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Economics: AQA 2015 > Chapter 4 > Flashcards

Chapter 4 Flashcards

1
Q

What is production?

A

The total output of goods and services produced by an individual, firm or country

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2
Q

What is productivity?

A

A measurement of the rate of production by one or more factors of production

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3
Q

What is labour productivity?

A

Output per worker per unit of time

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4
Q

What are some examples that can improve labour productivity?

A
  • Better education
  • Better training
  • Increased motivation
  • Advances in technology
  • Specialisation and division of labour
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5
Q

What is specialisation?

A

Where a worker, firm, region or country produces a limited range of goods and services

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6
Q

What is division of labour?

A

Specialisation at the level of an individual worker

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7
Q

What is exchange?

A

Where one thing is traded for something else e.g an hour’s work given in return for a set rate of pay

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8
Q

What are the benefits of specialisation and the division of labour?

A
  • Repetition increases skill, leading to a worker becoming an expert
  • Reduced time moving between workstations
  • More efficient to use specialist machinery
  • Allows people to work to their strengths
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9
Q

What is the short run?

A

A period of time in which the availability of at least one factor of production is fixed

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10
Q

What is the long run?

A

A period of time in which all factors of production can be varied

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11
Q

What are fixed costs?

A

Costs of production that do not vary with the level of output in the short run

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12
Q

What are variable costs?

A

Costs of production that do vary with the level of output

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13
Q

What are some examples of fixed costs?

A
  • Rents on business premises
  • Buildings insurance
  • Quarterly heating and lighting bills
  • Salaries of senior staff
  • Annual marketing and advertising budget
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14
Q

What are some examples of variable costs?

A
  • Raw materials
  • Packaging
  • Wages of casual staff
  • Fuel for delivery vehicles
  • Distribution costs
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15
Q

How would you calculate average fixed costs?

A

AFC =

total fixed costs / output

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16
Q

What are total costs?

A

TFC + TVC at a given level of output

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17
Q

How would you calculate average total costs?

A

ATC =

TC / output

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18
Q

What are marginal costs?

A

The addition to a firms total costs from making an additional unit of output

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19
Q

What is the law of diminishing returns?

A

When additional units of variable factors of production are added to a fixed factor, marginal product will eventually decrease

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20
Q

What is returns to scale?

A

The relationship between increases in the quantity of a firms inputs and the proportional change in outputs

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21
Q

What is an increasing returns to scale?

A

Where an increase in the quantity of a firm’s inputs leads to a proportional great increase to its outputs

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22
Q

What is meant by a constant returns to scale?

A

Where an increase in the quantity of a firm’s inputs leads to a proportionally identical increase in its outputs

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23
Q

What is a decreasing returns to scale?

A

Where an increase in the quantity of a firm’s inputs leads to a proportionally lower change in output

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24
Q

What is meant by economies of scale?

A

The reduced average total costs that firm’s experience by increasing output in the long run

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25
Q

What are the types of internal economies of scale?

A
  • Financial
  • Technical
  • Marketing
  • Managerial
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26
Q

What is internal economies of scale?

A

Reductions in long run average total costs arising from growth of the firm

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27
Q

What is external economies of scale?

A

Reductions in the long-run average total costs arising from the growth of the industry in which the firm operates

28
Q

What is meant by diseconomies of scale?

A

Increases in average total costs that firms may experience by increasing output in the long run

29
Q

What are the types of diseconomies of scale?

A
  • Coordination and control

* Communication

30
Q

What is the minimum efficient scale?

A

The lowest level of output at which average total costs of production are minimised

31
Q

Why is producing at MES good for a firm?

A

Once achieved, this can act as a significant barrier to entry for any potential competitors in an industry

32
Q

What is total revenue?

A

The money a firm receives from selling its output, calculated by (P x Q)

33
Q

What is average revenue?

A

Average revenue is total revenue divided by output. This is equal to price in a firm that sells one product at a fixed price.

