current price, creating upward pressure on price. Occurs when price is below equilibrium.
Excess supply: When quantity supplied exceeds quantity demanded at the current price, creating downward pressure on price. Occurs when price is above equilibrium.
Exchange rate: The price of one currency expressed in terms of another. Affects the price of imports and exports and the current account balance.
Exchange rate: The price of one currency expressed in terms of another. Exchange rate fluctuations affect the cost of imports, the competitiveness of exports, and multinational profits.
Expected value: The predicted financial return of a decision, calculated by multiplying each possible outcome by its probability and summing the results. It is used in decision tree analysis.
External benefit: The benefit of an economic activity received by third parties not directly involved in the transaction. Also called a spillover benefit.
External cost: The cost of an economic activity borne by third parties not directly involved in the transaction. Also called a spillover cost.
External economies of scale: Cost advantages that arise from the growth of the industry as a whole, benefiting all firms. E.g. skilled labour pool, infrastructure, knowledge sharing.
Externality: A cost or benefit that affects a third party not directly involved in the production or consumption of a good. Can be positive or negative.

Factors of production: The four inputs used to produce goods and services: land (natural resources), labour (human effort), capital (machinery/equipment), and enterprise (risk-taking).
Fiscal deficit: When government spending exceeds tax revenue in a given year. Must be financed by borrowing, adding to the national debt.
Fiscal policy: The use of government spending and taxation to influence aggregate demand and the economy. Expansionary = increase G or decrease T.
Fixed costs: Costs that do not change with output in the short run. E.g. rent, insurance, salaries of permanent staff.
Fixed costs: Costs that do not change with the level of output in the short run, such as rent, salaries, and insurance. They must be paid regardless of production levels.
Fixed exchange rate: An exchange rate set and maintained by the government or central bank at a specific level, using foreign currency reserves and interest rates.
Flexible workforce: A labour force that can be adapted to meet changing business needs, through methods such as part-time contracts, temporary workers, multi-skilling, and outsourcing.
Floating exchange rate: An exchange rate determined by market forces of supply and demand for the currency, without government intervention.
Foreign currency gap: When a developing country lacks sufficient foreign exchange to import the capital goods and technology needed for economic development.
Foreign direct investment: Investment by a firm in productive capacity in another country, such as building factories, offices, or acquiring foreign businesses. Distinct from portfolio investment.
Foreign direct investment: Investment made by a firm in one country into business interests in another country, typically by establishing operations or acquiring business assets such as factories or stakes in foreign firms.
Franchise: A business model where a franchisor grants a franchisee the right to operate under its brand name and sell its products or services in exchange for fees and adherence to operational standards.
Free good: A good that is not scarce and has no opportunity cost, such as air. It does not require resources to produce or consume.
Free market economy: An economic system where resource allocation is determined by market forces (supply and demand) with no government intervention.
Free rider problem: When individuals benefit from a good without paying for it, as they cannot be excluded. This leads to under-provision of public goods by the market.
Free trade area: A group of countries that have eliminated tariffs and quotas between member states but maintain independent trade policies towards non-members. E.g. NAFTA/USMCA.
Frictional unemployment: Short-term unemployment that occurs when workers are between jobs, searching for new employment. Exists even in a healthy economy.
Full employment: The level of employment where all those willing and able to work at the prevailing wage rate are employed. Some frictional and structural unemployment may still exist.

Game theory: The study of strategic decision-making where each firm's optimal decision depends on the actions of rival firms. Used to analyse oligopolistic behaviour.
GDP per capita: GDP divided by the total population. Used as an indicator of average living standards, though it does not show distribution of income.
Gearing: A measure of the proportion of a firm's capital that is financed through long-term borrowing compared to equity. High gearing means greater financial risk but may offer higher returns to shareholders.
Geocentric approach: An international marketing approach that takes a global perspective, developing strategies that balance standardisation with local adaptation to serve worldwide markets effectively.
Geographical immobility: When workers cannot or will not move to where jobs are available, due to housing costs, family ties, regional attachments, or information gaps.
Gini coefficient: A numerical measure of inequality ranging from 0 (perfect equality) to 1 (perfect inequality). Calculated as the ratio of the area between the Lorenz curve and the line of equality to the total area below the line.
Global supply chain: A network of organisations, resources, and processes involved in the creation and delivery of a product across multiple countries, from raw materials to the final consumer.
Globalisation: The increasing integration and interdependence of world economies through the growth of international trade, capital flows, and migration.
Globalisation: The increasing integration and interdependence of the world's economies through the growth of international trade, investment, and the spread of technology and cultural influences.
Glocalisation: A business strategy that combines global standardisation with local adaptation, adjusting products, marketing, or operations to meet the specific needs and preferences of local markets.
Government failure: When government intervention leads to a worse allocation of resources than the free market would have achieved, or creates new inefficiencies.
Government spending: Spending by the government on public services, infrastructure, and transfer payments. A component of aggregate demand (G).
Gross Domestic Product: The total value of all goods and services produced within a country's borders in a given time period. The most common measure of national output.
Gross National Income: GDP plus net income from abroad (income earned by domestic residents overseas minus income earned by foreign residents domestically).
Gross profit margin: A profitability ratio calculated as gross profit divided by revenue, expressed as a percentage. It shows the proportion of revenue remaining after direct costs are deducted.

