enterprise, business and the economy Flashcards
What is the main incentive for entrepreneurs?
Taking risks for profit.
How do entrepreneurs make a profit?
By bringing together all 4 factors of production:
- Land
- Labour
- Capital
- Enterprise
Recall two non-financial motives an entrepreneur might have
- Ethical stance and social entrepreneurship
- Independence and working from home
Define all 4 factors of production.
Land; natural resources such as oil and coal
Labour; human capital
Capital; goods which can be used in the production process
Enterprise; the innovator and risk-taker
What is specialisation?
Each worker completes a specific task in the production process, aimed at improving efficiency and thus the average cost of production.
Give a few examples of the benefits and drawbacks of specialisation.
Advantage;
- Higher output
- Opportunities for greater economies of scale
Disadvantage;
- Work becomes monotonous and demotivating
- Give rise to structural unemployment, as some skills may not be transferable
Why would higher interest rates be seen as a disadvantage to firms?
Higher interest rates implies getting a loan is more expensive, which raises the cost of production for firms.
It also encourages more saving and less spending on the consumer side, which results in less profits for firms.
What is the relationship between exchange rates and the level of imports/exports?
High exchange rate: imports cheap, exports dear
Low exchange rate: imports dear, exports cheap
SPICED
How could a high rate of unemployment benefit firms?
An increase in unemployment means there is a larger supply of labour, which gives firms bargaining power and the ability to reduce wages, thus lowering overall costs of production.
What could unpredictable inflation imply for firms?
Unpredictable inflation reduces overall business confidence, as it is difficult to anticipate future interest rates, unemployment rates, economic growth, etc. Therefore, firms cut down on their investment and wait for calmer economic conditions.
