Term 2, 2021 Flashcards
Primary Production
Includes all industries involved in the cultivation of land, grazing animals and extraction of raw materials from land or sea (e.g. mining).
Secondary Production
Includes all industries involved in processing raw materials and producing goods (e.g. manufacturing).
Tertiary Production
Includes all industries involved in the production of services rather than goods (e.g. transport).
Quaternary Production
Includes all industries involved in the production of services relating to information and communication (e.g. education).
4 Types of Production
Primary
Secondary
Tertiary
Quaternary
4 Types of Firms
Sole Trader
Partnership
Proprietary Limited Company (Pty Ltd)
Public Company (Ltd)
Sole Trader
The simplest business structure which is inexpensive to set up because there are few legal and tax formalities (e.g. plumber).
Partnership
Two or more people/entities who do business as partners or receive income jointly (e.g. lawyers).
Proprietary Limited Company (Pty Ltd)
Company which does not sell its shares to the public (e.g. small business).
Public Company (Ltd)
Company which does sell its shares to the public (e.g. large business).
Internal Economies of Scale
The cost advantage gained as production and efficiency increases (i.e. the larger the company, the more economics of scale).
External Economies of Scale
The benefits accrued by all firms within an industry due to the growth of the industry.
Business Concentration
The degree a relatively small number of firms account for a relatively large share of the market.
Contestable Market
If a large number of firms have a small share of the market.
∴ Requires Innovation
∴ More Choice
∴ Minimal Government Intervention
Concentrated Market
If a small number of firms have a large share of the market.
∴ Difficult to Enter the Market
∴ Less Choice
∴ Heavy Government Intervention
Vertical Integration
A single firm gaining control of all the stages of production (e.g. owning the mine, refinery, smelter, fabricating plant).
Horizontal Integration
A single firm gaining control of one stage of production (e.g. owning all the mines).
Barriers to Entry
Initial Capital
Information and Trading Secrets
Economies of Scale
Advantage for Existing Firms
Government Regulation
Predatory Pricing
Privileged Access
Rational Consumers
Rational consumers are only ever willing and able to pay a price for a good or service equal to the satisfaction (utility) they get from it.
ACCC
Australian Competition and Consumer Commission exists to enhance the welfare of consumers through the promotion of competition, fair trade & a range of protections.
Cartel
A formal association of firms that aims to control a market for a particular product.
Price Fixing
When firms eliminate competition and agree on the prices to charge customers.
Collusive Tendering/Bidding
When firms agree with each other to submit prices to ensure high profits and sharing of work among them over a period.
Exclusive Dealing
When a firm requires its products to be purchased to the exclusion of all others of the same type.
Resale Price Maintenance
When a supplier sets a price at which a retailer must resell its products which restricts competition to features other than prices.
Price Leadership
When one firm in the industry often the largest sets the price for products and other firms adhere closely to this price.
Fixed Costs
Initial costs which remain the same regardless of production quantity (e.g. rent).
Variable Costs
Additional costs which change based on production quantity (e.g. materials).
Cost of Production Formulae
(Fixed Costs + Variable Costs) / Units of Output = Average Cost (per unit of output)
Diseconomies of Scale
The average cost of production increases as the firm’s size increases.
Prima Facie
At first glance; correct until proven otherwise.
Law of Diminishing Marginal Utility
Prima facie, for every additional consumption of a product, there is a decline in the marginal utility or satisfaction.
Law of Diminishing Marginal Return
As more of a variable factor is added to a fixed factor, a point is reached when the extra output will decline.
Dynamic Efficiency
Firms adapting to changes within an economy via technology (e.g. self-check-out).
Intertemporal Efficiency
Production while ensuring resources will be available for future generations.
