NCEA Level 2 Business Studies flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Opportunity cost

The value of the next best alternative forgone when a business chooses one option over another. It is a measure of the real cost of a decision, not just the money spent.

Factors of production

The resources used to produce goods and services: land (natural resources), labour (human effort), capital (machinery, equipment, finance) and enterprise (risk-taking and organisation).

Need versus want

A need is something essential for survival, such as food or shelter. A want is something desirable that improves wellbeing but is not necessary, such as a smartphone upgrade.

Unlimited liability

A legal position where the owner of a business (e.g. a sole trader) is personally responsible for business debts, meaning personal assets can be used to repay them.

Limited liability

A legal protection for shareholders of a company, meaning their personal liability is limited to the amount they invested in shares. The company is a separate legal entity.

Stakeholder

Any individual or group affected by or with an interest in a business's activities, such as owners, employees, customers, suppliers, the local community and government agencies.

Business objective

A specific, measurable goal a business aims to achieve, such as increasing profit, growing market share, surviving a downturn, or reducing environmental impact.

Profit formula

Profit equals total revenue minus total costs. Revenue is price multiplied by quantity sold. If costs exceed revenue, the business makes a loss.

Sole trader

A business owned and operated by one person. It is simple to set up and the owner keeps all profits, but the owner has unlimited liability for business debts.

Partnership

A business owned by two or more people who share profits, losses and decision-making, usually governed by a partnership agreement. Liability is generally shared among partners.

Company (registered)

A business structure that is a separate legal entity from its owners. Shareholders have limited liability, and the company can raise capital by issuing shares.

Inputs, processes, outputs

A model of business activity: inputs (resources such as materials and labour) are transformed through processes (production and operations) into outputs (goods and services sold to customers).

Law of demand

The principle that, all else being equal, as the price of a good or service rises, the quantity demanded falls, and as price falls, quantity demanded rises.

Law of supply

The principle that, all else being equal, as the price of a good or service rises, producers are willing to supply more of it, because higher prices can increase profitability.

Market equilibrium

The point in a market where the quantity demanded by consumers equals the quantity supplied by producers, establishing a stable market price with no shortage or surplus.

Market structure

The characteristics of a market, including the number of buyers and sellers, product similarity and barriers to entry. Examples range from perfect competition to monopoly.

Monopoly

A market structure with a single seller supplying a product with no close substitutes, giving the firm significant market power to set prices and limit competition.

Perfect competition

A theoretical market structure with many buyers and sellers, identical products, perfect information and no barriers to entry, so no single firm can influence price.

Market segmentation

Dividing a broad market into smaller groups of consumers with similar characteristics or needs, such as by age, income, location, lifestyle or buying behaviour.

Target market

The specific group of consumers a business aims its product, price, place and promotion at, chosen because the group's needs match what the business offers.

Marketing mix (4Ps)

The four controllable elements of marketing: Product (what is offered), Price (what is charged), Place (how it reaches customers) and Promotion (how customers are informed and persuaded).

Penetration pricing

A pricing strategy that sets a low initial price to attract customers quickly and build market share, often later raised once the product is established.

Price skimming

A pricing strategy that sets a high initial price to maximise revenue from early adopters, then lowers the price over time as competition increases.

Cost-plus pricing

A pricing method that calculates the total cost per unit and adds a fixed markup or profit margin, ensuring each sale contributes to covering costs and generating profit.

Break-even output

The number of units a business must sell to cover all costs, calculated as fixed costs divided by the contribution per unit (price minus variable cost per unit).

Contribution margin

The amount each unit sold contributes towards covering fixed costs and then generating profit, calculated as selling price per unit minus variable cost per unit.

Fixed versus variable costs

Fixed costs do not change with output level (e.g. rent), while variable costs change directly with output (e.g. raw materials). Total cost is their sum.

Cash flow versus profit

Cash flow tracks the timing of money entering and leaving the business; profit matches revenue against expenses over a period. A profitable business can still run out of cash.

Income statement

A financial statement showing revenue, expenses and profit or loss over a period. It indicates whether the business operated profitably during that time.

Balance sheet

A financial statement showing a business's assets, liabilities and equity at a point in time. It is based on the accounting equation: assets equal liabilities plus equity.

Working capital

The money available for day-to-day operations, calculated as current assets minus current liabilities. Positive working capital helps a business meet short-term obligations.

SWOT analysis

A planning tool that identifies a business's internal Strengths and Weaknesses and external Opportunities and Threats, helping inform strategy and decision-making.