Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Economics Paper 1 > 1.2 Enterprise, Business and the Economy > Flashcards

1.2 Enterprise, Business and the Economy Flashcards

1
Q

Define Entrepreneur and their role?

A

someone who sets up a business, taking a financial risk

  • they use CREATIVE DESTRUCTION by organising Factors of Production 2 create + set up ENTERPRISE.
  • make decisions 2 operate/ expand/ develop/ ADD VALUE (by selling output more than cost of input).
  • are innovative.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Define Enterprise

A
  • a person spotting a business opportunity and setting up a business.
  • a project or undertaking that is especially difficult, complicated, or risky.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Define Creative Destruction

A

way which innovation improves quality ==> which leaves old products obsolete + leads to economic growth.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Define Innovation

A

developing an idea that will generate new OR improved products/ techniques.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Define Adding Value

A

creating something of a HIGHER VALUE than the COST of raw materials.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

Define Equity

A

share capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Define Turnover

A

sales revenue

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Define Patents

A

make it illegal 2 copy new ideas/technologies (usually 20yrs)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What 7 things does an Entrepreneur have full control over?

A 
Purchasing new locations
Investing in new equipment
Hiring staff
Market Research
Increasing brand strength
Innovation
Diversifying the product range
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Define Multiplier Effect

A

one thing leads 2 another.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are Costs of Production?

A

= ALL PAYMENTS MADE TO GET PRODUCT INTO MARKET PLACE:
- wages
- raw materials
- business rates
- premises
- components
- energy bills

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What’s the Formula for Profit?

A

Profit = Sales revenue – Total Costs (costs of productivity)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What’s the formula for sales revenue?

A

Sales Revenue = Price x Quantity

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Define investment

A

spending now to generate income in future

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Define Incentives

A

financial/other rewards inducing people 2 behave certain way

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Give 4 non-financial motives

entrepreneurial motives

A
  • Ethical stance
  • Social Entrepreneurship (focusing on their environmental purpose)
  • Independence (some people don’t like being told what to do = flexibility)
  • Home Working (work to fit around a family with no congestion)

reasons for setting up business thats not linked to making profit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Social Entrepeneurship

A

Business methods & strategies 2 achieve social objs; seek innovation solutions 2 difficult social problems.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Define ‘factors of production’

CELL

A

All inputs needed to make a product or provide a service
C = capital x3
E = enterprise
L = land
L = labour

economic resources entrepreneurs bring together 2 make profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What are the 4 types of capital

A
  • Physical
  • FIxed
  • Working
  • Financial
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Define Physical Capital

A

PREMISE + EQUIPMENT repeatedly used in production

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Define Financial Capital

A

MONEY used 2 PURCHASE physical capital

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Define Fixed Capital

A

MACHINES/ BUILDINGS which company operates.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Define Working Capital

A

finance needed by buiness 2 cover production costs

wages, rent; cost of other inputs needed.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Define Enterprise

A

The people generating the ideas

Fundamental 2 organisation of economic activity + willingness 2 take risks in return 4 profit.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

Define Labour

A

The work that people do in order to turn raw materials into products

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Define division of labour

A

organising employees so an individual specialises in one part of the production process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

Give 5 advantages of the division of labour

A
  • More jobs improves the economy
  • Reduces wastage of time and materials =productivity
  • Physical Capital/ equipment can be used continuously
  • Less training needed
  • Higher output = lower costs
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

Give 3 disadvantages of the division of labour

A
  • More jobs means higher costs for companies
  • Higher wages needed to motivate staff
  • Lack of innovation
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

Define Efficiency

A

maximising use of resources, including time, whilst maximising output, quality considered.

IMPORTANT CAUSE MARKET = VERY COMPETITIVE

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

How can firms be more efficent?

A
  • workers more specialised
  • use tech = make firm capital intensive.
  • training employees
  • focus on employee welfare
  • faster production cycle = speed up assembly line
  • efficient supply chain
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

Whats a measure of efficiency?

A

output per person, per period of time, quality considered.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

Define specialisation

A

When individual/ firm/ region/ country CONCENTRATES ON PRODUCTION OF LIMITED range of goods/ services.

Focusing expertise in particular field.

HIGHER WORKER PRODCUTIVITY = OUTPUT INCREASES => LOWERS FIRMS COSTS ==> offer LOWER PRICES to consumers.

then REINVEST + EXPAND or PAY HIGHER DIVIDENDS.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

Define Capital Intensive (specilisation)

A

focus on INVESTMENT in MACHINES etc…

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

Define Labour intensive (specialistion)

A

Focus on PHYSICAL WORK of people

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

Profit per product formula

A

profit per product = PRICE - AVERAGE COST

assuming avg. cost still the same.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

Give 5 advantages of specialisation to employers

A
  • Staff become HIGHLY TRAINED -> improves QUALITY of product.
  • Lowers costs of multi-training => reducing firms costs.
  • Improves production levels + speed ==> increases sales & profits.
  • Increases COMPETATIVE ADVANTAGE over rivals
  • LOWER UNIT COSTS (EoS) => LOWER PRICES => INCREASE DEMAND => INCREASE MARKET SIZE.