Harrod-Domar model: A growth model stating that economic growth depends on the level of savings (which determines investment) and the capital-output ratio. Growth = s/k where s = savings ratio, k = capital-output ratio.
Herzberg's two-factor theory: A motivation theory distinguishing between hygiene factors (e.g. pay, conditions) that prevent dissatisfaction and motivators (e.g. achievement, recognition) that actively create satisfaction and motivation.
Horizontal integration: A merger between firms at the same stage of production in the same industry. E.g. two car manufacturers merging.
Human Development Index: A composite measure of development combining GNI per capita, life expectancy, and mean/expected years of schooling. Ranges from 0 to 1.

Income elasticity of demand: A measure of the responsiveness of demand to a change in income. YED = % change in quantity demanded ÷ % change in income.
Income elasticity of demand: A measure of the responsiveness of quantity demanded to a change in consumer income. Positive values indicate normal goods; negative values indicate inferior goods.
Income inequality: The unequal distribution of income across a population. Measured by the Gini coefficient and the Lorenz curve.
Indirect tax: A tax placed on goods and services by the government, paid by producers but typically passed on to consumers through higher prices. E.g. VAT, excise duties.
Infant industry argument: The argument that new industries in developing countries need temporary protection from established foreign competitors until they achieve economies of scale and become competitive.
Inferior good: A good for which demand decreases as consumer income rises, as consumers switch to better alternatives. It has a negative income elasticity of demand (YED < 0).
Inflation: A sustained increase in the general price level of goods and services over time, reducing the purchasing power of money.
Inflation: A sustained increase in the general price level of goods and services in an economy over time, reducing the purchasing power of money.
Information failure: When economic agents do not have perfect knowledge, leading to a misallocation of resources. Consumers or producers may make sub-optimal decisions.
Injections: Additions to the circular flow of income that increase national income: investment (I), government spending (G), and exports (X).
Interest rate: The cost of borrowing money and the reward for saving. Set by the central bank as a tool of monetary policy.
Interest rate: The cost of borrowing money or the reward for saving, expressed as a percentage. Changes in interest rates affect consumer spending, business investment, and the exchange rate.
Internal economies of scale: Cost advantages that arise from within the firm as it grows larger. Types: technical, managerial, financial, marketing, purchasing, risk-bearing.
International competitiveness: A country's ability to sell its goods and services in international markets. Measured by relative unit labour costs, productivity, and export prices.
International competitiveness: The ability of a country's firms to compete successfully in global markets, influenced by factors such as productivity, exchange rates, costs of production, and innovation.
International Monetary Fund: An international institution that provides financial assistance and policy advice to countries facing balance of payments difficulties, often with conditions attached (structural adjustment).
Intrapreneurship: Entrepreneurial behaviour within an existing organisation, where employees are encouraged to develop new ideas, products, or processes, acting as innovators inside the firm.
Investment: Spending by firms on capital goods (machinery, equipment, buildings) that will be used to produce goods and services in the future.
Investment appraisal: The process of evaluating whether a proposed investment or project is worthwhile, using techniques such as payback period, average rate of return, and net present value.

J-curve effect: Following a depreciation, the current account initially worsens (due to inelastic demand in the short run) before improving as demand adjusts, creating a J-shaped pattern.
Joint venture: A strategic arrangement where two or more firms collaborate on a specific project or business activity while remaining independent entities.
Joint venture: A business arrangement where two or more firms agree to pool resources for a specific project or business activity while remaining separate entities. It allows risk and cost sharing.
Just-in-time: A lean production method where materials and components are delivered just as they are needed in the production process, reducing the need for stockholding and associated costs.

