AP® Business with Personal Finance Unit 1 flashcardsBusinesses, Competition, and New Ideas

Business

Any organization that makes and delivers goods or services. A business can be one person selling online or a global company.

Topic 1.1: What Is a Business?

Customer

The person or business that buys a product. The customer isn't always the one who uses it.

Topic 1.1: What Is a Business?

Consumer

The person who uses a product, whether or not they paid for it. A child eating a lunch a parent bought is the consumer.

Topic 1.1: What Is a Business?

Problem-solution fit

When a product actually solves a real problem, need or want that customers have. It's the first thing a new idea must achieve.

Topic 1.1: What Is a Business?

Value creation

What happens when a product solves a customer's problem, need or want. The customer gets something worth having.

Topic 1.1: What Is a Business?

Value capture

When a business can charge more for a product than it cost to make. The gap between price and cost is what the business keeps.

Topic 1.1: What Is a Business?

Market

Any place, in person or online, where sellers and buyers meet to trade. Markets can be local, regional or global.

Topic 1.2: Markets and Competitive Advantage

Market price

The price that tends to win out in a competitive market as sellers push for higher prices and buyers push for lower ones.

Topic 1.2: Markets and Competitive Advantage

Competitive advantage

The ability to beat rivals in the same market, which can raise market share and profits. You can chase it with low prices, a better product or barriers to entry.

Topic 1.2: Markets and Competitive Advantage

Differentiated product

A product with features that set it apart from rivals' products, such as higher quality, unique features or better service.

Topic 1.2: Markets and Competitive Advantage

Barriers to entry

Obstacles that make it hard for new businesses to enter a market, such as patents, high startup costs, exclusive supplier deals or rules that limit rivals.

Topic 1.2: Markets and Competitive Advantage

Monopoly

A market with only one seller of a unique product and no competition. A monopoly tries to keep its barriers to entry in place.

Topic 1.2: Markets and Competitive Advantage

PESTEL framework

A checklist of outside forces that shape a market: political, economic, social, technological, environmental and legal. Use it to judge a market's appeal and risks.

Topic 1.3: PESTEL Factors and the Business Environment

Political factors

Government policies and politics that affect business, such as taxes, subsidies, trade policy, mandates, bans and how stable the government is.

Topic 1.3: PESTEL Factors and the Business Environment

Economic factors

Conditions in the economy that affect business, such as household income, inflation, unemployment and interest rates.

Topic 1.3: PESTEL Factors and the Business Environment

Social factors

Trends in society and culture that shape what people want, such as age groups, lifestyles, cultural norms and population growth.

Topic 1.3: PESTEL Factors and the Business Environment

Technological factors

The technology available to a market, such as internet access, automation and how quickly new inventions arrive.

Topic 1.3: PESTEL Factors and the Business Environment

Environmental factors

Natural conditions that help or limit business, such as climate, geography, access to resources, natural disasters and customers' views on the environment.

Topic 1.3: PESTEL Factors and the Business Environment

Legal factors

Specific laws and rules a business must follow, such as employment, consumer protection, health and safety, and intellectual property laws.

Topic 1.3: PESTEL Factors and the Business Environment

Entrepreneur

A person who starts a new business and takes on its risks and possible rewards, like profit or the satisfaction of solving a problem.

Topic 1.4: How Do Business Ideas Originate?

Design thinking

A process for new ideas: observe and talk to customers to confirm a problem, develop a solution, then test the simplest version with customers.

Topic 1.4: How Do Business Ideas Originate?

Validation

Gathering evidence that a problem is real and shared by many customers, or that customers want your solution, before spending big.

Topic 1.4: How Do Business Ideas Originate?

Minimum viable product (MVP)

The simplest version of a product idea, with only its core features. It can be a sketch, description or model used to get early feedback.

Topic 1.4: How Do Business Ideas Originate?

Core values

The beliefs and principles that guide a person's or business's choices, such as honesty, creativity or reliability.

Topic 1.5: Vision

Core competencies

The skills and strengths that help a person or business outperform rivals, such as innovation, efficiency or customer service.

Topic 1.5: Vision

Vision statement

A short statement of a business's core values and its hopes for the future. It gives everyone a shared sense of purpose.

Topic 1.5: Vision

Mission statement

Explains what a business does day to day and how it plans to reach its long-term goals.

Topic 1.5: Vision

Social enterprise

A business that aims to make a profit and also reach a social goal, through its products, its operations or how it uses its money.

Topic 1.5: Vision

Nonprofit organization

An organization that serves the public good instead of making profit for owners. By law, any surplus goes back into the organization.

Topic 1.5: Vision

Code of conduct

A business's written rules for ethical behavior. With training, consequences and good role models, it helps prevent wrongdoing.

Topic 1.6: Business Ethics

Ethical dilemma

A situation where a core value, like honesty, clashes with another value or with a business goal, so every choice has a cost.

Topic 1.6: Business Ethics

Internal stakeholders

People directly involved in running a business, such as owners, managers and employees.

Topic 1.6: Business Ethics

External stakeholders

People and groups outside a business who are affected by its choices, such as customers, government agencies and the community.

Topic 1.6: Business Ethics

Sole proprietorship

A business owned by one person, who keeps control and all the profits but is personally liable for all business debts.

Topic 1.7: Organization, Roles, and Responsibilities

Partnership

A business owned by two or more people who share control, profits and work. Partners are personally liable for business debts.

Topic 1.7: Organization, Roles, and Responsibilities

Limited liability company (LLC)

A business type that lets owners keep control while protecting their personal assets from the business's debts.

Topic 1.7: Organization, Roles, and Responsibilities

Corporation

A business owned by shareholders and overseen by a board of directors. It can raise more money, but owners give up some control.

Topic 1.7: Organization, Roles, and Responsibilities

Outsourcing

Paying another business to handle a task, such as payroll or manufacturing, usually to cut costs or get skills you don't have.

Topic 1.7: Organization, Roles, and Responsibilities

Supply chain

Everyone involved in getting a product from raw materials to the final customer. Services have supply chains too: staff, tools and delivery systems.

Topic 1.8: Supply Chains

Artisan vs. mass production

Artisan production uses skilled workers and careful detail, often in small amounts. Mass production uses machines and assembly lines to make large amounts.

Topic 1.8: Supply Chains