Microeconomics - L4 Producers

Question 1

What is the role of producers in the economy?

Answer 1

Producers are economic agents who hire consumers (households) and pay them a wage, purchase resources and combine these resources to produce goods and services.

Question 2

What does production mean?

Answer 2

The process of converting resources and inputs into goods and services or the total volume (or value) of goods and services produced over time.
Eg. Mars confectionary convert cocoa, sugar and other ingredients (resources) into finished products like Mars Bars and Snickers (goods).

Question 3

What are ‘factors of production’?

Answer 3

Resources that are combined to produce goods and services.
Natural resources, Labour resources and Capital resources.

Question 4

What is the traditional viewpoint of producers?

Answer 4

Producers are motivated by self interest and profit maximisation.

Question 5

What is profit?

Answer 5

Revenue minus expenses.

Revenue comes from sales.
Expenses include anything that is a cost of producing the revenue. Eg. wages, advertising, rent, fuel.

If revenue = $500,000 and expenses = $300,000, the profit will be $200,000.

Question 6

What is consumer sovereignty?

Answer 6

The desires and needs of consumers control the output of producers. Producers produce what consumers value the most.

Question 7

How can the government provide positive incentives to producers?

Answer 7

Tax Concessions
If businesses have to pay less tax, this will provide an incentive to produce more.

Subsidies
If businesses receive a subsidy it means the cost of something is being subsidised by the government. Therefore, it costs the business less. Eg. A subsidy to employ apprentice workers means the apprentice’s wage is subsidised by the government.

Question 8

How can the government provide negative incentives (disincentives) to producers?

Answer 8

Taxes
If the government increases the company tax rate for example, this increases business expenses and reduces profit. Therefore, it is a disincentive to produce more goods and services.

Levies
Eg. A Covid Debt Levy was introduced in the 2023 Federal Budget to repay debt the government accumulated during Covid. Businesses with a payroll of more than $10million will pay additional tax of .5%.

Question 9

What is the triple bottom line?

Answer 9

A concept whereby businesses measure their social and environmental impact as well as their financial performance.
‘People, Planet, Profit’.