Kaizen: A Japanese philosophy of continuous improvement involving all employees in making small, incremental changes to processes, products, and systems to increase efficiency and quality over time.

Labour Force Survey: An internationally standardised survey (ILO measure) that counts those without a job who have actively sought work in the past 4 weeks and are available to start.
Labour retention: The ability of a business to keep its employees over time. High retention reduces recruitment and training costs and helps maintain organisational knowledge.
Laffer curve: A curve showing the theoretical relationship between tax rates and total tax revenue. Suggests that beyond an optimal rate, higher taxes reduce revenue by discouraging economic activity.
Law of demand: As the price of a good rises, the quantity demanded falls, and vice versa (ceteris paribus). This gives the demand curve its downward slope.
Law of diminishing returns: A short-run concept: as more units of a variable factor are added to a fixed factor, the marginal product of the variable factor eventually declines.
Law of supply: As the price of a good rises, the quantity supplied rises, and vice versa (ceteris paribus). This gives the supply curve its upward slope.
Leadership styles: The different approaches leaders use to direct, motivate, and manage their teams. Common styles include autocratic, democratic, paternalistic, and laissez-faire.
Lean production: An approach to management that aims to minimise waste and improve efficiency at every stage of the production process while maintaining quality.
Lewin's Force Field Analysis: A change management model that identifies the driving forces (pushing for change) and restraining forces (resisting change) acting on a situation. Change occurs when driving forces outweigh restraining forces.
Lewis dual-sector model: A development model describing the structural transformation from a traditional agricultural sector (with surplus labour) to a modern industrial sector (with higher productivity).
Limit pricing: Setting prices low enough to deter potential new entrants from entering the market, sacrificing short-term profits to maintain long-term market power.
Limited liability: The legal protection whereby shareholders can only lose the amount they invested in the business, not their personal assets.
Liquidity: The ability of a business to meet its short-term financial obligations as they fall due. Common liquidity measures include the current ratio and acid test ratio.
Long-run aggregate supply: Aggregate supply in the long run, which is vertical at the full employment level of output. Shows the economy's productive capacity.
Lorenz curve: A graphical representation of income or wealth distribution. The further the curve bows from the 45° line of perfect equality, the greater the inequality.

