Scarcity, Choice and Potential Conflicts - Theme 1.1 Flashcards
What is the basic economic problem?
When Resources are finite and needs/wants are infinite, so resources must be used optimally.
What is the Definition of Scarcity?
When there is a shortage of resources in relation to the quantity of needs/wants.
What is Opportunity Cost?
The value of the next best alternative foregone.
What 3 things must we consider when producing a good?
- What to produce
- How to produce it
- Who to produce it for
What are a few different business objectives?
- Profit maximising
- Sales maximising
- Survival
- Market share maximising
- Customer satisfaction
What is profit satisficing and when might a firm choose to advocate this?
Occurs when a firm earns just enough profits to keep shareholders happy.
Occurs when there is a divorce of ownership and control, whereby managers will make enough profits to keep shareholders happy, whilst still maintaining their own objectives.
Give the equations for:
1. Profit maximising
2. Sales maximising
- Marginal Cost = Marginal Revenue (MC=MR)
- Average Cost = Average Revenue (AC=AR)
What is Corporate Social Responsibility (CSR)?
A form of self-regulation, whereby firms take responsibility for their actions that harm the environment, and aim to maximise social welfare
What is an example of Corporate Social Responsibility (CSR)?
As global warming and climate change is becoming an increasingly worrying issue across the world, firms could attempt to reduce their carbon footprint by investing in green energy.
What are the different types of stakeholders (economic agents)?
- The shareholders
- Employees
- Consumers
- Managers
- Government
- Suppliers
What is a brief description of the principal-agent problem
Describes how the agent - who makes decisions for the principal - acts in their own best interests, linked to the theory of asymmetric information.
Occurs when the owners of the firm sell their shares, thereby partially losing control of its day-to-day operations.
