Economics Flashcards
Distinguish between economic goods and services (EC:002) (CS)
A good is something that you can use or consume. You buy a good with the idea that you will use it, either just once or over and over again. A service is something that someone does for you, like give you a haircut or fix you dinner. Another way to identify the difference is that a good is tangible and a service is intangible.
Financial products and services
Explain the concept of economic resources (EC:003) (CS)
Economic resources -materials used to produce goods or services (AKA factors of production)
Nonhuman:
Capital Goods / Financial Resources (materials used to produce consumer goods.
Land: (comprised of geographic land and resources found in them).
natural resources (e.g. trees for timber
Human:
Labor (any work necessary in the production of goods and services, excluding entrepreneurship and management)
(miners, woodcutter)
Management (organizes all production to create economic goods and services)
Entrepreneurship
(person who attempts to make economic profit from an idea)
Describe the concepts of economics and economic activities (EC:001) (CS)
Economics - social science dealing with the production, distribution, and consumption of goods and services.
It examines behavioral patterns/choices in regards to money based on the environment, social, political, personal, and psychological factors.
Economic activities - input of resources and an output of goods / services through a production process
Types: resource management, production, distribution, and consumption
4 levels of economic activities
Primary: extraction of natural resources (fishing, mining)
Secondary: using raw resources to make improved goods (textiles from cotton, furniture from wood)
Tertiary: providing services (banking, education, healthcare)
Quaternary: dealing with information
(information technology, research)
Developing - primary and secondary
Developed - tertiary and quaternary
Circular Flow Diagram
Determine economic utilities created by business activities (EC:004) (CS)
Economic utility - value added to a product through its “usefulness” to customers
-time utility
(enhances value by having a product / service available to a customer during a certain hour, day, week, month, or year)
-place utility
(enhances value by placing products in easily accessible locations for consumers)
-form utility
(Enhances value by creating more useful or desirable products out of raw materials or
separate parts)
-possession utility
(Enhances value by allowing for easy use by consumer
or transfer of ownership to
consumer)
-information utility
(enhances value by supplying consumers with information)
e.g. advertising / staff informing about benefits and features
Explain the principles of supply and demand (EC:005) (CS)
Supply - amount of a product available to the market
Demand - consumers’ willingness to buy a product
Supply and Demand Curves
-As price increases, supply increases and demand decreases
Surplus (when a product is produced in larger quantities than it is demanded)
Shortage
Equilibrium - when the quantity of a product supplied matches the quantity demanded
At this price, both consumer and producer are satisfied.
Supply and demand can also be shifted right or left (increased and decreased).
Supply - TRICE
Technology
Related Prices (complements and supplements)
Demand - MERIT
Market size (# consumers)
Expectations
Related prices
Income
Tastes and preferences
Describe the functions of prices in markets (EC:006) (CS)
Price is the value in money placed on a good or service, how much it costs per unit/time period.
Can affect value that customers places on an item. Helps establish a company’s or product’s image. Gives a competitive edge. Part of the business’ end goal of making a profit.
Acts as a signal for shortages and surpluses, help us to respond to changing market conditions. Determines a forecast quantity supplied and demanded=businesses determine how to reach equilibrium. Determines how much of a demand there will be for products
Supply and Demand
Explain the role of business in society
The role of business in society is “to innovate and deliver products and services, to use resources efficiently so that the value is created and to conduct operations so that they are performed profitability and accepted by society.
Backbone of society- makes/distributes goods and services we use each day,
3.4 BN people are employed. Wages paid to employees are used in economy to purchase. Profits earned are used to compensate owners and investors, Taxes support government spending on the needs of society.
Ethically responsible for contributing to community and spreading good practices and setting high standards
Meet the needs of diverse communities of people and improves the quality of life.
Circular flow diagram
Describe types of business activities (EC:071) (CS)
Business activity - Any activity that a business does to create profit.
Investing: Investing activities relate to the long-term use of cash, such as buying or selling a property or piece of equipment, or gains and losses from investments in financial markets and operating subsidiaries.
Financing: Financing activities include sources of cash from investors or banks. Examples include IPOs (Initial Public Offerings) and issuing bonds.
Operations: Operating activities relate directly to the business providing its goods to the market, including manufacturing, distributing, marketing, and selling; they provide most of the company’s cash flow and hugely influence its profitability.
Describe types of business models (EC:138) (SP)
Business Model: conceptual structure that supports product or company explaining operations, financial plan, and goals.
- Business -To- Business Models (B2B)
When dealings or transactions take place between two companies or businesses then this type of business model is known as business to the business model.
It has good market predictability and more market stability. Since under B2B sale is made in bulk amount this model leads to lower cost for the businesses.
The best example of this type of business model in India is IndiaMart which is a wholesale B2B marketplace. It offers millions of products to its customers which includes consumer electronics, machinery, apparel and many more. Another example is Adobe.
The business-2-consumer business model is a model that refers to businesses that sell their services or products directly to the consumer who are the end users of the products or services.
E.g. Walmart, Apple
Freemium
Freemium business models attract customers by introducing them to basic, limited-scope products. Then, with the client using their service, the company attempts to convert them to a more premium, advance product that requires payment. Although a customer may theoretically stay on freemium forever, a company tries to show the benefit of what becoming an upgraded member can hold.
Subscription-based models
Retailer, Manufacturer, many overlapping types
Explain the organizational design of businesses (EC:103) (SP)
Organizational design involves implementing organizational structures and systems that align to an organization’s core strategies.
