1.1 Flashcards
what is economics?
the production, consumption and transfer of wealth
what is the basic economic problem?
needs and wants are endless but the resources to satisfy them are finite
what are the 3 basic questions by Samuelson?
- what to produce
- how to produce it
- whom to produce it for
what does scarcity mean?
limited availability
what is a trade-off?
when one use is chosen in preference to another
what is opportunity cost?
the value of the next best alternative foregone
what are the 3 main objectives for firms?
profit maximisation
sales maximisation
profit satisficing
what is profit maximisation?
the traditional firm theory aiming to maximise profits
what is the formula for profit maximisation?
MC=MR
when does a firm profit maximise?
when operating at a price and output that produces the greatest amount of profit
what is sales maximisation?
when a firm aims to sell as much as possible without making a loss
what is the formula for sales maximisation?
AC=AR
what is profit satisficing?
a more ethical way where they earn just enough profit to keep shareholders happy
what is a divorce of ownership and control?
conflict between shareholders and managers
what are other objectives of firms? (7)
survival
market share
cost efficiency
ROI
welfare of the labour force
customer satisfaction
CSR
what is a creditor?
an individual or institution that extends credit to another party usually by a loan agreement or contract
what are the internal influences in dealing with stakeholders?
leadership style
objectives
size of business
what are the external influences in dealing with stakeholders?
market conditions
stakeholder power
government politics
what are the axis on the stakeholder mapping model?
(Y) stakeholder power high to low
(X) stakeholder interest high to low
what are the categories within the stakeholder mapping model and where do they lie?
keep satisfied (Y=high X=low)
monitor-minimum effort (Y=low X=low)
manage closely (Y=high X=high)
keep informed (Y=low X=high)
what do economic agents do?
make economic decisions, knowing that different factors influence and motivate different economic groups
who are the economic agents?
consumers
firms
the government
what are consumers?
those who consume products/services by financial purpose
what are firms?
those who transform factors of production into goods/services that can be sold
what is the government?
providers of laws on how consumers and firms should interact
what is the principal agent problem?
when asymmetric (one-sided) information from the agent (manager) makes decisions for the principal (shareholder)
what is a positive statement?
a fact or relationship in the world that is based on evidence and can be tested as it is objective
what is a normative statement?
a value judgment about what should be, it’s not based on facts and cannot be tested as it’s subjective
