1.2 Business Economics Flashcards
Production
Process that involves converting resources into goods or services (to satisfy needs and wants)
Factors of production
Resources used to produce goods and services (land, labour capital and enterprise)
Land
All natural resources in an economy
Labour
People used on production
Human capital
Value of workforce or an individual worker
Capital
Man-made resources available in an economy, help produce goods
Working / circulating capital
Resources used up in production - raw materials & components.
Fixed capital
Stocks of “man-made” resources help in production - machines & tools
Enterprise (entrepreneurs)
individuals who organise the other factors of production and risk their own money in the business venture
Capital intensive
production relies heavily on machinery relative to labour.
Labour intensive
production relies heavily on labour relative to machinery.
Labour intensive
production relies heavily on labour relative to machinery.
Primary sector
production involving the extraction of raw materials from earth.
Secondary sector
involving the processing of raw materials = finished/semi-finished goods
Tertiary sector
production of services in the economy.
De-industrialization
decline in manufacturing (secondary -> tertiary)
Industrialization
process of shifting resources from primary to secondary sector.
Productivity
rate at which goods are produced, and the amount produced in relation to the work, time, and money needed to produce them.
Training
to improve the quality of human capital is to invest in training.
Piece rates
amount of money paid for each item a worker produces (rather than time taken)
Job rotation
practice of regularly changing the person who does a particular job. (Job satisfaction)
Division of labour
breaking down of the production process into small parts with each worker allocated to a specific task.
Specialization
production of a limited range of goods by individuals, firms, regions or countries.
Costs
expenses that must be met, setting & running a business
Fixed costs
(overheads) costs that do not vary with the level of output = rent, advertising, insurance premiums, interest payments, research and development costs.
Variable cost
costs that change when output levels change.
Calculate “Total Variable Cost” (TVC)
Variable cost per unit (VC) x number of units produced (Q)
Total Cost (TC)
Total fixed costs and total variable costs added together. TFC + TVC = TC
Average cost of production
cost of producing a single unit of output. (Total cost / Quantity produced)
Total Revenue (TR)
amount of money a firm receives from selling its output. (Total revenue = Price x Quantity)
Profit
difference between total revenue and total costs (profit = total revenue - total cost)
Economies of scale
falling average costs due to expansion
Diseconomies of scale
rising average costs when a firm becomes too big - aspects of production become inefficient
Internal economies of scale
cost benefits that an individual firm can enjoy when it expands.
Name 6 internal economies of scale
1 Purchasing economies
2 Marketing economies
3 Technical economies
4 Financial economies
5 Managerial economies
6 Risk-bearing economies
External economies of scale
cost benefit all firms in industry can enjoy, when the industry expands.
Competition
rivalry exists between firms when trying to sell goods to the same group of customers.
Monopoly
a situation where there is one dominant seller in a market (25% more)
Pure monopoly
one producer supplies the whole market, 100% market share.
Natural monopoly
one firm in an industry can serve an entire market at a lower cost than would be possible if the industry were composed of many smaller firms.
Patent
licence that grants permission to operate as a sole producer of a newly designed product
Oligopoly
market dominated by a few large firms.
Collusion
informal agreements between firms to restrict competition
Price wars
one firm in the industry reduces price causing others to do the same
Niche market
market for a product or service, perhaps expensive / unusual, does not have many buys - but make good profits
Cartel
group of firms or countries join together and agree on pricing or output levels in market
Wage rate
the amount of money paid to workers for their services over a period of time (price of labour)
Derived demand
demand that arises because there is demand for another good.
Factors affecting the demand of labour (shift)
DOAP
Demand for products
Other employment costs
Availability of substitutes
Productivity of workers
Factors affecting supply of labour (shift)
SPLARFMS
Skills & Qualifications
Population
Labour mobility
Age distribution of population
Retirement age
Female participation
Migration
School leaving age
Trade unions
organisation representing people working in an industry, protects their rights.
Government intervention
government involved in a situation, help deal with a problem
Minimum wage
minimum amount per hour which most workers are legally entitled to be paid.
Closed shop
Company or factory where all the workers must belong to a particular trade union
Secondary picketing
Workers in one workplace or company strike in a group at a particular location in order to support the striking workers in a different workplace or company
Labour mobility
Ease with which workers move geographically and occupationally between different jobs