Managed exchange rate: An exchange rate that is primarily market-determined but with occasional government intervention to prevent excessive volatility or misalignment.
Marginal cost: The additional cost of producing one more unit of output. MC = ΔTC ÷ ΔQ. The MC curve intersects AC at its minimum point.
Marginal physical product: The additional output produced by employing one more unit of a variable factor (e.g. one more worker). Also called marginal product.
Marginal propensity to consume: The proportion of each additional pound of income that is spent on consumption. MPC = change in consumption ÷ change in income.
Marginal propensity to save: The proportion of each additional pound of income that is saved rather than spent. MPS = change in savings ÷ change in income. MPC + MPS = 1.
Marginal revenue: The additional revenue gained from selling one more unit of output. MR = ΔTR ÷ ΔQ. For a downward-sloping demand curve, MR lies below AR.
Marginal revenue product: The additional revenue a firm earns from employing one more worker. MRP = MPP × MR. A profit-maximising firm hires where MRP = W (the wage rate).
Marginal utility: The additional satisfaction gained from consuming one more unit of a good or service. It tends to diminish as consumption increases.
Market failure: When the free market fails to allocate resources efficiently, resulting in a misallocation of resources and a loss of economic welfare.
Market growth: The percentage increase in the total size of a market over a given period. A growing market presents opportunities for new and existing firms to increase sales.
Market mapping: A technique that positions products or brands on a grid using two key variables (e.g. price and quality) to identify gaps in the market and understand the competitive landscape.
Market orientation: A business approach that prioritises identifying and meeting customer needs and wants through market research before developing or modifying products.
Market research: The systematic gathering, recording, and analysing of data about customers, competitors, and the market. It includes primary research (original data) and secondary research (existing data).
Market share: The proportion of total market sales held by one business or brand, usually expressed as a percentage. It indicates a firm's competitive position within the market.
Market size: The total volume or value of sales in a market over a given period. It can be measured by the number of units sold (volume) or total revenue generated (value).
Marketing strategy: A long-term plan that outlines how a business will use its marketing mix to achieve its marketing objectives, taking into account market conditions and competition.
Marshall-Lerner condition: A devaluation/depreciation will improve the current account only if the sum of the price elasticities of demand for exports and imports is greater than one (PEDx + PEDm > 1).
Maslow's hierarchy of needs: A motivation theory proposing that human needs are arranged in five levels: physiological, safety, social, esteem, and self-actualisation. Lower-level needs must be met before higher-level needs motivate behaviour.
Mass market: The largest segment of a market in which products with broad appeal are targeted at the majority of consumers. Mass markets benefit from economies of scale but face intense competition.
Maximum price: A legally imposed price ceiling set below the equilibrium price. Designed to make goods affordable but may cause excess demand and shortages.
Maximum wage: A legally imposed price ceiling on wages. Effective only when set below the market equilibrium wage. Can cause labour shortages in affected occupations.
Merger: The joining of two or more businesses of roughly equal size to form a new, single entity. Both firms agree to combine their operations and share ownership.
Merit good: A good that is under-consumed in a free market because consumers underestimate its private benefits, or it generates positive externalities. E.g. education, healthcare.
Microfinance: The provision of small loans, savings accounts, and insurance products to low-income individuals and small businesses who lack access to traditional banking services.
Minimum efficient scale: The smallest level of output at which long-run average costs are minimised. Beyond this point, no further economies of scale are available.
Minimum price: A legally imposed price floor set above the equilibrium price. Designed to protect producers' incomes but may cause excess supply.
Minimum wage: A legally imposed price floor on wages. Effective only when set above the market equilibrium wage. Can increase or decrease employment depending on market structure.
Mission statement: A brief, formal statement of the core purpose and values of a business. It communicates to stakeholders why the organisation exists and what it aims to achieve.
Mixed economy: An economic system combining elements of both free market and government intervention in the allocation of resources.
Monetary policy: The use of interest rates, money supply, and exchange rates by the central bank to influence aggregate demand. Expansionary = lower interest rates.
Monopolistic competition: A market structure with many firms selling differentiated products, relatively low barriers to entry, and some degree of market power.
Monopoly: A market structure with a single firm or a dominant firm (25%+ market share in UK law) that is the sole supplier of a product with no close substitutes.
Monopsony: A market structure where there is only one buyer (or a dominant buyer). In labour markets, a monopsony employer can pay wages below the competitive level.
Monopsony employer: An employer with significant market power as the sole or dominant buyer of labour in a market, enabling it to pay wages below the competitive equilibrium.
Moral hazard: When one party takes greater risks because they know another party bears the cost. E.g. insured drivers being less careful.
Multinational corporation: A large company that operates in multiple countries, with production or service facilities outside its country of origin. MNCs benefit from economies of scale, access to new markets, and lower costs.
Multiplier effect: When an initial injection into the economy leads to a larger final increase in national income. The multiplier = 1 / (1 - MPC) or 1 / MPW.

National debt: The total amount of money owed by the government, accumulated from past budget deficits. Different from the annual budget deficit.
Nationalisation: The transfer of private sector businesses into public (government) ownership, often to protect jobs, ensure universal access, or control natural monopolies.
Natural monopoly: A market where the minimum efficient scale is so large relative to market demand that only one firm can operate profitably. Duplication of infrastructure would be wasteful.
Negative externality: A cost imposed on third parties not involved in the economic transaction. E.g. pollution from a factory affecting local residents.
Net exports: The value of a country's exports minus the value of its imports (X - M). Positive net exports add to aggregate demand.
Net present value: An investment appraisal method that calculates the total present value of future cash flows minus the initial investment, using a discount rate to account for the time value of money. A positive NPV suggests the investment is worthwhile.
Net profit margin: A profitability ratio calculated as net profit divided by revenue, expressed as a percentage. It shows the proportion of revenue remaining after all costs, including overheads, have been deducted.
Niche market: A small, specialist segment of a larger market where a business targets a specific group of customers with particular needs. Niche markets tend to have less competition but a smaller customer base.
Nominal GDP: GDP measured at current prices without adjusting for inflation. Also called money GDP. Can overstate actual growth during inflationary periods.
Non-governmental organisation: A non-profit organisation independent of government, often involved in development work, humanitarian aid, and advocacy. E.g. Oxfam, Médecins Sans Frontières.
Non-tariff barrier: Restrictions on imports other than tariffs, such as administrative rules, safety standards, labelling requirements, and bureaucratic procedures.
Normal good: A good for which demand increases as consumer income rises. It has a positive income elasticity of demand (YED > 0).
Normal profit: The minimum profit needed to keep a firm in the industry in the long run. It is the opportunity cost of the entrepreneur's capital and time. Occurs where AR = AC.
Normative statement: A subjective statement based on opinion or value judgements that cannot be tested. Often contains "should" or "ought". E.g. "The government should reduce taxes."