HIGHER OUTPUT + HIGHER QUALITY

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

Give 5 disadvantages of specialisation 2 employers

A
  • REPETAIVE work = DEMOTIVATING (lowering quality) => high EMPLOYEE TURNOVER => WASTEAGE + COSTS MONEY (2 advertise for job vacancy).
  • person missing = harder 2 replace becasue they’re specialised.
  • Lack of INNOVATION
  • RISK not spread.
  • More firms lower prices => MORE COMPETITION => LOWER PROFIT MARGINS.
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
38
Q

Give 3 advantages of Specialisation to employees

A
  • firms higher profit margins => HIGHER WAGES
  • JOBS CREATION
  • EMPLOYEMNT 4 low level of skills.
39
Q

Give 2 disadvantages of Specialisation to employees.

A
  • REPETIVE work => DEMOTIVATION
  • focused on 1 task too long => LESS TRANSFERABLE SKILLS => leave can’t gain other job ===> STRUCTURAL UNEMPLOYMENT.
  • LESS FLEXIBLE
40
Q

Define Comparative Advantage

A

when country PRODUCES good/service at LOWER OPPORTUNITY COST/ higher quality than other countries.

leads to a COMPETITIVE ADVANTAGE.

41
Q

Define Competitive Advantage

A

factors allowing company 2 produce good/service CHEAPER/ BETTER QUALITY than rivals

42
Q

Define Profit Margin

A

amount by which REVENUE FROM SALES EXCEEDS COSTS in business.

43
Q

wider econ environment

Define interest rate

A

the cost of borrowing/ price of money/ reward for savings

expressed as %

44
Q

Who sets the Intrest Rate?

A

= set by BANK OF ENGLAND.

  • determined by state of econ + economic targets
45
Q

Define Collateral

A

SECURITY AGAINST LOAN

  • form of property/ other assets (car)
  • borrower fails 2 repay loan => bank seizes collateral 2 RECOVER LOSSES.
    COLLATERAL ===> LOWER intrest rates 4 borrower.
  • UNSECURED LOANS = HIGHER intrest rates (don’t include collateral)

Banks ask for collateral as security against loan

E.G when banks reposses houses (borrowers failed 2 repay monthly mortgage payments).

46
Q

What is the overall impact of RISING Intrest Rates?

A

REDUCED ECONOMIC GROWTH (lower consumer D/ consumption) but LOWER INFLATION (prices go down = value of money increases) ==> FALL IN INVETMENT.

REDUCED INVESTMENT, REDUCED CONSUMPTION/ D , FALL IN HOUSE PRICES

47
Q

Impact of RISING Intrest Rates on CONSUMERS + SAVERS

A

:( CONSUMERS: if variable mortgage => increse in monthly repayments => reducing disposable income => cut back lux/ unnecessary goods.

  • house prices fall.

:) SAVERS: encourage savings SO => get more money from savings

48
Q

Impact of RISING Intrest Rates on BORROWERS + BUSINESSES

A

BORROWERS: DISCOURAGED => intrest paid back on loans is expensive => riskier 2 take out loan (harder 2 pay back).

  • detreimental 2 small business => trying 2 start-up - not able 2 pay back lender.

(larger) BUSINESSES: have 2 pay back increased intrest on loans = SUFFER + Decreased consumer D => selling less ==> lower PROFIT MARGINS ==> less likely expand as losing profits from increased COSTS OF PRODUCTION ==> reduce size of workforce.

49
Q

Impact of RISING Intrest Rates on SUPPLY of goods/services

A
  • Expensive 2 invest -> firms buy less capital euipment (machinery) + lack of Demand ==> B2B transactions fall + banks go out of business.
  • Suppliers increse prices 2 compensate 4 own increased intrest payments.
50
Q

Whats overall impact of FALLING Intrest Rates?

A

INCREASED INFLATION but INCREASED ECONOMIC GROWTH + INCREASED CONSUMPTION/ D ===> HIGHER GDP.

51
Q

Impact of FALLING Intrest Rates on CONSUMERS + SAVERS

A

:) CONSUMERS: lower monthly mortgage payments => higher disposable income => more likely spend more (cars; holidays) ==> INCRESES NET CONSUMER SPENDING => HIGHER CONSUMPTION.

:( SAVERS: discouraged - gain less from savings => more likely spend what would’ve saved on large purchases (cars; holidays).

