Glossary – Economics

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Compound Growth – A measure of how much something (typically an investment) grew on average, per year, over a multi-year period, as a result of the effects of compounding. As an example, a 7% compound growth rate over 10 years would result in R100 becoming almost R200. But without compounding that same R100 would only earn R7 each year and reach just R170 over 10 years.

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Economies of Scale – Efficiencies in the production and supply of goods, achieved through increased numbers. While the benefits can be internal to an organisation (lower manufacturing or transport costs, for example), they are most commonly associated with the lower unit cost which is passed on to the consumer or end user. Typically businesses find that, as production output increases, they achieve lower costs per unit. However, there can also be Diseconomies of Scale, where increased demand for a product or service means a business has to invest in new infrastructure or technology, causing the unit cost to rise.

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Opportunity Analysis(Market Opportunity Analysis) – This is the analysis of market factors which could impact on a business, in order to develop forecasts which senior management and/or the board can use to set long-term policies and strategies. Factors may include: likely market growth or shrinkage; likely competitor activity; economic forecasts; consumer trends; political factors such as change of government policy, etc.

Opportunity Cost – An economics term for the benefit that a business could have gained by putting the same resources to a different use. For example, a company may be faced with the choice of upgrading its production line to produce more of its current range, or to install a new production line to manufacture an all-new product. Opportunity Cost is, therefore, an important part of the long-term decision-making process of a business

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