eco topic 2 chap 5 (chap 4 in 1st topic oops) Flashcards
industry
collection of firms involved in making similar items usually competing w/ each other
business firm
organisation using entrepreneurial skills to combine FOP t produce & sell g/s
-major production units in eco
-size, behaviour, performance influence overall productive capacity
factors that may infleucne decision of investors & entrepreneurs in WHAT to produce (SDOC)
- SKILLS & experience of business operator
- industries w/ strong consumer DEMAND
- business OPPORTUNITIES
- amt. CAPITAL required to start business
how do skills & experience of business operator influence WHAT to produce
likeliest successful operating in industry know well
-understand DEMANDS of consumers
-NATURE of production
-HOW to maintain QUALITY
-where they have PERSONAL CONTACTS
how do industries with strong consumer demand affect WHAT to produce for entrepreneurs?
attracted to produce goods with significant UNTAPPED demand
not on sheet
how do business OPP influence entrepreneurs in WHAT to produce?
particularly attracted to bus opp
-develop business might not otherwise have interest
-find niche market by focusing tastes of specific customers
niche market
segment of mass market for g/s defined by specific tastes/characteristics of target customers
(specific target market)
how does amount of capital required influence an entrepreneur’s decisions on WHAT to produce?
-access to capital is CONSTRAINT in start up
-likely attracted to business w/ lower start up costs (reduces barriers to entry & minimise risk)
hwo do entrepreneurs decide how MUCH to produce?
assess level of consumer demand & its ability to convert demand into SALES (may commission market research)
what happens when a firm produces too much?
-produce too much –> unsold goods require storage, waste –> financial burden for firm
what happens when a firm produce too little?
-produce too little –> unable to offer goods will forgo potential sales to customers
when is the question how MUCH to produce most difficult for a firm?
firm starts up/introduces new product line
-others generally able to anticipate market demand by observing past trends
what odes the production process involve
combining range of resources (inputs) to create g&s (outputs)
capital
manufactured products used to produce g&s aka ‘produced means of production’
whwat does a firm’s decision about how to produce depend on?
relative efficiency of FOP which can change over time, choose combination of FOP most efficient
what will a healthy, growing private sector generate?
higher rate of eco growth
stronger revenue base to fund services provided by GVT
what do growing business contribute to?
not on sheet
reduce unemployment
regional development
-tourism
-better regional infras, improved liveability, population attraction & retention
increases eco’s PRODUCTIVE CAPACITY over time
-outward shift in PPF
-greater eco output, competition –> lower inflation –> improved living standards
objectives firms usually pursue in daily operations GPMS
- maximise growth
- maximise profits
- increase market share
- satisficing behaviour
firm objective to maximise growth
maximise growth rate of firm’s assets
-long run, larger asset base allow business achieve higher profits
-bring management other rewards (higher salaries)
-sometimes leads to business failure
firms objective to increase market share
-profit maximisation not always highest priority (larger businesses generlaly split between owners (shareholders) & managers)
-instead may seek increase market share (% of sales business has in overall market)
market share
measure of consumer preferences for business’ product over competitors
-higher market share –> more sales, competitive advantage
profit motive
business seeks maximise PROFIT using LOWEST cost combination of resources & charging HIGHEST possible price
satisficing behaviour
firms attempt pursue satsifactory level in ALL goals (profit & sales maximisation, etc) than maximising single goal.
