Businesses Flashcards
what are firms? as in what do they do with inputs and outputs
transform inputs into outputs
what are the 4 types of firms?
- sole traders
- partnerships
- private companies
- public companies
what is a sole trader?
one trader with unlimited liability
what is a partnership?
2-20 owners, unlimited liability
what is a private company?
1-50 owners, shareholders have liability
what is a public company?
5 or more owners
listed on the ASX and all company’s information is available online
what is the IPO?
initial public offering.. when private companies first turn public and issue shares to the public
5 types of industries?
primary
secondary
tertiary
quaternary
quinary
what is the primary industry?
extraction of raw materials
what is the secondary industry?
manufacturing of raw materials
what is the tertiary industry?
services.. eg marketing, retail
what is the quaternary industry?
processing and supply of info, e.g teaching, banking
what is the quinary industry?
provision of household services
e.g hotels, restaurants
what are a firm’s 3 production decisions?
what to produce, how much to produce, how to produce
how does a business decide what to produce?
what consumers are willing to buy
how much profit they would make
how does a business decide what quantities to produce?
consumer demand
cost and availability of resources
natural factors
how does a business decide how to produce products?
most efficient and effective combination of factors of production
should they have more machinery or more labour?
what is economic growth? how is it measured
changes over time in levels of GDP; value of all final goods and services produced in a country
change in real GDP/ last year’s GDP
what is real GDP?
GDP that takes into account of inflation
is nominal GDP increases by 6%, and inflation is 2%, what is the real GDP?
6-2 = 4%
what are the 5 main goals of a firm?
- maximising profits
- maximising growth
- increasing market share
- meeting shareholder expectations
- satisficing behaviour
what is maximising profit?
making the most income
what is maximising growth?
businesses growing larger and accumulating more assets to increase profits in the future
what is increasing market share?
gaining a larger proportion of total sales within a specific market
what is meeting shareholder expectations?
shareholders have say in business decisions as they help fund the, thus shareholders must be pleased by business decisions before major changes are made
what is satisficing behaviour?
businesses have many targets they want to achieve, so they may have to forgo some goals to achieve many of them
adequate over optimal
why does a business have to be efficient?
lower costs and increase profits
what is allocative efficiency?
allocate resources to provide greatest benefits
what is dynamic efficiency?
adapt to needs of changing market
what is operational/ productive efficiency?
least amount of resources at the lowest cost
what is productivity>
output per unit of input
costs are reduced when the scale of production is _____
increased
what are the fixed costs a firm has to pay?
costs that have to be paid before the first customer makes a purchase, e.g furniture, machinery, marketing
increasing returns to scale: average cost of production falls with increased ____
output
average cost rises, ____ return to scale
decreasing
what are the 4 economies to scale categories?
- internal economies of scale
- external economies to scale
- internal diseconomies to scale
- external diseconomies to scale
what is an internal economy of scale? example?
businesses lower their cost of production and make a greater revenue due to factors inside their business/ under their control
for example, bulk buying, specialising of workers
what is an external economy of scale? example?
businesses lower cost of production/ increase revenue due to factors outside of the business/ beyond their control
provided by growth of other businesses/ government
examples: improvements in transport links; skilled labour force; suppliers and intermediaries established close to growing industry; competitors develop new procedures, region gets certain reputation for producing good quality of goods (e,g Hunter Valley)
what is an internal diseconomy of scale? example?
cost increases for a firm due to qualities within the firm
examples:
less skilled workers, organisational skills, management loses touch with workers, congestion in production line, tasks become duplicated by different departments
what is an external diseconomy of scale? example?
factors outside of the business create an increase the average cost
examples: traffic problems (too many businesses in one area); demand increases–> resources remain and cost increases; limited space for new firms and businesses; gov regulations
increasing productivity:
increasing output with the same resources the same time
is increasing productivity a goal for a business? why?
yes, it decreases costs and satisfies more wants with same level of resources
how can a business increase productivity?
division of labour
location of industry
large scale production
what is division of labour in productivity?
assembly line
what is location of industry in productivity?
concentrate workplace in appropriate industrial area
what is large scale production in productivity?
specialised capital equipment to speed up production
how can productivity improve standard for living? (3)
Wasting less resources
Decreasing production costs
Increasing business profits
Decreasing inflation
Increasing incomes
Increasing international competitiveness
3 things that investments, technological change and ethical decision making impact…
Production methods
Price
Employment
Output
Profits
Types of products
Globalisation
Environmental sustainability
