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Economics Paper 1 > 1.1 The Economic Problem > Flashcards

1.1 The Economic Problem Flashcards

1
Q

Define scarcity

A

Resources are limited in supply and so choices have to be made for their use.
= LIMITED RESOURCES AND UNLIMITED DEMANDS.

  • main economic problem.
  • when choices/decisions made must consider distribution/ use of resources optimally.
  • Scarcity causes Opportunity cost.
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2
Q

Allocation of resources

A

= WAY ‘FACTORS of PRODUCTION’ & ‘RAW MATERIALS’ USED IN THE PRODUCTION OF PARTICULAR GOODS/SERVICES IN DEMAND.

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3
Q

What is the result of humans having unlimited wants?

A

Choices having to be made over the allocation of resources

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4
Q

Define the economic problem

A

the concept that wants are unlimited but resources are limited so choices have to be made about their use

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5
Q

Define opportunity cost

A

= NEXT BEST ALTERNATIVE FORGONE WHEN A CHOICE IS MADE.
- economic decisions come with sacrifice -> next best alt forgone is the loss of the benefit from the other choice.

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6
Q

Define Trade-off

A

the choice between 2 options
= SITUATION WHERE HAVING MORE OF 1 THING LEADS TO LESS OF ANOTHER.

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7
Q

Economic agents?

A

= GOV, CONSUMERS; PRODUCERS.

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8
Q

What is the importance of an opportunity cost to a consumer?

A

May choose to buy something of a higher quality at the opportunity cost of buying something else, due to the higher cost

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9
Q

What is the importance of an opportunity cost to a producer?

A

Choosing to sell a good at a higher price may incur the opportunity cost of the demand for that good

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10
Q

What is the importance of an opportunity cost to the government?

A

Choosing to invest money into different departments (e.g. Education) has the opportunity cost of investing it in other areas (e.g. Healthcare)

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11
Q

whats a Free Market Economy?

A

= ECONOMIC SYSTEM WHERE THERE’S NO INTERFERENCE FROM OTHER AGENCIES (economic agents) - LIKE GOV.

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12
Q

what are Market Forces?

A

= DEMAND & SUPPLY = DETERMINE ALLOCATION OF RESOURCES in market.

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13
Q

Give the 10 possible business objectives

A

= AIMS/ TARGETS BUSINESSES TRY TO ACHIEVE.
- provides them with a direction/ purpose + measures progress.

Return on Investment (ROI)
Profit Maximisation
Sales Maximisation
Satisficing
Survival
Market Share
Cost Efficiency
Employee Welfare
Customer Satisfaction
Social Objectives (CSR)

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14
Q

Entrepreneur

A

= INDIVIDUAL SET UP BUSINESS, ACCEPTS RISKS INVOLVED, MAKES DECISIONS ON WHAT/ HOW TO PRODUCE; HOW TO MARKET PRODUCT.

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15
Q

Return on Investment (ROI)

A

= (net) PROFITS ENTREPRENEURS MAKE BY TAKING RISKS WHEN MAKING INVESTMENTS/ASSETS.

  • higher ROI = more attractive the investment/ asset.

ROI = (net profit / capital investment) x100%

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16
Q

Define Profit Max

A

= WHEN COSTS ARE AT LOWEST AND REVENUE IS AT HIGHEST.

  • short/ long- run objective.
  • usually first objective firms consider.
  • cheap source of finance providing stable costs & output levels that returns greatest profit.
  • greater wages 4 employees and dividends 4 shareholders (both stakeholder groups happy).

(public limited comp) PLC’s have short-run profit max as obj as shareholders expect high profits.

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17
Q

Define Sales Maximisation

A

= AIMS TO SELL AS MUCH OF GOOD/SERVICE WITHOUT MAKING A LOSS.

  • important in v. Competitive Markets = keeps out competitors - detters them.
  • helps business earn more profits long-term.
  • usually obj 4 not-for-profit organisations.
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18
Q

Define Satisficing

A

Wanting to make profits without profit maximising (profits are important but not the be all and end all)

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19
Q

Define Survival

A

= SELL AS MUCH AS POSSIBLE SHORT-TERM 2 KEEP MARKET POSITION, EVEN IF LOSS LONG-TERM.

  • short-term
  • businesses entering competitive market OR during times of economic downturn until economic growth again.
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20
Q

Define Market Share

A

= PORTION OF MARKET CONTROLLED BY FIRM/PRODUCT.

  • calculated: (total sales by business/ total sales in market) x100%.
  • good market share = allows business to survive better in market.
  • achieved by sales max.
21
Q

How can firms increase market shares?

A
  • advertise
  • expand production
  • reduce price
  • takeover (horizontal integration)
22
Q

What is Horizontal Integration?

A

2 businesses in same industry have joined together.
= TAKEOVER

23
Q

Define Cost efficiency

A

COMPANY LOWERS AVG. COSTS BY FIND CHEAPER RESOURCE & MANUFACTURING PROCESSES.

