1.2 Business Economics Flashcards
What is a monopoly
A monopoly is a situation where there is one dominant seller in the market
what is a natural monopoly
A natural monopoly is a situation that occurs when one firm is able to server the industry at a lower cost than lots of small firms
What are the features of a monopoly
Price makers
Niche product
High barriers to entry
One firm dominates the market
what are the advantages of a monopoly and expand where necessary
- Innovation - lots of money going into one firm means lots can go into innovation
- Economies of scale
- Efficiency - with multiple firms, there can be wasteful duplications of resources
what are the disadvantages of a monopoly
- restricted choice for consumer - leads to higher pices and potential exploitation for consumer
- Inefficiency - no incentives to keep costs down
- lack of innovation - no incentives
What is a barrier to entry?
obstacles at discourage a firm from entering the market
list some barriers to entry
- patents
- legal barriers - government contracts with monopolies
- technology
- high start-up costs
- high marketing budjet
What are factors influence firm growth
- Economies of scale
- reducing risk - if a business has multiple shops it wont destroy the business if one goes down
- desire to take over competitors
- already have acess to large amounts of finance
What are factors that influence firms to stay small
- diseconomies of scale
- aims of the entrepreneur
- government regulations - government doesn’t want the chance of a monopoly
- size of the market - no need to expand in a very luxurious market where there will always be limited demand
what are some advantages of small firms and expand where necessary
- Flexibility - easier to make changes
- lower wage costs - workers in small firms most likely aren’t in trade unions and can’t negotiate wage as much
- better communication
- personals services
what are some disadvantages of small firms and expand where necessary
- cannot exploit economies of scale - higher costs
- difficulty attracting quality staff
- vulnerability
what are some advantages of large firms and expand where necessary
- Economies of scale
- Market domination - leads to higher profile in public eye
- less vulnerability
What are some disadvantages of large firms and expand where neccessary
FINISH
What is economies of scale
Economies of scale are the cost advantages a company faces as it expands. the average cost decreases
What is diseconomies of scale
Economies of scale are the cost disadvantages a company faces as it expands. the average cost increases
What are the two types of economies of scale and describe them
- Internal economies of scale - cost benefits an individual firm can benefit form when it expands
- external economies of scale - cost benefits for all firms in an industry when the industry expands
What are all internal economies of scale and expand where neccessary
- Bulk buying - Firms that buy lots of resources get them at cheaper rates
- Marketing - advertisement comes at a fixed cost, so its more efficient when it can be spread over more units of output
- technical - larger factors are often more efficient than smaller ones
- financial - banks are more likely to lend money to large firms
- risk bearing - large firms have deep pockets so they can take risks
- Managerial - can hire managers and more specialized workers
What are all external economies of scale and expand where necessary
- Skilled labor - as the industry grows, there will be more skilled workers, so companies can offer lower salaries
- better infrastructure
- access to suppliers - established industries encourage suppliers to set up nearby
What are all diseconomies of scale and expand where necessary
- lack of communication
- lack of control
- reliance/too much bureaucracy - too much time filling reports
what is wage rate
the wage rate is the amount of money paid to workers for their services over a period of time
what is a boom
a boom is a large increase in business activity
what is a bust
A bust is a large decreases in business activity
What is wage determination
wage determination is the equilibrium between supply and demand for labour
Describe and explain the demand for labour graph
A graph that shows the relationship between wage rate and availability of workers. the line shows an inverse relationship.
This is because with a higher wage rate, the company cannot afford an abundance of workers
What are factors affecting the demand for labour
- availability of substitutes - with new and improved technology, workers are less valuable
- other employment costs - E.G healthcare
- Demand for product - demand for labour is a derived demand
- productivity of labour - if workers are exceeding the levels of output, they’re more valuable
Describe and explain the supply of labor graph
A graph that shows the relationship between wage rate and quantity of workers available. the line shows a positive correlation.
this is because more workers are willing to take a job that pays more money.
what are factors affecting supply for labour
- population size
- age distribution
- female participation
- skills and qualifications
- School leaving & retirement age
- migration -some countries promote immigration for more workers
What is the importance of quality & quantity of labour to businesses
FINISH
What is the division of labour
division is labour is the breaking down of the production process into small pats with each worker allocated apecific task
What are the advantages of division of labor and expand where necessary
- Improved efficiency - as workers specialize they perform tasks quicker and more accurately
- reduced production time - less time moving from one place to another
- improved organization of product
- more specialist tools available - leads to improved efficiency
What are some disadvantages of the division of labor and expand where necessary
- tasks become repetitive and boring - reduced productivity
- loss of flexibility in the workplace
- potential problems if one stage is disrupted - reduced productivity
What is a trade union
a trade union is an organization representing people working in a particular industry or profession that protects their rights
What are common aims of trade unions
- negotiate pay & working conditions with employees
- provide legal protection for workers- E.G discrimination
- pressure the government to introduce regulations that improve the rights of employees
- provide financial benefits such as strike pay
what are the effects of trade unions
- Successful trade unions will be able to force wage rates up in markets. however, companies will struggle to handle these new wage costs and lay off workers as a result
- the strikes caused by some trade unions can significantly disrupt economic activity. this can also be dangerous in areas such as healthcare.
