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Economics - The Role of Consumers and Businesses in the Economy > Flashcards > Flashcards

Flashcards

1
Q

What is Consumer Sovereignty?

A

Consumers decide what goods and services will be produced by choosing what to buy and what wants to satisfy - by creating demand businesses respond with supply

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2
Q

What adds up to equal income?

A

Savings + Consumption = Income

S+C=Y

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3
Q

In the economy as a whole, what does a change in consumption lead to?

A

An equal and opposite change in savings

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4
Q

What does a decrease in consumption lead to?

A

An increase in savings

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5
Q

What does an increase in consumption lead to?

A

A decrease in savings

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6
Q

What does an increase in income lead to?

A

An increase in both consumption and savings

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7
Q

If a persons MPS is greater than their MPC what does this mean?

A

They are a high-income earner

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8
Q

MPC+MPS=?

A

1

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9
Q

MPC=?

A

The change in consumption over the change in income

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10
Q

MPS=?

A

The change in saving over the change in income

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11
Q

List three reasons for saving

A
  • To provide for a rainy day
  • To accumulate wealth
  • To leave money as a bequest
  • To purchase consumer durables at a later time
  • To build for speculative purposes
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12
Q

What impact does age have on income?

A

When people are young they lack skill which results in a lower income therefore MPC is reater than MPS
As people gain experience there income increases therefore their MPS is greater than their MPC
In middle age many people save for retirement
During retirement peoe no longer earn an income from their labour therefore they consume from past savings or rely on government pension benefits

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13
Q

How does income influence individual consumer choice?

A

As people earn higher incomes they tend to buy more items and items of a higher quality –> people may not be able to satisfy their wants due to low incomes –> high-income earners are more likely to buy luxury items while low-income earners will likely buy necessity goods

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14
Q

How does price influence individual consumer choice?

A
  • Necessity items are cheaper and more accessible for daily use
  • consumers must decide whether they are willing to pay the nominated price for a good or service
  • peoples demand for luxury goods decreases as price increases
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15
Q

What is a substitute good?

A

A substitute is a good that consumers may choose to buy in place of another good e.g. margarine and butter

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16
Q

What is a complement good?

A

A complement is a good that is used in conjunction with another good e.g. shoes and socks, cars and petrol

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17
Q

How does the price of substitutes affect individual consumer choice?

A

The quantity of a good demanded at any time will be affected by the prices if other goods, e.g. if the price of margarine rises, consumer demand for butter will increase

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18
Q

How does the price of complements affect individual consumer demand?

A

The more one good is purchase will lead to an increase in the demand for the complementary good

19
Q

How do preferences/tastes affect individual consumer demand?

A

Tastes reflect demand, the greater demand for products lead to an increase in price
An individual will choose to buy goods that will give them the highest level of utility
Consumer tastes and preferences change over time therefore so will demand

20
Q

How does Advertising affect individual consumer demand?

A

Advertising can have a major impact on consumers choice and can lead to boosting demand
It can create demand for a good or service that never existed before

21
Q

What is the income earned from Labour?

A

Wages –> comes in the form of wage or salary payments –> for labour when consumers participate in the labour market (also includes non-wage income e.g. fringe benefits, employer contributions to superannuation)

22
Q

What is the income earned from Land?

A

Land can be a source of income when it is rented –> consumers may own an investment property that generate property income

23
Q

What is the income earned from Capital?

A

Interest –> people with greater wealth tend to enjoy a much higher income level because wealth creates ongoing income through returns from owning capital -> for most people their ownership of capital occurs indirectly through superannuation and other investment funds or through the ownership of shares (dividends)

24
Q

What is the income earned from Enterprise?

A

Profit –> if a business makes a profit, this is considered return for their use of entrepenurial skill

25
Q

What is social welfare? Provide examples

A

Social welfare is payments made to increase the incomes of individual or families in need of assistance by the government e.g. Pension, Unemployment benefits
Socail welfare = transfer payments

26
Q

Define Firm

A

A firm is a single business organisation that uses its prime function to make a profit, expand and gain markey shares

27
Q

Define Industry

A

An industry encompases many firms with the smae prime funtion

28
Q

Explain the firms production decision: What to produce?

A

Determined by consuemrs, demand comes before supply (demand is generated by supply), consumer soveriengty can influence what firms produce

29
Q

Explain the firms production decision: What quantities to produce?

A

Determined by a firm, depends on trends, seasonal factors, technology and sales

30
Q

Explain the firms production decision: How to produce?

A

Determined by a firm, being effienct in production, using least wasteful resources, technological advancements and capital investments

31
Q

What are the goals of a firm?

A
  • Maximising profits
  • Maximising growth
  • Increasing market shares
  • Meeting shareholder expectations
  • Satisficing
32
Q

Maximising profits

A

All firms want to achieve the greatest possible difference between total revenue and the costs of production
(Total Revenue - Expenses = Profit)

33
Q

Maximising growth

A

Two types of expansion, Horizontal and Vertical
Horizontal Expansion = buying businesses that have the same prime function
Vertical Expansion = buyin businesses that help yours
e.g. a fruit company buys a delivery business

34
Q

Increasing market shares

A

Market share is the portion of the market owned by the business - Use of marketing stratergies to gain a competative advantage, if the stratergies were successfuk the business gains a greater portion of market shares

35
Q

Meeting shareholder expectations

A

Shareholder = owner of a company

Shareholders expect profit, returns, good public reputation, good will and appropriate use of the environment

36
Q

Satisficing

A

Attempts to achieve all other goals
This is difficult as trying to achieve on goal e.g. increase market shares may come at a shirt term cost e.g. higher costs therefore lower profits (opportunity cost)

37
Q

What is producivity?

A

Measure of quantity - production process
High output and low cost = Productive
Productivity = Total Output/Total Cost

38
Q

What are economies of scale?

A

The bigger a business gets the lower thet can cut their costs - Price per unit drops -Variable costs change
Businesses reach the technical optimum = the lowest cost and productive amount of output

39
Q

What are diseconomies of scale?

A

When a firm grows to large they exceed the technical optimun and are no longer efficient

40
Q

What are internal economies of scale? Examples

A

Factors within a businesses control
- Specialise in labour
- Invest more in capital
- Buy in bulk
- Find a market for their by-products waste
- Increase spending on research and development
+ All the above lower a firms costs

41
Q

What are external economies of scale? Example

A

Factors out of a businesses control
- Government allocated funds for development and research
- As industries grow technology accelerates
- Government lowers taxes on big busisnesses
+ All the above lower a firms costs

42
Q

What is one way that businesses can increase efficinecy and production?

A

Specialisation (refer to table)

43
Q

What are internal diseconomies of scale?

A

Factors within a firms control
- Management loses touch with day to day running of business
- Unable to organise the business
- Manager don’t know details about the staff
+ All the above increase inefficency and costs

44
Q

What are external diseconomies of scale?

A

Factors out of a businesses control
- Growth of industries can result in pollution which can lea to taxation on that industry
- Concentration of big industries causing transport to bottle neck
- As industries grow, resource prices may rise
+ All the above increase costs

Economics - The Role of Consumers and Businesses in the Economy (1 decks)

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