1.1 Scarcity, Choice And Potential Conflicts

Question 1

What is the basic economic problem?

Answer 1

Resources are finite and wants are infinite

Question 2

Define scarcity

Answer 2

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

Question 3

Define opportunity cost

Answer 3

The value of the next best alternative foregone

Question 4

What 3 things must 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

Question 6

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

Answer 6

Occurs when a firm earns just enough profits to keep shareholders happy.

Occurs when there is a divorce of ownership and control

Question 7

What is Corporate Social Responsibility (CSR)?

Answer 7

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

Question 8

Example of CSR

Answer 8

Global warming and climate change becoming an issue- firms could reduce their carbon footprint

Question 9

Name the different types of stakeholders

Answer 9

1. The shareholders
2. Employees
3. Consumers
4. Managers
5. Government
6. Suppliers

Question 10

What is the principal-agent problem?

Answer 10

The agent- who makes decisions for the principle- acts in their own best interests- linked to asymmetric information.

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