1.1: Scarcity, choice and potential conflicts Flashcards
what is scarcity
Individuals, businesses and governments all have unlimited wants but only limited or finite resources with which to satisfy those wants.
what is a free market economy
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.
what is an opportunity cost + example for c, b and g
The cost of the next best alternative that has been sacrificed.
c: decide what to spend money on, a new dress or a new foundation
b: decide what to invest in, new computer system or delivery van
g: spend on healthcare or education
what is a trade - off
A situation where having more of one thing leads to having less of another.
what is profit maximisation
Involves short or long run processes by which a firm determines the price and output level that returns the greatest profit.
output that the difference between costs and revenue is greatest. (not necessarily the most that can be produced)
e.g. pharmaceutical companies like Pfizer
what is sales maximisation
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
e.g. Netflix short run
what is satisficing
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.
e.g. small coffee shops that people go to work in
what is survival
Covering costs matter most when a firm is facing adverse or hostile conditions such as recession or intense competition
e.g. firms in COVID-19
what is market share
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
e.g. oligopolistic firms like airlines
what is cost efficiency
Can be the main objective, especially if a firm is facing tough trading conditions and is in danger of making a loss
how efficient are firms with their costs
e.g. ryanair - standardizing their aircraft fleet, offering basic services, and charging additional fees for services like checked baggage and seat selection
what is return on investment
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
e.g. real estate investment firms or capital intensive firms
what is employee welfare
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
e.g. Unilever focuses on supporting employee health and wellbeing through various initiatives, including educating employees about mental health
what is customer satisfaction
Source of competitive advantage and for some businesses this may be a crucial selling point
e.g. fashion brand Zappos
what are social objectives
Important when the business aims to create benefits for society by pursuing social, environmental or ethical goals
e.g. Ben and Jerry’s
what are stakeholders
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
what are economic agents
Include all those who take decisions to buy, spend, produce, sell, or in any way affect how resources are used.
what is the Shareholder Model
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.
Disadvantages of the shareholder model
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.
what are shareholders
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
what is the Stakeholder Model
Managers have a responsibilty to take account of the interests of all the stakeholder groups that are affected.
Benefits of the stakeholder model
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.
Shareholders interests
They want to maximise profits
Employees interest
They want better pay and conditions
Customers interest
They want lower price and better service
