Chapter 1 Flashcards
Economics
“Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”
Economic Production System
Inputs are transformed into outputs to attain a certain goal
Capital
an economic term for wealth that is used to produce more wealth
What is the relationship between labour and capital?
Inversely proportional.
Large capital (machinery) —> less labour force
What is cashflow?
Inflow-> income
Outflow-> expenses
Fixed assets
Assets that are kept for a long period of time.
E.g. land and buildings, machinery, vehicles
Current assets
Kept for a short period of time.
E.g. materials, trading stock, cash and cash equivalents, cash float
The business entity concept
The business is separate from the owner(s) of the business. Therefore the accounting records for even the simplest business, the sole trader, must be kept separate from the personal affairs of the owner or owners.
Accounting equation
Assets = Owners Equity + Liabilities
Command economy
RULERS make all decisions about production and consumption
Market economy
HOUSEHOLDS make all decisions about production and consumption.
— individuals are favoured over groups
Capitalism
INDIVIDUALS/FIRMS develop, own and control the country’s capital.
— individuals are favoured over groups
Communism
PUBLIC owns all important means of production (restricted number of
participants e.g. a family). Capital belongs to all, becomes difficult to maintain as the number of people increases.
— rulers take decisions and communism places the rights of the group
above those of the individual
Markets
Firms sell their product in a market which allows for exchanges, transactions and trades between buyers and sellers
Diminishing utility
The more one has of a product, the lower its marginal personal use is
Demand depends on (6):
- The type of product
- Popularity
- The quality
- Satisfies choice
- Availability
- Price
(Doo Doo Toilet Paper Products Quickly Soothe Caca And Poo)
Supply factors
- ease of making
- material costs
- labour
- machines
- capital
- price
Price elasticity of demand
(% change in quantity) divided by (% change in price)
Price elasticity
• p (1 + 1/price elasticity of demand)
• increase in market revenue for an extra unit sold
Income elasticity of demand
(% change in quantity) divided by (% change in income)
Cross price elasticity
• measures a products’ complement and substitute
• e(q-a), (p-b) = (% change in quantity of a) divided by (% change in price of b)
• If cross price elasticity is positive —> substitute product
• If cross price elasticity is negative —> complementary product
• If product form becomes less competitive, the cross elasticity tends to zero (can expect increasing market size with increasing demand)
Monopoly
One supplier in the market (may exist by legalities which exclude others trading)
Monopsony
A single demander in the market
Perfect competition
— Many suppliers and demanders, produce/consume homogenous products, have free mobility of resources and have complete knowledge of resources concerning price and cost.
— perfect competitor produces small outputs relative to the market
— A perfectly competitive firm sets the output/quantity so marginal revenue equals margina costs, to maximise profits
Cartel
-many suppliers who think they are monopolies
Oligopoly
- a few suppliers in the market
Profit
• the residual cash between input (L,K,M) and output (goods and services) after having paid for all input factors.
• Accountants exclude payments to shareholders and value items differently when defining profit
• Profits of the firm belong to the owners or shareholders
• profit= revenue - costs
• Profit is made where revenue exceeds costs and marginal revenue = marginal costs
Shareholders
- partial ownership of the firm
→ bear financial risks (uncertainty in
investmeht
Formula for Total revenue
Price x Quantity
Fixed costs
costs which do not vary over a certain range (time) e.g. rent
Variable costs
- costs which vary over a certain range (time) e.g. materials
Marginal cost
- cost obtained from making an extra unit
Marginal revenue
- revenue obtained from making an extra unit
Neo-classical theory
- analysis of the market, monopolist and perfect competitor
Schumpeter’s Theory
— purposes of firms
— places emphasis on the creative ability of people whereby firms arise when people make new products and processes, which can monopolise markets for a certain period. New products creatively destroy older approaches
Resource Based Theory
— purposes of firms
— emphasises unique resources that firms have to monopolise
markets. A firm should make what it can monopolise and buy what is available in competitive markets
Transaction Cost Economics
— mechanics of firms
— see firm as a way of escaping the costs of dealing with the market as market transactional costs are high. It assumes people act rationally, but have limited abilities to process info and are self-seeking with
Structure-Conduct-Performance (SCP)
— mechanics of firms
— Theory - links various parts of the market to decisions
* made by people in a particular firm, these include technology, capital requirements, profit, growth, efficiency, management, objectives and diversification amongst other factors
A business model
used to decide if an idea should be carried out
Business plans
used to estimate economic viability and risks of the idea, to interest people to support the idea, and to provide documentation against which to monitor progress of making the idea into a reality.
Key Considerations for the Transformation Stage: (6)
- Business Model
- Operations
- Human Resources
- Marketing and Sales
- Financial Management
- Risk Management
(Big Monkeys Only Hunt Rats Mice and Snakes For Making Rank Meals)
Decisions for Business Model:
Decide on the
1. target market
2. product offerings
3. pricing
4. distribution
5. differentiation factors
(Too Many People Only Pick Double D Females)
Decisions for Operations (5):
Make decisions on
1. production
2. suppliers
3. inventory
4. quality control
5. resource allocation.
(Don’t Open Pea Sized Quails In a Rush)
Decisions for Human Resources:
Determine
1. hiring
2. training
3. employee development strategies
4. establish communication channels
Decisions for Marketing and Sales
Make decisions on
1. target audience
2. branding
3. advertising channels
4. pricing
5. sales techniques.
Decisions on Financial Management
Decide on
1. budgeting
2. forecasting
3. pricing
4. financing options
5. financial reporting.
(Fucku Mean Biden For President? Fuck Off For Real)
Decisions on Risk Management
Identify
1. risks
2. assess their impact
3. develop mitigation strategies.
Useful Tools for the Transformation Stage:
- SWOT Analysis: Evaluate internal strengths, weaknesses, external opportunities, and threats to make informed decisions.
- Business Plan: Develop a comprehensive document outlining goals, strategies, operational details, and financial projections.