Occupational immobility: When workers lack the skills, qualifications, or training needed to move between different types of jobs, causing structural unemployment.
Offshoring: The relocation of a business process or operation from one country to another, typically to take advantage of lower labour costs, favourable regulations, or proximity to new markets.
Oligopoly: A market structure dominated by a few large firms, characterised by high barriers to entry, interdependence, and the potential for collusion.
Opportunity cost: The value of the next best alternative foregone when a choice is made. It represents the real cost of any decision.
Organic growth: Business expansion using the firm's own resources — e.g. increasing output, opening new stores, developing new products. Also called internal growth.
Organic growth: Internal growth achieved by a business expanding its own operations, such as increasing output, opening new stores, or developing new products, rather than through mergers or takeovers.
Organisational structure: The way in which a business arranges its staff and management into a hierarchy, defining roles, responsibilities, and lines of communication and authority.
Output gap: The difference between actual GDP and potential GDP. A positive gap means the economy is overheating; a negative gap means spare capacity exists.
Overdraft: A flexible, short-term source of finance that allows a business to withdraw more money from its bank account than it currently holds, up to an agreed limit. Interest is charged on the amount overdrawn.

Partnership: A business owned by two or more people who share profits, responsibilities, and liabilities. Most partnerships have unlimited liability.
Payback period: The length of time it takes for an investment to generate enough net cash inflows to recover its initial cost. Shorter payback periods are generally preferred as they reduce risk.
Penetration pricing: A pricing strategy where a low price is set when a product is first launched to attract customers and gain market share quickly, with the price raised later once established.
Perfect competition: A market structure with many small firms, identical products, perfect information, and no barriers to entry or exit. Firms are price takers.
Polycentric approach: An international marketing approach where each foreign market is treated as unique, with products, pricing, and promotion adapted to local tastes, customs, and conditions.
Porter's Generic Strategies: A framework identifying three main strategies for achieving competitive advantage: cost leadership (lowest cost producer), differentiation (unique product), and focus (targeting a narrow market segment).
Positive externality: A benefit received by third parties not involved in the economic transaction. E.g. vaccination reducing disease spread to unvaccinated people.
Positive statement: An objective, factual statement that can be tested and verified or falsified with evidence. E.g. "Inflation is 3%."
Potential output: The maximum level of output an economy can sustain without generating inflationary pressure. Determined by the quantity and quality of factors of production.
Prebisch-Singer hypothesis: The theory that the terms of trade for primary commodity exporters tend to decline over time relative to manufactured goods, trapping developing countries in poverty.
Predatory pricing: Setting prices below average cost to drive competitors out of the market, with the intention of raising prices once competition is eliminated.
Price discrimination: When a firm charges different prices to different consumers for the same product, where the price difference is not due to cost differences.
Price elasticity of demand: A measure of the responsiveness of quantity demanded to a change in price. PED = % change in quantity demanded ÷ % change in price.
Price elasticity of demand: A measure of the responsiveness of quantity demanded to a change in price. Calculated as the percentage change in quantity demanded divided by the percentage change in price.
Price elasticity of supply: A measure of the responsiveness of quantity supplied to a change in price. PES = % change in quantity supplied ÷ % change in price.
Price mechanism: The system by which changes in price allocate scarce resources through three functions: rationing, signalling, and incentivising.
Price skimming: A pricing strategy where a high price is initially set for a new or innovative product and then gradually lowered over time as competition increases or the novelty diminishes.
Primary product dependency: When a developing country relies heavily on exports of raw materials and agricultural products, making it vulnerable to commodity price volatility and declining terms of trade.
Principal-agent problem: A conflict of interest arising from the divorce of ownership and control, where managers (agents) may pursue their own objectives rather than those of shareholders (principals).
Prisoner's dilemma: A game theory model showing that individually rational decisions can lead to collectively suboptimal outcomes, explaining why cartels tend to break down.
Private benefit: The benefit of an economic activity received by the individual or firm directly involved in the transaction.
Private cost: The cost of an economic activity borne by the individual or firm directly involved in the transaction.
Private limited company: A company (Ltd) with limited liability whose shares are not publicly traded. Shareholders' personal assets are protected from business debts.
Privatisation: The transfer of ownership of state-owned enterprises to the private sector, intended to improve efficiency through the profit motive and competitive pressure.
Producer surplus: The difference between the price a producer receives and the minimum price they would be willing to accept. Shown as the area above the supply curve and below the market price.
Product differentiation: The process of making a product distinct from competitors through design, branding, quality, or features, giving consumers a reason to choose it over alternatives.
Product life cycle: The stages a product passes through from its introduction to decline: development, introduction, growth, maturity, and decline. Each stage has different marketing and cash-flow implications.
Product orientation: A business approach that focuses on the production process and the quality of the product itself, rather than on identifying and responding to customer needs.
Production possibility frontier: A curve showing the maximum possible combinations of two goods that can be produced with available resources. Points inside are inefficient; points outside are unattainable.
Productive efficiency: Achieved when a firm produces at the lowest possible average cost, using the minimum resources. Occurs at the minimum point of the AC curve.
Profit maximisation: The objective of producing at the output level where marginal cost equals marginal revenue (MC = MR), maximising the difference between total revenue and total cost.
Progressive tax: A tax where the proportion of income paid in tax rises as income increases. E.g. income tax with increasing marginal rates.
Promotion: The methods a business uses to communicate with customers and persuade them to buy its products, including advertising, sales promotion, personal selling, public relations, and digital marketing.
Proportional tax: A tax where the proportion of income paid in tax remains constant regardless of income level. Also called a flat tax.
Protectionism: Government policies that restrict or restrain international trade to protect domestic industries from foreign competition. Methods include tariffs, quotas, subsidies, and regulations.
Public good: A good that is non-excludable (cannot prevent non-payers from using it) and non-rivalrous (one person's use does not reduce availability for others). E.g. street lighting, national defence.
Public limited company: A company (plc) with limited liability whose shares are traded on the stock exchange, allowing it to raise large amounts of capital from the public.
Purchasing power parity: The theory that exchange rates adjust so that identical goods cost the same in different countries when expressed in a common currency. Used to compare living standards.