34
Q

What is marginal revenue?

A

The addition to a firm’s total revenue from selling an additional unit of output

35
Q

What are the characteristics of perfect competition?

A
  • large number of buyers and sellers
  • no firm is large enough to influence price
  • perfect knowledge of a market
  • each firm sells an identical product
36
Q

What is profit?

A

The difference between total revenue and total costs

37
Q

What is normal profit?

A

The minimum level of profit required to reward the entrepreneur for taking a risk and therefore to stay in a particular line of business

38
Q

What is supernormal profit?

A

Profit over and above normal profit

39
Q

What are the two types of technological change?

A

Invention and innovation

40
Q

What is invention?

A

The creation of a product or process

41
Q

What is innovation?

A

New products or production processes that are developed into marketable goods or services

42
Q

If there’s an improvement in technology, what are the affects on long run average costs?

A

LRACs are reduced

43
Q

What is a benefit to consumers of technological change?

A

It can make some markets more competitive and so a lower price could be offered

44
Q

What is creative destruction?

A

Where technological change leads to the development of new, “disruptive” products that render existing products obsolete

45
Q

What is the market structure?

A

The number and size of firms within a market for a particular good or service

46
Q

What is perfect competition?

A

A market structure that has a large number of buyers and sellers who have perfect information about the market, identical products and few, if any barriers to entry

47
Q

What is imperfect competition?

A

Any other market structure that is not perfect competition

48
Q

What is a pure monopoly?

A

When only one firm supplies the market

49
Q

What are the objectives for firms?

A
  • Profit maximisation
  • Sales maximisation
  • Survival
  • Growth
  • Increasing market share
  • Shareholders objectives
50
Q

What is profit maximisation?

A

When a firm seeks to make the largest possible difference between total revenue and total costs

51
Q

Why do some firms aim to maximise profit?

A
  • Enable firms to re-invest funds into developing new products that lead to them gaining more customers
  • Pay out higher returns to shareholders which may encourage more people to buy shares in the company, or help boost the share price
52
Q

Where on a graph is profit maximised?

A

Where MC=MR

53
Q

What is sales maximisation?

A

Where sales revenue is at a maximum

54
Q

When does sales maximisation occur?

A

When the sale of one more unit of output would not add to overall income

55
Q

What is survival?

A

Firms aim for survival in a critical period before it establishes a customer base and repeat sales and is able to cover its costs

56
Q

What is growth as an objective for firms?

A

Involves a firm increasing its output and scale of operations, possibly in terms of expanding its productive base and size of its workforce

57
Q

Why is growth of a firm important?

A

Obtaining growth allows firms to take advantage of economies of scale. Also prevents businesses from being taken over by rivals

58
Q

What is increasing market share as a firm objective?

A

When a firm seeks to maximise its share of the market in terms of sales value or number of units sold

59
Q

Why is increasing market share important to a firm?

A

Having significantly higher market share than the rest of the market can give a firm monopoly power. However, this could attract attention from the government.

60
Q

What are stakeholder objectives?

A

Non-financial objectives such as looking after the needs of employees

61
Q

What is the divorce of ownership and control?

A

The separation that exists between owners of the firm and directors in a large public limited company

62
Q

What is the assumed objective of stakeholders of a firm

A

To maximise profits

63
Q

What are some objectives of directors at a firm?

A
  • Growth maximisation
  • Sales revenue maximisation
  • Satisficing
64
Q

Why would growth maximisation be an objective of a director of a firm?

A
  • Boost profile and CV of senior managers

* Reduce threat of takeover which could lead to “easy life” for senior executives

65
Q

Why would sales revenue maximisation be an objective of a director of a firm?

A

Executives pay and bonuses may be dependent on sales revenue rather than profit

66
Q

Why would satisficing be an objective of a director at a firm?

A

Producing at a precise output where MC=MR is difficult and so leads to senior staff “making do” with less satisfactory, sub-optimal profit

Economics: AQA 2015 (4 decks)

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