Economics Module 4 Flashcards
What does ‘factors of production’ mean, what are the four factors of production, and what determines their demand?
- Elements needed by a business to produce goods and services
- Land, labour, capital, enterprise
- Demand derived from demand for products they produce
What is labour intensive production?
Production that employs a high proportion of labour compared with the amount of capital employed.
What is capital intensive production?
Production that employs a high proportion of
capital compared with the amount of labour employed.
What is production?
The processes involved in providing goods and services (the stages of production).
What is productivity?
Efficiency - a measure of the output per factor of production used over a given period of time.
What is total fixed cost?
The sum of all the different types of fixed costs at different outputs.
What is total variable cost?
The sum of all the variable costs at different outputs.
What is total cost?
The sum of all total fixed costs and total variable costs at different outputs.
What does average cost mean, and how do you calculate it?
- It is the cost of producing one unit of a product at a particular output.
- Average cost = Total cost / Output
What is average fixed cost?
The total fixed cost divided by the level of output.
What is average variable cost?
The total variable cost divided by the level of output.
What is average total cost?
The total cost divided by the level of output.
What is revenue, and how do you calculate it?
- The sum of money a firm receives from making sales.
- Total revenue = quantity sold x price
What is average revenue, and how do you calculate it?
- The revenue received for selling one unit of a product (AKA the price).
- Average revenue = total revenue / quantity
What are four possible objectives of firms, and which is the main objective?
- Profit maximisation (main objective)
- Survival
- Social welfare
- Growth
How does competition affect prices?
- The greater the competition, the closer the prices charged by rivals
- Market price will be low
- Businesses become price takers
What is perfect competition?
A theory that helps economists understand what a perfectly competitive market would look like
What are the conditions for perfect competiton?
- Lots of firms competing
- Each produces identical product
- Easy for new firms to enter market/old ones to leave
- Each firm produces small % of overall production in the industry
Given the conditions, what would apply in a market with perfect competition?
- All firms charge same price
- Charge lowest price they can without going out of business
- Price equal to lowest average cost of producing goods
- At market price, average cost of production = average revenue
- No firm risks charging more than market price
What is a monopoly?
When a single firm controls a large percentage (over 25%) of a particular market.
What are the key features of a monopoly/a monopoly’s powers?
- One firm controls the market of an industry
- It is very difficult for new firms to enter the market
- The monopolist is the price maker
- Monopolists make excessive profits
What are the advantages of a monopoly?
- In a government monopoly it is run in national interest
- Using economies of scale a monopoly can make high-quality products at a low cost to consumers
- Natural monopolies due to geographical location makes sense
- Having one firm cuts out duplication and waste
What are the disadvantages of a monopoly?
- Monopolist may restrict output or raise prices
- Quality of the product may be limited
- Monopolist makes abnormal profits