Quality management: A systematic approach to ensuring that products or services consistently meet or exceed customer expectations, through methods such as TQM, quality circles, and benchmarking.
Quantitative easing: An unconventional monetary policy where the central bank purchases government bonds to increase the money supply, lower interest rates, and stimulate economic activity.
Quota: A physical limit on the quantity of a good that can be imported. Restricts supply, raises domestic prices, and protects domestic producers from foreign competition.
Quota: A physical limit placed on the quantity of a particular good that can be imported into a country over a given period, restricting foreign competition.

Ratio analysis: The use of financial ratios to assess a firm's performance in areas such as profitability, liquidity, and gearing. Ratios are most useful when compared over time or against competitors.
Real GDP: GDP adjusted for inflation, giving a more accurate picture of actual output changes over time. Measured at constant prices.
Recession: Two or more consecutive quarters of negative economic growth (falling real GDP). Associated with rising unemployment and falling living standards.
Recruitment: The process of attracting and identifying suitable candidates for a job vacancy. It can be internal (within the firm) or external (outside the firm).
Regressive tax: A tax where the proportion of income paid in tax falls as income increases. E.g. VAT takes a larger share of income from lower earners.
Regulation: Government rules and laws that control the behaviour of firms and individuals. E.g. pollution limits, minimum wage, product standards.
Regulatory capture: When a regulator acts in the interests of the industry it is supposed to regulate, rather than in the public interest, due to lobbying or revolving-door employment.
Relative poverty: A condition where individuals have significantly less income than the average in their society. Often defined as below 60% of median household income.
Reshoring: The process of bringing business operations or manufacturing back to the company's home country, often driven by rising overseas costs, quality concerns, or a desire for shorter supply chains.
Revaluation: A deliberate increase in the value of a currency under a fixed exchange rate system, decided by the government.
Revenue: The total income a business receives from selling its goods or services over a given period. Calculated as selling price multiplied by quantity sold.
Revenue maximisation: The objective of producing at the output level where marginal revenue equals zero (MR = 0), maximising total revenue regardless of costs.