firms objective to maximise profits
maximise biggest possible profit/smallest possible loss main objective of most firms
profit : total revenue (output sold x price) deducted by total costs of production
firm objectives satsificing behaviour instead of profit maximisation
-excessive profits may attract new competitiors into industry/provoke greater **regulatory oversight
-sometimes aim non-financial outcomes (political influence, social prestige, environmental impact**)
satisfactory level of profit
acceptable rate of retun on investment for shareholders
firms objective to meet shareholder expectations
sometimes conflicting shareholder expectations
-**RETAIL investors **may make investment decision based on bus’ environmental credentials/ethically
to meet, look beyond immediate financial expectations of shareholders, decisions on purpose & future
-shareholders can vote to change management & bus operations
retail investors
individuals who invest for themselves using brokerage/retirement accounts
institutional investors
make investments on behalf of others with resources & specialised knowledge to research wide range of investment opportunities & can invest much larger amounts
-superfunds & investment banks
productivity
- increase output produced w/ given quantity of resources per unit of time
- ^ production prop more than ^inputs
how is productivity diff form production
production total g&s produced, ^amt resources used/work resources longer time
productivity formula
total output/total input
to increase productivity
increase production PROPORTIONATELY more than increase of inputs of resources
5 how productivity improves standard of living (satisfy more wants)
WC&PIIC
-
less WASTAGE of scarce RESOURCES
-produce more with given quantity of resources -
lower production COSTS & higher PROFITS for bus firm
-each FOP can produce more in given period, costs less to produce same quantity -
LOWER INFLATION rate
-lower production costs –> firms don’t need to raise prices & can reduce -
higher INCOMES
-labour more productive, firms can pay better wage rates to workers without increasing prices - improved international COMPETITIVENESS of AUS industries
-w/ foreign bus, AUS goods more competitive on local & international markets
major way busienss firms can icnrease productivity
specialisation (FOP used more intensely for smaller no. production processes)
how specialisation occurs in relation to 3 FOP
(specialisation of)
land: LOCATION of INDUSTRY
labour: DIVISION of labour
capital: large-scale PRODUCTION
division of labour (specialisation of labour)
businesses break down production process into no. sub-processes
-labour specialise in certain part of process
-avoid time & effort moving from one process to another
each worker may complete small task in constructing each vehicle
location of industry (specialsiation of land)
large no. businesses producing similar g&s CONGREGATE in SAME area to reduce production COSTS by sharing common infrastructure requirements
large-scale production (specialisation of capital)
businesses grow so large can use highly-specialised capital equipment in production process
internal economies of scale
cost saving advantages resulting from firm expanding its scale of operations
when firm’s output is below technical optimum
need to achieve large scale of production to minimise costs
economies of scale
average costs per unit of production fall as output size grows
internal DISECONOMIES of scale
cost disadvantages (increase of marginal costs per unit) faced by firm after expanding its scale of operations beyond certain point
output level ABOVE technical optimum
what are most factors that cause diseconomies of scale
management problems
as business grows size, management unable to organise all areas of business efficiently –> slowing production process & increasing costs
6 cost saving advantages from internal economies of scale (firm expands scale of operations) SCRMDF
- becoming larger, firm can take advantage of SPECIALISATION of labour
-breaking up production process into different stages - large firm able to INVEST in CAPITAL equipment
- can buy RAW MATERIALS in BULK
-reduces per-unit cost of inputs
-economies of SIZE - large firm can find MARKET for its by-products
-small firm would have to discard as waste
-furniture manufacturer sells timber to trophy manufacturer - put resources into R&D
-expand new production lines
-reduce per-unit costs in future
-invest in HUMAN CAPITAL (improve skills of its labour force, tailoring to firms needs) - easier & cheaper to raise finance for BUSINESS EXPANSION
4 disadvantages of internal DISeconomies of scale (cause per-unit production costs to increase once firm expands size past certain point)
- MANAGEMENT inefficiency may increase
- large firm may lead to duplication & paperwork
- problems arise in workplace relations
-management no longer knows staff personally
-management increasingly unaware of issues faced by diff workers
-increase tension in employer/ee relationship and become workplace disputes - decrease in managerial & administrative efficiency
-overshadow advantage of large size
-increase in per-unit production costs
technical optimum
most efficient level of production for firm, average costs or production at lowest possible level
what does the LRAC (long run average cost) curve look like and what relationship does it display?
production costs and INTERNAL dis/economies of scale
output x-axis, cost per unit y-axis
concave up parabola floating with vertex at technical optimum, internal DISecos of scale on RHS, vice versa
what causes the LRAC to have a downward shift?
learning by doing (experience & practice) over time
EXTERNAL economies of scale
advatanges for firm due to growth of INDUSTRY firm is operating in, regardless of firm’s level of production
NOT the result of firm changing OWN scale of operations
LAC 3 external economeis of scale cost-saving advantages
- increasing LOCALISATION of industry
-all firms in certain region enjoy certain cost-saving advantages
-eg. locating highly populated area with supply of skilled labour & plentiful supply of** inputs **& major consumer market - industry grows–> all firms derive extra benefits
-eg. **GVT/private enterprise **provide special R&D to promote industry -
growing, competitive CAPITAL market benefit all firms
-provide cheaper INVESTMENT funds from **variety **of sources
external DISeconomies of scale
disadvantages faced by firm due to growth of industry firm/economy operates in.