  • offer customers cheaper prices
  • in competitive markets, will gain customers from LESS efficient producers.
24
Q

Define Employee Welfare

A

taking care of employees (ADEQUATE PAY + GOOD WORKING CONDITIONS) so they’re more productive + do better quality job.

-> makes them more loyal to company, les likely to leave = LOWERING EMPLOYEE TURNOVER.

25
Q

Define Customer Satisfaction

A

SOURCE OF COMPETITIVE ADVANTAGE
Improved quality or customer service => Improves competitiveness ==> improving customer satisfaction.

Good rep. means able to charge higher prices for their good/product.

Leads to customer LOYALTY

26
Q

Define Social Objectives

A

AIM 2 CREATE BENEFITS 4 SOCIETY BY PURSUING SOCIAL/ ENVIRONMENTAL/ ETHICAL GOALS.

Businesses focus on Corporate Social Responsibility (CSR) and help local area.

(produce goods more ethically OR hire groups discriminated against)

27
Q

What are the Factors of Production?

A

Capital, Enterprise, Lan, Labour

28
Q

What is short-run?

A

when quantity of (at least) 1 Factor of Production is fixed - whilst quantities of others are varied.

29
Q

What is long-run?

A

when quantities of all Factors of Production can be varied.

30
Q

Define stakeholder

A

Someone who has an interest in the firm OR feels impact from it. each have their own OBJECTIVES.

31
Q

Define internal stakeholder

A

People from within the organisation:
- employees
- owners/entrepreneurs
- managers

32
Q

Define external stakeholder

A

People outside organisation with an interest:
- shareholders
- customers
- suppliers/ creditors
- society
- gov

33
Q

Define Shareholder & their objective?

A

LEGAL OWNERS OF BUSINESS

(may’ve helped set up business OR bought Shares on Stock Exchange).

Objective:
WANT HIGH PROFITS SO THEY GET HIGH DIVIDENDS.

34
Q

Define dividend?

A

DISTRIBUTION OF PROFITS BY CORPORATION TO ITS SHAREHOLDERS.

When earn a profit/surplus => able to pay portion of profit as dividend 2 shareholders.

(Any amount not distributed is taken + re-invested in business).

35
Q

Employees’ objective?

A

their the biggest asset + biggest production cost of businesses.

WANT HIGH WAGES + GOOD WORKING CONDITIONS.

36
Q

Consumers’ objective?

A

WANT HIGH QUALITY GOODS WITH LOW PRICES

37
Q

Managers’ objective?

A

WANT HIGH SALARIES + BONUSES + PERSONAL BENEFITS

38
Q

Governments’ objective?

A

WANT EARN CORPORATION TAX FROM BUSINESS’S PROFITS.

39
Q

Suppliers’ objective?

A

WANT BUSINESS STAY SUCCESSFUL SO REMAIN THEIR CUSTOMER.

40
Q

Define Creditors?

A

BUSINESS OWES THEM MONEY –> usually in exchange 4 materials/ services.

41
Q

A possible stakeholder conflict?

A

Managers want BIG BONUS, but would decrese money 4 shareholder’s dividends = problem.
==> so when firm sells shares - relinquish some control 2 gain this investment.

==> SHAREHOLDER ACTIVISM = shareholders excercise power as part owner 2 manipulate company 2 fullfill their motives.

Business’ main goal = maximize profits + enhance shareholder value BUT labour costs are unavoidable so might upset other stakeholders: employees.

42
Q

define Corporate culture

A

set of important assumptions shared by people working in particular business + influence ways decisions taken.

43
Q

What is CSR?

A

CORPORATE SOCIAL RESPONSIBILITY:
- Take account shareholders’ interests
- Treat employees/ suppliers/ customers fairly
- Avoiding polluting activities
- Donating parts of profits 2 charities & foundations 2 help improve world.

(businesses may do bare min. law entails as CSR isn’t regulated).

44
Q

difference between Tax AVOIDANCE and EVASION?

A

tax AVOIDANCE = finding legal ways 2 reduce tax liability.

tax EVASION = illegally failing 2 pay taxes due.

45
Q

Define difference between Transnational (TNC) + Multinational Corporations (MNCs)

A

MNCs= business with operations in 1+ country

TNCs= are global

46
Q

Define Business Ethics?

A
  • Beyond CSR
  • MORAL CODE OF ETHICS BUSINESS FOLLOWS.
    e.g. not investing in countries which have human rights issues.
  • MORAL DESPITE FINANCE (COST)
    e.g. Body Shop doesn’t use ingredients tested on animals.
47
Q

Give 2 advantages of CSR for a business

A

1) Improve public image
2) Help the local community

48
Q

Give 2 disadvantages of CSR

A

1) Reduces profits
2) Takes a lot of time

Economics Paper 1 (11 decks)

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