Sales maximisation: The objective of selling the maximum volume of output, subject to making at least normal profit. Occurs where AC = AR.
Satisficing: A behavioural theory where managers aim for satisfactory rather than maximum profits, pursuing other objectives like leisure, prestige, or market share.
Savings gap: The difference between the level of savings needed for investment-led growth (as per the Harrod-Domar model) and the actual level of domestic savings in a developing country.
Scarcity: The fundamental economic problem: unlimited wants exceed finite resources, forcing choices to be made about how to allocate resources.
Scenario planning: A strategic planning method in which managers create and analyse multiple plausible future situations to prepare the business for different outcomes and reduce the impact of uncertainty.
Short-run aggregate supply: Aggregate supply in the short run, which slopes upward as firms respond to higher prices by increasing output. Shifts when input costs change.
Shutdown point: In the short run, a firm shuts down if price falls below average variable cost (P < AVC). In the long run, a firm exits if price is below average cost (P < AC).
SMART targets: Objectives that are Specific, Measurable, Achievable, Realistic, and Time-bound. Setting SMART targets helps ensure goals are clear and progress can be tracked.
Social benefit: The total benefit of an economic activity, including both private benefits and external benefits. Social benefit = private benefit + external benefit.
Social cost: The total cost of an economic activity, including both private costs and external costs. Social cost = private cost + external cost.
Sole trader: A business owned and run by one person with unlimited liability. The owner keeps all profits but is personally liable for all debts.
Sources of finance: The various methods a business can use to raise money, broadly classified as internal (e.g. retained profit, sale of assets) or external (e.g. bank loans, share capital, venture capital).
Span of control: The number of subordinates that a manager directly supervises. A wide span means more subordinates; a narrow span means fewer, allowing closer supervision.
Specialisation: When individuals, firms, or countries concentrate on producing a limited range of goods in which they have an advantage, increasing efficiency and output.
Stakeholder: Any individual or group that has an interest in or is affected by the activities of a business, including employees, customers, shareholders, suppliers, the government, and the local community.
Stakeholder conflict: A situation where the interests of different stakeholder groups clash, requiring the business to prioritise or compromise between competing demands.
State-owned enterprise: A business owned and controlled by the government, typically operating in industries considered strategically important or natural monopolies.
Stock control: The management of inventory levels to ensure a business holds enough stock to meet demand without incurring excessive storage costs or risking stockouts.
Structural deficit: The part of the fiscal deficit that persists even when the economy is at full employment. Caused by a fundamental imbalance between spending and revenue.
Structural unemployment: Unemployment caused by a mismatch between workers' skills and the skills demanded by employers, often due to changes in the structure of the economy.
Subsidy: A payment by the government to producers to lower costs of production, encourage output, and reduce the market price. Shifts the supply curve to the right.
Substitute good: A good that can be used in place of another. A rise in the price of one leads to an increase in demand for its substitute (positive XED).
Sunk costs: Costs that cannot be recovered if a firm exits the market. E.g. advertising expenditure, specialised equipment. High sunk costs reduce contestability.
Supernormal profit: Profit above normal profit, where total revenue exceeds total cost including normal profit. Also called abnormal or economic profit. Occurs where AR > AC.
Supply: The quantity of a good or service that producers are willing and able to offer for sale at a given price in a given time period.
Supply: The quantity of a good or service that producers are willing and able to offer for sale at a given price in a given time period.
Supply-side policy: Government policies aimed at increasing the productive capacity of the economy (shifting LRAS right). E.g. education, deregulation, tax reform.
SWOT analysis: A strategic planning tool that evaluates a firm's internal Strengths and Weaknesses and external Opportunities and Threats, used to inform decision-making and strategy formulation.

