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Economics > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

Sole trader

A

Business owned and controlled by a single person

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2
Q

Partnership

A

Business owned by 2 to 20 people

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3
Q

Private limited company

A

Business owned by share holders, UNABLE to buy or sell shares without consent of other share holders

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4
Q

Public limited company

A

Business owned by share holders, able buy or sell shares freely on stock market

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5
Q

3 main measures of size of firms

A
  • number of workers
  • value of output
  • value of financial capital employed
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6
Q

Factors affecting size of firm

A
  • age of firm
  • availability of financial capital
  • type of business organization
  • size of market
  • internal economies and diseconomies of scale
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7
Q

Why do small firms exist

A
  • small size of market
  • consumer preference
  • owner preference
  • flexibility
  • lack of financial capital
  • technical factors
  • specialization
  • gov assistance
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8
Q

Internal growth

A

increase in size of existing firm by increasing market for current products or diversifying

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9
Q

External growth

A

increase size of firm by merger or takeover of another firm

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10
Q

Types of internal EoS

A
  • purchasing/bulk buying
  • technical
  • financial
  • managerial
  • risk bearing
  • marketing
  • labour
  • R&D
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11
Q

Internal DEoS

A
  • difficulties controlling firm(many layers of management)
  • communication problems
  • poor industrial relations
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12
Q

External EoS

A
  • skilled labour force
  • good reputation
  • specialist supplier of raw material
  • improved infrastructure
  • specialist services(universities offer courses)
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13
Q

External DEoS

A
  • higher cost of transport

- higher cost of resources

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14
Q

Factors influencing D on capital goods

A
  • price of capital goods
  • increased profit levels
  • cut in cooperation tax
  • rise in disposable income
  • cut in interest rate
  • firms expectations about the future
  • advances in technology
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15
Q

Why some producers use labour intensive methods

A
  • large supply of labour
  • too small to take advantage of capital
  • labour can be more flexible, respond quicker to changes in market
  • can provide feedback on how to improve production methods
  • enable customers to receive personalized services
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16
Q

Why some producers use capital intensive methods

A
  • enable firms to use mass production techniques(more output less time)
  • can benefit from EoS
  • reduces human error
  • advances in technology makes them more affordable and productive as they do not engage in industrial action or get sick
17
Q

Production

A

total output produced by a firm/unit time

18
Q

Productivity

A

refers to output/input/unit time

e.g. output/worker/hour

19
Q

Importance of higher productivity to the economy

A
  • EoS
  • higher profits
  • higher wages
  • increased competition
  • economic growth
20
Q

Why is profit important to a business

A
  • provide incentive for entrepreneurs to take risks
  • without profit firms would struggle to survive
  • can be used to the invest in R&D
  • easier to obtain external finance (shares or loans)
21
Q

Increasing revenue

A
  • improve quality of product diversified and be more responsive to changes in consumer demand
  • advertising
  • Setting price according to elasticity of demand
  • offering more credit facilities than competing firms
22
Q

Decreasing costs

A
  • cheaper suppliers
  • loans with lower interest-rate
  • offer labor training to increase productivity of labor
  • Buying capital to increase productivity And reduce wastes
  • increasing size of firm by merger or takeover
23
Q

Objectives of firms

A
  • survival
  • Growth
  • social welfare
  • profit maximization
24
Q

Features of firms in competitive markets

A
  • many buyers and sellers
  • pressured to keep prices low
  • free entry and exit from market
  • perfect knowledge
  • normal profit
25
Q

Advantages of competitive firms

A
  • promote efficiency
  • consumers get better quality product
  • competition brings greater choice higher output and more competitive prices
26
Q

Features of monopoly

A
  • Single supplier
  • price maker
  • imperfect knowledge
  • high barriers to entry and exit
27
Q

Disadvantages of monopoly

A
  • lack of competition may lead to inefficiency
  • lack of substitutes so produces will not respond to changes in consumer taste new products
  • high barriers prevent new firms from entering market
  • imperfect knowledge about prices so consumers may not make rational choices
28
Q

Advantages of a monopoly

A
  • could be relatively efficient and benefit consumers
  • call have very high profits which they spend on the switch in development and introduce variation
  • natural monopoly, eliminating wasteful duplication of resources
29
Q

Rationalization

A

Avoid duplicates in administrative position, decreases AC

Economics (11 decks)

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