1.1 Scarcity, choice and potential conflicts Flashcards
What is scarcity
Individuals, businesses and the government have unlimited wants but limited/ finite resources to satisfy them.
What is the free market?
When the forces of demand and supply determine the allocation of resources.
How does the central planning sytem operate and give examples?
- Govt decides how much of what good or service is produced in an economy
- e.g. Communist China, Modern North Korea
What type of economy do most countries currently have?
- Mixed economy with varying degrees of Govt. intervention
- Market forces are still very powerful
What is a trade-off?
- Making a decision between choices
- In the long term, having more of one thing means having less of another thing as resources are finite
Opportunity cost
Cost of the next best alternative alternative forgone
What are the goals of a Business called and give 3 examples
- Business objectives
- e.g. Profit maximising, Sales maximising, Satisficing
What is satisficing?
When a firm achieves a ‘good enough’ profit and sales to ensure survival and pay shareholders without worries
Give 4 less common Business objectives
Market share, cost efficiency, return on investment, customer satisfaction, environmental and social objectives
What are stakeholders?
Groups and individuals that are affected by and/or have an interest in how the business is run and what it achieves
What is the action of profit maximising?
Short run and long run processes used to determine the price and output level which return the greatest profit.
What is satisficing?
When a firm achieves a ‘good enough’ profit and sales to ensure survival without stress or worry
What is the action of sales maximising
When the firm sells as much output as possible without making a loss
Give 3 examples of stakeholders
Employees, owner, shareholders, customers, suppliers, local community
What do economic agents do
Take decisions to buy, spend, produce, sell resources/goods in an economy
How do managers act under the shareholder model
Managers act in the interests of shareholders and concentrate on short run profit maximisation in order to increase dividends
What is a drawback of the shareholder model
By focusing on short term profits, businesses can miss out on oppurtunities and profit in the long run
What are shareholders
Owners of part of a business by financing the business of buying stocks. They recieve dividends at the end of the year
What are dividends
A fraction of a business’s profit, given to shareholders at the end of the year
How does the stakeholder model work
Managers consider the interests of all stakeholders, believing it to be their responsibility
What are the potential benefits of the stakeholder model
Improved perception from customers, improved staff retention and motivation, closer relations with suppliers
Name 3 common stakeholder conflicts/ objectives
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
What is corporate social responsibility CSR
When businesses make decisions that take all stakeholders’ interests into account
