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Economics > Business Economics > Flashcards

Business Economics Flashcards

1
Q

What is production and what does it involve

A

Manufacturing something to sell

Involves converting inputs to outputs

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2
Q

What is an input (give an example)

A

Inputs are any of the four factors of production

E.g. raw materials, labour

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3
Q

What is productivity

A

A measure of how efficiently an economy or company is producing output

E.g. output per unit of input employed

Can be calculated for any one of the four factors of production

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4
Q

What is labour productivity

A

Output per worker or output per hour worked

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5
Q

How is labour productivity calculated

A

Labour productivity = amount of output produced in a particular time / total number of workers or total hours worked

Allows workers to be compared against other workers

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6
Q

What can improvements in productivity come as

A

Better training for workers

Specialisation

Experience

Improvements in technology

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7
Q

What are the advantages of specialisation

A

Specialise workers in what they’re good at

Leads to better quality and higher quantity of products for the same amount of effort overall

More efficient production

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8
Q

Disadvantages of specialisation

A

Doing repetitive tasks leads to boredom

Can lead to a lack of flexibility (e g. Coal mining in the UK)

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9
Q

What is specialisation

A

Means people or countries doing only the things they’re most efficient at

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10
Q

What becomes vital when countries specialise and why

A

Trade becomes vital as economies have to obtain things that they no longer make for themselves

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11
Q

What is the most efficient way of exchanging goods and services between countries

A

Money

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12
Q

What is money

A

A medium of exchange

Something both buyers and sellers value

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13
Q

What are the three functions of money

A
  • measure of value
  • store of value
  • a standard or method of deferred payment
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14
Q

What is a firm

A

Any sort of business organisation

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15
Q

What is an industry

A

Where all firms provide similar goods or services

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16
Q

What is the cost of production

A

The economic cost of producing good

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17
Q

What is the short run

A

The period of time for atleast one factor of production to be fixed

Costs can be fixed or variable in the short rum

In the long run all costs are variable

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18
Q

What is the total cost

A

All the costs involved in producing a particular level of output

Total cost = total variable costs + total fixed costs

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19
Q

What is the average cost

A

Cost per unit produced

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20
Q

What is the equation for average cost

A

AC = TC ÷ Q

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21
Q

What is marginal cost

A

Cost of increasing output by one unit

The extra cost incurred as a result of producing the final unit of output

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22
Q

Draw the short run average cost curve with labels

A

….

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23
Q

What are economies of scale

A

The cost advantages of production on a large scale

24
Q

What are the two types of economies of scale

A

Internal and external economies of scale

25
Q

What are internal economies or diseconomies of scale

A

Changes within a firm

26
Q

What are examples of internal economies of scale

A
  • technical economies of scale (production line cost)
  • purchasing economies of scale (negotiate discount with supplier)
  • marginal economies of scale (employ specialist managers for taking care of different areas of the business)
  • financial economies of scale (larger firms can often borrow more money at a lower rate of interest as banks see them as low risk)
  • risk bearing economies of scale (larger firms can diversify into different product areas)
  • marketing economies of scale (can afford more advertisement)
27
Q

What are external economies or diseconomies of scale

A

Involve changes outside a firm

28
Q

What are examples of external economies of scale

A

Local colleges offer qualifications -> reducing the firms training cost

Large companies in local areas can lead to improvements In road networks or local transportation

29
Q

Examples of internal diseconomies of scale

A

Wastage + loss can increase

Communication can get more difficult

30
Q

Examples of external diseconomies of scale

A

Industry becomes bigger -> price of raw materials increase as demand is greater

Buying large amounts of materials may not make them less expensive per unit

31
Q

What is revenue

A

The money firms receive from selling their goods and services

32
Q

What is total revenue (TR)

A

Total amount of money received within a given time period

33
Q

What is the equation for total revenue

A

Total revenue = total quantity x price

34
Q

What is the average revenue

A

Revenue per unit sold

35
Q

What is the equation for average revenue

A

AR = TR ÷ Q

36
Q

What does a firms demand curve determine

A

Determines how revenue relates to output

37
Q

What is a price taker

A

A firms that has no power to control the price it sells at

Demand curve will be perfectly elastic

38
Q

What is a price maker

A

Where the firm has some power to set the price they sell at

39
Q

What are the objectives of firms

A

Profit maximisation
-May only be an objective in the long run, sacrificing profit in the short run

Growth
-maximising sales or revenue in short run (could be achieved by setting prices lower)

Alternate objectives

  • use sustainable resources to protect environment
  • use suppliers in their region to support local business
40
Q

What are the properties of perfectly competitive markets

A

Where there is an infinite number of suppliers and consumers

Small enough so they have no ‘market power’

Consumers have perfect information
-every decision is well informed

Producers have perfect information
-no firm has ‘secret’ low-cost production methods

Homogeneous goods (means no branding)

No barriers to entry or exit

Firms are profit maximisers

41
Q

Define homogeneous

A

Products are identical

This also means no brands

42
Q

What does it mean when there are low barriers of entry and profits are high

A

New firms will enter the market

43
Q

What are the properties of less competitive markets

A

High barriers of entry

Therefore profits and prices will stay high as new firms can’t enter the market and bring them down

44
Q

What are the factors that influence the structure of markets

A

Product differentiation

Level of barriers of entry

Number of firms

45
Q

What is a monopoly

A

A market containing a single seller

46
Q

What is a pure monopoly

A

A market with a single supplier

47
Q

What is monopoly power

A

Markets with more than 1 seller have it

Act as price makers by controlling supply to influence the goods price

48
Q

What are the factors that can result in monopoly power

A

Barriers to entry

Advertising and product differentiation

Few competitors in the market

49
Q

What can barriers of entry be used for

A

Maintaining and creating monopolies

50
Q

What is a barrier to entry

A

Any obstacle thst makes it impossible or unattractive for a new firm to enter a market

51
Q

What does concentration ratios show

A

How dominant the big firms in a market wre

52
Q

What are concentrated markets

A

Industries dominated by just a few companies, even though there may be many firms in that industry overall

53
Q

How do you calculate the concentration ratio

A

E.g. 3 firms control 90% of the market, while another 40 firms control the other 10%

3 firm concentration ratio = 90%

45 Mil total in market

If the firms had revenues of 15m, 9m and 7m respectively

3 firm concentration ratio = (15+9+7)/45 x100 = 68.9%

54
Q

What are the potential benefits from monopolies

A

Gain an advantage from economies of scale

Security in the market, can have a long term view with innovation

Market is dominated by few large firms, but they still compete

55
Q

What are the disadvantages of monopolies

A

Restrict consumer choice

Fewer incentives to innovate

No inventive to cut costs as they’re price makers

Use its powers to exploit suppliers

Economics (38 decks)

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