either because such activity does not pass through the market place or because it is illegal. Illegality is not the same as nonmarketed activity. Illegal economic activity may operate quite efficiently in the usual PRICE SYSTEM, which is determined by SUPPLY and DEMAND. Examples may be the purchase and sale of illegal drugs on the street, or alcohol in the US prohibition era of the 1920s, or foodstuffs in Britain during the Second World War when RATIONING was in force. Nonmarketed activity does not have a price determined by demand and supply. Certain nonmarketed activity may be undertaken for altruistic reasons, for example, the services of a housewife on behalf of her family and the work of charity volunteers. Other nonmarketed activity is done on a BARTER basis, for example, where a mechanic services the motor car of an electrician who in return installs new light fittings in the mechanic’s house. Money has not changed hands and the activity is not recorded. Most references to the black economy refer to the illegal situation of people working without declaring their income. See BLACK MARKET.
black knight see TAKEOVER BID.
black market an ‘unofficial’market that often arises when the government holds down the price of a product below its equilibrium rate and is then forced to operate a RATIONING system to allocate the available supply between buyers. Given that some buyers are prepared to pay a higher price, some dealers will be tempted to divert supplies away from the ‘official’ market by creating an under-the-counter secondary market. See BLACK ECONOMY.
board of directors the group responsible to the SHAREHOLDERS for running a JOINT-STOCK COMPANY. Often, boards of directors are made up of full-time salaried company executives (the executive directors) and part-time, nonexecutive directors. The board of directors meets periodically under the company chairman to decide on major policy matters within the company and the appointment of key managers. Directors are elected by rotation at the company ANNUAL GENERAL MEETING. See TWO-TIER BOARD, CORPORATE GOVERNANCE.
bond a FINANCIAL SECURITY issued by businesses and by the government as a means of BORROWING long-term funds. Bonds are typically issued for periods of several years; they are repayable on maturity and bear a fixed NOMINAL (COUPON) INTEREST RATE. Once a bond has been issued at its nominal value, then the market price at which it is sold subsequently will vary in order to keep the EFFECTIVE INTEREST RATE on the bond in line with current prevailing interest rates. For example, a £100 bond with a nominal 5% interest rate paying £5 per year would have to be priced at £50 if current market interest rates were 10%, so that a buyer could earn an effective return of £5/50 = 10% on his investment.
In addition to their role as a means of borrowing money, government bonds are used by the monetary authorities as a means of regulating the MONEY SUPPLY. For example, if the authorities wish to reduce the money supply, they can issue bonds to the general public, thereby reducing the liquidity of the banking system as customers draw cheques to pay for these bonds. See also OPEN MARKET OPERATION, BANK DEPOSIT CREATION, PUBLIC SECTOR BORROWING REQUIREMENT, SPECULATIVE DEMAND FOR MONEY, CONSOLS.
bonus scheme a form of INCENTIVE PAY SCHEME wherein an individual’s or group’s WAGES are based on achievement of individual or group output targets. Bonus schemes often provide for a guaranteed basic wage for employees. See PAY.
bonus shares SHARES issued to existing SHAREHOLDERS in a JOINT-STOCK COMPANY without further payment on their part. See CAPITALIZATION ISSUE.
boom a phase of the BUSINESS CYCLE characterized by FULL EMPLOYMENT levels of output (ACTUAL GROSS NATIONAL PRODUCT) and some upward pressure on the general PRICE LEVEL (see INFLATIONARY GAP). Boom conditions are dependent on there being a high level of AGGREGATE DEMAND, which may come about autonomously or be induced by expansionary FISCAL POLICY and MONETARY POLICY. See DEMAND MANAGEMENT.
borrower a person, firm or institution that obtains a LOAN from a LENDER in order to finance CONSUMPTION or INVESTMENT. Borrowers are frequently required to offer some COLLATERAL SECURITY to lenders, for example, property deeds, which lenders may retain in the event of borrowers failing to repay the loan. See DEBT, DEBTOR, FINANCIAL SYSTEM.
Boston matrix a matrix (developed by the Boston Consulting Group) for analysing product-development policy within a firm and the cash-flow implications of product development. Fig. 16 shows the matrix, which is used to identify products that are cash generators and products that are cash users. One axis of the matrix measures market growth rate: because the faster the growth rate for a product the greater will be the capital investment required and cash used. The other axis measures market share: because the larger the market share the greater will be the profit earned and cash generated. The market growth/share matrix encompasses four extreme product types:
(a) star products – those that have a high growth rate (so that they tend to use cash) and a high market share (so that they tend to generate cash). Star products are usually new products in the growth phase of the PRODUCT LIFE CYCLE.
(b) problem child products – those that have a high growth rate (and so tend to use cash) and a low market share (so that they tend to generate little cash). Problem products are frequently a cash drain but they have potential if their market share can be improved.
(c) cash cow products – those that have a low growth rate and a high market share (so that they tend to generate a lot of cash). Cash cows are usually mature products in the later phases of the product life cycle.
Fig. 16 Boston matrix. The matrix identifies cash generators and cash users.
(d) dog products – those that have a low growth rate and a low market share and tend to generate little cash. Dog products generally have little potential for future development.
It is important for any firm to have a balanced portfolio of mature ‘cash cow’ products, newer ‘stars’, etc., and to use the cash generated by cash cows to help the development of ‘problem children’ if its product development policy is to ensure the firm’s long-term survival. See PRODUCT PERFORMANCE, DIVERSIFICATION, PRODUCT-MARKET MATRIX.
bounded rationality limits on the capabilities of people to deal with complexity, process information and pursue rational aims. Bounded rationality prevents parties to a CONTRACT from contemplating or enumerating every contingency that might arise during a TRANSACTION, so preventing them from writing complete contracts.
boycott 1 the withholding of supplies of GOODS from a distributor by a producer or producers in order to force that distributor to resell those goods only on terms specified by the producer. In the past, boycotts were often used as a means of enforcing RESALE PRICE MAINTENANCE.
2 the prohibition of certain imports or exports, or a complete ban on INTERNATIONAL TRADE with a particular country by other countries.
brand the name, term or symbol given to a product by a supplier in order to distinguish his offering from that of similar products supplied by competitors. Brand names are used as a focal point of PRODUCT DIFFERENTIATION between suppliers.
In most countries, brand names and trade marks are required to be registered with a central authority so as to ensure that they are uniquely applied to a single, specific product. This makes it easier for consumers to identify the product when making a purchase and also protects suppliers against unscrupulous imitators. See INTELLECTUAL PROPERTY RIGHTS, BRAND TRANSFERENCE.
brand loyalty the continuing willingness of consumers to purchase and repurchase the brand of a particular supplier in preference to competitive products. Suppliers cultivate brand loyalty by PRODUCT-DIFFERENTIATION strategies aimed at emphasizing
