Economics Unit 1 Chapter 3 Flashcards
What is indirect tax?
Taxes on spending
- paid by the retailer/ producer so they add them onto the products they sell
What is specific tax?
A tax placed on good or service which is a specific amount of money per unit brought
E.g. Excise duty
What is ad valorem tax?
A tax placed on a good or service which is a percentage of the price
- VAT
What is a subsidy?
A payment given to a firm
Why are subsides given?
To lower price
To increase supply
Encourage locating in an area of high unemployment
Help firms produce in a more environmentally friendly way
What is a minimum price?
Set above the equilibrium and the price is not allowed to go below it, can cause excess supply
E.g. National minimum wage
What is a maximum price?
Set below the equilibrium and the price is not allowed to go above it, purpose is to leave demand unsatisfied
- rationing, black market
What are some business objectives?
Breakeven Increase market share Survive Make returns to share holders Increase sales Provide a good service
What are fixed costs?
Costs that do not vary with output
Rents, interest payments on loans
What are variable costs?
Costs that vary with output
- wages and raw materials
How do you work out total costs?
Fixed costs + variable costs
How do you work out average costs?
Total cost\ output
What is output?
The number of goods and services produced by a firm
What is total revenue?
The amount a firm receives from selling its product
How do you work out total revenue?
Price X quantity sold
How do you work out average revenue?
Total revenue/ output
How do you work out profit?
Total revenue - total costs
What is productivity?
Output per worker per period of time
What is production?
The process of combining scarce resources to make an output
How can firms increase productivity?
Use more capital
- machines can run continually without taking breaks, this would increase the amount produced in a certain period of time
Specialising workers
Increasing human capital
What is the benefits of competition?
Lower average costs
- increase in productivity means a firm will produce more in a certain amount of time this decreases average costs
Lower more competitive
price
- as average costs decrease firms can decrease the price of there product and still have a profit
Higher profits
- as average costs decrease a firm can maintain a higher profit
They can invest in new machinery
How can firms grow?
Internal growth - new outlets, factories
External growth - merger and takeover
Why do firms grow?
To help them increase profit
Increase brand image
Achieve economies of scale
Increase market power
What is integration?
When two firms come together in either a merger or takeover
What are the benefits of growth?
Increased profit Increased market share New ideas gained No competition Economies of scale May not need all there workers
What are the costs of growth?
2 sets of managers may not agree different objectives and targets A lot of money to merge Less choice for customers Higher prices to pay Job loss and insecurity Diseconomies of scale
What are the economies of scale?
Risk bearing
Financial - banks more willing to lend money to bigger firms at a lower rate as they are more likely to pay them back
Marketing - more cost effective to advertise nationally
Technical
Managerial
Purchasing
What is internal economies of scale?
When a firm grows in size and benefits from lower average costs
What is external economies of scale?
Whole industries grow in size so a firm benefits from lower average costs
What are the diseconomies of scale?
Loss of control
Loss of co- ordination
Lack of cooperation
What is a wage?
The amount per hour, individual payments
What is a salary?
Amount per year divided into twelve equal individual payments
What is the gross income?
Amount person receives before all deductions are taken into account
What is net income?
Take home pay
What is nominal income?
Income paid to labour, unadjusted for the effects of inflation
What is real income?
Income paid to labour adjusted for the effects of inflation
Why is there a difference in wage rate?
Difference in productivity of workers Elasticity of supply of labour - the more inelastic the higher the pay Trade union power Difference in final demand of product Government pay policy Compensating Discrimination Regional areas
What is the national minimum wage?
A pay floor introduced by the government which sets a wage level below which producers cannot legally go
What are the arguments for a NMW?
Higher tax revenues from increased earnings from those in low paid jobs
State benefits cost less
Fairly distributed income
Reduced poverty
What are the arguments against NMW?
Too expensive to employ workers so firms cut jobs
Other workers will demand higher pay
Higher wages lead to increased inflation
Young unskilled workers loose out
Cut back on investment in worker training
Minimum wage wont ease poverty
Doesn’t take regional differences into account
- depends on price elasticity for demand for workers and supply of workers
