1.1: Scarcity, choice and potential conflicts

Question 1

Scarcity

Answer 1

Individuals, businesses and governments all have unlimited wants but only limited or finite resources with which to satisfy those wants.

Question 2

Free market economy

Answer 2

One where there is no interference from outside agencies such as the government.
Market forces of demand and supply that determine the allocation of resources.

Question 3

Opportunity cost

Answer 3

The cost of the next best alternative that has been sacrificed.
E.g: The opportunity cost of a business buying a new delivery may be the new computer system that they have had to forgo.

Question 4

Trade - off

Answer 4

A situation where having more of one thing leads to having less of another.

Question 5

Profit maximisation

Answer 5

Involves short or long run processes by which a firm determines the price and output level that returns the greatest profit.
This will be the output that the difference between costs and revenue is greatest. (not necessarily the most that can be produced)

Question 6

Sales maximisation

Answer 6

Achieved when the firm sells as much as possible without making a loss.
Often very important objective in very competitive markets or for not-for-profit organisations

Question 7

Satisficing

Answer 7

Occurs when a firm does not seek maximum profit or sales ,but achieves a ‘good enough’ level of profit that ensures survival without undue stress and worry.

Question 8

Survival

Answer 8

Long term goal
Covering costs matter most when a firm is facing adverse or hostile conditions such as recession or intense competition

Question 9

Market share

Answer 9

May be the main objective
Either to expand and gain a certain share of the market in order to increase market power, or to maintain market share in the face of competition

Question 10

Cost efficiency

Answer 10

Can be the main objective, especially if a firm is facing tough trading conditions and is in danger of making a loss

Question 11

Return on investment

Answer 11

How well the business can use its assets to generate profit
May be main objective if there is pressure from shareholders or need for investment capital for a new project
Affects the ability of the firm to repay its loans

Question 12

Employee welfare

Answer 12

Involves making sure that pay is adequate and working conditions are good.
Some businesses target this objective for ethical reasons
Others find that it increases productivity and staff retention, both of which reduces costs

Question 13

Customer satisfaction

Answer 13

Source of competitive advantage and for some businesses this may be a crucial selling point

Question 14

Social objectives

Answer 14

Important when the business aims to create benefits for society by pursuing social, environmental or ethical goals

Question 15

Stakeholders

Answer 15

Individuals or groups with an interest in the actions of a business.
Include: employees, owners and shareholders, customers, suppliers, the local community, pressure groups, creditors, the government and the environment

Question 16

Economic agents

Answer 16

Include all those who take decisions to buy, spend, produce, sell, or in any way affect how resources are used.

Question 17

The Shareholder Model

Answer 17

Profit maximisation is the main priority of the managers.
Managers should concentrate on the best interests of the shareholders.
If shareholders want short-run profit maximisation at the expense of long-term growth, then it is the responsibility of business managers to deliver this.

Question 18

Disadvantages of the shareholder model

Answer 18

It is too short-term as the immediate pursuit of profit is not always in the best long term interests of the business.
This can lead to missed opportunities as sometimes investments may be profitable over a long period.

Question 19

Shareholders

Answer 19

Part-owners of the business.
Have either played a part in financing the business directly, or have bought shares from someone else or on the Stock Exchange.
They receive a dividend in return

Question 20

The Stakeholder Model

Answer 20

Managers have a responsibilty to take account of the interests of all the stakeholder groups that are affected.

Question 21

Benefits of the stakeholder model

Answer 21

Improved image perception by consumers, leading to greater sales and increased competitive advantage.
Improved retention and motivation of staff.
Closer relationships with suppliers, leading to a better quality and more reliable service.
A reduction in the disruption of commercial activities by pressure groups
A reputation for reliability and stability that may result from paying creditors on time
Improved PR, resulting in more favourable media coverage.

Question 22

Shareholders interests

Answer 22

They want to maximise profits

Question 23

Employees interest

Answer 23

They want better pay and conditions

Question 24

Customers interest

Answer 24

They want lower pay and better service

Question 25

Governments interest

Answer 25

It wants tax revenue

Question 26

Local community’s interests

Answer 26

They want minimum disruption and help with local infrastructure developments.

Question 27

Environments interests

Answer 27

It needs protecting from excessive business activity

Question 28

Stakeholder conflicts

Answer 28

Trade-off between competing interests of stakeholders.

Question 29

Corporate culture

Answer 29

The set of important assumptions that are shared by people working in a particular business and influence the ways in which decisions are taken there.

Question 30

Corporate social responsibilty

Answer 30

It means taking decisions in a way that takes into account all stakeholder’s interests
Treating employees fairly, avoiding polluting activities and contributing positively to lives in the local community might all be a part of this

Question 31

Reasons for implementing a CSR policy

Answer 31

A genuine desire to behave responsibly
A wish to show a positive public image
A positive marketing ploy
A smokescreen to hide behind
It can increase sales
It improves stakeholders relationships and can reduce potential conflicts
It can help foster a good public image and reputation.