1.1 Scarcity, choice and potential conflicts

Question 1

What is the basic Economic problem?

Answer 1

Resources are finite and needs/wants are infinite, so resources must be used choicely.

Question 2

Define Scarcity

Answer 2

When there is a shortage of resources in relation to the quantity of needs/wants.

Question 3

Define opportunity cost

Answer 3

When choosing between different alternatives, the opportunity cost is the alternative that has been sacrificed to the chosen one.

Question 4

What 3 things we consider when producing a good?

Answer 4

1) What to produce
2) How to produce it
3) Who to produce it for

Question 5

Name a few different business objectives

Answer 5

-Profit maximising
-Sales maximising
-Survival
-Market share maximising
-Customer satisfaction
-Cost efficiency
-Employee welfare

Question 6

What is profit satisfying and when might a firm choose to advocate this?

Answer 6

Occurs when a firm earns just enough profit to keep shareholders happy, ensure survival with no stress and worry.

Occurs when there is a divorce of ownership and control whereby managers will make enough profits to keep shareholders happy, whilst still maintaining their own objectives.

Question 7

What is Corporate Social Responsibility (CSR)?

Answer 7

A form of self-regulation, whereby firms take responsibility for their actions that harm the environment, and aim to maximise social welfare.

Question 8

Recall an example of Corporate Social Responsibility (CSR)

Answer 8

As global warming and climate change is becoming increasingly worrying issue across the world, firms could attempt to reduce their carbon footprint by investing in green energy.

Question 9

Name the different types of stakeholders (economic agents)

Answer 9

1) Owners and shareholders
2) Employees
3) Customers
4) Pressure groups
5) Government and the Environment
6) Suppliers

Question 10

Give a brief description of the principle-agent problem

Answer 10

Describes how the agent- who makes decisions for the principle- acts in they own best interest, linked to the theory of asymmetric information.

Occurs when the owners of the firm sell their shares, thereby partially loosing control of its day-to-day operations.

Question 11

Define Trade-off

Answer 11

Is a situation where having more of one thing means having less of another