NOT result of firm changing own scale of operations
PTR external diseconomies of scale
- growth of industry –> ^ POLLUTION
-illness, premature deaths,
-closures of factories harmful effects on business
2.** ^ CONCENTRATION** of industry in urban areas cause TRANSPORT BOTTLENECKS
-^ transport costs of all firms
-eg. growth of tokyo high property prices, ppl move far and millions spend hrs travelling to work - industry grows, cost of firm’s RAW MATERIALS rise
-increasing demand forces up price
-esp very limited supply of resources
ethical decision making
business decisions about production methods, employment, etc made taking consideration broader impacts on society & environment, not simply maximising profits for firm
7 implications tech change & ethical decision making have for business conduct PPEOTGE
- PRODUCTION methods
- PRICES
- EMPLOYMENT
- OUTPUT and PROFITS
- types of PRODUCTS
- GLOBALISATION
- ENVIRO sustainability
hwo do tech & ethics affect production methods?
-increased productive capacity of eco, use EXISTING resources efficiently
-invest in tech varies, but mostly:
lower costs,
increased efficiency,
reduction in workforce size,
possibility of larger production runs
business ethics
going aboe & beyond *requirements of law *and taking account social interests in decision making
-not just abiding by law, meeting contractual obligations & building customer relationships
how does tech & ethics affect a firm’s prices?
proliferation of price comparisons enable consumers to check prices offered by many firms selling g/s
-squeezes profit margins
-froces firms to reduce costs & compete with overseas competitors
how does tech & ethics affect a firm’s employment?
tech change made many jobs redundant
-automation & AI reduced demand for labour
-increased competition of overseas firms causes others to cut back local manufacturing operations/move them offshore –> AUS job losses
HOW, new tech –> new job opp (strong demand for employees with tech skills)
EDM affects employment starts
-under law, all business must meet equal employment opp obligations in hiring new employees
-ethical factors may encourage bus to further actively hire employees from groups traditionally suffered discrimination/disadvantage (women, disabled, etc)
how does EDM and tech affect firm’s output & profits
bus invest in tech able offer better quality products at lower price
adapt & respond to changes in MARKET DEMAND and CUSTOMISE output to specific needs of marketplace
-increase demand for their products –> higher output level & ^profitability
sometimes tech fail to perform to expectation and expensive to fix/superseded by even better tech competitors invest in at lower price
hoes does tech & edm affect firm’s type of products
tech expands range of products to satisfy market demand
-creates new products & industries
-regularly **update **eg cars, phones
-new production tech more FLEXIBLE, can CUSTOMISE output to specific wants
-smaller production runs more affordable –> broaden range of products, easier to satisfy consumer demand
EDM –> produce environmentally conscious g&s
-plant based meat, plastic free packaging
-draws ppl to run bus in ethically consumerist markets
how does edm & tech affect globalisation of markets
tech facilitates emergence of a global market economy)
-develop global money & stock markets possible for bus to attract INVESTMENT funds globally
-individuals diversify investments
-low cost communication allows info flow freely from overseas to consumers & bus –> make informed decision of production & consumption
greater access to foreign markets, able to source cheaper products in economy with fewer regulations
-forced labour overseas
-very low wages
-dangerous work environments
-denial of right to join trade union & seek better pay
for global eco, consumers & nonGVT orgs greater attention to HOW goods produced –> pressure businesses to improve practices of their subsidiaries & their suppliers
how does tech & edm affect firm’s enviro sustainability (minimise pollution & waste, preserve natural enviro, increase use of renewable energy)
sig driver of investment in new tech -bus change activities to become environmentally sustainble responding to:
-consumer demands
-new regulations/financial incentives from GVT
-bus ethics value natural enviro
affect WHAT g&s produced and HOW produced