Takeover: The acquisition of one company by another, often by purchasing a controlling share of its stock. Takeovers can be friendly (agreed) or hostile (opposed by the target firm's board).
Tariff: A tax imposed on imported goods, raising the domestic price of imports to protect domestic producers. Creates deadweight loss and reduces consumer surplus.
Tariff: A tax imposed on imported goods, raising their price to make them less competitive compared to domestically produced alternatives. Tariffs are a common form of protectionism.
Taxation: Compulsory payments levied by the government on individuals and businesses. Direct taxes (e.g. income tax, corporation tax) are charged on income or profit; indirect taxes (e.g. VAT) are charged on spending.
Taylor's scientific management: A management theory proposing that workers are primarily motivated by money and that productivity is maximised by breaking tasks into small, repetitive steps, closely supervising workers, and offering piece-rate pay.
Terms of trade: The ratio of a country's export prices to its import prices. Calculated as (index of export prices ÷ index of import prices) × 100. An improvement means exports buy more imports.
Third-degree price discrimination: Charging different prices to different groups of consumers based on their elasticity of demand. Requires market segmentation, prevention of resale, and market power.
Total cost: The sum of all costs of production. TC = Total Fixed Costs + Total Variable Costs.
Total quality management: A management philosophy where quality is the responsibility of every employee in the organisation, not just the quality control department. It involves continuous improvement at all levels.
Total revenue: The total income a firm receives from selling its output. TR = Price × Quantity.
Tradable permits: Government-issued permits allowing firms to pollute a set amount. Firms can buy and sell permits, creating a market-based incentive to reduce pollution.
Trade creation: When joining a trading bloc leads to a shift from a high-cost domestic producer to a lower-cost producer within the bloc, increasing efficiency and welfare.
Trade credit: An arrangement where a supplier allows a business to receive goods or services now and pay for them at a later date, typically 30 to 90 days, providing short-term finance.
Trade deficit: When the value of a country's imports exceeds the value of its exports, resulting in a negative balance of trade.
Trade diversion: When joining a trading bloc leads to a shift from a lower-cost non-member producer to a higher-cost member producer due to the common external tariff, reducing efficiency.
Trade liberalisation: The removal or reduction of barriers to international trade, such as tariffs, quotas, and non-tariff barriers, to promote free trade.
Trade liberalisation: The removal or reduction of government restrictions on international trade, such as tariffs and quotas, to encourage the free flow of goods and services between countries.
Trade surplus: When the value of a country's exports exceeds the value of its imports, resulting in a positive balance of trade.
Trade union: An organisation of workers that collectively bargains with employers for higher wages, better working conditions, and employment protection.
Training: The process of improving employees' skills and knowledge to help them perform their jobs more effectively. Types include on-the-job training, off-the-job training, and induction.
Transfer payments: Payments from the government to individuals for which no goods or services are provided in return. E.g. pensions, unemployment benefits, disability allowance.
Transfer pricing: The practice by TNCs of manipulating prices charged between their own subsidiaries across countries to shift profits to low-tax jurisdictions, reducing overall tax liability.
Transfer pricing: The pricing of goods, services, or assets transferred between divisions of the same multinational corporation, often set to minimise tax liabilities across different jurisdictions.
Transnational corporation: A large company that operates in multiple countries, with production facilities or operations outside its home country. Also called a multinational corporation (MNC).

Unemployment: When people who are willing and able to work at the prevailing wage rate cannot find employment.
Unique selling point: A feature or characteristic that distinguishes a product or service from its competitors and provides a clear reason for customers to buy it. Also known as a USP.
Unlimited liability: When a business owner is personally responsible for all business debts, meaning personal assets can be seized to pay creditors.
Utility: The satisfaction or benefit a consumer derives from consuming a good or service.

Variable costs: Costs that change directly with the level of output. E.g. raw materials, energy, wages of hourly workers.
Variable costs: Costs that change in direct proportion to the level of output, such as raw materials and piece-rate labour. Total variable costs rise as production increases.
Variance analysis: The process of calculating and investigating the differences between budgeted figures and actual results. Favourable variances are better than expected; adverse variances are worse.
Venture capital: Finance provided by specialist investors to businesses with high growth potential in exchange for an equity stake. It involves high risk but offers both funding and expertise.
Vertical integration: A merger between firms at different stages of production in the same industry. Forward = towards consumer; backward = towards raw materials.

Wage rate: The price of labour, determined by the interaction of labour demand and supply in a competitive market, or by employer/union power in non-competitive markets.
Wealth inequality: The unequal distribution of assets (property, savings, investments) across a population. Typically more unequal than income distribution.
Withdrawals: Leakages from the circular flow of income that reduce national income: savings (S), taxation (T), and imports (M). Also called leakages.
World Bank: An international institution that provides loans and grants to developing countries for capital projects and development programmes, aiming to reduce poverty.
World Trade Organization: An international organisation that sets rules for global trade, facilitates trade negotiations, and provides a dispute settlement mechanism. Successor to GATT.

X-inefficiency: When a firm operates above its lowest possible cost curve due to lack of competitive pressure, resulting in organisational slack and waste.

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