1.1 Scarcity, choice and potential conflicts

Question 1

What is scarcity

Answer 1

Individuals, businesses and the government have unlimited wants but limited/ finite resources to satisfy them.

Question 2

What is the free market?

Answer 2

When the forces of demand and supply determine the allocation of resources.

Question 3

How does the central planning sytem operate and give examples?

Answer 3

• Govt decides how much of what good or service is produced in an economy
• e.g. Communist China, Modern North Korea

Question 4

What type of economy do most countries currently have?

Answer 4

• Mixed economy with varying degrees of Govt. intervention
• Market forces are still very powerful

Question 5

What is a trade-off?

Answer 5

• Making a decision between choices
• In the long term, having more of one thing means having less of another thing as resources are finite

Question 6

Opportunity cost

Answer 6

Cost of the next best alternative alternative forgone

Question 7

What are the goals of a Business called and give 3 examples

Answer 7

• Business objectives
• e.g. Profit maximising, Sales maximising, Satisficing

Question 8

What is satisficing?

Answer 8

When a firm achieves a ‘good enough’ profit and sales to ensure survival and pay shareholders without worries

Question 9

Give 4 less common Business objectives

Answer 9

Market share, cost efficiency, return on investment, customer satisfaction, environmental and social objectives

Question 10

What are stakeholders?

Answer 10

Groups and individuals that are affected by and/or have an interest in how the business is run and what it achieves

Question 11

What is the action of profit maximising?

Answer 11

Short run and long run processes used to determine the price and output level which return the greatest profit.

Question 12

What is satisficing?

Answer 12

When a firm achieves a ‘good enough’ profit and sales to ensure survival without stress or worry

Question 13

What is the action of sales maximising

Answer 13

When the firm sells as much output as possible without making a loss

Question 14

Give 3 examples of stakeholders

Answer 14

Employees, owner, shareholders, customers, suppliers, local community

Question 15

What do economic agents do

Answer 15

Take decisions to buy, spend, produce, sell resources/goods in an economy

Question 16

How do managers act under the shareholder model

Answer 16

Managers act in the interests of shareholders and concentrate on short run profit maximisation in order to increase dividends

Question 17

What is a drawback of the shareholder model

Answer 17

By focusing on short term profits, businesses can miss out on oppurtunities and profit in the long run

Question 18

What are shareholders

Answer 18

Owners of part of a business by financing the business of buying stocks. They recieve dividends at the end of the year

Question 19

What are dividends

Answer 19

A fraction of a business’s profit, given to shareholders at the end of the year

Question 20

How does the stakeholder model work

Answer 20

Managers consider the interests of all stakeholders, believing it to be their responsibility

Question 21

What are the potential benefits of the stakeholder model

Answer 21

Improved perception from customers, improved staff retention and motivation, closer relations with suppliers

Question 22

Name 3 common stakeholder conflicts/ objectives

Answer 22

Stakeholders want to maximise profits, employees want better pay and conditions, consumers want lower prices and better services, governments want more tax revenue local communities want minimum disruption and improved infrastructure, and the environment needs protection

Question 23

What is corporate social responsibility CSR

Answer 23

When businesses make decisions that take all stakeholders’ interests into account