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Foundations of Business Administration > Part 1 - Basics of Economy and Business > Flashcards

Part 1 - Basics of Economy and Business Flashcards

1
Q

What are goods?

A

A good is a physical item that can be touched and felt. Goods are tangible.

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2
Q

What are cash flows?

A

Cash flows are cash receipts and cash payments of a business.

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3
Q

What is value?

A

Value is the price someone is willing to pay for a good or service.

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4
Q

What is a balance sheet?

A

A balance sheet is a financial statement that reports the assets, liabilities and the owner´s equity of a business at a specific point in time.

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5
Q

What is the economy dealing with?

A

The economy is dealing with the satisfaction of human needs/wants. The resources are scarce but the wishes and needs from the people are unlimited.

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6
Q

What are needs?

A

Needs are basic human requirements.

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7
Q

What are the 2 main types of needs?

A

The 2 main types of needs are:

  • Material needs (air, water, food)
  • Immaterial needs (safety, entertainment, recreation, …)
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8
Q

What are wants? Give an example:

A

Needs become wants by directing to a specific object.
Example: The need for food -> The want of rice, bread…

(You need to eat to survive, however, the food that can be eaten can also be chosen).

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9
Q

What are demands?

A

Demands are wants for specific products or services backed by an ability to pay for them.
(Willingness and ability of buyers to purchase goods or services).

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10
Q

What can marketers influence and what they cannot create?

A

Marketers can influence wants but they cannot create needs.

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11
Q

What are doing business for?

A

Doing business is to create and satisfy market demands.

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12
Q

What are the needs according to Maslow?

A
  1. Physiological needs (food, water, shelter)
  2. Safety needs (security, steady income, protection)
  3. Social needs (love, sense of belonging)
  4. Esteem needs (self-esteem, recognition)
  5. Self-actualization needs (self-development and realization)
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13
Q

According to Maslow, when will a person try to satisfy its different needs?

A

A person will try to satisfy the higher levels´ needs once the lower levels´ needs are satisfied.

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14
Q

Associate the following product segments with the Maslow´s needs:

  1. Basic segment
  2. Middle segment
  3. Fashionable hypes
  4. Luxury segment
  5. Alternative offering
A
  1. Physiological needs
  2. Safety needs
  3. Social needs
  4. Esteem needs
  5. Self-actualization needs
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15
Q

What is the definition of supply?

A

The supply in this context is the willingness and abilityy of producers to offer goods or services for a certain price

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16
Q

Law of Demand:

A

Buyers will purchase (demand) more of a product or service if its price drops and less if the price increases.

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17
Q

Law of Supply:

A

Producers will produce (supply) more of a product or service, if the prices increase and less if the prices decrease.

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18
Q

What is the equilibrium´s/Market price?

A

It is the price in which the quantity of goods and services demanded is equal to the quantity of goods and services supplied.

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19
Q

What is a market?

A

A market is a place where buyers and sellers can meet to facilitate the exchanges or transactions of goods and services.

20
Q

What is today´s dominant economic system?

A

The main economic system today is the free market economy.

21
Q

What is liberalism´s basic idea?

A

The economy should be a political power-free arena.

22
Q

What is Adam Smith´s concept of Homo oeconomicus?

A

The driving force of the national economy is the self-interest of each person.

23
Q

What, according to Adam Smith, leads to the maximization of the wealth of the nations?

A

The maximization of the desire and self- interest of the individuals to maximize profits leads to the maximization of the wealth of the nations.

24
Q

What are the 4 types of degrees of competition in a realistic market environment?

A
  • Perfect competition (polypoly)
  • Monopolistic competition
  • Oligopoly
  • Monopoly
25
Q

What is a monopoly and what are its price´s characteristics?

A

A monopoly is a market or industry in which there is only one producer who can dictate the prices of its goods and services.

26
Q

What is an oligopoly and what are its prices characteristics?

A

An oligopoly is a market or industry characterized by a handful of (usually large sellers) with the power to influence the market prices.

27
Q

What is a monopolistic competition? Give one example:

A

A monopolistic competition characterizes an industry in which many firms offer products or services that are similar (but no perfect substitutes).
Example: Fast-food industry: McDonald´s and BK offer similar products but a big mac is not the same as a whopper.

28
Q

What is the Laissez Faire Principle?

A

It consisst in no governmental intervention in market affairs

29
Q

Which relationships in a company are based on contractual agreements?

A

All relationships of the company to employees, government, investors, etc are based on contractual agreements.

30
Q

What are the conditions contained in contracts?

A

Contracts must be market as well as law compatible.

31
Q

What do contracts provide to the participant parties?

A

Contracts provide security against calculated economical risks, breach of a contract is sanctioned.

32
Q

What does divorce of ownership from control mean?

A

The so-called “divorce between ownership and control” happens when the owners of a business do not control the day-to-day decisions made in the business.

33
Q

Draw the circular flow of a market economy:

A

Drawing

34
Q

What are the 3 main concerns of criticism regarding market economies today?

A

– Theoretical: Assumptions not tenable (e.g. homo oeconomicus)
– Empirical: Assumptions not fulfilled (e.g. perfect competition)
– Normative: Consequences not wanted (e.g. mass dismissal)

35
Q

Need of governmental intervention to set up regulatory frameworks:

A

– to safeguard a market economy environment (e.g. anti-trust laws)
– to stimulate economic growth (e.g. anti-economic-cycle programs)
– to pursue common welfare of the society (e.g. wealth re-distribution)

36
Q

What are the 2 main conflicting economic schools today?

A
  • Keynesianism (More governmental regulations)

- Neoliberalism (Less governmental regulations)

37
Q

What are the 3 types of economic systems?

A
  • (Free) Market Economy
  • Planned Economy
  • Social Market Economy
38
Q

(Free) Market Economy:

A

An economic system in which individuals control production and allocation decisions through supply and demand.

39
Q

Planned Economy:

A

An economic system that relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions.

40
Q

Social Market Economy:

A

Mixed economic system – dominantly private sector, but with a role for government intervention considering social responsibility and balance between different interest groups.

41
Q

Who is the big name in implementing the social market in Germany?

A

Ludwig Erhardt (“So wenig Staat wie möglich und so viel Soziales wie nötig”)

42
Q

What is the market component of Germany´s social market system?

A
  • Freedom of action embedded in
    governmental frame regulations
  • Safeguard fair market competition
  • Control market concentration
43
Q

What is the social component of Germany´s soacial market system?

A
  • Ensure social stability
  • Re-allocation of income / wealth
  • Protection of natural resources and environment
44
Q

What are the components of the “Magic hexagon”?

A
  • Economic growth
  • Full Employment
  • Price stability
  • Balance of world trade
  • Protection of the environment
  • Fair wealth distribution
45
Q

Why is it called a “Magic hexagon”?

A

It is called a magic hexagon because it is not possible to achieve all the hexagon´s objectives at the same time.

Foundations of Business Administration (2 decks)

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