1.2 Enterprise, business and the economy Flashcards
Theme 1
Give a brief description of the theory of Creative Destruction
Presented by Schumpeter, this is the idea that new entrepreneurs are innovative and grow more productive than old, idle firms who are eventually forced out of the market.
Give one example of Creative Destruction
Technological advancements have lead to the creation of DVD’s to the introduction of Blu-Ray, to the expansion of downloadable films, which has lead to the downfall of DVD’s.
What is the main Incentive (motivates or encourages someone to do something) for entrepreneurs?
Taking risks for profit
Main reasons for running a business
-Make money
-Become independent
-Improve lifestyle
-Flexibility
-Secure a good standard of living
What is adding value?
Altering the product/service so as to increase its value to the customer.
Recall non-financial motives an entrepreneur might have
-Ethical stance
-Independence
-Home working
-Social entrepreneurship
Define all 4 factors of production
Land: Natural resources; Oil & Coal
Labour:Human capital
Capital:Goods which can be used in the production process
Enterprise:The innovator and risk-taker
What is specialisation?
Occurs when each worker completes a specific task in the production process aimed at improving efficiency and thus the average cost of production
Give a few benefits and drawbacks of specialisation
+Higher output
+Opportunities for greater economies of scale
-Work becomes monotonous and demotivating
Why would higher interest rates be seen as a disadvantage to firms?
Higher interest rates implies getting a loan is more expensive, which raises the cost of production for firms.
It also encourages more saving and less spending on the consumer-side, which results in less profit for firms.
Why would lower interest rates be seen as a benefit to firms?
Investment may increase and existing business may expand due to consumers receiving more disposable income to spend.
What is the relationship between exchange rates and the level of imports/exports?
High exchange rate: imports cheap, Exports dear
Low exchange rate: imports dear, Exports cheap
SPICED
WIDEC
How could a high unemployment benefit firms?
An increase in unemployment mean there is a larger supply of labour, which gives firms bargaining power and the ability to reduce wages, thus lowering the costs of production.
What could unpredictable inflation imply for firms?
Unpredictable inflation reduces overall business confidence, as it is difficult to anticipate future interest rates, unemployment rates, economic growth etc. Therefore, firms cut down on their investment and wait for calmer economic conditions.