52
Q

Impact of FALLING Intrest Rates on BORROWERS + BUSINESSES

A

BORROWERS: encourages borrowing => loans easier 2 pay back,
* BUT harder 2 obtain = banks not willing 2 give out loans (don’t gain much from this).

(larger) BUSINESSES: increase in sales => more likely take out loans 2 expand

=> low IR encourage **investment, expansion + job creation **from raised profits.

53
Q

Define exchange rate

A

price of one currency in exchange for/ in terms of another (£1=$1.5)

54
Q

whos affected by exchange rates?

A
  • TOURISTS
  • FOREIGN INVESTMENTS/ BUSINESSES
  • BUSINESSES IMPORTING/ EXPORTING

FLUCTUATIONS in exchange rate causes UNCERTAINTIES.

55
Q

difference between exports + imports?

A

exports = SELLING abroad
imports = BUYING from abroad

56
Q

What causes changes in exchange rates?

A

MARKET FORCES (D&S) causes => FLOATING EXCHANGE RATE (constant fluctuations).

=> more curency demanded —-> more price of it rises.

57
Q

Define Floating Exchange rate?

A

when govs allow exchange rate to be determined by ‘market forces’ + there’s no attempt 2 influence the exchange rate.

constant fluctuations

58
Q

Define appreciation?

A

currency RISES IN VALUE against another

  • pound becomes STRONGER/ buys MORE $
  • £1 = $1.60

SPICEED

59
Q

Define Depreciation

A

currency FALLS IN VALUE against another

  • pound becomes WEAKER/ buys LESS $
  • £1 = $1.40
  • EXPORTS INCREASE
  • FDI in UK INCREASE
  • foreigners coming into uk increases

WPIDEC

60
Q

Define Foreign Direct Investment (FDI)

A

net transfer of funds 2 purchase/ acquire physical capital, such as factories + machines, e.g. Nissan, a Japanese firm, building car factory in UK.

FDI net inflows are the value of** inward** direct investment made by non-resident investors in the reporting economy. This is usually reported for a given year

61
Q

WHat does SPICED stand for?

A

Strong Pound
Imports Cheaper
Exports Dearer

firms importing = able 2 buy cheaper raw materials + goods
firms exporting = less demand.

62
Q

What does WPIDEC stand for?

A

Weak Pound

Imports Dearer (expensive - UK give up MORE £ 4 same amount foreign currency)

Exports Cheaper (FOREIGN countries give up LESS currency 4 same £)

greater demand (4 UK goods) from abroad

63
Q

Describe intrest rates link to exchange rate changes in UK?

A
  1. Increase in UK Intrest Rates
  2. Better return on UK saving accounts
  3. HOT MONEY FLOWS into take adv of HIGHER Intrest Rates
  4. Increased D for £
  5. Appreciation in value of £

intrest rate CHANGES D 4 certain currency –> DRAWS more/ less FOREIGN INVESTORS 2 TAKE ADVANTAGE of intrest rate changes

64
Q

Define Hot Money Flows.

A

CAPIAL FLOWS moving 2 countries with Higher Interest Rates/ expected Exchange Rates changes.

65
Q

How does an increase in the interest rate effect the exchange rate?

A

Increase in exchange rate

66
Q

What industries benefit from a weak pound?

A

Hotels

flooding of tourists attracted 2 weaker pound - cheaper stay but business 4 hotels

67
Q

Define Balance of Payments (BOP)

A

RECORD of all FINANCIAL TRANSACTIONS made between consumers/ firms/ gov from UK with other countries.
States how much spent on Imports + the value of Exports.

68
Q

How does an increase in the exchange rate affect the balance of payments?

A

Imports down
Exports up
BOP decrease

69
Q

Define direct taxation

A

tax paid depending upon individual/ firm income
TAX CHARGED ON EARNINGS

  • CORPORATION TAX
  • INCOME TAX

INCREASE IN TAX = DECRESES D FOR MOST GOODS/SERVICES

70
Q

Define Corporation tax

A

tax levied/ charged on profits business makes (% of profits made)

  • Decrease corporation tax => allows firm keep more profits ==> encourage investment 4 future growth.
  • High Corporation tax => deter foreign companies from basing in UK.
71
Q

Define Income tax

A

levied/ charged on incomes of individuals.

change in income tax => affects consumers disposable income.

72
Q

Define Indirect tax

A

tax charged/ levied on things other income/ profits
- VAT
- CAR TAX
- INSURANCE

INCREASE IN TAX = DECRESES D FOR MOST GOODS/SERVICES

73
Q

Define VAT

Value Added Tax

A

Collected by business (takes 20% of value of sales) less the cost of all inputs bought from other businesses.

Increase in VAT => increase in prices 4 consumers ==> reduces consumer spending.

Value Added Tax

74
Q

Define unemployment

A

no. of people willing + able to work but not able 2 find employment.

