Micro 2 Flashcards
Characteristics of cooperatives (7)
Jointly owned by shareholders (workers and customers)
Members share all profits and control
Able to pool resources to fund capital
Profits can be distributed to consumers on the basis of how much they spend
Can vote to appoint managers
Have limited liability
Characteristics of public corporations (5)
State owns and runs business Government appoints managers May act in the public interest No shareholders Inefficient so may be privatised
Reasons for government to sell own firms (3)
Privatisation
Improves efficiency due to profit motive
Increases competition
Provides government finance
Reasons for government to buy other firms (3)
Nationalisation
Ensures supply of essential goods are at a low price
Economies of scale (AC increases due to increase in inefficiency)
Increase employment
Describe the effects of changes from sole trader to limited company (5)
Able to borrow finance for expansion
Float on the stock market to gain cheaper finance
Enables more investment and economies of scale
Have to pay shareholders dividends
Able to get taken over by another firm
Reasons for firms to maximise profits (4)
Provides incentives/ a reward for entrepreneurs
Profit is a patent for bearing risks
Provides finance for investment
Allowed firms to grow
Investing in capital reduces cost of production
Provides finance to pay dividends to shareholders
May keep demand and price for shares high
Compete with rival firms
Most profitable firms gain a larger share of the market
Goals (other than profit maximisation) a firm may have (6)
Sales/ revenue maximisation Growth of firm/ increase market share Improve reputation/ brand loyalty Ethical/ environmental considerations Survival Satisficing (course of action which will satisfy the minimum requirements to achieve a goal)
Characteristics of perfect competition (5)
Many buyers and sellers
So no one buyer/ seller can influence price
No barriers to entry/ exit
Any new firm can start producing the product
Firms are price takers
Their supply is such a tiny proportion of total supply that changes in it will have no affect on price
Products are the same
Different producers have perfect substitutes of each other
Perfect information
Buyers and seller are fully aware of price and profits earned by the market
Characteristics of monopolies (8)
One firm in the market/ industry (sole provider)
High barriers to entry and exit into the market
Firms/ consumers do not possess perfect information
Controls the price (price setter)
Products are not homogenous in market
Long-run has supernormal profits (excessive)
Low quality
High prices
Factors affecting price (5)
Increase in demand
Due to incomes rising, population increase, advertising
Inelastic so sellers increase price
Due to market power
Decrease in supply
Labour becomes less productive
Firms merge
Economies of scales lowers average costs
More producers enter
Increases competitiveness as supply increases so decrease supply
Benefits of MNC moving out of an economy
MNC sending home profits
Tax revenue does not fall
Domestic firms expand
Meet demands previously supplied by MNC
MNC depleted resources
Reduces growth
Pressure on government to follow policies not in the country’s best interests
Subsidised by the government
Tax revenue used on education