A functional structure groups employees based on specializations, like having all accountants in the accounting or revenue department (finance, marketing, sales)
A divisional structure groups them across product or service lines, like having a marketing department for each individual product.
A matrix organization is a company structure where teams report to multiple leaders, with functional and divisional leaders.
Draw matrix organizational structure
Discuss the global environment in which businesses operate (EC:104) (SP)
US is 24.% of the World GDP. That’s significant, but a lot can be unlocked internationally.
Furthermore, 95% of customers are outside of the US
Rely on resources outside U.S. to remain competitive. Overall economy is reliant on a global marketplace. Foreign trade provides goods that would otherwise be unavailable or too costly and consumers help support businesses in the U.S. by buying goods made here.
Geography, demographics, culture, economic development, technology, and political or legal concerns. Trade barriers- quotas, tariffs, embargoes, are formal political actions that can affect international trade. Informal barriers can be found due to cultural differences.
Licensing- company allows another to market its products for royalties.
Wholly owned subsidiary- allows establishing/purchasing a facility in foreign country
Multinational firm- operates worldwide scale, organized under laws of home nation
Describe factors that affect the business environment (EC:105) (SP)
Research industry and understand the surrounding economy. Consider trends and patterns of change like sales growth or government regulation. Understanding competition helps plan a strategy of success. Barriers to entry in an industry may exist, such as a dominant competitor, economies of scale, and customer brand loyalty. Also threats from substitute products, supply sources, and technology.
Explain the nature of business ethics (EC:106) (SP)
Enlightened self-interest is a philosophy in ethics which states that persons who act to further the interests of others (or the interests of the group or groups to which they belong) ultimately serve their own self-interest.
Ethics- guidelines for good behavior, right and wrong.
Business ethics concerns employees, customers, society, the environment, shareholders, and stakeholders. Therefore, every business should develop ethical models and practices that guide employees in their actions and ensure they prioritize the interests and welfare of those the company serves.
Doing so not only increases revenues and profits, it creates a positive work environment and builds trust with consumers and business partners.
Truthful, fair, open, and mindful of the law. Protect individual consumers and society as a whole. Keep consumers informed and protected against fraud and deceit, must not produce unsafe goods. Price gouging, or pricing products unreasonably high, bribes, kickbacks, and high pressure tactics.
Fairness: Everyone should have the same opportunities and be treated the same. If a practice or behavior would make you feel uncomfortable or place personal or corporate benefit in front of equality, common courtesy, and respect, it is likely not fair.
Transparency: Stakeholders are people with an interest in a business, such as shareholders, employees, the community a firm operates in, and the family members of the employees. Without divulging trade secrets, companies should ensure information about their financials, price changes, hiring and firing practices, wages and salaries, and promotions are available to those interested in the business’s success.
Explain how organizations adapt to today’s markets (EC:107) (SP)
Organizations have specialists who research and analyze trends to make recommendations for relevancy to teams based on findings
Organizations need to be flexible with their strategic management. Methods implemented to adapt are information management, as well as strategic mergers and acquisitions.
Explain the type of economic systems
There are four types of economic systems commonly studied. A traditional economy relies on custom and ritual to make its choices. Example: Bhutan. Bhutan has a largely traditional economic system in which the allocation of available resources is made on the basis of inheritance A market economy relies on the consumption choice of consumers, who influence business decisions. A command economy relies on the government making all choices for consumers. They make all the production and distribution decisions, and own all the businesses. A mixed economy relies on limited government involvement in a market based economy.
Most economies are mixed, with varying government intervention because of historical lessons. 1930s Great Depression showed need for govt. regulation in free market, collapse of Soviet Union showed need for personal freedoms in command economies. This can be placed on a scale (draw economic continuum).
Identify the impact of small business/entrepreneurship on market economies (EC:065) (CS)
Define entrepreneurship, how small businesses show entrepreneurship. (one type of entrepreneurship is small business entrepreneurship).
Small business - Small Business Administration defines it as ac business with less than 16.5 million in annual revenue.
95% of firms in the US, 70% of employment
Market economies are unregulated = infinite opportunity to startup and make profit/societal contributions.
Diversified market of goods offered, provides jobs, stimulates demand, creates competitions, provides income and tax revenue.
Explain the concept of private enterprise (EC:009) (CS)
Private enterprise system- what will be provided, how, and by whom; answered by individuals and businesses, government is limited.
Individuals and organizations own and control the economic resources, including natural, human, and capital goods used to produce goods and services. Businesses are free to choose what they wish to produce, how to produce them, and what price they will charge
Free to own, use, buy, and sell private property; Competition exists and is encouraged by government; Businesses motivated by the ability to make and maintain a profit, set own goal/choose what kind of work they would like to do
Identify factors affecting a business’s profit (EC:010) (CS)
Profit is the monetary return a business’ owner receives for taking the risk of investing in the business. Profit= Income-Expenses
Gross profit- money left over after the cost of goods is subtracted from income from sales.
Net profit- money left over after operating expenses are subtracted from gross profit.
Demand for the good/service, expenses, prices, the (global) economy, competition, and chance. To increase profit- increase worker efficiency, increase sales, decrease expenses, vertical integration (controlling more of the supply chain), horizontal integration (expand various brands). This decreases expenses as less parties are involved (commission and competition respectively).
Changes in sales, Economic health, Market stability, Natural factors