75
Q

Define Underemployment

A

people who want fulltime work only find part-time work.

76
Q

What are problems with unemployment?

A
  • OPPORTUNITY COST (alternative = employment)
  • LOSS OF OUTPUT/ GROWTH/ INCOME
  • Less spending money so less sales from lower disposable income = SLOWS ECONOMIC GROWTH.
  • RETRAINING = EXPENSIVE
  • NEGATIVE MULTIPLIER EFFECT (loss of jobs in area leads 2 less spending ==> causing other 2 loose out)
  • RISING SOCIAL COSTS (social deprevation)
  • FISCAL COSTS (gov earns less tax revenue. bc people earn less)
  • Skill shortages
  • LOW MORALE
77
Q

Define Fiscal cost

A

COSTS TO gov changing taxation + spending 2 influence AD

cost of gov stimulating ecoomic growth.

78
Q

Define AD (Aggregate Demand)

A

total level of planned expenditure in economy.

OVERALL DEMAND.

79
Q

Define skills shortage

A

people available 4 work** don’t have skills** employers seeking.

*when the economy is growing = unemployment is low + new technology is widely adopted. *

80
Q

Effects of RISING UNEMPLOYMENT on firms?

A
  1. Less Disposable Income => Less spending => less D => less Output => RISING Unemployment.
  2. Rise Supply of Labour => less Competitive Wages as Workers Willing 2 Work 4 Less => Wages fall ==> BUT means fall in Costs = Increse Profit Margin.
  3. Retrain unskilled => expensive => increases firms’ costs.
  4. inferior/ cheap goods = see increase in sales.
81
Q

Effects of FALLING UNEMPLOYMENT on firms?

A
  1. more Disposable Income => more Spending => increase D => more Hours/ Jobs available => Unemployment FALLS
  2. Lower Supply of Labour => increased Profits demand higher Wages => more Competitive Wages 2 gain new workers => increase Disposable Income.
  3. superior/ lux goods ==> increase in sales.
82
Q

Define inflation

A

persisent rise in general/ average price level ==> corresponding fall in value of money.

PRICES INCREASE

GOV TARGET 2%

83
Q

Define Hyperinflation

A

inflation at VERY HIGH RATE.

84
Q

define DEflation

A

NO INFLATION so avg/ general price level is Decreasing

PRICES DECREASE

opposite to inflation

85
Q

Define DISinflation

A

REDUCTION IN RATE OF INFLATION

86
Q

How is inflation measured?

A
  • BASKET OF GOODS METHOD
  • CPI + RPI
  • following years, % change compared 2 base year (100)
87
Q

Whats CPI?

A

CONSUMER PRICE INDEX:
headline rate used 2 measure gneral inflation BUT excludes some items.

  • less uncertain
  • allows easier comparison of markets
88
Q

WHats RPI?

A

RETAIL PRICE INDEX:
include house costs:

  • mortgage repayments
  • petrol costs
  • council tax etc.
89
Q

What are the main types of inflation?

A

COST-PUSH INFLATION

DEMAND -PULL INFLATION

90
Q

Define Demand- Pull inflation

A

RISE IN AD (overall demand) SLOWER THAN INCRESE IN AS.

  • consumers compete 2 buy limited amounts of goods/services ==> PRICES ARE DRIVEN.

“ too much money chasing too few goods”

91
Q

define Cost-Push inflation

A

PRICES PUSHED- UP due 2 INCREASES FACTORS OF PRODUCTION (cell) when COMPANIES ALREADY RUNNING AT MAX.

  • firms pass higher prices 2 consumers == 2 MAINTAIN PROFIT MARGINS.
  • attempt 2 CUT COSTS / CHEAPER SUPPLIERS (if thats where increased price from).
92
Q

Give 2 negative impacts of inflation (on firms)?

A
  1. MENU COSTS (cost by quicly changing prices- changing price lists/ udapting website on costs)
  2. WAGE PRESSURE (trade unions negotiate as Higher Wages demanded 2 cover costs of inflation ==> expensive ==> increases business costs WHILST cuts down PROFIT MARGIN).
  3. RAW MATERIALS COSTS INCREASING (makes business increase prices 2 keep stable profit margin —– but rise in suppliers prices caused by rise in theor costs e.g. petrol costs increasing their delivery prices)
  4. CONSUMER SPENDING (can’t afford => so consumers are uncertain/ cautious => cut back on spending => “save not spend mentality” ==> SLOWS ECONOMIC GROWTH + DECREASES BUSINESS PROFITS.
93
Q

Give 2 positive impacts of inflation (on firms)?

A
  1. FALL IN DEBT/LOANS VALUE (inflation proportionally decreases debt real value - debt now less than was)
  2. ECONOMIC GROWTH (indicator of prospering economy as people WERE SPENDING MORE).

Economics Paper 1 (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions